Mastering People Management

MASTERING PEOPLE MANAGEMENT

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MASTERING PEOPLEMANAGEMENTYour Single-Source Guide to Becoming aMaster of People Management

FINANCIAL TIMES

London New York San Francisco Toronto Sydney Tokyo SingaporeHong Kong Cape Town Madrid Paris Milan Munich Amsterdam

Executive editor James Pickford

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PEARSON EDUCATION LIMITED

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First published in Great Britain in 2003

© Compilation: Pearson Education Limited 2003

Note: Licences have been granted by individual authors/organizations for articles throughout this publication. Please refer to the respective articles for copyright notices.

ISBN: 0 273 66192 2

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Contents

Introduction, James Pickford vii

1 The role of people 1

Introduction to Part 1 4The evolution of a professional agenda, Dave Ulrich 5More than just a job: a brief history of work, Richard Donkin 9Beyond operations to partnership, Malcolm Higgs 15

2 Strategy and performance 21

Introduction to Part 2 24

Aligning HR with business goals, George Dreher 25The link between people and strategy, Brian Becker,

Mark Huselid and Dave Ulrich 31Scoring goals for people and company, Linda Bilmes 37

3 Organization and change 43

Introduction to Part 3 46Seeking an edge in mergers, Randall Schuler and Susan Jackson 47Time to get back to the basics, Stewart Black 53How to avoid the seven deadly sins, Jean-François Manzoni 57When internal boundaries become network relationships,

John Storey 63Facing up to uncertainty, Phil Hodgson and Dr Randall P. White 69

4 Culture and the workplace 75

Introduction to Part 4 78A cultural evolution in business thinking, John Weeks and

Charles Galunic 79All change in the customized workplace, Hamid Bouchikhi and

John Kimberly 85Work as a life experience, John Kimberly and Elizabeth Craig 91

5 Gender and family issues 97Introduction to Part 5 100Lifting the corporate barriers to women, Herminia Ibarra 101Corporate help is at hand for working parents,

Stewart Friedman and Ellen Galinsky 107

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CONTENTSvi

6 Managing conflict 113


Turning disputes to corporate advantage, Michael Sacks and

Andy Lewis 117

How to earn commitment, Chan Kim and Renée Mauborgne 123

Algebra lessons for older workers, Karen Cates and Kimia Rahimi 127

7 Law and regulation 133


Employee rights and management wrongs, Murray Fairclough

and Claire Birkinshaw 137

HR practice: vive la différence, Mark Fenton-O'Creevy 143

Myths and methods of downsizing, Larry Hunter 149

Upholding standards for ethical practice, Peter Dean 155

8 Skills 161


Seeking success by involving workers, Mark Fenton-O’Creevy 165

Unlocking the secrets of business innovation,

Thomas Mannarelli 171

In search of strategic meaning, Theresa Welbourne 177

The ups and downs of leading people, Michael Useem 181

The failure factor in leadership, Manfred F.R. Kets de Vries 187

9 Rewards 193


Rewards that work, Thomas Wilson 197

Firm benefits from share-owning workers, Martin Conyon and

Richard Freeman 203

10 Recruitment, testing and training 209


Beyond the interview, Rob Yeung and Simon Brittain 213

A missing link in the strategic plan, Gary Latham 219

Investments that build on human nature, Charles Galunic and

John Weeks 223

In search of the best performers, Victor Dulewicz 229

Subject Index 235

Name Index 241

Organization Index 243

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C ompanies traditionally find competitiveadvantages in access to greater financial

resources or technological innovation. To sustainthe success these advantages confer, however,managers now acknowledge a third requirement:the company’s processes and structures mustallow employees to realize their full potential.People must be satisfied in their work, andbelieve that executive rhetoric is reflected inreality. This is the concern of human resourcesmanagement or people management, and thequestions it raises affect not only HR managersbut general managers of all kinds.

In October 2001 the Financial Times news-paper launched Mastering People Management, aseries of eight weekly supplements examiningthe issues surrounding people in organizationsand the practices devoted to managing them.This book contains the complete articles pub-lished in the series, as well as further essaysfrom industry experts and noted academics.

Mastering People Management offers the gen-eral manager answers to the most important andtopical questions in the field of HR. What organi-zational structures allow people to perform wellin companies? How should business goals bereflected in individual and team objectives? Whatprocesses should govern recruitment and train-ing? What are appropriate ways of appraisingperformance? How should employees be compen-sated? How should managers tackle failingmorale in the workplace?

A persistent theme is the need to link theactivities of the HR department with the overallstrategic process and the question of HR’s role atboard level. Company reports may intone the rel-evant cliché – “people are our greatest asset” –but until managers show how selection, motiva-tion and reward policies affect the bottom line,HR is likely to remain outside the centres of cor-porate power. It has clearly moved on from itsoriginal role of administering pay and provisions,but without broadly recognized standards of per-

formance measurement, it will continue to facescepticism in its aspirations to a higher status.Several authors address this issue and describehow innovative companies are answering thecritics by fashioning a new role for HR.

This book is published at a time of growingeconomic and ethical uncertainty in corporationsaround the world. Financial scandals at US cor-porations Enron and WorldCom have beenexposed under the searchlight of accountingscrutiny; more may follow. How will this affectthe role of HR more generally? In the short term,an ailing economy encourages cost cutting andrestructuring, and often job losses; people man-agers must carry out these tasks with great skillif they are not to repeat the worst excesses of1980s-style re-engineering.

In the longer term, it may provide an opportu-nity for HR managers to grasp a role as the ethicalstandard-bearers in organizations of the future.Their central role in reward programmes, employeediscipline, recruitment and selection places them ina unique position to set the firm’s standards foracceptable behaviour internally and in its relationswith customers and shareholders. Companies thatcan demonstrate their integrity in their dealingswith stakeholders stand a better chance of recruit-ing talented employees and improving performancefrom a committed workforce.

Many distinguished academics and industryexperts have contributed to Mastering PeopleManagement. The Wharton School at theUniversity of Pennsylvania and Insead inFontainebleau, France, led the participatingschools, alongside Michigan, Harvard, Rutgersand Henley, to name a few. Each author hasstriven to find an international perspective on theissues, linking general principles with best prac-tice. Our thanks go to all of them in their effortsto create an invaluable guide for anyone withresponsibility for managing others.

James Pickford, Editor, FT Mastering

Introduction

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1

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The role ofpeople 1

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1

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Contents

The evolution of a professionalagenda 5

Dave Ulrich, University of Michigan BusinessSchool

What can companies do to ensure thatemployees perform at their best? How can theyattract and retain the most talented staff? Howwill the role of HR evolve in the coming years?

More than just a job: a brief historyof work 9

Richard Donkin, FTCareerPoint.com

The way we work today is profoundlydifferent from the way we worked 50 or 100years ago. And there have been somedefining moments in the relationshipbetween employee and employer.

Beyond operations to partnership 15

Malcolm Higgs, Henley ManagementCollege

Evidence is mounting of the beneficial effectsof people management on corporateperformance. Now HR managers must addresstheir relationships with the chief executiveand the board.

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M astering People Management opens witha broad examination of the role of human

resources (HR) in the organization and the waysin which people management has changed overthe centuries. Dave Ulrich sets out the agenda of

the HR manager, while Richard Donkin tracesthe historical landmarks of people management.Finally, Malcolm Higgs looks at where HR mightbe heading in the next decade.

Introduction to Part 1

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M anagers, in their weaker moments, may like to imagine thatthere is an ultimate aim or conclusion to their work. In reality,

whether they manage organizations, resources or people, new problemsappear as old ones re-emerge, and the work of transformation and com-petitiveness is never done. This is as true of managing people asanything else, but it is easy to lose track of the evolution of humanresources, its concepts and relationships with the wider organization.

The appalling events of September 11, 2001 have put the skills ofmanaging people – in particular the pastoral responsibilities that man-agers are rarely called upon to exercise – in a new light for manyorganizations. Another skill, that of handling redundancy or lay-offs,was in limited demand during the dotcom boom at the end of the 1990s.It is likely to be needed again.

So it is timely to review the development of human resources, as aprofession and as part of every manager’s role, and offer suggestions forthe journey ahead.

The concepts behind HR have evolved over millennia, but theybecame more structured during the 1930s, when companies set upindustrial relations departments. Before then, employees were oftenconsidered as assets to be bought. During the depression, companiesresponded to unions by forming industrial relations units to negotiateterms and keep records on working conditions.

In the 1940s, selection tools began to be more aggressively deployed.During the second world war, tests were devised to place soldiers in the“right” units. This trend evolved in the 1950s with a focus on personalchange. It was the decade of training groups and development experi-ences, when intervention would make employees more productive.

The 1960s and 1970s shifted attention to legal issues. In addition, com-pensation systems began to emerge with pay for performance, flexible

The evolution of a professional agenda

Managing people is a role that all executives must master.

Here, Dave Ulrich outlines underlying principles and

practice, their development and how they are likely to shape

up in the future.Dave Ulrich is a professor

of business administration

at the University of

Michigan Business School.

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benefits and stock options. Personnel departmentsensured that policies were lawful and efficientlyadministered. The 1980s moved the agenda fur-ther to thinking about systems rather than justpeople. Human resources systems were integratedand aligned with strategy. The HR focus began totreat people as strategic investments and a sourceof competitive advantage for the company.

The 1990s continued this focus, with an empha-sis on the organization, not just people. Byhighlighting teamwork and organization, HR beganto work with the management team to deliverstrategy. A profession developed, with a body ofknowledge, standards and expected outcomes.

This short history shows that HR matters. Itaims to ensure that people and organizationsperform at their best. HR professionals areincluded in forums where significant decisionsare made. The strategies they develop are soonintegrated into mainstream managerial practice.Rather than disparage this history, it is impor-tant to build on it for the future.

The journey ahead

How can HR continue to add value? Value isdefined by receivers more than givers. In the caseof HR, receivers include employees (who becomemore committed and competent), customers (agreater market share is achieved through inti-macy with customers), investors (adding toshareholder value through intangible assets) andorganization (more capabilities to succeed). Fourfactors can be identified for HR providers in cre-ating this value: contribution (how they workwith others), content (what value they add whenthey contribute), channel (who does HR work)and competencies (what they need to know anddo). Mastering each of these becomes a milestonefor the journey ahead.

Contribution

To add continued value, HR must be more than apartner – it must be a player. Players contribute.They are engaged and add value. They are in thegame, not just at the game. They do things thatmake a difference by acting as coach, architect,designer, facilitator and leader.

Coaches inspire, teach and train. They enablepeople to learn from the past and adapt behavioursfor the future. HR professionals can coach businessleaders to raise employee and organizational pro-ductivity by setting standards, giving feedback andbecoming personal leadership trainers.

Architects turn ideas into blueprints. Theymake sure that what is built fits with the envi-ronment and space available. HR players,similarly, draft plans for how organizations canand should be built. They lay out the choices fortalent, structure, making decisions, informationflow and other processes to ensure alignment oforganization with strategy goals.

Designers and deliverers turn ideas intoactions. HR managers need to ensure they createsystems (for example, staffing, rewards, training,development and organization design) to meetbusiness goals. Ensuring ideas are implementedis critical because many good ideas don’t happen.

Facilitators pay attention to how work getsdone. They focus on who is involved and how toimprove work. HR players facilitate when theybring resources (talent, money and time)together to accomplish goals.

Leaders act as role models for what theypreach. HR players lead when what they proposeto others they first demonstrate in their ownfunction. Too often HR hypocrisy exists wheremore is preached than practised.

Content

Out of these roles, a question arises: “What arethe issues that will occupy HR managers?”Without identifying the content, or issues, forHR, contribution has no direction.

HR adds value when it helps an organizationdevelop capabilities to compete and win business;

PART 1 THE ROLE OF PEOPLE6

HR professionals can coachbusiness leaders to raise employeeand organizational productivity bysetting standards, giving feedbackand becoming personal leadershiptrainers.

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these capabilities become intangible assets whenthey give investors confidence in a future streamof earnings. They include the following:

� Attract, retain and motivate talent. Talent combinescompetence and commitment. Competencerequires specifying future skills; commitment implieswriting contracts that engage employeesintellectually, emotionally and behaviourally.

� Act with speed. Speed comes when leaders have thecapacity to make decisions, to remove bureaucracy, toprovide discipline in implementing projects and inremoving cherished ways of doing things.

� Instil learning. If lessons have to be continually re-learned, they will not be maintained. Learningoccurs when individuals, teams and organizationsgenerate and generalize good ideas; when ideasfrom one setting or time are applied to another; orwhen theory becomes reality.

� Craft a shared mindset. Organizations have anidentity, or image. This establishes a company’sbrand in the minds of customers and creates value.The identity also becomes the desired culture orvalues among employees. A mindset shared bycustomers and employees brings value to both.Customers pay a premium for the brand; employeesfeel loyalty to the values.

� Innovate. Organizations that can innovate have astream of ideas that become commercially viable;they have an ability to turn individual creativity intocollective innovation.

� Assure accountability. Aspirations should exceedresources. But aspirations without commitment toexecution become dreams that add no value.Organizations with accountability have the ability toturn idea and ideals into behaviours and outcomes.

� Invest in leadership. Leaders embody the brand of thecompany in their behaviour and results. Buildingleadership means making sure leaders at all levels havethe right attributes and create the right outcomes.

� Assure strategic clarity. Some companies knowwhere they are heading and how they will get there;they have clear strategies, goals and objectives.Other organizations remain active but unfocused;they have strategies for the old, not new, world.

These capabilities may become the bedrock of an organization and intangible assets forinvestors. More directly, they may be the basis for

the deliverables of HR. These capabilities are notexhaustive but they expand the traditional HRfocus on talent alone. While innovation in recruit-ment, training and building commitment arevaluable, HR will have to do more than attractand motivate talent.

Channel

Who does the work of human resources manage-ment? This question has several answers. As thework expands, those tasked with doing it alsoevolve. Let me suggest seven constituents whodo and will do HR work.

First, line managers are ultimately accountableand responsible for HR work. Line managersmake the decisions governing how work getsdone. They demonstrate their commitment to HRby being the visible, public champions for initia-tives. Second, corporate HR professionals designpolicies and procedures, building enduring valuesand ideals that permeate the company. They arealso responsible for nurturing employees, forshaping programmes to implement the chief exec-utive’s agenda and for ensuring that the companypresents a united front to outsiders, such asinvestors and large customers. Corporate HR islikely to become more streamlined, focused onlong-term policies that shape values.

Third, HR managers work in business units.They work directly with line managers to clarifystrategy, carry out audits and make investmentsin HR-related areas. In future, HR generalistswithin business units may become more busi-ness-focused and able to broker their services.Fourth, HR professionals work in centres ofexpertise where they come together to shareknowledge. They deliver functional excellence bydoing internal consulting with business units.They also share knowledge across business unitsthrough creating menus of choices. They formrelationships with outside vendors who havedeep knowledge and they bring that knowledgeinto the company.

THE EVOLUTION OF A PROFESSIONAL AGENDA 7

Corporate HR is likely to becomemore streamlined, focused on long-term policies that shape values.

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Fifth, HR managers work in telephone andonline service centres, which grew up in the 1990sto handle administrative tasks. Call centresallowed employee questions to be answered in amore co-ordinated way. As one HR executive said,“If they move the HR work 400 yards, they mightas well move it 3,000 miles.” Much of this workmay be outsourced. Sixth, HR work may be doneusing technology. Administration can be done by people for themselves. Self-reliance, self-sufficiency and self-service will become increas-ingly popular as HR departments enableemployees to deal directly with the company.

Finally, HR work may be outsourced. Some ofthe outsourcing may be done with consultantswho aim to transform external expertise intointernal insight. Other outsourcing may occurthrough partnerships and alliances. Knowledgedoes not have to be owned to be accessed.Through some alliances, expertise may be sharedacross boundaries. Such alliances are likely tocontinue as different sources of expertise com-bine around common interests.

These skills will enable HR managers to con-tribute value. Are they there yet? No. But, withknowledge of the past and a vision of the future,HR will evolve – and relish the journey.

Competencies

In research with about 18,000 respondents,Professor Wayne Brockbank and I have discov-

ered five domains of competencies coveringknowledge, skills and capabilities:

� Knowledge of the business: finance, marketing,strategy, globalization, technology and otherbusiness functions.

� Delivery: the latest research in functional HR.

� Managing change: the ability to make thingshappen quickly.

� Culture management: how companies createpatterns of behaviour and mindsets amongemployees and customers.

� Personal credibility: how to build personal trust byliving the values of the company and having aninformed point of view.

These competencies are evolving to include:

� measurement: of the impact of HR;

� technology: used to deliver HR work; not seen as athreat;

� intangible assets: work with investors requiresmastery of trends in finance and market valuation;

� globalization: exploiting knowledge, adapting tolocal conditions and instilling global thinking.

Copyright © Dave Ulrich 2002


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Two and a half million years ago in the Olduvai Gorge, Tanzania,our ancestors were using roughly shaped rocks as tools. This is the

first evidence we have of the human family engaged in the process wenow know as work. Whether what they were doing at the time wouldhave been viewed or described as work is debatable.

Work is a slippery concept, as much about mood and emotion as it isabout product or outcome. We have the Bible to thank for perhaps itsmost popular definition today – as something we would rather not bedoing. Adam was told to leave the garden of Eden “to till the groundfrom whence he was taken”. The consequences of ignoring God’s com-mand were spelled out by St Paul in his letter to the Thessalonians: “Ifany would not work, neither should he eat.”

The problem with these biblical interpretations of work as punish-ment is that work has chimeric qualities. It can be difficult yetsatisfying, arduous yet enjoyable, well paid yet stressful. At its worst, itcan be drudgery, at its best uplifting. It is an instrument of power andexploitation, a catalyst for change; it is a part of our identity and theonly way we know of getting things done. This article traces the evolu-tion of work and identifies moments in history when the relationshipbetween employer and employee changed for ever.

The emerging shape of work

For most of human existence, up to about 10,000 years ago, work mani-fested itself as hunter-gathering. But even in this period there wasdivision of labour. The skills needed to fashion a hand-axe, throw aspear or butcher an animal had to be acquired and practised. Thehunter-gatherers were nomads who needed everything they possessed.

More than just a job: a brief history of work

The concept of work is a slippery one, says Richard

Donkin, who finds its future in the hands of technology.

Richard Donkin is editor

of FTCareerPoint.com, the

Financial Times’s

recruitment website.

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But, looked at in another way, they had all theyneeded. This was, in the words of anthropologistMarshall Sahlins, “the original affluent society”.

That said, archaeologists have identified50,000-year-old grindstones. So at least oneprocess more readily identified with modern defi-nitions of drudgery has an ancient history. Whenpeople discovered edible grains growing in thefertile plains of the Levant, they began to settleand farm. Human society had crossed an impor-tant watershed. It was able to create a surplus,freeing some people from the need to undertakephysical work and others to engage in the con-struction and expansion of towns and cities.

It was in this society – the longest period ofrecorded history – that types of work began todefine social class and that skills developed intoartisanship. The undertakers of ancient Egypthad refined their skills to a degree that wouldnever be surpassed. The pyramid-builders dis-played extraordinary expertise. But what cameto be known as civilization had a price. Romeand Athens were societies in which most manuallabour was undertaken by slaves, a working classof people who lived, Aristotle observed, “underthe restraint of another”.

In fact, what may be the first reference tosomething that would later be identified ashuman resources management concerns the wel-fare of slaves. The Roman agricultural writer,Columella, wrote in De Re Rustica, a work onfarm management in the first century AD, thatimproving the living and working conditions ofslaves and the payment of some reward wouldrepay itself in a greater enthusiasm and willing-ness to work.

This “enlightened self-interest” would be ahallmark of the strides achieved in personnelmanagement by Robert Owen, a 19th-centuryindustrialist. His ideas in worker education,working hours and employee behaviour at histextile-mill complex in New Lanark, Scotland,paved the way for UK legislative reforms outlaw-ing the employment of children in factories. Bythis time Britain was at the forefront of anothergreat upheaval in the organization of work.

Well before this upheaval, the condition ofslavery had passed almost seamlessly acrossEurope into that of serfdom within the feudalsystem. In turn, serfdom dissolved into sporadic

working arrangements governing the lives ofagricultural workers. The artisans, meanwhile,had organized themselves within guilds, the fore-runners of trade unions, in the way theyregulated pay rates, protected their membersand organized apprenticeships. However, workfor many people remained piecemeal up to thelate 18th century. The idea of packaging work asa job, with defined hours for starting and endingthe working day, was novel up to the years1760–1830 – the period designated by the histo-rian Arnold Toynbee as the time of the industrialrevolution in England.

Before the spread of the factory system, manyindividuals could be relatively flexible in theirworking hours. This was not to say that agricul-tural labourers did not work long and hard orthat coercion did not exist. However, the popu-larity of saints’ days and local feasts, and thearbitrary choice of some people to prolong theweekend by the observance of “Saint Monday”,preserved a spirit of independence across manytrades and forms of working.

People’s working and worshipping patterns,for that matter, were governed to some extent bythe measurement of time. St Benedict had intro-duced the hourly bell to parcel the daily regimeof prayer, psalm-singing, sleep and physical workof those who followed his “rule” and bell towerswere adopted across Europe to designate hoursof devotion, whether to God or to the employer.

Factory production

It was not until employers began to concentrateproduction in mills that measuring working timebecame precious in the pursuit of productivityand profit. Textile manufacturing introduced itsearly entrepreneurs, men such as ThomasLombe, Richard Arkwright and Jedediah Strutt,


It was not until employers began toconcentrate production in mills thatmeasuring working time becameprecious in the pursuit ofproductivity and profit.

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to the possibilities of gathering workers underone roof to maintain and run the machinery.

There were several reasons for this concentra-tion. Mill machinery usually required a centralpower source – river water in the case ofArkwright’s first mill at Cromford in Derbyshire,then steam; the machines were often protected byflimsy patents and entrepreneurs were anxious topreserve their secrets behind closed doors; newmaterials such as wrought iron allowed simpler,cheaper production of larger working spaces;finally, teams of low-skilled workers were neededto run the machines. Typically, early mill work-forces comprised the wives and children ofindependent weavers who were encouraged to livenearby in cottages built to house a handloom onone floor. The idea of exploiting the whole familyas an economic unit was familiar enough to farmworkers, but the factory provided the attractivedimension of regular paid work.

The factory system was perfectly placed totake advantage of a surplus of labour arising outof the escalating practice of land enclosure.Before enclosure, commons and open fields hadsustained an elaborate collection of freeholders,leaseholders, cottagers and squatters who wereable to subsist if not prosper in the strip-fieldsystem. Enclosure destroyed what the historianE.P. Thompson has called the “scratch-as-scratch-can subsistence economy of the poor”and with it their independence.

In Scotland, the Highland clearances had cre-ated even greater misery and for many there wasa stark choice between factory working, emigra-tion or the workhouse. When Robert Owen builta school within his mill complex in 1814 anddeclared that children up to the age of 10 wouldattend lessons rather than work, some of theirparents lamented the loss of a worker. Theexploitation of children was resisted only by themore liberal elements of society. Owen was a rarecombination of entrepreneur and social reformer.Unusually as a mill owner, he also recognized alink between employee welfare and productivity.

The flux of ideas emanating from the Age ofEnlightenment, revolution in France, the growthof international trade and the rise of tradeunionism contributed to the need for better reg-ulation and organization of labour. Adam

Smith’s description of the 18-stage division oflabour in the manufacture of pins in his Wealthof Nations, coupled with the mid-19th-centuryexpansion of the steel and rail industries, onlystrengthened the demand for improving andstreamlining the productivity of workers.

Analysis of work

In 1881, Frederick W. Taylor, a foreman at theMidvale steelworks on the outskirts ofPhiladelphia in the US, discovered the potentialof an improved stopwatch that allowed the pre-cise measurement of elapsed time, and beganexperiments that would transform the relation-ship between worker and supervisor. By breakingdown work into its constituent parts, he stan-dardized tasks that had hitherto comprisedspecific skills, jealously guarded by individualartisans. This enabled him to fix more accurateand usually more demanding times for “piecework” – the kind of work where a set rate wasoffered for a particular task.

The case for work study had been made byBaron Charles Dupin, the founder of mechanics’institutes that sprang up in France, Britain andthe US in the 1820s. In the machinery of produc-tion, argued Dupin, the worker was in the firstrank. A specific application of Taylor’s ideas amonga group of hand-picked labourers at BethlehemSteel about 40 miles north of Philadelphia demon-strated how one worker, Henry Noll, was able toachieve prodigious work rates day after day, load-ing pig-iron on to railway trucks.

When Taylorism was further refined, absorb-ing the motion studies of Frank and LillianGilbreth, and described as an efficiency move-ment called Scientific Management, it began toattract worldwide attention. When work wascondensed into a specific action, such as the turnof a screw, by engineers designing the movingassembly line to make Ford Model-T cars in1913, the industrial age had finally succeeded increating the human tool envisioned by Dupin.Some, like Aldous Huxley, author of Brave NewWorld, viewed Ford’s production line with alarm.Charlie Chaplin chose to lampoon the system inhis film, Modern Times. Chaplin placed his faithin human nature and recognized that no system,

MORE THAN JUST A JOB: A BRIEF HISTORY OF WORK 11

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other than slavery, could retain people indefi-nitely in jobs devoid of satisfaction, skill orintellectual input.

Workers placed their faith in the trade unionmovement and the industrial dispute became anever-present feature of manufacturing through-out most of the 20th century. Some managementteams were more confrontational than others.Companies such as Western Electric in the USand many of the big Quaker manufacturers pio-neered styles of management that focused onhuman relations, temperance and communitywithin the workforce.

The first world war witnessed the large-scaleuse of psychometric testing in the selection ofrecruits for the US Army. Industrial psycholo-gists such as Hugo Munsterberg had outlined thecase for studying human behaviours in the work-place. At the same time pioneer occupationalpsychologists such as Walter Dill Scott weretelling large companies that they could improvethe quality of their workforces through the useof psychological profiling.

Shadows of the modern workplace

Division of labour, work study, industrial relations,increasingly sophisticated selection techniques andworkforce administration created a strain of man-agement devoted solely to the maintenance of aproductive, efficient and competent workforceamong large public and private sector employers.Max Weber, the 19th-century German sociologist,had outlined a bureaucratization of administration.Coupled with the disciplines and processes of scien-tific management, it helped to create a cadre ofpersonnel managers whose role was identified andoutlined in the 1920s by Thomas Gardner Spates,director of industrial relations, then vice-presidentof personnel administration at the General Foodcorporation in the US.

Personnel management, along with other disci-plines such as finance, marketing and operations,was yet another diverging branch in the evolutionof work. The increasingly structured class systemin the workplace identified white-collar supervisoryand administrative roles assisted by members ofthe professions – lawyers, accountants, actuaries –in controlling an army of manual workers.

External expertise such as management andrecruitment consultancy was also developing inthese inter-war years to feed and feed off thelarge corporation. At the same time, the artisantradition was upheld at its highest level byindustrial scientists, chemists, biologists, techni-cians, civil engineers and architects. Outsidethese spheres were other professions – teaching,medicine, journalism and those whose jobs weremaintaining the fabric of society and publicorder, the police, the military, fire fighters andpublic administrators. When asked “What do youdo?”, anyone could give a clear answer.

In the 1950s, the middle-class, besuited executivebecame a recognizable type, identified in William H.Whyte’s The Organization Man. Organization manwas a lifelong employee following a career pathleading, with promotions, to ever-increasing statusuntil it would peak at a certain level or, in a fewcases, the chief executive’s office. The futuristsAlvin and Heidi Toffler regarded 1956 as a land-mark in the history of work since this expandingbreed of white-collar worker outnumbered blue-collar workers in the US for the first time.

The ordered office, the typing pool and struc-tured tiers of management in the largeorganization may well have reached their zenithabout this time but the workplace was still charac-terized by an “us and them” distrust betweenmanagers and unionized workers. Work for mostemployees, however, was not ordered in a funda-mentally different way than it had been since theindustrial revolution. Most of the changes, such aspaid holidays, collective bargaining and shorterworking weeks, had been secured in hard-foughtcampaigns by trade unions. A job was still a job.

Union muscle in the UK and the US wasdiluted in the 1980s era of Reaganomics, whenthe western industrial base was eroded by reces-sion, automation and competition. In particular,Japanese industry had pursued scientific man-agement to new levels of refinement, focusing onprocess and quality.

Finally, in the late 1980s, the process approachwas applied to the top-heavy tiers of management.The lifelong career cycle enjoyed by middle man-agers was shattered in a wave of redundancies.

If business process re-engineering broke the psy-chological contract that had promised loyalty in


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return for job security, rapid improvements in computer technology, including data-processingsoftware, removed further administrative responsi-bilities. The costs associated with redundanciesalongside the weakening of union power and mem-bership led managers to begin experimenting withflexible working, using a proportion of temporaryand agency workers for cyclical work and one-offprojects. Employee hybrids began to emerge –interim managers who would work on a project oract as a stop gap, then leave; agency-employedinformation technology professionals to installcomputer networks or programs; and self-employedservice sector workers for almost every function.

At the same time, social trends such as thewidespread availability of the contraceptive pill,lengthening periods of education and cheaper airtravel were influencing the profile of the labourmarket. More women were entering the work-place. They sought careers with which they couldidentify themselves, as men had done for cen-turies. Careers were becoming contracted intoshorter spans as people entered paid work at alater stage and retired earlier. Employees werebecoming increasingly mobile as professionalqualifications became standardized.

Then came the internet and the mobile phone.These allowed many professionals greater choiceover their hours and place of work, and openedup new possibilities for independent careers.More and more people, particularly in the rapidlyexpanding IT and communications sectors, wereable to work at any time and in any place.

Throughout the late 1990s people across thegenerations, for a host of different reasons, wereexploring the potential to work as free agents out-side the confines of the organization. The focusseemed to be shifting from the job to work. Evenfull-time, “permanent” employees were being urgedto update their skills in anticipation of change.

Has work reached yet another watershed as sig-nificant as those of the agrarian and industrialrevolutions? It may be too early to answer this, butthe combination of social trends, demographics andthe rapid expansion of communications technologybears many similarities to the factors that createdthe manufacturing base some 200 years ago. Whoknows what is waiting around the corner?

Copyright © Richard Donkin 2002

This article is based on the author’s book, Blood, Sweat and Tears: The evo-lution of work, Texere, 2001.

Further reading

Ashton, T.S. (1948) The Industrial Revolution1760–1830, Oxford University Press.

Drucker, P. (1999) The Practice of Management,Butterworth Heinemann.

Owen, R. (1991) A New View of Society and OtherWritings, edited by Gregory Claeys, Penguin.

Viteles, M.S. (1933) Industrial Psychology, London:Jonathan Cape.

Whyte, W.H. (2000) The Essential William H. Whyte,Fordham University Press, includes selections fromThe Organization Man, 1956.

Wild, R. (1972) Mass-production Management, Wiley.Wrege, C.D. and Greenwood, R.G. (1991) Frederick W.

Taylor, the Father of Scientific Management, Mythand Reality, Homewood, IL: Business One Irwin.

Wren, D.A. (1994) The Evolution of ManagementThought, Wiley.

MORE THAN JUST A JOB: A BRIEF HISTORY OF WORK 13

The lifelong career cycle enjoyed bymiddle managers was shattered ina wave of redundancies.

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1

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O ver the past decade, managers have begun to emphasize theimportance of HR strategy and the need to align it with the over-

all strategy of the business. However, it is less clear whether thischange has been driven by HR practitioners seeking a more significantrole or whether it reflects a more profound shift in thinking about thesignificance of people management. This article explores the changingterrain of human resource management.

Although the phrase “our people are our most important asset” longago became a cliché, few organizations appear to respect the principle intheir day-to-day practice. Why should this be so? Perhaps because, untilrecently, there has not been much evidence that focusing on peoplemanagement has any impact on the performance of an organization.

In addition, HR managers have too often relied on advocacy, withoutsupporting their reasoning with business-based arguments. Morerecently, though, the case has been shaped in terms of sharper businessimperatives. Organizations are becoming aware of the impact of skillsshortages and the “war for talent”. Leading and highly respected chiefexecutives are publicly stating the importance of winning the “talentwars”. During his time at GE, for example, Jack Welch pointed out thatorganizations which are successful in attracting and retaining more thantheir share of talent will have a sustainable competitive advantage.

Research is also beginning to show clear links between people man-agement issues and business performance. Academic Dave Ulrich hasshown that investors’ valuation of businesses is significantly affected byintangible assets, which can account for anything up to 55 per cent ofvariation in market value. Such “intangibles” include:

� the ability to develop committed employees by aligning individual andorganizational values;

� the quality of the leadership of the business (not just the chief executive, butthe broader leadership team);

Beyond operations to partnership

Evidence is mounting of the effect people management can

have on corporate performance. Now, argues Malcolm

Higgs, HR managers must address their relationship with

the top team.Malcolm Higgs is dean of

Henley Management

College and a professor of

management studies.

15

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� the ability to work in a way which avoids “turfwars” between different functions or departments;

� the capability of employees to acquire skills andwork in new ways;

� the ability of the organization to change and makechanges stick.

Research in the UK by the Chartered Institute ofPersonnel and Development has also demon-strated links between good HR policies andpractices and both productivity and productquality. Similar results have been found inEuropean studies.

It seems evidence is accumulating of theincreased importance of human resource man-agement and its practices. Furthermore, it raisesquestions about more strategic aspects of HR:

� What are the implications in terms of the HRfunction?

� What are the competencies required by HRpractitioners operating in such a role?

� Where are these “new” HR practitioners to befound?

� How will HR be seen in terms of its position in thecareer path of potential senior executives?

The role of HR

The role of the HR function has moved from a wel-fare and administrative role (“pay and rations”) tothe provision of an increasingly professional rangeof policies, practices and services. Growth inemployment legislation has fuelled many of thesechanges. Equally, line managers in many organiza-tions have viewed this shift with suspicion, as HRhas adopted more of a policing function.

A new view of the role of HR is clearlyrequired. If people management is crucial tobusiness success, then the HR function mustundergo some substantial changes. First, HRmanagers should no longer assume full responsi-bility for, and control of, all people-relatedmatters; instead they should become valued advi-sors to line managers in these areas. In many oftoday’s most effective organizations, line man-agers fully accept their accountability for peoplemanagement. The HR function in such organiza-tions tends to be focused on building the

capability of line managers to fulfil their peoplemanagement responsibilities in a flexible andproductive way. Second, the HR function mustbroaden its remit from purely operational mat-ters towards a more strategic approach. HRmanagers must participate in strategic discus-sions within the business and, importantly, addvalue to these discussions as a business partner.

In moving towards a greater partnershipwith the business, HR must turn its attentionoutside the business, benchmarking againstother organizations, and collecting and analyz-ing data on competitors. However, research hasto go wider than analysis of people managementpractices. It is essential that HR keeps in touchwith business trends and issues and theireffects on working practices.

HR no longer primarily represents employeeperspectives; today it is also a pillar of businessand contributes alongside all other functions tobuilding the commitment and loyalty of employ-ees. So, it needs to be in a position to anticipatewhat changes are required, rather than respond-ing to line managers’ requests for change. Thisdoes not mean that their needs, views and opin-ions should be ignored; rather, these should belinked to an educated view of issues and develop-ments and the effect these have on business plans,strategies and performance. HR practitionersneed to be able to act as change managers bymaking a compelling business case for changesthat are needed to support business strategy.

HR needs to move from being a specialistfunction that is ancillary to the core business tobecoming an integral part of the company. Linemanagers as well as HR professionals mustchange their attitude towards HR if this is tohappen. It not only entails a new relationshipbetween HR and other functions but alsorequires line managers to accept their accounta-bility for people management and devote moretime and effort to fulfilling this role.


It is essential that HR keeps intouch with business trends andissues and their effects on workingpractices.

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The future model

A growing number of organizations have begun towork with HR in the ways outlined above. Theirexperiences, together with broader research, haveled to a way of looking at HR that is based on theextent of focus on people and strategy. Figure 1shows a model based on these dimensions.

The activities within each of the quadrantsare significantly different. The potential roles ineach quadrant have implications in terms of howthe HR function is structured, resourced anddeveloped.

� Change capability builder. In this role, HR managershelp the organization lead and facilitate change. Thisencompasses not just HR-related changes, but allchange and transformation processes. Why should thisfall within the HR function? Because evidence showsthat a major cause of failure in change initiatives is thatmanagers do not take account of people-relatedissues. The role is often implemented through internalconsultancy. Some global organizations have, withinthe last few years, moved all of their change andtransformation teams into the HR function.

� Provider of advice and service. This role is concernedwith delivery of HR services and advice, to both linemanagers and employees. Such services range frompay and benefits administration, to recruitmentadministration, training and employee legislation. Formany, this is seen as “typical” HR work. Others haveoutsourced it, allowing the scope of the HR functionto add value to the business. Large and diversifiedorganizations which have not done so have taken the

opportunities for cost reduction offered by providingthis function as a shared service.

� Planning and metrics. HR must develop ways ofmeasuring the implementation of its policies. Thesemonitor HR performance and provide importantinformation for the business. Many organizationshave tried to develop and use business metrics (suchas the balanced scorecard) that go beyond financialmeasures and attempt to value intangible assets. Inorganizations using the scorecard approach, it iscommon to find that the HR function is accountablefor its implementation and use.

� Strategy and policy formulation. HR managers mustshow a clear link between business strategy and HRstrategy if a true business partnership is to develop.They must formulate people management policiesthat add value to the business. Sometimes thisfunction is accountable for the direct care of thebusiness’s strategic people resources. For example,senior-level succession management anddevelopment may sit within this role.

Although few organizations think about HR interms of strategy formulation, a significantnumber of global companies are moving in thisdirection. They have realized that the “new” HRroles require different capabilities and compe-tencies from those traditionally associated withHR. This leads us to the second important ques-tion: “What will it take for HR managers tosucceed in the new role?” Furthermore, shouldHR have board-level representation?

Seeking success

Many researchers have explored the nature of theskills and competencies required by HR practi-tioners. The research of Ulrich and others intoHR competencies has created a picture of thosethat add value to a business. Most important ofthese is “personal credibility” – meaning having atrack record of success; instilling confidence;asking important questions; providing candidfeedback; and providing alternative insights onbusiness issues. In addition, HR requires the abil-ity to manage change (and the ability to place the change in a business context) and to helpothers contribute effectively. Cultural sensitivitydemands the ability to challenge the status quo

BEYOND OPERATIONS TO PARTNERSHIP 17

Strategicfocus

Operationalfocus Process/

policy focusPeoplefocus

StrategicHRM policy

development

Capabilityto buildchange

HR planningand

measurement

HR adviceand

services

FIGURE 1 The range of HR roles

8570 Chapter 3 15-20 9/9/02 4:35 pm Page 17

and establish clear links between the business andthe organizational culture. Business acumen is crit-ical, not only in its own right but also in terms ofhow it is used within the other aspects of the role.

Other competencies include:

� Business knowledge and understanding. This goesbeyond knowledge of the business of the specificorganization and its issues. It is increasinglyimportant that those in leading HR roles have abreadth of business understanding. They need toknow about the nature of business generally,strategic issues, market developments and whatdrives success in their organization.

� Delivering relevant HR practices effectively. The basicexpertise, in terms of the range of HR topics, tendsto be assumed as an entry-level requirement; thereally valuable competence is the ability to apply thisexpertise in a way that adds value to the business.

� Effective management of change processes.Increasingly organizations are looking to senior HRmanagers to lead change, to have expertise in termsof change tools and technologies, and to make thecase for change, facilitating, developing skills andcoaching others.

An argument has been made that if HR is cen-tral to supporting business success, it needs to bea function that carries a board-level appointment.However, this argument, and the associateddebate, misses the point. It is not a question offunctional representation at board level that isimportant but rather the extent to which boardmembers (and in particular the chief executive)have developed an attitude encompassing peopleissues in their planning and decision-makingprocesses. A growing number of senior HR practi-tioners who believe in the strategic importance ofpeople have nonetheless identified the core issuefor effective change as the strength of their rela-tionship with the top team – rather than whetherthey are personally on the board.

In practice, some feel that board membershipmay compromise the ability to facilitate change.

They believe they would see better businessresults from advising and coaching the top teamrather than engaging in “functional warfare” as amember of the board. The key to the future role ofHR is about how it becomes a business partner.

Whence HR leaders?

Many of the above competencies could equally beapplied to other functional areas within a busi-ness. The main differentiator is the delivery ofHR advice services. Even here, the emphasis ison delivery in a way which adds value to a spe-cific business and is aligned with business needs.

Perhaps, then, companies should consider bring-ing more broadly skilled business managers intosenior positions within the new HR function. Manycompanies are pursuing this route already. If thisbecomes common practice, what is the potentialrole for those who have an HR background andhave developed the other competencies that arerequired? One answer is to move them into linemanagement roles, in the same way as line man-agers can move into HR roles. Such integration isalready happening. For example, the Europeanhead of a major oil company was formerly head ofits HR function. This sends a powerful signal toemployees of the value of people management.

To date, little consideration has been given tohow successful HR leaders work in practice. Themost skilful HR leaders have developed theirability to coach and support the corporation’sleaders. Perhaps the combination of the personalcompetencies and a deep understanding of peopleissues and organizational behaviour enables theseasoned HR practitioner to become the “people”coach and advisor for the top management team.While this is difficult, it may in future be theunique role for the HR executive.

In this way, HR managers can become moreengaged in formulation of business strategy andbe in a better position to link business strategywith day-to-day HR policies – helping to ensurethat the mantra of “people are our most impor-tant asset” becomes a business reality.


The key to the future role of HR isabout how it becomes a businesspartner.

8570 Chapter 3 15-20 9/9/02 4:35 pm Page 18

Conclusion

Given the view that people will play a significant role inthe future success of businesses, perceptions of therole and contribution of HR functions need to beupdated. This article outlines how thinking and prac-tices have responded to significant changes in thebusiness environment. If organizations commit to andexecute these changes, there is a real possibility of theirsecuring more viable and sustainable businesses in thelong term. The effort and commitment to such changeshould not be underestimated. However, the businessbenefits can be considerable.

Copyright © Malcolm Higgs 2002

Further reading

Guest, D., Michie, J., Sheehan, M., Conway, N. andMetochi, M. (2000) Effective People Management,Chartered Institute of Personnel and Development.

Richardson, R. and Thompson, M. (1999) The Impact ofPeople Management Practices on BusinessPerformance: A literature review, Chartered Instituteof Personnel and Development.

Ulrich, D. (1997) Human Resource Champions, Boston,MA: Harvard Business School Press.

BEYOND OPERATIONS TO PARTNERSHIP 19

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1

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Strategy andperformance 2

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1

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Contents

Aligning HR with business goals 25

George Dreher, Kelley School of Business,Indiana University

Human resources managers want to betreated as partners at a strategic level. WhenHR managers can explain how business andtechnology influence the way theorganization and work are structured, the HRfunction will come to be seen as a source ofcompetitive advantage.

The link between people andstrategy 31

Brian Becker, State University of New York,Mark Huselid, Rutgers University and DaveUlrich, University of Michigan Business School

Companies are increasingly reliant onintangible assets – which include their people– for competitive advantage. Establishing therelationship between employees and strategicperformance is difficult – but it can be done.

Scoring goals for people andcompany 37

Linda Bilmes, Harvard University

Human capital is undervalued because itseffect on the bottom line is hard to measure.But a scorecard system could solve theproblem and evidence demonstrates thatinvesting in employees works.

23

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P eople management is often considered a“soft” subject, reliant on the vagaries of

human nature to achieve its results and withlittle in the way of quantifiable results. Theauthors in this part challenge this perception,

describing how the activities of the HR depart-ment can and should be measured againstexpectations. Only then, they say, will the man-agement of people be treated as central tocompany strategy and performance.


24

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T he traditional way of thinking about gaining competitive advan-tage was to focus on a company’s financial, strategic and

technological capabilities. However, well over a decade ago managementtheorists and consultants began to reason that these must be supple-mented with what they called “organizational capability”.

Writers such as Dave Ulrich and Dale Lake argued that in addition tocompeting merely on price through financial capability, or product qual-ity and innovation, high-performing companies engaged in an explicitcompetition for the most capable people. They argued that this competi-tion went well beyond simply hiring the best people – to win, companiesneeded to attract, retain, motivate and develop talented people througheffective human resource practices.

Accomplishing this, however, appears to require more than simplygiving the traditional personnel or human resource management (HRM)function more power and influence. It requires a different way of think-ing about people management. One goal of this article will be tointroduce this way of thinking, commonly called strategic humanresource management (SHRM). However, in the process, another objec-tive may be served. This objective is directed at the general manager butalso should be of interest to the HR professional because, if achieved, itwill define what clients should reasonably expect from this class of serv-ice providers. Here the aim is to help the general manager become abetter and more informed consumer of the services provided by in-houseHR professionals and by a growing number of consultants. To this end, aframework is outlined that helps make judgements about the quality ofthese types of services. In particular, the types of issues that HR man-agers should be able to address will be presented and discussed.

Talent management practices and the essence of human resourcemanagement vary greatly across companies. In some companies HRspecialists might be considered employee advocates, in others HR has

Aligning HR with business goals

Justifying investment has become part of the human

resources agenda as it takes on a strategic role. George

Dreher presents a framework for assessment.

George F. Dreher is a

professor of human

resource management at

Kelley School of Business

at Indiana University.

25

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become a set of highly developed administrativefunctions (with specialists devoted to staffing,pay, development, performance management andindustrial relations) and in others they act asadvisors to line managers.

By contrast, companies that have reached theSHRM stage of development treat HR staff asstrategic business partners. But what is a strategicbusiness partner? Edward Gubman, a former con-sultant with Hewitt Associates, suggests that therole aims to align business strategy and people toachieve extraordinary business results. This doesnot simply mean implementing business strategythrough talent management practices – it means amore complex form of business practice integra-tion. To introduce a little terminology, it is aboutcreating both externally and internally congruentstaffing, reward and development practices.

Internal congruence

Something that distinguishes SHRM is a concernfor the “internal congruence” of talent manage-ment practices. Three issues need to be addressedwhen considering this concept. First, managersmust focus on the behaviours they want to pro-mote. Many attitudes and practices are moredifficult to change than one might think. AcademicBarry Staw provided one of the earliest discussionsof this. He found that only when several changeswere enacted at once could entrenched behaviourbe modified. An isolated change in staffing, rewardor development activities is unlikely to do the job.Instead, managers must “throw the kitchen sink atthe problem”, to use Staw’s phrase.

Next, managers must ensure that staffing,reward and development practices do not con-flict. Consider a company that wants to influencethe quality of its employees’ teamwork. Thiscompany’s practices might include:

� using a performance management system thatfocuses on the individual;

� providing team training in group interaction skills;

� having team members hire new members;

� having teams deal with grievances and disciplineproblems;

� giving bonuses to individual employees for meetingquality goals.

The first and last practices support behaviourthat may conflict with the aim of improving teamwork. The promotion of individual task per-formance would tend to result in competitivebehaviour within the team and discourages co-operation.

Finally, managers must ensure that inter-relatedpractices support each other. Suppose an organiza-tion designs its salary hierarchy so as to make it agenerous payer in its sector. Managers expect thatproviding high wages will lead to a large and highlyqualified pool of applicants and that they will beable to hire the cream of the crop. But what if theorganization does not also invest in a high-qualityselection system? Without an effective selectionsystem, the organization will never be able to takefull advantage of its pay policy.

External congruence

Examining the business environment and align-ing HRM practices with key features of thisenvironment creates another form of congruence– external congruence. This is at the heart ofdeveloping a contingency perspective – or theview that practices should be consistent withother aspects of the organization, especially busi-ness strategy. The development of this approachwas pioneered by academics Randall Schuler andSusan Jackson. Their work revealed connectionsamong competitive strategies (such as innovation,quality enhancement and cost reduction), desiredrole behaviours and a typology of HRM practices.

Ideas about aligning HRM practices with busi-ness strategy tend to begin with a framework forclassifying companies. For example, in The TalentSolution Edward Gubman links three strategicbusiness styles (operations, customers and prod-ucts) and three distinct kinds of workforcestrategy. Operations companies focus on deliver-

PART 2 STRATEGY AND PERFORMANCE26

Managers expect that providinghigh wages will lead to a large andhighly qualified pool of applicantsand that they will be able to hirethe cream of the crop.

8570 Chapter 4 21-30 9/9/02 4:36 pm Page 26

ing the best quality or value to customers. Theytend to focus on improving work processes as away to reduce costs and improve market quality.Gubman argues that with efficiency, order andprocess as their base, operations companies:

� compete by building teams to deliver high-value,low-cost processes;

� emphasize creating motivation and esprit de corps;

� measure process- and results-oriented outcomesand reward what is measured;

� build a culture of continuous improvement.

Companies that focus on product design and inno-vation or on customer-focused or customizedsolutions require different workforce strategies.For example, product-based companies need tofoster innovation and risk-taking among certainemployees. Staffing, reward and development prac-tices to do this will differ from practices needed tosupport customer service or process improvement.

The link between business strategy and HRMsystem design is shown in Figure 1. It considersseveral contingencies (not just a company’s busi-ness or tactical strategy) and works at the level ofa targeted job class. It suggests a more decentral-ized approach than is taken by many companies.As the figure shows, the first step in the align-ment process is to consider the business strategyand manufacturing- or service-oriented technolo-gies that characterize a business environment.These attributes will dictate, in large part, howwork needs to be organized and structured. How

work processes are ordered, in turn, will revealwhich types of employee behaviour (and theirassociated competencies) are needed to accom-plish specified objectives.

Decisions about HR practices come from ananalysis of the behavioural requirements of thejob, taking account of the labour market, andemployment laws and regulations. While notexplicitly shown in Figure 1, costs associatedwith implementing and maintaining the systemmust be compared with the likely returns. To beuseful, the rate of return must meet or exceedthe rate of return from other investment options.

Finally, Figure 1 reveals that HR specialistshave a role in strategy formulation. That is,SHRM is not just about implementing a businessstrategy; it can inform decisions related to a vari-ety of strategic issues. It is not so muchknowledge of HRM practices that informs strat-egy formulation but knowledge of internal andexternal labour market conditions. For example,when German carmakers built assembly plantsin the US, labour market analysis informed thedecision about where to locate the sites. Labourmarket analysis can even influence the use oftechnology and facility design. An article in TheWall Street Journal reported that in 1997General Motors planned assembly plants inArgentina, Poland, China and Thailand. Someplants are highly automated and expensive tobuild. However, when constructing the Argentineplant, the company took advantage of lower

ALIGNING HR WITH BUSINESS GOALS 27

Labourmarkets

Legalenvironment

Humanresource

managementpractice

Businessstrategy

Technology

Organizationaldesign/workprocesses

Behavioural/role

requirements

FIGURE 1 Role of human resources in strategy formulation

8570 Chapter 4 21-30 9/9/02 4:36 pm Page 27

labour costs by depending much more on work-ers and using a lower automation ratio thannormal. So, the factory was built at a substan-tially reduced cost.

Signs of competence

The framework above suggests that competentHR professionals should be able to resolve linkedissues in response to any changes in people man-agement practices. It also suggests that they needto know about internal and external labour mar-kets. Here are some concluding thoughts on whatmanagers should look for in an HRM strategy.

First, can a thorough and process-orientedexplanation be provided about why a prescribedHRM practice is properly aligned with businessstrategy? In addition to knowing about strategicmodels and how they relate to HRM practices,managers should have an understanding of theprocesses accounting for this relationship. Thatis, can the effect of a change in business strategyon HRM practices be traced through the model?Whereas general classification schemes may pro-vide limited guidance when aligning a company’sbusiness and workforce strategy, the notion of adirect link masks a complex reality: role require-ments can vary across organizational levels andoccupational types, even within the same com-pany. There is no substitute for the carefulconsideration of the behavioural and rolerequirements of a targeted class of jobs whenaddressing issues of HRM policy.

Next, have changes to HRM practices ade-quately considered the labour market? Managersmust account for the skills, values and other com-petencies possessed by current and futureemployees when managing change. Assume that acompany has adjusted its business strategy to

stress product customization. This change willrequire greater manufacturing flexibility, so pro-duction will be switched from an assembly line tofour-people assembly cells. The new processes willrequire team members to work together toimprove quality and efficiency. Because of thechanges in manufacturing processes, a consultingteam has recommended that the pay system bechanged from an individual bonus plan to a team-oriented gain-sharing plan. While this may seemappropriate, the consultants should not make thisrecommendation unless they have also deter-mined, using labour market analysis, that thepeople who will be doing the assembly work havethe interests (for example, in continuous improve-ment) and skills needed for this new role.

Third, have changes to practices addressedall the legal aspects? Employment and labourlaws vary greatly across countries and cultures.Even something that may seem neutral, such asa downsizing initiative using job performance asthe primary factor in making lay-off decisions,may create problems. In the US, if this proce-dure adversely affects members of classesprotected by the employment sections of civilrights laws, the employer may need evidencethat the performance management system is ofhigh quality and “job-related”.

Fourth, when changing a practice, have man-agers checked for conflicts with other practices?This, of course, is a question directed at the issueof internal congruence. The previously describedchange to a team-oriented pay plan will haveimplications for how the company trains employ-ees and manages the staffing process. Forexample, team members may need to learn skillsrelated to the quality improvement process.

Finally, have managers examined the costsand returns associated with a prescribedchange? It is likely that most outcomes can beachieved if the employer is willing to spendenough money and devote the time andresources needed. However, the SHRM perspec-tive demands that decision makers treat HRissues in much the same way that they treatother investment decisions. HR managersshould stress the need to consider simultane-ously the costs and financial returns associatedwith proposed changes in practices.


There is no substitute for thecareful consideration of thebehavioural and role requirementsof a targeted class of jobs whenaddressing issues of HRM policy.

8570 Chapter 4 21-30 9/9/02 4:36 pm Page 28

ConclusionHuman resources executives and consultants often saytheir function needs to be aligned with business strat-egy and that they should be treated as partners at thestrategic level. To do this, they need to show that theirinvestment in recruits will generate reasonable rates ofreturn. Further, their proposals must be compatiblewith other HRM practices and with technological andstrategic changes. There is no simple template for for-mulating talent management practices, such asfocusing on a company’s strategic direction and corevalues. The connection between HR and business strat-egy can be made only by a rigorous analysis of internaland external factors.

Copyright © George Dreher 2002

This article develops ideas from a book by the author and TomDougherty, Human Resource Strategy: A behavioural perspective for thegeneral manager (McGraw-Hill/Irwin, 2002).

Further reading

Gubman, E.L. (1998) The Talent Solution, New York:McGraw-Hill.

Porter, M.E. (1980) Competitive Strategy, New York:Free Press.

Schuler, R.S. and Jackson, S.E. (1987) “Linkingcompetitive strategies with human resourcemanagement practices”, Academy of ManagementExecutive, 3.

Staw, B.M. (1986) “Organisational psychology and thepursuit of the happy/productive worker”, CaliforniaManagement Review, 28.

Ulrich, D. and Lake, D. (1990) OrganisationalCapability, New York: Wiley.

ALIGNING HR WITH BUSINESS GOALS 29

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1

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O rganizations increasingly rely on intangible assets for competitiveadvantage. Research, brands, customer relationships and capabili-

ties such as organizational flexibility and culture are recognized assources of value creation. Yet managing these intangibles as assetswhen conventional accounting often sees them as costs is a challenge.

Nowhere is this more obvious than when dealing with people. Even intough economic times, managers recognize they are in a “war for talent”but often treat people as an overhead to be minimized. Instead, humanresources should be managed as a strategic asset and HR performancemeasured in terms of its strategic effect. This requires a different per-spective on what is meant by HR and a new understanding of how itcreates value. Both line managers and HR managers need to think of HRnot in terms of a function, or isolated practices, but rather as an “archi-tecture” that must be structured and managed to create value.

Architecture

Conventional thinking about HR reflects the paradox facing line man-agers. If people are the “most important asset”, why is the HR functionoften thought of as an administrative overhead? In large part this per-spective has been justified by the traditional emphasis on administrativeefficiency and compliance. As innovation, speed, flexibility and intangibleassets become more important, however, all managers need to break outof their functional perspective and consider the strategic value of HR.

Simply put, when senior line managers describe “people” as a strate-gic asset, they are describing the strategic aspects of employeebehaviour; they are focusing on employee performance that implementscompany strategy. But just as organizational performance is a functionof both people and systems, the appropriate HR system is required to

The link between people and strategy

Companies often treat workers as a cost, rather than as a

source of competitive advantage. Brian Becker, Mark

Huselid and Dave Ulrich suggest a way of valuing the

most important intangible asset.Brian E. Becker is a professor

of human resources at the

State University of New York

at Buffalo.

Mark A. Huselid is an

associate professor of

human resources strategy

at Rutgers University.

Dave Ulrich is a professor

of business at the

University of Michigan

Business School.

31

8570 Chapter 5 31-36 9/9/02 4:37 pm Page 31

select, develop and reward employees in waysthat produce those strategic behaviours. Thissystem is the set of policies and practices thatdescribes the way people are selected, developed,appraised, rewarded and so on. (The HR functionis the administrative home of the company’s HRstaff.) While line managers often play a centralrole in managing an HR system, HR staff muststill have the competencies to drive this process.

Strategic asset

It is easy to understand why organizations talkabout people as an asset but manage them as a costto be minimized. The costs are easy to see but thevalue creation is not. Because of the traditionalperspective on HR, companies have no way tomeasure its strategic performance. Nevertheless,intangible assets are an increasingly importantsource of company value, of which human capitalought to be an important part.

Academic Baruch Lev and his colleagues haveshown that an increasing share of a company’smarket value can be attributed to intangibleassets. Lev identifies sources of intangible assets,including what he calls “sharp execution”. Forexample, when chief financial officer JamesChestnut transferred most of Coca-Cola’s tangi-ble assets to its bottlers, he observed that thecompany’s $150bn market value derived largelyfrom its brand and management systems. Theimplication is that intangible assets are increas-ingly important for value creation and thatstrategy implementation and management sys-tems are an important part of this.

HR can become a strategic asset because theability to execute strategy well is a source of com-petitive advantage and people are the lynchpin ofstrategy execution. Business commentators write

that the inability to execute strategy is the pri-mary reason for the failure of a chief executive.Our research demonstrates the same point. Aspart of a survey of 400 US companies, respon-dents were asked to rate the suitability of theirstrategy and how well it had been executed.Analysis showed that the ability to execute wellhad an impact on financial performance that was10 times greater than strategic choice. Companiesdo a reasonably good job of choosing the rightstrategy, to the point where this is no longer a dif-ferentiator. What does differentiate companies,however, is the ability to execute strategy.

Equally important, strategy implementation isdriven by employee strategic focus – the extent towhich people understand how their job contributesto company success. It is critical that the entireorganization, not just senior managers, be strategi-cally focused. What determines such focus?Perhaps unsurprisingly, our research showed thatwhat gets measured is what gets managed.Organizations with more balanced performancemeasurement systems (in other words, balancedscorecards) rated the strategic focus of theiremployees significantly higher than organizationsthat relied simply on financial data as the measure.Also, focus was driven by the strategic alignment ofthe company’s HR system – when the organiza-tion’s rewards, development and appraisal systemsencouraged the execution of company strategy,workers’ strategic focus improved.

Organizational assets take on a strategic rolewhen they create competitive advantage. Talent,commitment and flexibility are desirable charac-teristics but are not sufficient to turn people intoa strategic asset. Strategic assets are the set ofspecialized resources and capabilities that bestowthe company’s competitive advantage. The abil-ity to align management systems and employeebehaviour in ways that support strategy becomesan “invisible asset” that is idiosyncratic to acompany and not easily imitated by competitors.

Most senior managers intuitively understandthat human capital has the potential to be strate-gically important. There is little beyondanecdotal evidence, however, to demonstrate itsimpact on financial performance, much less thecontribution of HR. This article has describedhow HR could become a strategic asset, but isthere any evidence that it really can have an


HR can become a strategic assetbecause the ability to executestrategy well is a source ofcompetitive advantage and peopleare the lynchpin of strategyexecution.

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impact? Based on our research involving nearly3,000 companies over the past decade, theanswer is very clearly yes.

Our results show a clear relationship betweenwhat we call a high-performance HR system andvarious measures of company financial perform-ance (market value to book value and accountingprofits). A high-performance HR system is onethat emphasizes employee performance in everyaspect of the system, is internally consistent andis aligned with the strategy of the organization.When a company’s HR system is measured usingan index that captures these features, a 35 percent improvement in a company’s HR systemindex results in a 10–15 per cent increase inmarket value/book value.

Management

How can these ideas be put into practice? HR hasalways been challenged to make a persuasive busi-ness case for its strategic significance because thelink between HR and financial performance israrely direct. A solution to the missing link is theconcept of the strategy map developed by academ-ics Robert Kaplan and David Norton. To replacetraditional accounting measures they have sug-gested performance measures – the “balancedscorecard” – that capture not only the financialresults of managerial decisions but also the under-lying causes. The formalized result of thisanalysis, what Kaplan and Norton call a strategymap, describes what has to be done to implementstrategy. However, as they acknowledge in a 1996article, organizations have made little progress indeveloping measures of how people (or HR) makea strategic contribution.

The absence of relevant measures of HR’sstrategic performance reflects the focus of HR inmost organizations. Just as form follows functionin architecture, the available measures for HRperformance no doubt reflect its traditionalemphasis on administrative efficiency and com-pliance. In short, senior line managers and HRdepartments have a common problem. Theformer, who recognize the importance of imple-menting strategy, need to find a way to manageand measure the strategic role of people.Conversely, the latter – responsible for making

people a strategic asset – lack a framework thatallows them to bridge the gap between HR andcompany performance.

Linking the perspective of the HR architecturewith the strategy map provides a solution. Linemanagers and HR staff have a common interest invalue creation through HR’s role in strategyimplementation. The HR architecture now hasseveral important features that differentiate itfrom the traditional HR focus. These include:

� The motivation, competencies and structure of theHR function are guided by a “top-down” analysis ofits strategic contribution.

� The measure of HR’s strategic value lies in itscontribution to goals identified by line managersusing a strategy map.

� HR and line managers will be able to measure HR’scontribution to financial performance beyond simplyits effect on cost control.

The transition

Once an organization begins to manage HR as astrategic asset, however, the measures of HR’s performance must reflect that transition.Unfortunately, organizations too often fail to makethe systemic changes that link HR to strategyimplementation and simply try to raise the profileof people performance measures. Figure 1 showsthe transition in measurement systems required.

Level 1 measurement systems reflect the tra-ditional HR focus on transactional andadministrative efficiency. For these companiesHR “performance” is often based on comparisonsto external benchmarks. As more organizationshave recognized the limits of these measuresthere has been an increasing effort to give peoplemeasures more strategic significance, asreflected in the second level in Figure 1. Theproblem with the Level 2 approach is that, at best,there is a tenuous relationship between thesepeople measures and business success. Neitherline managers nor HR staff can identify the directrelevance of these measures for business prob-lems. As a result, managers give little more thanlip service to people goals and the performance ofHR people is still judged largely by efficiency

THE LINK BETWEEN PEOPLE AND STRATEGY 33

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measures. Operating at this level is frustrating forboth line managers and HR people.

Level 3 measurement systems avoid theseproblems because the choice of measures is basedon a systematic analysis of how intangibles, particularly HR, can influence strategy imple-mentation. HR measures are tied directly to thedevelopment of a strategy map that outlines thecausal logic of HR’s impact on company perform-ance. At this level, HR measures guide mana-gement decisions that drive strategy rather thansimply reduce overheads.

Consider the example of a pipeline companythat traditionally emphasized reactive mainte-nance policies for its workers. It became clearafter developing a strategy map that pipelinereliability was an important indicator of cus-tomer satisfaction and, ultimately, financialperformance. To improve pipeline reliability, thecompany put more effort into preventive mainte-nance. This in turn required employees to startdiagnosing and predicting failures, analyzing

life-cycle costs and sharing knowledge. At thislevel there is a clear link between strategicbehaviours and financial success.

Finally, Level 4 is the most sophisticatedsystem because it measures both levels andrelationships. This allows the organization to calculate the effect of HR in terms that arerelevant to line managers. For several years,US retailer Sears Roebuck has been a leader in estimating the impact of intangible assets on financial performance. This allows man-agers’ decisions to be guided by such specificrelationships as “a 5-point improvement inemployee attitudes will drive a 1.3-pointimprovement in customer satisfaction, which in turn will drive a 0.5 per cent improvement in revenue growth”. More recently, VerizonCommunications in the US has been measuringHR performance by its contribution to businessand strategic goals (see Box 1), to the benefit ofboth HR managers and line managers.

ConclusionIn practice, accepting that people are a company’s mostimportant asset means breaking with organizationalsystems that treat people as a cost to be minimized.Senior line managers understand that strategy is every-body’s job; implementing it is the challenge.


Measureprofit

relationships

Measurement-led management

Tracking intangibles without managing intangiblesNo link between financial and non-financial measures

HR-focused operational measuresTraditional 1

2

3

4

Strategic(clear causal chain)

FIGURE 1 Measuring HR’s strategic performance

HR measures are tied directly to thedevelopment of a strategy mapthat outlines the causal logic ofHR’s impact on companyperformance.

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A new perspective on HR is the foundation for meet-ing that challenge. It means that HR is more than afunction and has the potential to be more than a cost. Itrequires changes in the relationship between line man-agers and HR managers, and a shared responsibility andaccountability for strategic performance drivers. Thepotential benefits, however, are enormous. As a combi-nation of organizational systems, routines and changesin the company’s culture, the result is a source of com-petitive advantage that is not easily imitated.

Copyright © Brian Becker, Mark Huselid and Dave Ulrich 2002

Further reading

Amit, R. and Shoemaker, P.J.H. (1993) “Strategic assetsand organisational rents”, Strategic ManagementJournal, 14.

Becker, B.E., Huselid, M.A. and Ulrich, D. (2001) TheHR Scorecard: Linking people, strategy andperformance, Boston: Harvard Business School Press.

Itami, H. (1987) Mobilising Invisible Assets, Boston:Harvard University Press.

Kaplan, R.S. and Norton, D.P. (2000) “Having troublewith your strategy? Then map it”, Harvard BusinessReview, September.

Lev, B. (2001) Intangibles: Management, measurement,and reporting, Washington DC: BrookingsInstitution.

Stewart, T. (1998) “Real assets, unreal reporting”,Fortune, July.

THE LINK BETWEEN PEOPLE AND STRATEGY 35

Box 1 Measuring HR performance

Estimating causal linkages at Verizon Communica-tions shows how a company can link HR practicesand performance in a strategy map. Its network serv-ices unit (about 60,000 employees) proposed thatmarket share was driven by customer valuation ofservice, which in turn was driven by customer servicequality, brand advertising and inflation. HR managerscreated what they called the “employee engagementindex”. This was based on seven questions from anemployee survey, giving a measure of strategicbehaviour that was related to customer service.

The analysis supported their hypothesis anddemonstrated the wisdom of their approach. Forexample, Verizon found that a 1 per cent increase in

their index resulted in nearly a 0.5 per cent increasein customer service satisfaction. In other words,managers examined a section of their “strategymap” and tested the hypothesis that employeebehaviour was an indirect leading indicator of animportant strategic measure (market share). Theymeasured the strategic impact of one element inthe HR architecture.

Verizon managers were able to do this becausethey had a clear view of how employee behaviouraffected strategy. Second, they recognized the needto collect and merge information from manysources. Third, the HR department had access to thenecessary expertise in statistics.

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W hile companies pay lip service to the importance of their people,in reality they invest in almost anything else – sales, marketing,

brands, customers, distribution, IT, finance – to enhance performance.Yet the most obvious, and overlooked, source of strategic advantage is touse people better.

Companies have long used human resource policies to gain competi-tive advantage. In the 1880s, John D. Rockefeller linked managers’ payto company performance. Rockefeller gave shares to senior managers.“I would have every man a capitalist,” he said. In 1914, Henry Forddoubled the average wages of his assembly-line workers. He claimedthat better motivated workers made him more money and said the payrise was “the finest cost-cutting move we ever made”. From this view,the present economic downturn is an opportunity to spend time andeffort in nurturing workers.

The viewpoint described in this article is based on a study by myself,Peter Strueven and Konrad Wetzker of the Boston Consulting Group, aswell as my empirical observations while at the US Department ofCommerce. To measure how well companies manage employees, wedeveloped a “people scorecard” – a set of criteria that can be trackedand quantified. In the analysis, companies that scored highest earnedhigher shareholder returns than their competitors. Further, such com-panies enjoyed better employee satisfaction, greater employee loyaltyand were able to weather downturns more easily. This article lays outthe evidence and shows how to use it.

The scorecard

Why are people neglected in companies? First, human resources is seldomat the centre of corporate power. Everybody knows HR is critical but, per-

Scoring goals for people and company

Companies that invest in their employees perform better,

says Linda Bilmes, who presents a measurement system

and the evidence to support the claim.

Linda Bilmes is a former

assistant secretary of the

US Department of

Commerce. She teaches at

Harvard University’s John F.

Kennedy School of

Government.

37

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haps because it is often a female role, it continuesto be treated as a support function. Moreover, HRitself has been too narrowly focused. In the score-card, we judge companies on both “traditional” HRfunctions such as recruiting and performance eval-uations, and on what we call intrapreneurship –creating an active, entrepreneurial culture in thecompany (see Box 1). Successful people-factor com-panies emphasize both.

Companies also neglect human capital becauseit is difficult to measure and the benefits ofpeople strategy take time to emerge. However,there is growing evidence to link company per-formance and people management.

We used the scorecard as a tool to analyzemore than 200 companies in the US andGermany. Data was gathered from publishedmaterial and interviews with staff. The criteriain the scorecard are specific data such as days oftraining provided, type of training and choice oftraining subject. Each company was rated andcompared with industry peers.

The results are striking. First, companies thatscored highest had a higher total shareholderreturn than lower-scoring companies. In the US,top companies had an average annual return of 27per cent over the period 1989–98, whereas thebottom ones earned 8 per cent. Companies with


Box 1 People-factor scorecard

HUMAN RESOURCE CRITERIA

Staff training and education

� Spending/days per employee

� Career-long training opportunities

� Employee-driven curricula

Loyalty of the employee

� Lay-offs compared with industry

� Outplacement efforts

� Worker-friendly work reductions

Corporate recognition of employees

� Breadth, frequency and consistency

Quality of HR policies

� Recruiting incentives

� Benefits

� Detailed performance evaluation and feedback

� Promotion within/career development

Job satisfaction indicators

� Employee sick days taken

� Employee turnover

HUMAN RESOURCE SCORE

INTRAPRENEURSHIP CRITERIA

Flexibility of work structure

� Flexibility in structuring work content

� Flexible hours/scheduling

Organizational structure

� Fewer levels of hierarchy

� Prevalence of team structures

� Decentralized decision making

Versatility of employee

� Lateral transfers within company

� Cross-functional exposure and training

Entrepreneurial opportunities

� Recognition of innovation and contribution(awards, bonuses, etc.)

� Profit-sharing opportunities at business, teamunit or product level

� Linkage of compensation to individualperformance

INTRAPRENEURSHIP SCORE

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middle scores had an average return of 21 per cent,which is close to the 19.2 per cent average annualgrowth in the Standard & Poor’s 500 index. InGermany, companies with the highest score hada shareholder return nearly three times higherthan companies with the lowest score and 35 percent above the median. This contradicted theprevailing German view that companies pursuehigh returns at the expense of employees.

The second finding was that scores variedwildly. In each sector, we found a people-factorleader and a laggard. Pfizer, leader in the phar-maceutical sector, has been providing stockoption benefits to nearly all employees since1950. The least successful drug company offerssuch options to fewer than one in five employeesand started to do so only in the early 1990s.Third, people-factor benefits take time toemerge. Over four years and longer, a patternbecomes clear, with those companies scoringhighest on the scorecard enjoying strong per-formance versus their competitors. But people-factor companies sometimes forego short-termprofits in pursuit of longer-term success.

In spite of its troubles, one of the best exam-ples of this approach is US computer makerHewlett-Packard. Over four decades, the com-pany avoided lay-offs by using across-the-boardpay cuts, sabbaticals, shorter hours and can-celled bonuses. It pioneered flexible hours, jobshares, telecommuting, company-wide stockoptions and linking managers’ pay to their rateof new product design. HP encouraged entrepre-neurship, even investing in spin-offs launched byformer employees and giving them “preferred-source” contracts.

Fourth, companies with high HR scores but lowscores for intrapreneurship do not have superiorstock performance. How can companies createentrepreneurial energy? Four Seasons Hotels is agood example. In the company that invented themini-bar after a suggestion by an employee, ideas

are welcomed and well rewarded. Four Seasonswas also the first chain to introduce telephonesand hairdryers in bathrooms, 24-hour servicesand free overnight shoeshine. Most of these inno-vations were suggested by employees.

So, HR should reinforce and foster entrepre-neurial opportunity. Do good people policies creategood companies, or vice versa? It is a fair assump-tion that better-managed companies are better atmanaging people. But beyond that, there is strongevidence that the best people-factor companiescreate an advantage in the market.

A company that does well on all parts of thescorecard seems to translate that into better per-formance through a more contented and loyalworkforce. This was the conclusion of a survey of2,000 US and German workers carried out forour research by polling organization Penn,Schoen and Berland Associates.

Findings

The survey produced two main findings. First,investing in people-factor criteria stronglyincreased job satisfaction and loyalty. Overall, 34per cent of US workers and 35 per cent ofGerman workers described themselves as satis-fied with their jobs. But among workers incompanies that offered people-factor benefits, jobsatisfaction was much higher – 58 per cent of USand 63 per cent of German workers.

The features that most increased job satisfac-tion were allowing people to influence decisionsthat affect their work life, training and perform-ance-linked pay. Similar factors increasedemployee loyalty. In the US, 46 per cent of work-ers said they were “very loyal” to theircompanies. But in companies that providedtraining, linked pay to performance and gaveemployees some autonomy, 58 per cent said theywere “very loyal”. In Germany, 86 per cent ofworkers in such companies were “very loyal”,compared with 66 per cent in other companies.

The happiest and most loyal respondents werethose who enjoyed both traditional HR benefits(especially training) and intrapreneurship.Employees who agreed with the statement “Mycompany makes it easy for me to put my ideasinto practice and to get credit for it” were twice

SCORING GOALS FOR PEOPLE AND COMPANY 39

Companies with high HR scores butlow scores for intrapreneurship donot have superior stockperformance.

8570 Chapter 6 37-42 9/9/02 3:40 pm Page 39

as satisfied, and twice as loyal to their compa-nies, as those who disagreed.

The second finding was that a huge gapexisted between what companies thought theyprovided and what workers believed theyreceived. Most companies claimed to offer train-ing, performance evaluation and employeeinvolvement in decision making. Yet only a thirdof employees said they received such benefits.Moreover, the greatest gap was on attributesthat people considered most important. Forexample, 71 per cent of respondents listed “I amable to influence decisions that affect me” as“very important”, but only 34 per cent ofemployees agreed that they could do it.

The survey found little evidence of intrapre-neurship. Top managers said pay was extremelyimportant to them but only 41 per cent of suchmanagers in the US (fewer in Germany) partici-pated in a profit-sharing or stock option plan,and only 30 per cent said their pay was linked totheir performance. Even in small companies, 60per cent of employees said it was not easy to puttheir ideas into practice.

Eight steps

Superior stock market performance and the pow-erful effect on employee morale together create apowerful case for the scorecard. Moreover, the factthat so many workers feel they do not receivepeople-factor benefits reveals the size of theopportunity. Companies can begin to create anemphasis on people by following eight basic steps.

� Top-level commitment. If a company is to transformitself into a people-focused organization, its leadermust be dedicated to this aim. General Electric is awell-known example of a US company that has reapedthe rewards of patient investment in its people. At GEit took a determined and focused leader (willing towrite thousands of hand-written notes to employees)and several years. Jack Welch’s vision, and his detailedattention to his workforce, allowed GE to focus onmaking every employee effective.

� Workforce development planning. A company mustspend the time and effort to assess its workforceneeds regularly. It should ask: “How will the marketevolve?”; “How must the workforce change?”;

“How much outsourcing is desirable?” andbenchmark workforce skills against current andprojected needs. Such planning is necessary if thecompany is to provide meaningful and usefultraining, career development and performanceevaluations for employees.

� Develop versatility. Skills development needs to bethought out and matched to the needs of thecompany and its employees. But companies shouldalso use development to become more versatile. Forexample, the German construction company Bilfingerand Berger used the last recession to upgrade theskills of its workers and managers, so they learnednew skills, such as languages and environmentalengineering. While competitors shed workers,Bilfinger was able to take on more international jobsand different types of jobs. It gained market shareand moved from seventh to third place in industrysize rankings.

� Training. Employees value training and see it as atest of how much the company values them.Training boosted job satisfaction and loyalty forworkers at all levels and companies of all sizes, inboth the US and Germany. There is extensiveliterature on running effective training. The essentialelement of training for people-factor companies isthat it must be linked to the personal and careerdevelopment of the individual.

� Retain good workers. Staff turnover is inevitable andsometimes desirable. However, an essentialingredient of successful people-factor companies isthat they are able to keep their top performers. Thesurvey showed that the most direct influence on anemployee’s loyalty was linking compensation toperformance. Such a link requires a fair andtransparent way to measure performance. Leadingpeople-factor companies such as HP and GE developan annual individual performance plan for eachemployee, with feedback sessions every quarter.

� Structure work. Work needs to be structured so thatpeople enjoy it. In addition, it should fosterintrapreneurship. People-factor companies typically


Employees value training and see itas a test of how much thecompany values them.

8570 Chapter 6 37-42 9/9/02 3:40 pm Page 40

have flat hierarchies and decentralized decisionmaking. In addition, some have come up with novelstructures. US biomedical company Chiron allows itsscientific staff to make “creative partnerships”,which can be started up or ended easily, instead ofgoing through a protracted legal process. Chiron’sapproach has yielded numerous innovations,including the discovery of the Hepatitis C virus.

� Reward success. People-factor companies rewardsuccess and mimic the reward structure of anentrepreneurial venture. To link performance andcompensation, a company should design work plansfor each employee that define goals, tasks andresponsibilities, and specify how success will bemeasured. Further, attributes that support thepeople factor (such as creativity, teamwork and skillsdevelopment) should be rewarded.

� Communicate the people factor. Chief executiveswho believe in the people-factor concept soundalmost evangelical. William Steere, chairman andchief executive of Pfizer, says: “We get characterizedfor our balance sheet or our profit and loss but inthe end [people] truly characterize a corporation.”

ConclusionThe people factor is a simple concept: investing inhuman creativity delivers high returns in terms of jobsatisfaction and shareholder returns. Implementing ittakes sustained attention to a set of basic rules. In thecurrent economic climate, managers preoccupied withshort-term returns from cost-cutting often run againstthe grain of the people factor. Our evidence suggeststhat companies with the foresight to see beyond imme-diate difficulties will emerge from the downturn withrenewed strength.

Copyright © Linda Bilmes 2002

Further reading

Wetzker, K., Strueven, P. and Bilmes, L. (1998) Gebtuns das Risiko zuruck, Munchen: Carl Hanser Verlag.

SCORING GOALS FOR PEOPLE AND COMPANY 41

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1

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Organization andchange 3

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1

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Contents

Seeking an edge in mergers 47

Randall Schuler, Rutgers University, andSusan Jackson, Rutgers University

Three out of every four mergers andacquisitions fail – and people issues may bethe biggest stumbling blocks to success.

Time to get back to the basics 53

Stewart Black, University of MichiganBusiness School

It sometimes seems that there can be nothingmore to say about change, so why aremanagers so worried about it?

How to avoid the seven deadly sins 57

Jean-François Manzoni, Insead

The speed of business change may besomething of a cliché, yet companies remainchallenged by projects such as integrating amerger or restructuring a company.

When internal boundaries becomenetwork relationships 63

John Storey, Open University Business School

Highly structured companies are dissolvinginto fluid networks of alliances. Managershave much to learn about coping with thesechanges – and HR will need to develop somenew capabilities.

Facing up to uncertainty 69

Phil Hodgson and Dr Randall P. White

Managers today are facing unprecedentedlevels of ambiguity and uncertainty, but thereal work of leadership is facing up to them.

45

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L arge-scale change is hard for complexorganizations to carry out. Aside from the

strategic and logistical difficulties of a merger orrestructuring, managers can face daunting prob-lems relating to people management: resistance

to change, culture clashes, morale problems andtraining gaps. As the authors in this part show,managers need to market change programmes toemployees, not simply plan the physical or finan-cial details.


46

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R egardless of industry, it seems companies cannot compete withoutgrowing through mergers or acquisitions. Consider the size, vari-

ety and number of recent deals: Daimler-Chrysler, Chase-JP Morgan,UBS-Paine Webber, Glaxo-Smith-KlineBeecham, AOL-Time Warner,Pfizer-Warner Lambert, Nestle-Purina and Deutsche Telekom-VoiceStream. The factors driving this activity are likely to intensify:economies of scale, deregulation, globalization, expanding markets, riskspreading and rapid response in markets. Although the pace of activityhas slowed, even in the tough environment of 2000 the value of globalmergers and acquisitions (M&A) activity exceeded $3,500bn.

In a merger, two companies come together and create a new entity. Inan acquisition, one company buys another one and manages its new assetaccording to its needs. There are mergers of equals, such as thosebetween Citicorp and Travelers to form Citigroup, and between Ciba andSandoz to form Novartis. There are also mergers between companies ofdifferent sizes such as that between Chase and J.P. Morgan to createJPMorganChase. Similarly, there are two major types of acquisitions:those involving integration, of a type typically made by Cisco Systems,and those involving separation, such as between Unilever and Bestfoods.

Each type of merger or acquisition creates different people manage-ment issues. For example, a merger of equals often compels the twocompanies to share staffing implications, whereas a merger of unequalcompanies results in these being shared unequally. An acquisition thatinvolves integration has greater staffing implications than one involv-ing separation. Other differences are highlighted later in this article.

There are many reasons for companies to merge or buy. Companiesin horizontal markets may seek market dominance or economies ofscale. Those in vertical mergers may want to control channels tomarket. Hybrid mergers can help companies spread risk, cut costs,

Seeking an edge in mergers

Most mergers and acquisitions fail, say Randall Schuler and

Susan Jackson, and neglecting human resources issues is

often to blame.

Randall S. Schuler is a

professor of human

resource strategy and

founder of the Center of

Strategic Human Resource

Management at Rutgers

University.

Susan E. Jackson is a

professor of human

resource management at

Rutgers University.

47

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exploit synergies or defend market share. Orcompanies may seek critical mass, speedygrowth, cash, deferred taxes and excess debtcapacity. Not least, companies may want toexpand their core competencies with fresh talent,knowledge and technology. In addition, compa-nies that are successful and inventive incombining not only create value but develop acore competence in combination managementitself. This can give the company an edge.

Track record

With the need for mergers and acquisitions grow-ing, and the base of experience expanding, it mayappear that success is more likely than failure. Infact, consultancy AT Kearney reports, three-quarters fail. Further, only 15 per cent of mergersand acquisitions in the US achieve their financialobjectives, as measured by share value, return oninvestment and post-combination profitability.

Why do mergers fail? Clearly, many thingscan go wrong. Expectations may be unrealistic,strategy hastily constructed and poorly plannedor executed. Talent may be lost or mismanaged.Success may require an impossible degree ofsynergy and transition costs may be underesti-mated. Culture clashes between the entities cango unchecked. The merger may distract thefocus of executives from the core business at acrucial time. Of these, culture clashes, gaps, orincompatibility and losses of talent are citedmost frequently as reasons for failure (see Box1). Conversely, reasons for success include lead-

PART 3 ORGANIZATION AND CHANGE48

Companies that are successful andinventive in combining not onlycreate value but develop a corecompetence in combinationmanagement itself.

Box 1 DaimlerChrysler

Many commentators believe that differences of cul-ture at Daimler and Chrysler made its merger moredifficult. DaimlerChrysler believed the two culturescould be combined relatively easily. Cultural issuesseemed to be addressed only when executives madestatements about differences in the companies.Either they did not realize the implications of cul-tural differences or they chose to focus onoperational and business synergies, hoping that cul-ture would sort itself out.

During the initial stages, Chrysler presidentThomas Stallkamp indicated that Daimler intended toadopt Chrysler’s product development methods,which emphasized teamwork. Chrysler in turn wouldadopt Daimler’s rigid adherence to timetables and itsmethodological approach to solving problems.However, evidence of the lack of co-operation soonemerged – demonstrated by Daimler executives’refusal to use Chrysler parts in Mercedes vehicles.

In August 2000, Daimler’s chief of passenger cars,Juergen Hubbert, was quoted in The Economist:

“We have a clear understanding: one company, onevision, one chairman, two cultures.” While it is truethat since the departure of Robert Eaton (Chrysler’sformer chairman) only one chairman (JuergenSchrempp in 2001) runs the company, Hubbert’sother assertions are in question. AlthoughDaimlerChrysler may be “one” company in name,separate operational headquarters were maintained.Business operations continued to be separate, asshown by “Daimler’s” decision to allow “Chrysler”more leeway in design and production, which moreclosely emulated the practices of the “old Chrysler”.Each had its own agenda on different aspects of themarket, making it difficult to discern a unified visionfor the company. Finally, with the acknowledgedexistence of two cultures, how couldDaimlerChrysler truly become one company withone vision? Dieter Zetsche, a trusted Daimler execu-tive with extensive US experience, is now runningChrysler. His background may give the best oppor-tunity yet to meld the cultures.

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ership, clear goals, due diligence on hard andsoft issues, a well-managed M&A team, plan-ning for combination steps completed early,retaining essential talent and extensive commu-nications. Thus, while there are many reasonsfor success and failure, some of the most impor-tant are directly related to people management.

Three-stage model

Experience suggests a model of M&A activity thathas three stages: pre-combination, combination(integration of the partners) and solidification andassessment. While these stages involve most busi-ness functions, the issues highlighted here arethose closely associated with human resources.

Pre-combination

There are several human resource issues in thefirst stage of M&A activity (see Stage 1). Of themany possible reasons for an M&A, a substantialnumber are human-resource related, such as theacquisition of talent. At companies such as Ciscoand General Electric, retention of employees isoften the prime concern. Here, action isannounced to obtain that talent in the first place.

An important issue is the choice of a dedi-cated senior executive, such as Michael Volpi atCisco, and a team to head the M&A process. Assuggested earlier, one reason for failure is thelack of a leader who can focus all aspects of theprocess, one of which is seeking out target com-panies. After identifying potential companiescomes selection. Regardless of how well theother stages may be accomplished, selecting thewrong partner is likely to diminish the chancesof success. Further, selecting the right partnerwithout a well-developed plan for the rest of the process will also threaten the merger oracquisition. Companies that have a betterunderstanding of the process are likely to bemore successful in their M&A activities. Thisunderstanding, however, has to be shared anddisseminated because M&A activity is likely toaffect everyone, particularly if the combinationresults in extensive integration.

Conducting thorough due diligence also hascritical HR implications. “Many CEOs gloss over

softer HR issues, including potential culturalproblems, only to realize later that they’ve madea huge mistake,” says Mitchell Lee Marks, amanagement consultant who has worked onmore than 60 mergers over 15 years.

Yet a Watson Wyatt survey concluded that thepriority assigned to HR and communication indue diligence was comparatively low. While otherfunctions may be the essence of the “hard” duediligence process, the human resource audit, the“soft” due diligence, is gaining more prominence.Important areas include day-to-day businesscosts and potential liabilities, especially relatedto retiree medical benefits, severance pay andemployment contracts. Due diligence can identifypeople who are crucial to the transaction, allow-ing the acquiring company to give long-termcontracts to vital executives, or lower the valueof the deal based on the possibility that theseindividuals might leave.

Cultural assessments are also entering thedue diligence process. These involve describingand evaluating the companies’ philosophies andvalues regarding such issues as leadership styles,time horizons, relative value of stakeholders, risktolerance and the value of teamwork versus indi-vidual performance and recognition. WithDaimlerChrysler, cultural differences, initiallyplayed down, became the reason for allowingbusiness units to function as they wished as longas they achieved their goals.

An important finding from the Watson Wyattsurvey was that the above HR issues are bestaddressed through planning. Experience andlearning from past M&A activity can help informthe planning, but this learning process must alsobe well managed. Learning, knowledge sharingand transfer are acknowledged as important notonly in M&A activities but also in joint ventures.These can be systematically supported by humanresources practices.

Integrating the companies

Regardless of the area of breakdown or weakness,when poor integration occurs, productivity and jobsatisfaction drop and employees begin to feel thatmanagers care more about financial statementsthan product quality or people. Johnson & Johnsonfound that a systematic, explicit integration

SEEKING AN EDGE IN MERGERS 49

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process is at the heart of a successful acquisition.All acquisitions require some degree of integrationin day-to-day systems and processes, and in achiev-ing synergies (see Stage 2).

Perhaps the most critical HR issue for thisstage is selecting an integration manager.Mergers and acquisitions that are guided by sucha manager retain a higher percentage of theacquired companies’ leaders and their employ-ees, and achieve business goals earlier.

What should the integration manager do? Therole includes serving as a project manager, commu-nicator, relationship builder, team leader, refereeand negotiator. He or she should focus exclusivelyon the acquisition or merger and should not be oneof the people running the business. Usually it issomeone on loan from the business who can focussolely on integration issues. Such managers pro-vide continuity between the deal team andmanagement of the new company, and will bepart of a steering committee. This group isresponsible for setting the role, process andobjectives of the integration and overseeing theprogress of integration teams.

A second issue is picking a leader to managethe combined business. If an acquired businesshas unclear or absent leadership, the result will becrippling uncertainty, stalled product developmentand postponed decisions. Restructuring should bedone early, fast and once only. This minimizes

uncertainty. One problem has been a tendency torestructure slowly and to rely heavily on peoplerather than structures and processes. A lessonlearned from GE Capital’s experience is thatdecisions about structure, roles, reporting rela-tionships, lay-offs, restructuring and othercareer-affecting aspects of the integration shouldbe made, announced and implemented as soon aspossible after the deal has been signed. Creepingchanges, uncertainty and anxiety that last formonths are debilitating and drain value.

Experiences at Johnson & Johnson affirmthis. They also suggest managers should not dis-mantle something until its use is understood andthere is something to replace it, and that restruc-turing should not be confused with integrating –it is part of a larger process. To facilitate thisrestructuring phase, the leader can manage theprocess of change itself. There is no doubting thepressure of work caused by the need to manageintegration as well as “doing the day job”. Add tothat the tendency for people to resist change andthe shortage of qualified managers, and you havea recipe for an over-stressed, under-performingwork environment.

Managing this involves preparing staff for thechange, making sure they understand it fully,creating a schedule for the changes making thechanges and then putting in place structures,policies and practices to support the operation.


Stage 1 Pre-combination

HR issues

� Identifying reasons for the M&A

� Forming M&A team; appointing leader

� Searching for potential partners

� Selecting a partner

� Planning for managing the process

� Planning to learn from the process

HR implications and actions

� Knowledge and understanding need to bedisseminated

� Leadership needs to be in place

� Composition of team affects success

� Systematic and extensive pre-selection andselection

� Conducting thorough due diligence of all areas

� Cultural assessment

� Planning for combination minimizes problems later

� Creating practices for learning and knowledgetransfer

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The Johnson & Johnson study found that manyacquired businesses lose essential people. Yetretaining these people is crucial to achievinggoals through the transition period and the long-term competitive advantage associated withspecialized knowledge. Uncertainty caused byunclear strategy, no HR assessment and insuffi-cient communication can drive away staff.Selection needs to be aligned closely with incen-tives for employees to stay.

Companies that are skilled at M&A adopt sev-eral techniques:

� Negotiating financial deals with essential employees.Senior employees may be covered by agreements thatallow stock options to be exercised when there is achange in ownership. To keep these workers fromtaking the money and running, acquiring companiesoften offer packages that mature over time.

� Giving retention bonuses. Companies offer cash toworkers who stay through a merger or until aspecific project is completed. In the US, for example,Florida Power, gave retention bonuses to 200employees during the merger of its parent andCarolina Power & Light. It also increased severancepackages to discourage employees who were

worried about pending lay-offs from leavingprematurely.

� Writing employment agreements. Employees whoget financial incentives may be asked to agree tostay on for a specified time. Agreements are usuallysigned before the deal closes.

Managing communication is another way to retainand motivate employees. This can take severalforms. Acquiring companies use the web, companyintranets and e-mail to dispel rumours and keepemployees informed. Some senior managers talkdirectly with employees they are determined tokeep. When his former company, Intervu, took oversoftware developer Netpodium, chief executiveHarry Gruber met every engineer personally.

A final HR issue is the need to create poli-cies and practices for learning, and knowledgesharing and transfer. As Johnson & Johnsonfound, many of the same lessons were learnedrepeatedly across business units as well asfrom other companies. Sharing those lessonsenhances integration and improves the likeli-hood of success.

Solidification and assessment

As the combination takes shape, it faces issues ofreadjusting, solidifying and fine-tuning (see Stage3). These issues take on varying degrees of inten-sity, depending on whether it is a merger ofinclusion rather than one of separation, or anacquisition of relative equals versus unequals.DaimlerChrysler, an acquisition of relative equals,

SEEKING AN EDGE IN MERGERS 51

Stage 2 Integration of the companies

HR issues

� Selecting integration manager

� Designing/implementing teams

� Creating the structure/strategies/leadership

� Retaining employees

� Motivating employees

� Managing the change process

� Communicating to and involving stakeholders

� Deciding on the HR policies and practices


� Selecting the appropriate candidate

� Creating team design and selection are criticalfor transition and combination success

� Communicating is essential

� Deciding on who stays and goes

� Establishing culture, structure and HR policiesand practices

Uncertainty caused by unclearstrategy, no HR assessment andinsufficient communication candrive away staff.

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provides an example. It went through this formore than two years after the formal combinationwas completed, during which time there were sev-eral leadership changes in the Chrysler Group.

ConclusionCompanies are increasingly using mergers and acquisi-tions to maintain and strengthen their market position.They are seen by many as a relatively fast and efficientway to expand and incorporate technologies. Yet suc-cess is by no means assured. On the contrary, most fallshort of stated goals and objectives.

While some failures can be explained by financialand market factors, many can be traced to personnelissues. Studies confirm the need for companies toaddress human resource issues and activities in theirM&A activities. HR departments can make a genuinecontribution to merger success in partnership with linemanagers and employees.

Copyright © Randall Schuler and Susan Jackson 2002

Further reading

Charman, A. (1999) Global Mergers and Acquisitions,Alexandria, VA: Society for Human ResourceManagement.

The Economist (2000) “The DaimlerChrysler emulsion”,July 29.

A.T. Kearney study reported in Haebeck, M.H., Kroger,F. and Trum, M.R. (2000) After the Mergers, NewYork: Prentice Hall.

Vlasic, B. and Stertz, B.A. (2000) Taken for a Ride, NewYork: HarperCollins.

Watson Wyatt (2000) European results of the globalM&A survey (http://www.watsonwyatt.com/homepage/eu/res/surveys/mergersandacquisitions/0600/index.htm).


Stage 3 Solidification and assessment

HR issues

� Solidifying leadership and staffing

� Assessing strategies and structures

� Assessing culture

� Assessing HR policies and practices

� Assessing concerns of stakeholders

� Revising as needed

� Learning from the process


� Elective leadership and staffing

� Creating and evaluating structure

� Melding two cultures needs assessment revision

� Concerns of all stakeholders addressed andsatisfied

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W hat could there possibly be that is new to say about change?“Change is important” – it’s been said. “The rate of change is

accelerating” – we’ve heard it all before. “The only constant is change”– so often repeated that it is past being a cliché. Yet although it has allbeen said before, people have yet to master the art of leading change.Academics Hal Gregersen, Allen Morrison and I found that of 130 exec-utives in 55 different companies around the world, 85 per cent thoughtchange management was a critical leadership capability. More impor-tantly, almost the same number of these senior executives said that theskills for managing change among their high-potential managers wereunsatisfactory. Other studies have found that between 50 and 70 percent of change initiatives fail to meet their objectives or fail to meetthem on time.

So, if it has all been said before, why aren’t people any better at lead-ing change? Is it simply that they are not listening? In fact, mostmanagers around the world think leading change is important and mostwant to know how to do it better. It may be that the problem lies in themessage and its messengers, not the audience.

Back to basics

When I was younger, I was a striker in a football team. Things would gowell until I had to pass the ball to someone in the middle of the pitchusing my left foot. The coach stopped me and said: “You will nevermaster this unless you go back to the basics.” My research and consult-ing experience suggests that the same is true for change – to improvetheir ability to lead change, people have to go back to first principles.

What are the basic lessons of change? One is this: people do notchange very easily. For example, fewer than one in five people who set a

Time to get back to the basics

It sometimes seems that there is nothing more to say about

change, so why are managers still so worried about it?

Stewart Black has some suggestions.

J. Stewart Black is an

adjunct professor of

business administration at

the University of Michigan

Business School.

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goal of losing weight succeed. In addition, justone in three people who start an exercise pro-gramme follow it through beyond the first twoweeks. Given that change of any sort is difficultfor people, one way of leading it is to understandwhy change fails. Such understanding lies inanswering three questions: Why do people fail tosee the need for change? Why, even when theysee the need, do people fail to act? Why, evenwhen they act, do people so often fail to finish –either because they have not gone far enough orfast enough?

Mental maps

So, why do people fail to see, act and finish? Justas people use maps to help navigate on journeys,they construct and use mental maps – ways ofthinking and communicating – to guide behaviour.Further, just as people discard physical maps thatdo not guide them well and keep the ones that do,they keep mental maps for only one reason – theyhave proven successful. Consequently, the firstpoint to recognize is that most change is precededby success. Whatever personal or organizationalchange may be required, it is preceded by some-thing that has worked.

This is why people are slow to see the need forchange. They use mental maps that have provensuccessful. Consider the following examples –one from cartography and the other from busi-ness. In 1545, a map was drawn showing thestate of California as an island. It was created bysailors who went north up the Gulf of Baja withthe mainland of present-day Mexico on the eastand present-day Baja in Mexico on the west. Thesailors turned around before reaching the end ofthe Gulf of Baja (where Baja and Mexico come

together) and sailed back down the gulf, aroundits southern tip and up the west coast of present-day Baja and California. They sailed north untilthey reached a great inlet in northern California.The ship was low on supplies and the crew wassick. The sailors concluded that this inlet was thenorthern tip of the island and that water circledaround and back south to where they hadstopped on their first northward journey in theGulf of Baja. Thus convinced, they drew a mapwith California as an island. Even though overtime evidence from other explorers indicatedthat California was not an island, this map per-sisted for 200 years before King Ferdinand ofSpain finally declared otherwise.

While some readers might question the rele-vance of this story of unsophisticated navigatorsto the modern age, there are many similar talesin more recent times. For example, Ikea, theworld’s largest furniture company, stuck to aflawed map for a long time. Ikea sells its prod-ucts in more than 100 countries. When it set upand expanded operations in the US, it did well inall areas except beds and bedding. With poor ini-tial results, executives increased the proportionof marketing and advertising spent on beds, yetsales did not improve. Unfortunately, these exec-utives had a mental map of the world in whichbeds were measured using the metric system.While this worked for the rest of the world, inthe US the sizes of king, queen and twin reignsupreme. Ikea persisted in trying to sell beds andbedding measured in centimetres for nearlythree years before finally relenting. Once thecompany altered its map and changed to the USsizing system, sales of beds and beddingimproved significantly through the 1990s.

Change fails, partly because people fail to seethe need for it. They are deluded by their exist-ing mental maps and have these maps for onlyone reason – they have worked in the past.

Failure to act

Even when people see the need for change, theyoften fail to act on it. Why is this? If people dosomething well, the knowledge that they aredoing it well is often more important to themthan the question of whether it is the right thing


Just as people use maps to helpnavigate on journeys, theyconstruct and use mental maps –ways of thinking andcommunicating – to guidebehaviour.

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to do. For example, IBM executives decided thatmaking computers – mainframe computers,servers, PCs and so on – was the right thing inthe past but not for the future. They encouragedmanagers to change their perceptions of thebusiness to one that provided “solutions” to cus-tomers. However, employees were skilled in thecompetencies of the old map. In spite of under-standing that “solutions” not “boxes” were thefuture, employees believed that if they followedthe new map they were going to go from beingvery competent at the wrong thing to beingincompetent at the right thing. For many thiswas not an appealing proposition.

Senior executives at IBM complained: “Ifthese managers see the need for change, whyaren’t they changing?” The problem with thechange programme was not the destination butthe path to it. Many managers saw that thechange required capabilities such as teamwork,customer relationships and global integration,for which they lacked the capabilities. Without aclear indication of how they could move fromdoing the right thing poorly to doing it well, theyunsurprisingly chose to stay put. In other words,simply providing a new mental map with a cleardestination was not enough. These managersalso needed a realizable process that they couldbelieve would get them from here to there.

People often fail to act on the imperative ofchange, not because they do not recognize thegoal but because they don’t want to go frombeing competent at the wrong thing to beingincompetent at the right one.

Failure to finish

There is a third barrier to change. Even whenpeople see the need to start the change process,they often fail to complete it because initialefforts deliver less than brilliant results.Consider the ticket agent of an airline whoseexecutives decide on a new customer-centredstrategy. The company does a great job of encour-aging new attitudes among its agents. The ticketagent sees the need for the change and under-stands why the new strategy is the right one.The company even provides the tools and train-ing to help the agent believe there is a path that

will lead from doing the right thing poorly todoing it well. So, the agent begins to follow thepath. However, as with any new activity, initialattempts at providing the service aren’t thatgood. Customers yell at, complain to and neverthank the agent. Having put great effort into fol-lowing the customer-centred plan and gettingnegative results, the agent gets tired and stopstrying so hard. The change programme fails.

People are like the ticket agent. Sixty years ofresearch into human psychology has clearlyestablished that positive results reinforce behav-iour and negative results kill (psychologists say“extinguish”) it. Change fails because people failto complete it. People tire of their early efforts tofollow the new map and yield unsatisfactoryresults. So they quit and go back to an old mapand behaviour.

Remapping change

How can this knowledge be used to increase thechance of change succeeding? Just as there werethree forces that oppose change, there are threemethods that can kick-start it: conceiving, believ-ing and achieving.

Conceiving

How can people be helped to see the need forchange? Just as physical objects require con-trasts in light to be clearly seen, so mental mapsrequire contrasts to be clearly perceived. Peoplesee new mental maps when the contrast is madesimple and clear and when they are confrontedwith it. For example, Samsung Electronics is theleading brand of consumer electronic equipmentin Korea. It enjoys premium pricing and place-ment in stores. The head of the company had aproblem, however. He could not get senior execu-tives to see that the map that they followed inKorea did not apply in the US. There, brandssuch as Sony, not Samsung, lead the rankings ofconsumer electronics.

The chief executive helped his executives seethe need for change through contrast and con-frontation. To be precise, he put them on a planeto visit important retailers in the US. The con-trast of Samsung’s premium position in Korea

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and its bargain basement image in the US wasmade abundantly clear as the group went fromstore to store and saw their products not frontand centre but often placed in bargain bins. Thisexperience changed their thinking.

Believing

Even if people do see, there is no guarantee theywill act. So how can they be encouraged to act? Onthis issue long-term academic research providesclear insights. Three things need to be in place.

First, people need a clear target. In constructinga mental map for employees, managers must makesure that the target – be it a customer-centredstrategy, a transformation of the supply chain, amerger or any other kind of change – is clear.Second, people must believe that they have thetools, skills and knowledge necessary to hit thetarget. The target can be as clear as day but ifpeople do not believe it can be attained, they willnever act to make it happen. Third, people mustbelieve that if they hit the target, outcomes theyvalue will follow.

Of these, rewards are the ones on which man-agers typically focus – they worry about moneyas though it were the only motivating reward.While most people do value cash rewards,research has demonstrated that money is onlyone of several powerful incentives. Praise,growth opportunities, recognition, a sense ofaccomplishment and a feeling of belonging are allrewards of equal power and yet with substan-tially lower cost.

Achieving

Even after people get moving, a change pro-gramme will succeed only if there is a commit-ment to complete it. This requires “changechampions” – not in the executive suite but on themanufacturing floor or in the retail outlet, wherenew ways of behaving can make the difference inresults for the organization.

In summary, because early attempts to follow anew map generally do not deliver the desired posi-tive results immediately, people get tired ofputting in extra effort and getting poor returns onthat investment. Champions must be there on thefront lines to shout encouragement and praise.Without this counterbalancing influence, the nat-ural effect of initial poor results will simply causepeople to quit short of the finish line.

Change is complicated and challenging. However,managers can prevail if they recognize that suc-cess is built on a small number of important andbasic factors. If they ever hope to make progresswith the most complicated and far-flung globalchange initiatives, they must ensure that theyhave mastered these basics.

Copyright © Stewart Black 2002

This article is based on a book with Hal B. Gregersen: Remapping Change(Prentice Hall, 2002).

Further reading

Black, J.S., Morrison, A.J. and Gregersen, H.B. (1999)Global Explorers: The next generation of leader,Routledge.

Fullan, M. (2001) Leading in a Culture of Change,Wiley.

Kotter, J.P. (1996) Leading Change, Harvard BusinessSchool Press.


Even if people do see, there is noguarantee they will act.

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C hange management used to be taught separately from “regularmanagement”. Those were the days when you could look at organi-

zations and distinguish between periods of relative calm and shorterbursts of rapid change. This is no longer true. It is now a cliché to saythat the only constant is change itself.

This recognition has led leading companies such as General Electricto make middle managers attend programmes designed to help thembecome better at leading and managing change. At GE, the course iscalled the “change acceleration process”. These companies do notassume that managers automatically become better with experience atleading change. Instead, they support and accelerate managers’ learning.

Introducing change in complex organizations facing increasinglydemanding performance requirements is bound to involve a degree ofdifficulty. Still, given the amount of training and information available,one would expect that senior managers would increasingly avoid well-known mistakes and maybe discover new ones. Yet this is not so. Thisarticle highlights seven common mistakes made by senior managerswhen trying to implement change.

Addressing causes

Most organizational changes aim to modify employee behaviour. Managersmay want employees to become more customer-oriented, performance-driven, entrepreneurial or focused on shareholder value, to collaboratemore across departments or to be less risk-averse or less bureaucratic.

Too often, managers work hard at addressing the symptoms of aproblem without addressing its causes. Most of the time, they assumethat employees know how to behave in the way the company wants,

How to avoid the seven deadly sins

Managers continue to make the same mistakes when trying

to implement change in their companies. Yet this need not

be so, says Jean-François Manzoni.

Jean-François Manzoni is

an associate professor at

Insead specializing in the

management of change.

He is also director of the

Insead-PwC research

initiative on high-

performance

organizations.

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could do so if they wanted, but don’t want to.This leads the company to develop incentives toencourage employees to adopt new behaviour.The company might want employees to becomemore innovative and propose ideas, so it insti-tutes a suggestion scheme with rewards for thebest ideas. The board might want managers tothink in the longer term, so it produces a long-term bonus plan. Employees might need tocommunicate and collaborate better across func-tions. Therefore they introduce a sophisticatedsystem to work from the same database.

Pressed for results and short of time, too manysenior management teams latch on to the firstplausible solution that seems to address the prob-lem. Yet what about the underlying causes of thebehaviour? Rather than simply trying to makesymptoms go away, companies need to understandand address the causes that create the symptomsthey see. Causes include structure, process, tech-nology, organizational culture, the skills ofemployees and the behaviour of senior managers.

Persistence

One of the factors mentioned above is culture.The question senior managers ask in this respectis: beyond modifying temporarily employeebehaviour, how can I change the culture of theorganization and make this behaviour “natural”for people?

It clearly takes much longer to modify the cul-ture of an organization than it does to observechanges in the behaviour of employees. Forexample, managers can speedily make employeesmore customer-sensitive by using a forceful com-bination of rewards and punishments. This willnot work equally with all employees and will notbe sufficient to obtain perfect customer satisfac-

tion, but a strong investment in measuring cus-tomer service quality, coupled with powerfulrewards for good service and heavy penalties forbad service, will modify the behaviour of someemployees to some extent.

To become part of the organization’s culture,however, this attitude will need to be repeatedoften enough, by a large enough proportion ofemployees, over a long enough period of time, forit to become progressively part of “the way we dothings”. To be repeated by enough employees fora long time, the behaviour will also need to bereinforced by the organization. And even when,after 5 or 10 years, it seems to have become partof the organization’s culture, the company willstill have to reinforce the point occasionally. Thisis where companies often get it wrong.

Senior managers regularly say that they nolonger need to reinforce quality or customerservice because “it has become part of the DNAof the organization”. This analogy is dangerous.DNA is a permanent feature of human physiol-ogy, but the behaviour of employees inorganizations is not. Years of customer serviceheritage under Colin Marshall’s leadership atBritish Airways were not sufficient to withstandthe strategic changes under his successor. RobertAyling never said to BA staff, “Stop caring aboutcustomers”, but his emphasis on cost reductionmade it increasingly difficult for staff to followtheir customer service heritage.

It takes years to build an element into an organi-zation’s culture, but only a few months to destroythe effects of this painstaking, persistent work.

Over-focusing on content

Successful change clearly requires detailed plan-ning. Too often, however, companies developgreat project content – the details of what theproject is intended to achieve – and forget toinvest in examining how they will go aboutimplementing it. For example, in 2000 the execu-tive board of a large German multinationalinstigated a big change programme. There was aglamorous launch event, a catchy slogan and allthe documentation and supporting instrumentsyou could wish for. When asked about the imple-mentation programme, however, executives


It clearly takes much longer tomodify the culture of anorganization than it does toobserve changes in the behaviourof employees.

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replied: “That’s it, the programme is launched.Now it’s up to each unit head to cascade it to hisor her unit.” Even in German companies, with areputation for the discipline of their managers,things don’t happen this simply.

Most managers operate at or above capacity.They work long hours, take work home, go onshort holidays and remain in contact by e-mailand telephone. They no longer have slack time.This means a change programme must fight itsway to the top of their agenda for it to have achance of succeeding. Programmes don’t fighttheir way, but a group of people – a guiding coali-tion for whom this is a question of life or death –can force it on to the priority list. Whatever thechange, these people will have to make sure thatthe following five elements are widely under-stood and shared:

� Point A – where we are now – is no longer goodenough. It may have been sufficient before but notany longer. We must change.

� Where is point B? What does it look like? Whatskills and behaviours are needed?

� How does one get there? What’s the general path?Where can we stop and review progress on the way?

� It can be done. This will not go away. The companywill make this change happen and people can besuccessful in the new environment.

� It’s worth it. The benefits exceed the costs ofchange and the pain of getting there.

Too little time

A client once counted that in addition to his sup-posedly full-time job, he was a member of 18committees and task forces. “I feel like a salami,”he said, “sliced to death.” While 18 is an extremenumber, organizations too often assign managersto projects for too small a proportion of theirtime. At the risk of sounding simplistic, no oneshould be assigned to any project for less than aquarter of their time.

Managers assigned to too many projects andcommittees never have a critical mass of timeand energy to have an effect on any single proj-ect. This proliferation of projects also occurs atthe organizational level. One executive recently

cited 300 projects occurring at the same time inhis company. Another company employs 10 staffto track projects. These are sure signs of anexcess of projects.

The resistance fallacy

Most managers expect some “resistance to change”when they try to implement change. When man-agers are asked why people resist change, theirresponses tend to be strikingly similar:

� Resisting change is “natural”, it’s “human”,although some people do seem to display it morethan others.

� People are afraid of losing power, influence,prestige, money, career prospects or their job.

� Resisters don’t see the big picture; they are toonarrow-minded.

� They do not want to abandon their “comfort zone”.

� They suffer from the “not-invented-here” syndrome.

Yet when asked why they have ever resisted aninitiative within their company, a typical answeris: “Because I thought about what they wantedto do and I disagreed with the change. I did notthink this was the right thing to do or the rightway to do it.” The claim of careful considerationfollowed by rational, measured disagreement isconspicuously absent from the same managers’explanations for why other people resist change.

Too often, managers who expect strong emo-tional resistance trigger that very response. Theybehave in such a way (guarded, secretive,untrusting) that they tend to encourage the hos-tility they predicted. For example, managers whoanticipate trouble may not explain a forthcomingchange to employees but try instead to spring iton them, with predictable consequences. Ormanagers may expect employees to resist chal-lenging targets, so they push for even moredemanding targets with the expectation thatthey will “make a deal” and settle around theirinitial expectation. It can never be knownwhether employees would have resisted seniormanagers’ initial goal, but managers should notbe surprised that employees resisted senior man-agers’ “opening bid”.

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The “just do it” fallacy

When they are pressed for short-term results andare convinced that it will be impossible to getemployees to co-operate, too many senior man-agers resort to implementing change throughdirectives: “Henceforth, you shall do this.”Sending an executive order may give executives atemporary illusion of control. In real life, how-ever, many such directives are neither followed bystaff nor enforced by managers. The only thingsuch directives achieve is to weaken the credibil-ity of the senior managers who signed them.

There is no doubt that often directives canand do prove effective. Directives are more likelyto work well, that is, they are more likely to beimplemented intelligently, flexibly and durablyby the staff, when:

� there is a shared sense of crisis or when peopleyearn for a decision. The latter occurs whenconsultation has been going on for too long and isnot converging, or when opinions divide betweenoptions, leading to deadlock;

� the directive is sent by a trusted and respectedleader (who does not do this too often);

� top management is willing and able to enforce thedirective;

� the organization has a disciplined culture andpeople are used to following orders.

Note, however, how limiting these conditionsare. A clearly shared sense of crisis and a strong,charismatic leader are not everyday occurrences.Senior managers’ ability to enforce directives isoften limited by the difficulty of identifying whohas complied. Finally, disciplined cultures tend todevelop in organizations where trusted leadershave enforced directives for a long time, so staffhave internalized the benefits of implementingorders. These also tend not to be the most entre-preneurial and innovative companies.

Executives’ answers show that, as subordi-nates, they are well aware of the limitations ofdirectives. Yet when they act as bosses, they sus-pend disbelief and assume orders will be followed.Executives must rely less on orders and more onwell-managed implementation processes.

Why do this?

The “case for change” has become increasinglydriven by the demands of shareholders.Twenty years ago, most change initiativeswere caused by companies encountering acrisis and needing to survive. Today, change isincreasingly explained by saying that “share-holders are getting an annual return of 12 percent and they would like 15 per cent”. Evenwhen chief executives do not present it in thisway, employees are not fooled. For example, anexecutive in a Singapore civil service depart-ment recently explained how she was puzzledover the limited enthusiasm shown for her“productivity drive”. After some discussion,she realized the change was perceived as a wayof increasing the effectiveness and intensity ofwork – to allow the department to reduce thenumber of employees.

On one hand, executives are to be compli-mented for addressing issues before they reachcrisis proportions. It is easier and better tochange when you have the time and resourcesrather than when the knife is pressing againstyour throat. On the other hand, employees tendto be more willing to make sacrifices to helptheir organization survive than they are toincrease shareholder returns. This does notmean executives must give up their desire tomake their organization as competitive as possi-ble in an increasingly Darwinian race. It doesmean, however, that executives must give moretime and attention to marketing their changeproject to employees. Managers expend time andenergy identifying the value of their productsand services for customers. They must do thesame for their employees.

Empirical observation suggests that peopleare much more likely to accept painful changes


Today, change is increasinglyexplained by saying that“shareholders are getting anannual return of 12 per cent andthey would like 15 per cent”.

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when they see how today’s pain is connected tofuture gains. People must have hope that theirsacrifices will bear fruits for them. Similarly, cor-porate projects that explicitly address employees’needs and preoccupations are more likely to gainsupport than when customers and shareholdersseem to be the only beneficiaries.

Executives trying to sell pain to employeesneed to look hard for some gain, somewhere. Agood question to ask about “new corporatevisions” and “strategies” is: what are seniormanagers selling? Is there something in the“new vision” that makes it worthwhile for peopleto make sacrifices? What is in it for them? If youcannot find any gain in the offering, you knowit’s going to be a tough sell.

Carlos Ghosn, who led the revival of NissanMotors on behalf of French carmaker Renault,was clear in this respect when he joined Renault.For years Renault managers had been workingincreasingly hard to maintain market share andbecome ever more efficient. Meanwhile,Volkswagen doubled the number of cars it wasmaking. Shortly after arriving, Ghosn askedmanagers what it would take for Renault to selltwice as many cars after 10 years. He also initi-ated demanding efficiency programmes,specifying that some of the money would go toshareholders, some would be reinvested inimproving processes to make more cars andbetter cars, and some would go back to customersthrough reduced prices to stimulate demand.This clear and ambitious positioning had a majoreffect on managers’ attitudes and motivation.They were invited to abandon their defensiveposition and instead contribute to creating a

great car company. In other words, they weregiven a better reason to go to work.

ConclusionSeven classic mistakes made by senior managers whenapproaching change have been discussed. In part, thesemistakes continue to crop up because managers lackformal training in change management. Companies canno longer rely on managers accumulating change expe-riences, they must speed up their managers’ learningprocesses. The second major cause of unsuccessfulimplementation of change is insufficient time andenergy given to managing the process and marketingthe change to employees. Too many senior managersunderestimate how hard they must work at change tomake it happen. Some things can be delegated, butleading change requires sustained energy.

Copyright © Jean-François Manzoni 2002

Further reading

Argyris, C. (1993) Knowledge for Action: A guide toovercoming barriers to organizational change, SanFrancisco, CA: Jossey-Bass.

Dutta, S. and Manzoni, J. (1999) Process Re-engineering,Organizational Change and PerformanceImprovement, New York, NY: McGraw-Hill.

Kotter, J.P. (1996) Leading Change, Boston, MA:Harvard Business School Press.

Senge, P. et al. (1999) The Dance of Change: Thechallenges of sustaining momentum in learningorganizations, London: Nicholas Brealey.

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E ven a casual observer of international business cannot help but noticethat organizations seem forever in the process of reorganizing. Why

should this be so? Does it reflect economic reality or a superficial rearrang-ing of the corporate furniture? Might these reforms simply be part of acyclical fluctuation between centralization and decentralization? Do neworganizational forms require different HR capabilities?

Certainly, in many cases reform disguises routine behaviour: somechanges may simply correct the deficiencies of the last attempt atrestructuring. However, it would be cynical to dismiss all restructuringin this way. One explanation is that there is no “best” structure.Economic and industrial changes have produced patterns of organiza-tional restructuring. For example, after the second world war, growth ininternational markets based on mass production was accompanied byan expansion in the number of multinationals and led to the near-ubiq-uitous multi-divisional form (the “M-Form”). This was associated withhierarchy, planned career structures and large, centralized personneldepartments overseeing expatriates and home-based staff.

However, with fragmenting markets, shorter product life cycles andgreater variability of demand, the unwieldy nature of the multinationalsbecame apparent. Since the 1990s, other forms have been ascendant,characterized by smaller enterprises, outsourcing, joint ventures andalliances. These require new capabilities among managers, which in turnrequire changes in people management. Figure 1 indicates the relation-ship between drivers, forms, capabilities and HR management (HRM).As Figure 1 shows, while the drivers create “needs” for forms and capa-bilities, there is also an interactive relationship between these forms andcapability requirements. New methods of working and organizingrequire new capabilities; likewise, the capabilities required by the exter-nal drivers constitute a pressure for experimenting with forms. It isworth reviewing the main elements in Figure 1.

When internal boundaries become network relationships

Structured companies are dissolving into fluid networks of

alliances. John Storey contends that managers have much

to learn about coping with these changes.

John Storey is professor of

human resource

management and director

of research at the Open

University Business School.

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Drivers

As mentioned, global markets have become morefragmented and turbulent. Product life cycles areshorter and customers require more options duringthe life cycle of a product. Meanwhile, technologicalchange and the number of components in a productor service mean that few single businesses canfulfil customer demands on their own.

Similar challenges face the public sector: manygovernments have outsourced public services tothe private sector and reformed organizations thatremain. These reforms are explained as attemptsto make bureaucracies more responsive to thepublic’s needs. Nonetheless, they create pressurefor new organizational forms and capabilities.

Forms

Over the past 15 years, when measured byemployee numbers, the size of companies andworkplaces has decreased. Further, companies nolonger rely on hierarchy and command as primesources of direction and control. They haveresponded to turbulence and fluctuations in

demand by empowering employees, establishingcross-functional teams and taskforces, outsourc-ing non-core functions and focusing on processesrather than product lines.

In the 1980s and 1990s, the “strategic businessunit” became the focus in divisionalized corpora-tions. This period also saw dramatic growth innew enterprises funded by venture capital. Thesesmaller, fragmented units, while more responsive,were severely limited in their access to resourcesand capabilities. The trend towards vertical inte-gration, which characterized the corporations ofthe early to middle part of the 20th century, isbeing reversed. The value chain is becoming moreclearly de-segregated as each component becomesthe prime responsibility of a relatively independ-ent unit or set of units.


� Fragmented markets� Globalization� Shorter product life cycles� Technological change� Public sector agendas

Drivers

� Smaller scale� Delayered� Cross-functional teams� Crossing boundaries� Alliances and joint ventures

New forms

HRfunction

HR policiesand practices

� Agility� Flexibility� Responsiveness� “Management” across supply chain� Absorptive capability� Managing relationships across unit boundary

Capabilities/behaviour

FIGURE 1 Links between new company forms and HRM

The trend towards verticalintegration, which characterizedthe corporations of the early tomiddle part of the 20th century, isbeing reversed.

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In consequence, new kinds of relationshipbetween organizations are flourishing, includingjoint ventures and strategic alliances. The arche-typal form is now the network organization or“N-Form”, characterized by relationships thatextend beyond market or contractual obligations.Companies in network relationships expect toshare information, knowledge and learning. Theyexpect to reduce risk by collaborating across thesupply chain and thereby find mutually profitablesolutions. Under these circumstances, competitionis less between individual organizations and morebetween entire supply chains. But managing thesenew forms requires new capabilities.

Capabilities

Companies need to be more agile and flexibleunder these conditions. Standard operating pro-cedures and long reporting lines are no longersuitable. Rapid changes in customer demandrequire knowledge, or access to knowledge, to bedistributed around the company. In addition,since managers increasingly work across bound-aries, their ability to manage a complex supplychain is at a premium. Separate units need“absorptive capacity” – that is, the ability tomake sense of, and internalize, information frompartner organizations. They must be able toassimilate the knowledge they require and use it.

Where outsourcing has been established,employees must become skilled managers of con-tracts. Beyond formal contractual skills, theymust be good at managing relationships acrossunit boundaries, which is where appropriatehuman resource management policies can help.Organizations may no longer need to own certainresources, but they do need to be able to accessand use them effectively.

Examples of these trends can be found inmany countries, though it is important not toassume that large organizations have abandonedtraditional structural characteristics. Forms arestill evolving. In a survey of 458 companies inEurope by academic Andrew Pettigrew and col-leagues, 74 per cent reported an increase inhorizontal linkages such as joint purchasing,sharing R&D across units and sharing marketinginformation. The survey also found extensive

evidence of increased outsourcing (65 per cent)and formation of strategic alliances (65 per centrise). Reinforcing these findings, an OpenUniversity Business School survey of 2,700 com-panies in the UK revealed that 61 per cent weresharing knowledge with suppliers and 41 percent were sharing it “with other organizations inthe network”. These developments were found tohave implications for HR policies.

HR policies

As companies become more dependent on eachother, managing relationships becomes critical.Responsiveness and flexibility are required.Trust becomes important, along with the com-munication and sharing of knowledge. What arethe people management implications? How, andby whom, is behaviour to be influenced?

Conducting relationships through the supplychain or through a network makes hierarchicalcontrol impractical. Equally, relationships aremore complex than market transactions.Organizational structures are only one part ofdesign. Other aspects include measurement,norms, expectations, culture and power – andthese are often crucial in affecting behaviour.Some organizational reforms may present prob-lems for HR. For example, the shift from aproduct-based mode to a process-based one canprovoke anxiety and resistance. Employees mayfear that re-engineering will result in job lossesand extensive change. Maintaining commitmentto the job and organization may be difficultduring and after such reforms.

Narrow job descriptions usually have to beabandoned. For example, re-engineering consult-ants sometimes recommend that “workers”become “process performers”. If managed skil-fully, this offers opportunities as well as threats;roles may be enlarged as well as changed, andemployees given more autonomy, responsibilityand decision-making power. In the modern com-pany, claims author Michael Hammer, there is noorganization chart, no departmental manager andvirtually no hierarchy. The new psychological con-tract offers initiative in exchange for opportunity.In the long run, he maintains, “the quality of anorganization’s coaching is a key determinant of

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whether it succeeds or fails. Process design aloneis not enough. As more companies learn how tocreate the art of processes, the advantage willbelong to those with an institutionalized capacityfor staffing these processes with well-selected andwell-trained people.” In place of hierarchy, theprocess-focused organization will use cross-func-tional teams and taskforces. While some ofHammer’s claims exaggerate actual practice,there is substantial evidence of extensive take-upof these forms.

Managers face important HR challenges as aresult of these changes: how should they managepeople who are not direct employees, and howcan they maintain and develop relationshipsacross traditional boundaries? Should outsourcedworkers on the premises be included in commu-nications, invited to meetings and expected to beinvolved in commitment-building initiatives?

Where activities are outsourced, a critical issueis the potential loss of expertise. Once lost, cer-tain activities and their associated capabilitiesmay be difficult to recover. There is danger of“hollowing out” the organization. Innovationmay be jeopardized if there is heavy reliance onstrictly delineated services from external suppli-ers – even if service-level agreements aremaintained and monitored. There is a major chal-lenge for HR here if the organization becomesdependent on consultants and contractors.

The management writer Peter Drucker arguesthat companies will eventually outsource all func-tions that do not have a career ladder up to seniormanagement. He contends that corporations oncebuilt like “pyramids” will become more like“tents” and managers will take responsibility fortheir own career development by exploring theircompetencies and making good deficiencies.

Outsourcing has other implications for HR.For staff transferred from the original employerto a service provider, different countries presentdifferent legal regulations. These typicallyrequire that prevailing terms and conditions ofemployment are preserved. In some cases, a taskmay be outsourced and the employees nominallytransferred for day-to-day management pur-poses, while retaining their employment contractwith the original employer.

Network organizations often grow out of thefact that resources and knowledge are difficult to

locate within the boundaries of a single organiza-tion. These capabilities are more likely to befound distributed across a network of differentbusinesses and contractors. If this is so, HRmanagers have a major task to identify, retainand develop such resources. Part of a company’sknow-how resides in being able to bring togetherrelevant people and enable them to worktogether. In the boundaryless organization thereare huge uncertainties surrounding who, ifanyone, is managing these processes. In tradi-tional organizations there were relatively clearboundaries between insiders and outsiders. Rolesand lines of accountability were relatively clear.Under the network form, “contracts” (formaland tacit) are hybrid, that is to say, part market-based and part relational. In this environment,neither the traditional notion of win-lose compe-tition nor hierarchical command is appropriate.

Instead of developing plans and strategies inde-pendently, planning in the network organizationhas to be co-ordinated and shared with other par-ticipants in the network. Information must beshared to allow managers to solve problemsjointly. For example, GE Appliances collaborateswith major suppliers. Together they plan for, andrespond more quickly to, changes in demand andproduction schedules. Design, production, sched-uling and sales data can be co-ordinated. Monthlysales data is shared with 25 suppliers.

Co-ordination of a value chain or networkmeans employees need to be familiar with cus-tomer and supplier needs and preferences. Oneway in which this can be done is to invite suppli-ers and customers to meetings with employees,where outlines of goals, plans and problems canbe explained and discussed. Workers can also besent on customer and supplier field trips or sec-onded to these organizations. Further, companiesmay collaborate by giving taskforces specificaims across the value chain. A more ambitiousstep is to integrate information systems.


Co-ordination of a value chain ornetwork means employees need tobe familiar with customer andsupplier needs and preferences.

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The HR function

To what extent do the new forms represent athreat or an opportunity for HR? In some respectsthese developments allow HR to adopt a morestrategic role. Many failures in strategic alliances,mergers and joint ventures have been traced to aneglect of HR issues. This seems to present anopportunity. In addition, many of the challengesthrown up by the new forms put a premium onstrategic thinking about human resources.

On the other hand, new forms – with anemphasis on devolved authority, flexibility andvariability – may be inimical to HRM policies andprocedures. In the past, personnel departmentsgrew to a size where systems were uniformlyapplied across corporations. The classic age ofthe personnel department was that of the proce-dure manual. Contractual relationships are lessconducive to investment in training, for example.

There is a paradoxical relationship betweenHRM as a relatively new movement and changingorganizational forms. Old-fashioned personnelmanagement flourished in bureaucratic struc-tures with rigid job boundaries and detailednegotiations over minor contract variations; theHRM movement sought to overturn assumptionsabout its role in this environment. Yet large corpo-rations favoured notions of “the human resource”,career planning, commitment building and othertenets of HRM. A shift to small-scale enterprisesinteracting through short-term market transac-tions does not create a favourable climate for theexercise of HRM.

ConclusionsNew organizational forms require new ways of influ-encing behaviour. The traditional reliance on consistentprocedures and rules seems misplaced when corpora-

tions are increasingly fashioned around devolved,empowered and agile business units. Companiesalready face this dilemma. Following a period whenmany aspects of HR such as selection, developmentand career management have been devolved, down-sized HR departments are often uncertain aboutintervening in operational units. Some establish callcentres to deal with enquiries; other routine processesare being handled via corporate intranets.

When activities such as recruitment, induction, reloca-tion and payroll have been outsourced, what role willremain for the HR specialist? In a single organization,the question is difficult enough. When it comes to asupply chain or a network, it is evident that HR special-ists have a great deal yet to learn.

Copyright © John Storey 2002

Further reading

Chandler, A.D. (1986) “The evolution of modern globalcompetition”, in Porter, M.E. (ed.) Competition inGlobal Industries, Boston, MA: Harvard BusinessSchool Press.

Child, J. and Faulkner, D. (1998) Strategies of Co-operation: Managing alliances, networks and jointventures, Oxford University Press.

Drucker, P. (1993) Post Capitalist Society, New York:HarperCollins.

Hammer, M. (1996) Beyond Re-engineering, London:HarperCollins.

Pettigrew, A.M. and Ferlie, E.M. (2000) The InnovatingOrganization, London: Sage.

Storey, J. (ed.) (2001) Human Resource Management: Acritical text, London: Thomson Learning.

Storey, J., Quintas, P., Taylor, P. and Fowle, W. (2002)“Flexible employment contracts and their implicationsfor product and process innovation”, InternationalJournal of Human Resource Management, 13, 1.

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1

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If a man will begin with certainties, he shall end in doubts, but ifhe will be content to begin with doubts, he shall end in certainties.

Francis Bacon, The Advancement of Learning (1605)

Welcome to uncertainty

W hat shall I do about that new venture? Those sales predictions?That business lunch? How shall I handle that issue concerning

my customer, my boss, or even my partner?Chances are that while reading this you are putting off several deci-

sions that you are facing. Let’s ask a rather personal question. Howconfidently, really, are you facing up to these decisions and the actionsthat you will need to take? What’s more, how certain do you feel aboutthe outcomes? Do you have all the information that you need to makethe decision? How many of these issues are surrounded by uncertainty?

Let us start in a very practical way. When everyone on the planetseems to be facing rising levels of uncertainty in their lives, how can wecope? If you ask people in sports and the performing arts what charac-terizes the very best performers, the ones who make the really hardseem easy, you will hear that the finest performers seem relaxed withtheir sport or their art. They have all the time in the world to strike theball, play the note, hit the cue. On the other hand, the way to reduceperformance is to add in too much stress and tension.

So if you are a manager who is facing unprecedented levels of ambi-guity and uncertainty and you want to perform really well, thenrecognize that too much stress and tension is likely to get in the way.What is one of the prime causes of stress and tension? Ambiguity anduncertainty, of course.

Facing up to uncertainty

Phil Hodgson and Dr Randal P. White look at how

managers can deal with unprecedented levels of ambiguity

and uncertainty and still perform really well.

Phil Hodgson is

co-director of the Action

Learning for Chief

Executives Programme and

co-director of the

Executive Coaching Service

at Ashridge Management

College.

Dr Randal P. White is a

principal in the Executive

Development Group Inc,

Greensboro, NC and an

adjunct professor at the

Fuqua School of Business,

Duke University.

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Start with the behaviour

We have spent the past 10 years looking at whichbehaviours help people cope most effectively withuncertainty. To be an effective leader you need tomake decisions, often in the face of a lot of uncer-tainty. The more uncertainty surrounding adecision, the more the call for leadership. Butpeople in leadership roles are frequently unpre-pared or unable to admit to the rest of the worldthe ambiguity they face and the feelings of uncer-tainty that result. Indeed, it was often believedthat for a leader to admit to being uncertain wasan outright failure of their leadership.

The real work of leadership is embracing ambiguity

Leadership is what crosses the frontier betweenwhat we did yesterday and what we’ll do tomor-row. We have argued elsewhere (Relax, It’s OnlyUncertainty) that the real mark of a leader isconfidence with uncertainty – the ability toadmit to it and deal with it. Just to be clear, wethink ambiguity is how it is, and uncertainty ishow you feel about it. So the effective leader isalways coping with his or her feelings of uncer-tainty in the face of ambiguity.

Our research identified eight behaviours thatseemed to be most effective in helping peoplecope with ambiguity. We called them “enablers”because although they are largely behavioural –i.e. you can learn to do them – some do requiresupporting attitudes as well. Arguably, the mostsignificant of these is the first enabler, being amystery-seeker.

Once you eliminate the impossible, whateverremains, no matter how improbable, must bethe truth.

Sherlock Holmes

Motivated by what?

Image that everything was attractive. Imaginethat the more you didn’t know, the more youwanted to know. Imagine that maybe wanting toknow was too weak a description – there was a

need to know that drove you from whatever elseyou were doing and pushed you to continuallymake further enquiries about the thing that youdidn’t know. Imagine insatiable curiosity. This isa mystery-seeker.

Mystery-seekers are curious about everything.They are attracted to areas that are unknown andto problems that appear to have no obvious solu-tion. They question a lot; they want to know whoand why and how. They seek to understand and atthe same time use that understanding to explorefurther. Frequently, this exploration is of a playfulnature. They experiment, they test things out –they put themselves in the role of both the experi-menter and experimental subject. When they seea new building, they will stop and investigate it.They will take a new way home just to see if it ismore interesting. They well explore a new roadjust to see where it goes. When you go for a walkwith this person, they will continually be lookingover fences, wondering what is over the next hillor around the next bend. They will want tochange the walk based on what they’ve discoveredand then to modify it further to go and investigatesomething. They won’t stick to the plan if theplan prevents them from learning something orenquiring about something.

Mystery-seekers challenge others to be chal-lenged by the unknown. This can make fordiscomforting company. You thought you weregoing to a business meeting to confirm thebudget for a particular project, but instead youend up being drawn into a debate about how thatproduct could be modified and used to create anew market somewhere. In times of pressurethis can be seen as disconcertingly unfocused.And yet people who are highly motivated by mys-teries can be extremely focused. They are almostobsessive in wanting to know more and findingout about the thing they don’t yet know about.These people will also question things “for thehell of it” (and have been known to tear things


Mystery-seekers challenge others tobe challenged by the unknown.This can make for discomfortingcompany.

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up and start all over again because they thinkit’s the right thing to do).

Mystery-seekers actually seem to get energyfrom not knowing. Most people get some satisfac-tion when they discover the solution to aproblem, but people who are motivated by mys-teries seem to draw their energy when they don’thave a solution. Yes, of course, they get satisfac-tion like everyone else when they have solved aparticular problem. But the solving doesn’t stopthere. Once they have a solution, they will lookfor a second solution – a better one. And oncethey have a second solution, they will probablygo on and look for a third and a fourth. Forpeople who are strongly motivated by mysteries,it is the absence of the solution, the absence ofknowing how something works, that is the reallyattractive part.

People who have been motivated by mysteriesover the centuries have shown this insatiablecuriosity and drive to continue to want to under-stand. And then having understood, they willwant to go yet deeper. More than 400 years agoGalileo Galilei risked torture and imprisonmentbecause the best solution he could find toexplaining his astronomical observations wasthat the earth moved around the sun ratherthan, as the Bible implied, the other way round.His enormous curiosity kept him asking ques-tions about sunspots, phases of the moon, thephases of Venus, the moons of Jupiter – he neverstopped. Even when seriously ill and highly trou-bled by the pressure of the cardinal’s inquisition,he continued to work on a theory about the tra-jectory of bodies fired from cannons.

Half a millennium later British inventor andentrepreneur James Dyson, in struggling tomake a vacuum cleaner that did not require apaper or cloth bag, made more than 5,000 pro-totypes before he finally achieved the level ofperfection he sought. Having made his first pro-duction model, he carried on developing, andthat curiosity to improve on what was alreadyimproved upon and to enquire into yet furtherways of developing new ideas could not bestopped. Just two years after its launch,Dyson’s first product (an upright model) hadbecome Britain’s best-selling vacuum cleaner,overtaking sales of Electrolux, Hoover and

Panasonic. A cylinder model launched two yearslater achieved similar success. Passionate aboutdesign and engineering innovation, Dyson saysthat success is made of 99 per cent failure. Hispersistent curiosity took his business toEuropean brand leader in just five years againstmultinational competition.

But these people are not necessarily inventorsin the normal sense. What is fundamental aboutthem is that they are drawn instinctively to theedge of their knowledge rather than the centre ofit. It is for this reason that we believe that beingmotivated by mysteries may well be one of thefundamental enablers underlying the ability tohandle uncertainty. Mystery-seekers leave thecomfortable and safe centre ground of accepted“truth” and move to the edge of their knowledgeand their learning. They ask “why” and “whatwould happen if” and in general ask the difficultquestions. Later we will return to this theme, asit seems to be a precursor to what we call “diffi-cult learning”.

What happens if no one is very motivated by mysteries?

People who are not motivated by mysteries – whoare not mystery-seekers – use patterns of behav-iour in approaching the unknown that arenarrow and unvarying. They aren’t looking forvariation in their life; in fact, they prefer thingsto be the same as they always were. They are notlikely to go looking for new discoveries, newideas or some other variants in their lives.Sometimes this is a survival mechanism. If youhave been living in a state of civil war for theprevious several years, for instance, the lastthing you want is more change. What you wantis to go back to things as they were – to the sta-bility and the certainty that you used to enjoy.However, with traumatic situations put aside,the danger for an individual, an organization ora society that is not motivated by mysteries isthat they will be unaware of or unprepared totake up new ideas and changes that occur.

Consider the management of EncyclopediaBritannica. Two hundred and seventy years ofpublishing tomes convinced the encyclopedia’sleadership that there would always be a need for

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solid, leather-bound volumes that would beupdated by an annual volume containing thehighlights of knowledge and events of the previ-ous year. Because of this view of the world, theyrejected the fledgling Microsoft Corporation’soverture to produce a version on CD-ROM.Encarta, a competing product, was born as aresult of this rejection, but of course it didn’tbelong to Britannica. Britannica then facedchaos as it tried to retrench and catch up withthe revolution that had taken place in the knowl-edge marketplace. What if a member of thesenior team had been more motivated by myster-ies – had been attracted to taking a new wayhome, for instance – wouldn’t this crisis havebeen seen as an opportunity?

Motivated by mysteries is not a “mad scientist’ssyndrome” – it is a constant companion to every-thing else the individual surviving in uncertaintywill do. But it should not be overplayed to such anextent that all other matters of everyday life andsurvival and planning ahead are diminished. It issaid that Einstein, brilliant though he was, didn’talways recall his own phone number or address.However, Einstein was clearly highly motivated bymysteries. He described himself and his approachin this way: “I have no special talents, I am onlypassionately curious” and “the important thing isnot to stop questioning.”

In everyday usage, being motivated by myster-ies is about being attracted by the unknownaspects of new sources of data, new ideas, newopportunities. But it is also about integrating thatcuriosity into the rest of the skills and operationsthat we need to use. It’s about being fluid: thegreat ideas of tomorrow are the questions of today.

Difficult learning, or what did you learn today?

It has been our experience that those people andorganizations that embrace uncertainty are oftendrawn to doing things, inventing things, provid-ing services that others find more difficult to do,invent or provide. These individuals and organi-zations have learned to do the difficult and tosome extent make it routine.

Being first is usually seen as having an advan-tage, although the so-called first-move advantage

has been the downfall of an awful lot of dotcomstart-ups. But the level of difficulty of somethingcan be fleeting. On the one hand, the FosburyFlop, a perfect score of 10 in compulsory figureskating, a triple Lutz, or 1,000 Mhz chip speedwere once difficult but have become common-place. So now, even an ordinary competitor isexpected to do these things and an ordinaryproduct is expected to have these features.

What is difficult to learn to do may be difficultfor only the first learner or may be difficult forall who follow in his or her footsteps. Things thatbecome easy to learn (or copy), those things thatbecome commonplace, won’t differentiate oneactor from another, one organization fromanother. Those that remain elusive and hard tocopy will be seen as special or differentiating.

For each of us, difficult learning is taking onsomething totally new. It is deliberately puttingyourself on the steepest part of the learningcurve. For both individuals and organizations,true difficult learning is doing what someone elsehas never done.

It is our belief that any organization that istrying to catch up with its competitors, particu-larly in the fastest moving sectors such ase-business, bio-tech or pharmaceuticals, willneed to become good at difficult learning. Inthese fields, doing what your competitors did sixmonths later than they did it is just not goodenough. Your fastest moving competitors willalready have moved on again.

Overcome your fear of failure

How do you learn to handle difficult learning andhow do you teach it to the rest of the organiza-tion? First, recognize that most of us were nottrained to do it at school. Does that surprise you?Surely, you might argue, many of us worked hardat school and it certainly didn’t seem easy at thetime! This is where we come to the crux of diffi-cult learning and why it is … well, difficult.Difficult learning is difficult because it asks youto confront your fear of failure, of looking an idiotto yourself or others. Most of us have actuallybeen trained by our school systems to avoid fail-ure, which sounds reasonable enough until werealize that the fear of the failure is often whatprevents us from learning what we need to learn.


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Let’s do some time travel. Take your mind backto when you were at school and the teacher askedthe class: “What is the chemical formula forwater?” You know what will happen next. You’veseen this particular play many times. Those stu-dents who know the answer will call attention tothemselves, while those who don’t know will findsomething terribly interesting on the surface ofthe desk in front of them – and will do everythingin their power to avoid attention. The practicallearning is that when you are faced with some-thing you don’t know, you keep your head downand hope someone else deals with it.

Now fast forward to that same person at workand faced with a difficult situation in a publicarena such as a senior management meeting.The chances are that they will take the sameinstinct they learned at school into their organi-zation and when faced with something they don’tknow, their first reaction will be to keep theirhead down and hope that someone else willhandle it. Is this what we want in our organiza-tions? Of course not! But recognize that most ofus – and our observations seem to apply aroundthe world – have been through this major condi-tioning process at least 10,000 times as the resultof our schooling.

It is at a fundamental level that we have totackle fear of failure and the confidence to tacklemore and more difficult learning. At schools wereally want students who don’t know something tojump up and shout: “I don’t know, but I want tofind out.” Only if we fill the organizations of thefuture with people who are keen to explore theirlack of knowledge will our organizations be compe-tent at handling the things they don’t know. Onceorganizations become competent at this, they canstart making themselves competitive because theycan vastly increase their rate of learning.

As one of our teachers of social psychology usedto say: “We should hand you PhDs when we admityou. Then you have five years to convince us not

to take them away from you.” Translation: Showus you are willing to explore, make mistakes andengage in genuine learning, and then we will letyou keep the degree as evidence that you are trulya learner.

A final observation

Our expectation is that the trigger for developingyour skills in these areas comes from being moti-vated by mysteries – by your curiosity and byyour ability to take on a steeper learning curve –and to embrace difficult learning. The futureorganization will succeed because its employeeswill have no barriers to any area of learning anddevelopment and will be able to handle any situ-ation and any learning opportunity. They willembrace the unknown in their search to providegoods and services that differentiate them fromtheir competitors. And they will not fear the con-tinual search for new and better products thatwill keep them ahead in their marketplace.

The leaders who emerge in these companieswill embrace the unknown and they will relax inthe certainty that there is no certainty.

Copyright © Phil Hodgson and Dr Randal P. White 2002

Further reading

Hodgson, P. and White, R.P. (2001) Relax, It’s OnlyUncertainty, FT Prentice Hall.

FACING UP TO UNCERTAINTY 73

It is at a fundamental level that wehave to tackle fear of failure andthe confidence to tackle more andmore difficult learning.

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Culture and theworkplace 4

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Contents

A cultural evolution in businessthinking 79

John Weeks, Insead, and Charles Galunic,Insead

Business commentators routinely refer toclashing, changing or merging corporatecultures, yet there is little agreement on therole of culture in the organization.

All change in the customizedworkplace 85

John Kimberly, Wharton School, Universityof Pennsylvania, and Hamid Bouchikhi,ESSEC Business School, France

Just as Copernicus found that the sun did notrevolve around the earth, so managers arediscovering that the balance of powerbetween employees and companies isreversing.

Work as a life experience 91

John Kimberly, the Wharton School,University of Pennsylvania, and ElizabethCraig, the Wharton School, University ofPennsylvania

People have been rethinking the relationshipbetween their working and private lives forseveral years and the terrorist attacks in theUS in 2001 have brought the debate intosharper focus.

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C ulture is the blend of beliefs, attitudes, waysof thinking and behaving that permeates an

organization. It may not be consistent throughouta company, and because much of it amounts tosubconscious habits in different groups of employ-

ees it is remarkably hard to influence, if at all. Inthis part writers describe how culture emerges,and how social and economic changes in the early21st century are influencing corporate culturesthroughout the developed world.


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M ost new ideas are bad. Managers are bombarded by buzzwordsand fads fighting for attention. They protect themselves with good

reason: most of these concepts promise more than they deliver. Some newideas do get through the filters though, and become taken for granted aspart of organizational reality. The question is: what happens next?

In 1982 In Search of Excellence by Tom Peters and Robert Watermanintroduced the idea of organizational culture to managers. It trans-formed obscure ideas about the cultural aspects of organizations into apopular management fad. By the early 1990s, however, culture’s starhad been eclipsed by notions such as the learning organization and re-engineering, and Tom Peters had written Liberation Management torecant most of what he had said earlier about the beneficial effects ofstrong culture. Now, a decade later, the literature on organizational cul-ture has still not fulfilled its promise of telling managers with anycertainty how they can use culture to create organizations that arepleasant, passionate and profitable. Indeed, for the most part, it hasstopped trying.

In fact, there is no straightforward link between organizational cul-ture and performance. Instead, culture has come to be recognized as afundamental aspect of business organizations. It cannot be seen inde-pendently of structure, incentives, technology and strategy, and must bemanaged in concert with them. Culture is so well established as a prop-erty of corporations that hardly a day goes by without reference in thebusiness press to changing, clashing, merging or emerging corporatecultures. This is the legacy of the first generation of research about cul-ture in organizations.

The problem is that the idea of organizational culture became taken forgranted before there were compelling answers to basic questions. What isculture? How does it operate? Can it be managed? If so, how? When we arepressed for definitions, it turns out culture means different things to differ-

A cultural evolution in business thinking

Culture is a well-established property of corporations, say

John Weeks and Charles Galunic, yet managers still find it

hard to influence. First, they need to understand exactly

what it is and how it develops.John Weeks is an assistant

professor of

organizational behaviour

at Insead.

Charles Galunic is an



at Insead.

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ent people. No wonder, then, that leaders find orga-nizational culture so difficult to manage and sooften a wrecker of corporate marriages.

It is time to update our common-sense under-standing of organizational culture to reflectresearch about the evolution of culture. This willmean discarding some cherished myths aboutorganizational culture: truisms held over fromits days as a management fad that have turnedout to be false.

Infectious ideas

It has become common to boil cultures down intoone or two pithy adjectives. Yet when lookingclosely at well-known organizations, what do wefind? Even in the most “entrepreneurial” compa-nies, some parts are command and control.Cultures that look “cohesive” from one anglelook insular from another. Such stereotypes,though not exactly wrong, are unhelpful over-simplifications that dissolve when it comes tomanaging the organizations they supposedlydescribe. Stereotypes would suffice if organiza-tions were monolithic, but they aren’t.

A better way to think of organizational cul-ture is as a pattern of beliefs and behaviours,assumptions and routines – various elements ofculture collectively called “memes” – distributedacross the organization, usually in an unevenfashion. When new ideas arrive, they infect theminds of some people before others and of somepeople more than others. When a new routineproves successful in one part of the organization,it may or may not spread to other parts.Organizations are overflowing with initiatives,projects, programmes, best practices, ways ofthinking and behaving, all competing for thescarcest resource of all: human attention.

Some ideas are explored, some practices areadopted. Others are ignored or abandoned. Somemanagement fads find an audience, others are

quickly rejected. Some memes, in other words,spread from brain to brain in greater numbersthan others. This is what is meant when peopletalk about organizational cultures evolving: it isthe cumulative result of all of this competitionamong memes.

The tenets of evolutionary theory and the gen-eral idea of memes and cultural evolution arewell described in books such as Darwin’sDangerous Idea by Daniel Dennett and TheSelfish Gene by Richard Dawkins. In brief, when-ever you have variation, selection and retentionof a reproducer (be it an organism or an idea,belief or behaviour), evolution will occur.Selection assumes competition for a scarceresource, retention assumes the ability of thereproducer to copy itself accurately and variationassumes that this copying is not always perfect.Darwin’s theory is that evolution occurredbecause nothing in life – in particular, no copyingprocess – is faultless. There is something won-derful about that. More prosaically, anyone whohas spent time in organizations can be sympa-thetic to the idea that they too reflect the ideathat perfection is unattainable. But just howdoes cultural evolution in organizations work?

In organizations, culture evolves as a processof the selection, variation and retention ofmemes. Memes are competing for the chance ofpeople in the organization noticing their publicexpression – in words, behaviour, cartoon form orwhatever – internalizing them and then repro-ducing them. This raises the question: whichones will be selected for reproduction?

One reason for the selection of certain memesis that they contribute to the company’s success.It makes sense for ideas and behaviours that helpthe organization do better to be selected moreoften than those that worsen its performance. Youdon’t have to be a cynic, though, to see that excep-tions to this rule may be more common. There aremany reasons to expect cultures to evolve in waysthat don’t necessarily lead to better performance.In the first place, whether or not a particularmeme contributes to success may not be as impor-tant as whether it is recognized as doing so. Ifmanagers misunderstand the source of organiza-tional success or failure, they may reproduce thewrong memes. If they are ignorant of better prac-tices elsewhere, they may think they are doing as

PART 4 CULTURE AND THE WORKPLACE80

Cultures that look “cohesive” fromone angle look insular fromanother.

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well as can be expected and not recognize a needto change. Moreover, if managers are more inter-ested in furthering their own career than incoming to the aid of their organization, they maybe expected to reproduce those memes that theythink further their self-interest. The culture ofthe organization, the distribution of its memes,will reflect this.

Managers shape culture in these two cases byusing information technology and measurementsystems to make the consequences of actionsclearer and by using incentives to align individ-ual and organizational interests. The meme’s-eyeview of culture suggests these efforts can beeffective only if they are tightly integrated withbusiness decisions that shape the day-to-dayselection of which memes to reproduce.

Finally, it is important to realize that oftenpeople don’t pay conscious attention to whichmemes they reproduce. Some they reproducetime and again simply out of habit. People tendto select a new meme on the basis of how well itfits with the memes they already have. And theyreproduce others just because they are catchy.Academic studies by Bruce Kogut and UdoZander have shown that whether an idea is imi-tated or not depends as much on how easy thatidea is to imitate as on the content of the idea. Inother words, some memes spread like viruses orlike a tune that people can’t stop humming.

Memes are selected not just because of theirfunction or their fit but also because of theirform. What this suggests for managers is thatwhen it comes to new ideas, roles and structures,packaging matters. Even the best ideas will haveno impact if they aren’t sold to people in such away as to get through their filters. Internal mar-keting matters.

Variation

Selection is only one part of the evolutionaryalgorithm, however. Selection’s mill requires thegrist of variation. There is an irony in managingmemes. The very fact that most new ideas arebad means that people need more of them, notfewer, to survive in fast-paced environments.

This supply of diversity comes from threesources. First, memes may come from outside

because people are brought into the company orbecause employees repeat ideas they pick up outside. Second, memes may be created serendipi-tously through mutation because mistakes aremade in copying ideas and behaviours. Third,memes may combine, just as organisms are newcombinations of the genes of their parents.

There is a big difference, though, betweenpotential variation – which is huge – and realizedvariation. This is the difference between thememes that are available to the senses and thosethat are noticed. Only the latter have a chance ofbeing selected. Now here is another irony.Research has shown that when the potentialvariation gets too large, the realized variationgets smaller. This is the result of informationoverload. People realize how little of the informa-tion available there is time to sort and select, sothey may reject ideas just because they are new.The resulting anxiety can paralyse people intoscreening out anything but information close towhat they already know. This can lead to the per-verse result that the more diverse the workforcebecomes, the less people learn from each otherbecause they close their minds and seek out onlythose who are similar to themselves.

Just making information available and hiringmore diversely, then, is not a solution. Managerscan, however, increase the realized variation and soenhance the evolution of the organization’s cultureusing several methods. The first is to allow moretime and playfulness in the search for novelty.Keeping people focused on what they know well isa good way to reproduce ideas the organizationalready has, but a bad way to foster innovation.

The second method is to realize the costs aswell as the benefits of socializing new employeesso that although they look different, they actthe same. Diversity in the workforce seems anirrelevance or a political correctness to manymanagers. When seen from an evolutionary pointof view, though, diversity isn’t just about thedemographic characteristics of gender and eth-nicity. It is about diversity of memes, of the ideasthat people from different subcultures inside andoutside the organization bring with them.Managing diversity means maximizing the possi-bility of those memes spreading. It means, inother words, learning from one another.

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This requires the organization to have astrong set of core values that are widely sharedand stable. The key, though, is that the coreshould be as small as possible while still creatingthis powerful identity. Everything else should beallowed to vary. Realizing the potential of thisvariation requires one more element: social net-works. What is needed, in other words, arepeople who are networked into various subcul-tures and who can bring together ideas. This ishow the recombination of memes takes place.

When it comes to networks, power is not just aresult of having more contacts but of havingmore diverse contacts. Yet again, it is easy to seethese networks as a luxury, not a necessity.Organizations with the latter view understandknowledge management not as a buzzwordinvolving technology but as about their culture.

Finding the balance

The flip side of variation is retention. Selectionand variation are sexier subjects – literally, in thecase of biological evolution – but without reten-tion there is no evolution, just random change.People often talk about culture as if it had inertia.It seems to block change, or at least is often usedas an excuse when changes fail. This is not auto-matically the case. Cultures change all the time:the distribution of memes is constantly shifting. Itis not culture change that is hard, it is managingthat change. Preserving a desirable culture can beas hard as changing one that is not liked.

Nonetheless, preservation seems to be some-thing at which companies excel. Indeed, theeconomic historian Alfred Chandler suggeststhat the modern company replaced older struc-tures of economic organization specificallybecause of its superior ability to retain increas-ingly complex knowledge accurately.

What may come as a surprise, however, is thatpeople take this retention for granted at their peril.For example, quality in manufacturing is aboutincreasing retention, making sure that productionmemes are reproduced in exactly the same wayevery time. The danger of focusing on variationand neglecting retention is that evolution requiresa balance between the two. To see this, considermutations – errors in the copying of memes.Perfect replication is difficult enough with memesexpressed as words. People have a hard timerepeating exactly what they have just have heard,and although they are better at imitating the gistof a message, misunderstanding is common. Withmemes that are expressed in behaviours, however,the problems are much worse.

Academics Christopher Bartlett and SumantraGhoshal give the example of the difficulty of accu-rately copying the “matrix form” of organizationalstructure. Many companies made the mistake ofcopying the easily observable characteristics ofsuccessful matrix structures, but failed to recog-nize and duplicate the subtle, underlying“memetic” expressions of compromise and con-sensus. So, these companies found their matrixstructures worked worse than the models theywere imitating.

The message of the evolutionary theory of cul-ture, though, is that some of these errors willturn out to be innovations. Mutation is a failureof retention, but it is an important source ofvariation. As the science-fiction writer WilliamGibson says: “The future is here – it is justunevenly distributed.” Selection, variation andretention work at cross purposes, acting aschecks and balances on each other, and togetherthey produce the splendours of evolution.

As this article has outlined, the meme’s-eyeview offers a powerful alternative to the old viewthat made organizational cultures seem so easy todescribe and so hard to change. Part of the power,however, lies in the insight that there is muchpeople can’t control and shouldn’t want to controlif they want a well-adapted culture. This perspec-tive suggests many ways in which culture can beshaped and points to the importance of day-to-day management over large-scale change pro-grammes. It is a perspective, though, that urgesour humility as much as it reveals our ability.

Copyright © John Weeks and Charles Galunic 2002


It is not culture change that is hard,it is managing that change.Preserving a desirable culture canbe as hard as changing one that isnot liked.

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Further reading

Blackmore, S. (1999) The Meme Machine, OxfordUniversity Press.

Dawkins, R. (1976) The Selfish Gene, Oxford University Press.

Dennett, D. (1995) Darwin’s Dangerous Idea, NewYork: Simon and Schuster.

Galunic, C. and Eisenhardt, K. (2001) “Architecturalinnovation and modular corporate forms”, Academyof Management Journal, December(http://faculty.insead.fr/galunic).

Gladwell, M. (2000) The Tipping Point: How littlethings can make a big difference, New York: Little, Brown.

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F ive centuries ago, the Polish astronomer Nicolaus Copernicus real-ized that the earth revolves around the sun, not the reverse. In

management, we may be in the midst of a similar revolution, in whichthe relationship between the company and the employee is inverted andthe “customized workplace” replaces the hierarchical, military-inspiredmodel that has served so long.

Comparing the dominant managerial models of the past two cen-turies will help in understanding the concept of the customizedworkplace and how it differs from other management methods. Thiswill also clarify the importance of flexibility – for the worker and for thecompany.

Evolving models

More than tools and techniques, it is the company’s flexibility andresponsiveness to stakeholders that differentiates management models(see Figure 1). The 19th-century model, still alive in many industriesand areas, does not respond to shareholders, customers and employeestogether. The company is often family-owned and managed as a closedsystem. Customers buy whatever is made available. Employees arehired and fired at will and have little voice or choice. For them, opportu-nity lies in finding a paternalistic capitalist who can make life lesspainful and the constraints of work more tolerable.

In the past 50 years, customers and shareholders have been moreproactive and managers have needed to become more responsive tothem. As a result, market-driven strategies and flexible organizationshave developed. In contrast to the 19th-century model, 20th-centurymanagement is more open. The company actively listens to customersand shareholders and involves them in decision processes. In the 20th-

All change in the customized workplace

As Copernicus discovered that the sun did not revolve

around the earth, so managers must face up to employees

who will not subordinate themselves to companies. Hamid

Bouchikhi and John Kimberly examine the implications.Hamid Bouchikhi is a

professor of strategy and

management at ESSEC

Business School, France.

John Kimberly is Henry

Bower Professor at the

Wharton School of the

University of Pennsylvania

and Novartis Professor in

Healthcare Management

at Insead.

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century model, customers are the main drivers ofthe company’s needs for flexibility and employ-ees are required to adjust their work schedules,tasks, holidays, geographic assignments and jobsin light of these needs. Because they are at thereceiving end, workers often complain about thiskind of flexibility.

The challenge for management in the 21st cen-tury will be to invent flexibility based on theemployee. To do this, managers will have to cus-tomize the workplace to suit both customers andworkers. The company will have to apply the logicof marketing, developed for customers, to rela-tionships with workers. Much as managers had nochoice about dealing with shareholders and cus-tomers, they will also have to cope with thedemands of autonomous and proactive individualswhose collaboration and commitment can nolonger be taken for granted. Managers will haveto adapt to the sociological context of this century.

Sociological context

The challenges facing companies force us tomove beyond the limits of conventional businessthinking and consider the consequences of socio-logical trends. The foundations of managementwere established in the 19th century and built ona view of the worker as a reluctant individualwhose efforts needed to be predefined, monitoredand sanctioned. This still underpins much mana-gerial action, but it is outdated.

According to British sociologist AnthonyGiddens, post-traditional societies are marked bya declining role of tradition and hierarchy in gov-erning people’s attitudes and behaviour.Disenfranchised from tradition, the individualdiscovers a new form of autonomy and discretionin making life decisions. In this context, individ-uals draw on an extensive body of knowledgeabout social life and actively develop a sense ofself-identity through strategic life planning.People are making choices in areas where beforethey did not or could not. For example, they aredeciding about their physical appearance, sexuallife and gender, parenting and eating habits. Ifthe 19th century witnessed the advent of the


The challenge for management inthe 21st century will be to inventflexibility based on the employee.

Low

Low

19th-century management

Responsiveness neither tocustomers nor people

Manufacturing-drivenorganization

20th-century management

Responsivenessto customers

Market-drivenorganization

21st-century management

Responsiveness tocustomers and people

Customized workplace

High

High

Individual’s demand for flexibility

Orga

niza

tion’

s ne

ed fo

r fle

xibi

lity

FIGURE 1 Management styles over three centuries

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business entrepreneur, the late 20th century sawthe birth of the life entrepreneur.

Caught between micro and macro socialchanges, the company faces challenges to itslegitimacy. It is no longer perceived as favourablyas it has been and is criticized on many fronts.The proportion of people for whom a traditionalcareer is no longer the natural path is increasingand many of those who work for establishedcompanies are drawing less and less on the com-pany for their sense of identity. Successive wavesof restructuring and downsizing, and the devel-opment of a debate on employability, areinducing individuals to dissociate their fate fromtheir company’s.

The labour market in developed countries isalready affected by these trends. Companies intraditional sectors, hampered by their unpro-gressive image, are finding it difficult to hirepeople. In other industries, companies are com-peting for a limited pool of talent. Youngerpeople seem to be increasingly attracted to self-employment, entrepreneurial opportunities andthe professions. And the business press regularlycontains reports of high-flying executives whoquit comfortable jobs to start a business, work asconsultants, or simply to spend more time withtheir families.

These trends reflect a need for people toreclaim control over their lives. As the companylistens to and involves people in these decisions,in the same manner that it has internalized theneeds of customers, customization of the work-place will inevitably emerge.

Collision coming

The Hawthorne experiments of the 1930semphasized the importance of a motivated andinvolved workforce in achieving organizationalgoals. Techniques were designed to enhancemotivation and involvement. However, in spite ofsuch efforts, surveys continue to show lowemployee satisfaction and little trust in manage-ment. In a 1997 Financial Times article, RobertTaylor wrote: “At the other end of the satisfac-tion stakes, British workers were among themost discontented. ‘Despite significant attemptsat corporate restructuring and re-engineering,

employee attitudes towards the organization andthe efficiency of their work are among the leastfavourable in Europe’ says the [InternationalSurvey Research] report. ‘Despite a strong com-mitment to total quality management in manycompanies, attitudes to the quality of work per-formance are more critical than in any otherEuropean country.’”

Unless we think, as some senior managersmay, that people are never satisfied, this datamay point to a more serious problem.

Managerial innovations had a limited impactbecause they were driven by the company’sneeds. People don’t come first. The record ofdownsizings, restructurings and lay-offs is nodoubt largely responsible for the distrust of man-agement. Aaron Bernstein in a 1998 BusinessWeek article reported the findings of anothersurvey showing employees’ trust in managementhad declined in the 1990s (less than 50 per centin 1997). Even more telling, 70 per cent of seniormanagers thought that employees trusted man-agement. The gap suggests that the reality of theworkplace may not match the promise of man-agement discourse.

After thriving on marketing and product cus-tomization, companies will have to transfer thismindset to their relationships with employees.Management will achieve the next Copernicanrevolution only when it acknowledges that itsobject – the individual – is no longer willing to sitpassively on the receiving end of managerial poli-cies and incentives. The life entrepreneur will nolonger be the object but a subject of manage-ment. This evolution will require a genuineco-exercise of power instead of “empowerment”,with its implication that power is “owned” byone party and delegated to the other.

The new workplace

Because it represents a radical departure fromaccepted principles and techniques, the cus-tomized workplace cannot be conceived withouta radical shift in thinking. The main differencesbetween management models over three cen-turies are summarized in Table 1.

In contrast with traditional management,where structures and systems are derived from a

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pre-defined strategy, the design of the cus-tomized workplace will seek to balance whatmatters for the company (its strategy) and whatmatters for individuals (their life strategies). Theabove trends suggest that the individual willreclaim some control over fundamental aspectsof work life: what to work for, content, when andwhere, how to accomplish the work, with whomand for whom to work, for how long to work,direction of career plan and skills needed topursue the personal career plan.

People’s needs and aspirations have histori-cally been viewed as disturbances formanagement but they represent the startingpoint for the design of the customized workplace.Balancing companies’ needs for predictabilityand effectiveness with diverse individual needsrequires a new employment contract, one wheremanagers and employees confront their strategicand life plans and seek common ground.

Although the customized workplace has yet tobe invented, a few organizations display some of

its characteristics. For example, at Semco, theBrazilian company discussed in Ricardo Semler’sbook Maverick, employees are involved in decid-ing about siting factories and buying machinery.Further, they have substantial freedom in settingtheir work schedule and control the investmentof a portion of the profits.

At Metanoiques, a French medium-sized com-pany specializing in collaborative software, thereare no employees. Every member owns an equalshare of the company and acts as an independententrepreneur with profit and loss responsibility.The company does not operate from a head officeand people are free to organize their own sched-ules. Internal collaboration is carried outthrough extensive use of information and com-munication technology.

The founder of Compagnie Française deDefense et de Protection sold this small Frenchinsurance company to employees and agents, anddismantled the head office. He hopes to create a“community of independent entrepreneurs”


Theory of personhood

Information andknowledge

Purpose of work

Identification

Conflict

Division of labour

Power

19th century

Interchangeable muscleand energy

Province of managementalone

Survival

With a company and/or theworking class

Disruptive and to beavoided

Managers decideEmployees execute

Concentrated at the top

20th century

A subordinate with ahierarchy of needs

Dominated bymanagement and shared ina limited way

Accumulation of wealthand social status

Identify with a social groupand/or company

Disruptive but tolerated.Settled through collectivebargaining

Managers decideEmployees executethoughtfully

Limited, functional,sharing/empowerment

21st century

Autonomous andreflexive individual

Widely diffused

Part of a life plan

The disenfranchized self

A normal part of life

Employees and managersdecide and execute

Diffused and shared

TABLE 1 Contrasting the paradigms

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where associates are free to conduct their localbusiness and use network-like mechanisms to co-ordinate with other members of the organization.

Therese Rieul, founder manager of KA-L’informatique douce, a medium-sized computerand software retailer, refuses to write formal jobdescriptions because she believes staff shoulddesign their own jobs. She believes managersshould be concerned with outcomes and leavepeople free to work out the best way to do a task.

The customized workplace is primarily aphilosophical attitude towards people manage-ment issues. It entails a replacement of thetraditional hard-nosed, macho attitude with onethat is more open to people’s needs and more tol-erant of conflict and divergence. The customizedworkplace requires recognition of individuals asstrategic life planners. In 20th-century manage-ment, even its most enlightened versions, thecompany is the only strategic planning agent.Managers form a strategy and then seek the opti-mal organizational and incentive structure tomotivate people to implement it. In the cus-tomized workplace, people can influence strategy,in a sense more consistent with their own lifestrategies. This evolution will not come easilygiven the deep-seated belief that strategy belongsin top management’s territory.

Sharing information and responsibility for thecompany’s situation with employees is anotheringredient of the customized workplace. Contrary tothe idea that people never make decisions that canhurt them, sharing a problem with employees canbe an effective turn-around strategy. BertrandMartin, the former chief executive of Sulzer France,joined the company at the height of a crisis. Insteadof devising a plan unilaterally, he told employeesthat the company’s fate was in their hands andchallenged them to find a solution with him.

Experience shows that people will commit agreat deal of time, resources and self-identity intrustful relationships. After being pushed to the

background by “scientific management”, theimportance of trust in business life is beingrediscovered. Trust must be put at the core ofthe employment relationship. Its importance isparticularly evident in times of hardship. Only atrusting workforce can voluntarily make sacri-fices and explore with management every optionto improve the organization’s condition.

However, trust must be built before hardtimes, and for trust to grow, reciprocity isrequired. People will put part of their fate inmanagers’ hands only if managers put some oftheir own fate in the hands of people. Reciprocitydevelops only when each partner in a relation-ship is potentially vulnerable to the decisions ofthe other. Managers who seek control can neverestablish trust.

In the customized workplace, individualsactively plan and negotiate their employment.Managers will find this transition difficultbecause they have used policies designed foraggregate groups, such as blue collar workers,hourly workers or part timers. In the customizedworkplace, people can no longer be managed inthis way. They need to be treated as individuals.The challenge for managers will be to achievesufficient predictability with individuals whosebehaviour is less subject to control.

Achieving organizational predictability in thecustomized workplace requires mutual commit-ment and accountability. The customizedworkplace is not viable if it is made up of employ-ees who can change their behaviour or withdrawfrom the business at any time. The type of con-tract formerly reserved for senior executives willhave to be more widely diffused. When peopleare bound to the company for a pre-determinedtime, they no longer fear being treated as dispos-able assets and the company can count on theirfull collaboration for the life of the contract.

Because it is based on participation, powersharing, trust, negotiation, reciprocity and com-mitment, the customized workplace will requireadult, as opposed to charismatic, leadership.Because shareholders, customers and employeesare equally important, the customized workplacewill require a governance structure where theinterests of stakeholders can confront and bal-ance each other.

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In the customized workplace,people can influence strategy, in asense more consistent with theirown life strategies.

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Are these ideas out of touch with the oftenharsh realities of the marketplace? Perhaps. Butthe kinds of changes described here have beendeveloping over decades. Capitalism needed thebetter part of the 20th century to win the battleof the free enterprise. It will now have to win theheart and soul of the free person.

Copyright © Hamid Bouchikhi and John Kimberly 2002

This article is adapted from a chapter by the authors in Chowdhury, S.(ed.) Management 21C: New Visions for the New Millennium (FinancialTimes Management, 2000).

Further reading

Bernstein, A. (1998) “We want you to stay. Really”,Business Week, June 22.

Giddens, A. (1991) Modernity and Self-identity,Stanford, CA: Stanford University Press.

Semler, R. (1993) Maverick, New York, NY: Warner.Taylor, R. (1997) “Europe’s unhappy world of work”,

Financial Times, May 14.


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M ost people spend a large part of their lives in employment rela-tionships. Do they do so simply to earn enough money to

support a particular lifestyle? Is the exchange of time and talent for eco-nomic well being at the heart of the contract between employer andemployee? Or is there a deeper explanation involving a sense of achieve-ment and meaning?

In answering this, it should be remembered that today’s employmentenvironment is very different from that of a century ago. Then,common law covering “master” and “servant” governed relationsbetween employers and employees. After a long period of labour unrestand market reform, such relations were embedded in a more bureau-cratic, rule-bound system and were more equitable and less exploitative.Employees enjoyed greater job stability and security in exchange forloyal service.

A new employment era is beginning, one of flexible, non-bureaucraticorganizations. People enjoy a growing power to choose among employ-ment opportunities and to negotiate terms and conditions. What aspectsof employment relationships are important to them as they make thesechoices?

Current rhetoric would have us believe that employability hasreplaced employment security as the basis for employment contractsand that people choose work primarily based on economic returns andprofessional aspirations. However, there are significant gaps betweenthis rhetoric and the reality of employment.

Employability

The employment security model is built on the exchange of time andloyalty for economic return and the possibility of more responsibility,

Work as a life experience

Trends towards workers rethinking the relationship

between their working and private lives have been

accelerated by recent terrorist attacks, say John Kimberly

and Elizabeth Craig.John R. Kimberly is Henry

Bower Professor at the



and Novartis Professor in

Healthcare Management

at Insead.

Elizabeth F. Craig is a

doctoral candidate at the


University of Pennsylvania.

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status and reward. The terms of the contract,whether explicit or implicit, are clear: as long asthe employee produces at levels acceptable to theemployer, employment is assured. Becauseopportunities to advance are strongly tied to sen-iority, it makes sense to devote energy to thecompany. Loyalty was given in return for jobsecurity and individual careers tended to unfoldwithin the company.

This model flourished after the second worldwar, a time of relative prosperity and steady eco-nomic growth. However, the 1970s and 1980screated a dilemma for companies. The loyaltythey had engendered limited the flexibility theyneeded to meet the new challenges of global com-petition and technological innovation. Employeesskilled in older technologies became a liabilityrather than an asset. Although workers could beretrained, many companies instead modified theterms of the contract with employees to empha-size “employability” over security. The newcontract placed responsibility on the company toprovide workers with the requisite job experi-ences and training opportunities to make thememployable – whether with the company or else-where. Employees became responsible forseeking out opportunities and for managing theircareers. Advancement and rewards were tied toachievement rather than to seniority.

The shift in the underlying contract coincidedwith other trends: part-time employment,increased use of contingent labour, outsourcingand project-based work. The result for the com-pany was, in fact, increased flexibility. It couldeliminate jobs and adjust staffing levels inresponse to competitive threats and the need fornew skills and competencies.

The result for employees was less clear. If acompany did provide the job experiences and

training opportunities central to the employabil-ity rhetoric, employees might be able to managetheir careers successfully. The effect on employeeloyalty and commitment, however, was ambigu-ous. Company investments in employees’professional development were likely to engenderloyalty even as they enhanced employees’ oppor-tunities in the labour market.

Conventional wisdom holds that the shift fromsecurity to employability changed the way work-ers viewed the employment relationship. This“new deal” at work engendered a “free agent”mentality. When combined with robust economicconditions, the arrangement led many employeesto strike deals of their own, changing employersoften in response to sweetened offers and profes-sional challenges. Employers found they werelosing the people they wanted to keep as a “war”for talent intensified. And employees often foundthemselves paying as much attention to callsfrom headhunters and to job postings on the webas to their jobs.

Transactions

The movement from security to employabilityrepresents a shift from relationship-based ties totransaction-based connections between employerand employee. In relationship-based ties, part ofthe “glue” binding employer and employee issocial and psychological. Feelings of belongingand liking are promoted. One stays because onefeels part of something “bigger” and one’s per-sonal identity becomes tied to the workplace. Ina transaction-based model, by contrast, the deci-sion about staying with an employer is a purelyinstrumental calculation. If an opportunity pro-vides economic gain and professional challenge,there is reason to pursue it.

Has the shift transformed the average workerfrom a company loyalist to a free agent? Evidenceis mixed. First, many companies have not in factmade this shift. There is a spectrum of commit-ment to employability, with high-tech and dotcomcompanies being more committed to the newmodel than others. Many adhere to the oldermodel. However, while some companies claim tohave made the shift, not all have implementedpractices that actually enhance employability.


Company investments inemployees’ professionaldevelopment were likely toengender loyalty even as theyenhanced employees’ opportunitiesin the labour market.

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Finally, there is evidence of a backlash; peoplehave found it hard to balance the demands ofwork with those of their personal lives.

People have discovered that market-basedemployment entraps at the same time as itempowers. In self-defined careers, there are noclear boundaries between the person and career.Because the limits on accumulation of skills andprofessional achievement are to a large extentself-imposed, and because performance pressuresare unrelenting, one can for ever strive tobecome more employable. Eventually, lives becomecomplicated, overloaded and stressful – and if sat-isfying, only in a narrow sense.

People are beginning to retreat from theemployability model and to frame their sense ofself and their lives in terms of balance and affili-ation. The challenge is how to live satisfyinglives in a world of employability. People may takeinto account how they wish to allocate their timeacross a spectrum of competing demands andopportunities, where they find a sense of commu-nity and how they derive a sense of meaning andpurpose in what they do. The answer to thequestion of why people enter and stay in employ-ment relationships goes beyond money andprofessional opportunity.

Psychologists, of course, have been saying thisfor years. However, it is a message that is easilyoverlooked by companies eager to restructure,downsize or reinvent themselves to address compe-tition. And personal reappraisal of the employmentrelationship is a trend that was accelerated in theUS by the events of September 11, 2001.

September 11

People often reassess their lives and make pur-poseful life changes in the wake of tragedy.Understandably, the attacks in the US led peopleto question the priorities in life. Many commen-tators have discussed the impact of the terroristattacks on people’s views of life and work.Although some people returned to work withrenewed dedication, many others questionedtheir choices and made changes.

Not surprisingly, some of the most immediatechanges were seen among survivors of theattacks. Chuck Harcourt of Morgan Stanley’smunicipal bonds department told The New York

Times: “Before all this, I’d be afraid to ask for aday off – or a morning off – to take my kid to thefirst day of school. It’s true. We spent more timethere than with most of our family members.Now it’s just surreal to look at that skyline andto think we used to be in one of those buildings.”

Even those who were not personally affectedby the attacks examined their priorities: theplace of work, family, friends and career success.There is anecdotal evidence that many peoplewant to work less, spend more time with theirfamilies and friends and participate more in theircommunities. The press runs regular storiesabout people who are turning down job offersand promotions or quitting jobs that keep themfar from families or that require too many hoursat work or too much commuting.

It seems that in spite of the attention compa-nies have paid to the work/life balance, they havenot got it right and recent events have exacer-bated the problems. Many companies haveformal programmes aimed at enhancingemployee retention and boosting morale. Some,for example, have attempted to become “familyfriendly”, with flexible hours, on-site childcareand, in the extreme, concierge services. However,the problem of perceived imbalance remains.

The work/life balance campaign merelyallowed employees to admit that they had livesoutside work. Admitting that personal livesmight sometimes take priority over their profes-sional lives, however, was still taboo. In anenvironment focused on accumulation andachievement, the attention given to affiliation,community and meaning was squeezed out. Astudy in 2000 by academic Paula Rayman con-firmed that people seek balanced lives,meaningful work and a sense of community fromemployment. Eighty-four per cent of people intheir twenties and thirties cite a work schedulethat allows enough time for family as the mostimportant thing in a job. This is just as true formen as for women – both ranked family time asmore important than money, power and prestige.In fact, 71 per cent of men would take a pay cutfor more time with their families.

Market research by Yankelovich Partners intoUS values, lifestyles and motivations confirms anapparent shift in priorities. The firm’s July 2001survey found that 72 per cent of people in their

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twenties and thirties express a desire to do wellat work, but also to have plenty of time left overfor interests outside work. This figure is up from56 per cent in 1999.

Marcy Scott Lynn, 29, who quit as a corporatecommunications manager for Levi Strauss afterthe terrorist attacks, told Business Week: “I don’twant to die wishing I had done something thatmeant more.” The magazine also described 34-year-old Nico Taborga’s new-found need forcommunity. A financial analyst for CohenFinancial, he lost all enthusiasm for his job afterthe attacks: “He felt more of a sense of commu-nity in the line to give blood than he did in hismacho, me-first office.”

These data indicate that people have beenappraising how work fits into their lives andplacing increasing importance on other parts oflife for some time. Fifty-seven per cent of thosein the Yankelovich survey said work was animportant part of who they were. That figure,while significant, was down from 71 per cent justa year earlier. Significantly, nearly three-quartersof respondents said they were evaluating whatthings were working in their lives and what werenot two months before the attacks.

As experience with the employability modelhas accumulated, assumptions about why peopleenter and stay in jobs have begun to show signsof wear. In the US and elsewhere, the events ofSeptember 11 both intensified feelings that hadbeen emerging and effectively made it legitimatefor people to give voice to their ambivalenceabout work and life choices. These events alsoprompted many to assert other priorities: adesire for affiliation and community, a search forgreater meaning in life and choices about how tospend time.

The future

Three themes emerge. People are seeking com-munity. Whether community is found in church,synagogue, a volunteer service organization,social club or simply in friendship, it provides asense of belonging and a sense of being part ofsomething bigger than oneself. They are alsoseeking greater meaning in their lives. Thebrutal realization that life could be snuffed out

without warning motivates a search for involve-ment in things that really matter and, in somecases, prompts a realization that life has becomedominated by less consequential concerns.Finally, people are reviewing how they spendtheir time. They are open to new and differentpatterns of behaviour in balancing work and life.

Why are these themes significant? First, theyhelp answer the fundamental question of whypeople enter and stay in employment relations.The emerging dissatisfaction with the employa-bility model may be at least partly attributable tothe emphasis it places on the transaction-basedconnection to the employer – and on monetaryrewards and professional opportunity as the cor-nerstones of the employment contract.

Second, the themes provide clues for compa-nies wishing to develop HR policies thatencompass employees’ changing priorities andbeliefs. It may be that companies need to beginthinking about work more broadly as an experi-ence in which relationships play a central role.Individuals, especially younger people who arejust entering the workforce, do not bring withthem any of the assumptions that underlie exist-ing work practices.

This can be seen in the very different, casual,playful and diverse workplaces that have sprungup. By creating an employment “experience”that is more in tune with employees’ needs andinterests and more consistent with a youngergeneration’s expectations, these companies havebeen able to attract talented, mobile, independ-ent people. Although several such companieshave fallen victim to the slowing economy, thenew attitude is alive and well. Companies look-ing to become “employers of choice” would dowell to determine how they might provide a simi-larly inspiring employment experience.

They might begin by designing an attractiveemployment experience much as web search com-


Individuals, especially youngerpeople who are just entering theworkforce, do not bring with themany of the assumptions thatunderlie existing work practices.

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pany Google has done. Google attracts employeesby selling the “experience” of working there. Aswell as offering employees a chance to be part of acommunity of people doing “meaningful” work,the company claims to treat family, leisure andpersonal well being as important parts of employ-ees’ lives. Employees can bring their children towork, enjoy a weekly game of roller hockey, parktheir scooters and pets in their cubicles, work outin the gym, then take a sauna or have a massageand sit down at a grand piano in the company’slobby when the musical urge hits.

Companies must recognize that work is only apart of employees’ lives and must reconfiguretheir practices and expectations accordingly.Those that do so are likely to be able to attractand retain talented people, benefiting from theircommitment whatever the duration of the rela-tionship. Thinking of workers as consumers ofemployment experiences is the best place tostart. Then creating employment experiencesthat engage the whole person is the next step.

Copyright © John Kimberly and Elizabeth Craig 2002

Further reading

Cappelli, P. (1999) The New Deal at Work, Boston:Harvard Business School Press.

Ciulla, J. (2000) The Working Life: The promise andbetrayal of modern work, New York: Times.

Pink, D. (2001) Free Agent Nation: How America’s newindependent workers are transforming the way welive, New York: Warner.

Rayman, P. (2001) Beyond the Bottom Line: The searchfor dignity at work, New York: St. Martin’s Press.

Rousseau, D. (1995) Psychological Contracts inOrganisations: Understanding written and unwrittenagreements, Thousand Oaks, CA: Sage.

Tulgan, B. (2001) Winning the Talent Wars, New York:Norton.

Yankelovich Partners (2001) “The Truth aboutEmpowerment ... Getting it right in uncertaintimes”, Monitor Report.

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Gender and familyissues 5

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Contents

Lifting the corporate barriers towomen 101

Herminia Ibarra, Harvard Business School

Companies have launched internal initiativesdesigned to retain and develop femaleemployees, yet few are reaching seniorpositions. What are the forces that hamperwomen's career development?

Corporate help is at hand forworking parents 107

Stewart Friedman, the Wharton School,University of Pennsylvania, and EllenGalinsky, the Families and Work Institute

Families with a working single parent or withboth parents in full-time jobs have becomethe norm. As demand for childcare grows,companies have to think of new ways to help.

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A ny company wishing to succeed in a com-petitive market needs to retain its talented

employees. Managers are increasingly turning tothe provision of more flexible, family-orientedbenefits in the hope of attracting and keepingthe best staff. As the authors in this part point

out, though, any advances that companies havemade in the good years are put under pressure inan economic downturn. And in the promotionand development of women managers, corpora-tions still have much work to do.


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N o world-class company has solved the problem of retaining andpromoting women. The “leaks in the pipeline” are obvious –

women are hired at the entry levels in equal proportion to men. Butthat 50 per cent dwindles to less than 10 per cent at senior levels andfurther if one looks to the leadership of the company. Worse, for manycompanies these poor results persist in spite of efforts to address thecauses of the exodus.

After a decade of experimenting with “women’s initiatives”, compa-nies have learned about what works and what doesn’t. Gone are thedays when companies expected to improve recruitment, stand back andwatch the intake grow. They now pay attention to career developmentand look for subtle barriers within their culture. Mentoring pro-grammes and diversity workshops can help or hinder depending ontheir design and the extent to which employees support them. Andwork/family balance issues that are so easily attributed to women areamong the central concerns of future leaders – male and female.

Companies are making progress, so why aren’t they getting betterresults? It is primarily because they are not treating women’s initiativesas change efforts: with a clear rationale, strong sponsorship and a real-istic execution plan.

Leading the change

Every change effort must start with a simple question: “Why are wedoing this?” Without this, the plan will not get off the ground. Forexample, a senior manager of one UK company described a recruitingevent in which a young woman asked what his company was doingabout the “glass ceiling”. He was not convinced about the company’sinitiatives but mentioned a recent programme. Later, the audience let

Lifting the corporate barriers to women

Companies have started to do more to retain female

employees, yet few are reaching senior levels. Herminia

Ibarra investigates the forces that hamper women's career

development.Herminia Ibarra is a

professor of business

administration at Harvard

Business School and a

visiting professor at

Insead.

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him know he had seemed hypocritical in givingan answer devoid of conviction. The episode ledhim to create a group to build a business case forthe programme.

Build a business case

A business case serves two purposes. First, ittells people why they should support the pro-posal and shows it is not just rhetoric. Second, ittells external stakeholders what the company istrying to accomplish and why. As corporatescrutiny heightens, public opinion has becomemore important.

A business case is built on data. What is thegender composition of the entry-level pool? Andof the places from which the company recruits?How do these figures compare with senior ranks?One transport company was sure it was buildinga good career path until managers looked at suc-cession planning. It turned out that two andthree tiers down from the top the figures were asbad as at the executive level. There was nocareer path.

Attrition levels are also important. Researchby one investment bank found that womenstayed with the company longer. The perceptionwas that they were leaving in droves to stay withtheir children; in fact, men had shorter tenuresbecause they were more likely to switch compa-nies. If women do have higher rates of attrition,when do they leave and why? A Korn/Ferry studyof women executives in the US who left forentrepreneurial opportunities showed that themain reasons cited for leaving were the opportu-nity to take risks, a seat at the decision-makingtable and generous pay for their performance.

A good business case also recognizes that fig-ures tell only part of the story. It is easier tomeasure the opportunity cost of failing to attractor retain the best and brightest than to measurethe long-term consequences of frustrating thecontribution of those who stay.

Have high-level champions

No change programme succeeds without leader-ship from the top. Women’s initiatives flounderwhen backed only by the HR department.Sponsorship from the top means senior womenand men in the company. For example, the divi-sion head of an investment bank started bysending the three most senior women on a leader-ship programme. He hoped they would learn whatother companies were doing. More importantly, hewanted them to form a “guiding coalition” to helphim lead the women’s initiative.

Even if the chief executive is an ardent cham-pion, without a united front, sceptics anddetractors will highlight potential difficulties.This can greatly slow change.

Invest in a diagnosis

To treat a problem, one has to find its rootcauses. Most people in companies think theyknow where the problems lie. However, compet-ing explanations, interpretations and perceptionscan be as numerous as they are varied. A gooddiagnosis, based on a broad cross-section of thecompany and reliable data, is a prerequisite.

Getting input from all groups that make upthe organization is an important early step. TheUK law firm Clifford Chance, for example,decided to involve women lawyers at all levels ina series of workshops designed to uncover why sofew women were progressing to partnership.Including junior people is critical not onlybecause they form the recruits for senior levelsbut also because generational differences oftenshape experience and opinion.

Diversity practices do not always travel wellacross national borders. US practices are oftenseen elsewhere as flawed by excessive politicalcorrectness. In some European countries,women still feel that women’s initiativesamount to granting special, undeserved rights.And every organization has its local cultures.One group may be persuaded that the companyis a meritocracy, while another may be con-vinced it is far from it. Managers must gaugethese different viewpoints before selecting theright course of action.

The data on which such a decision is basedmust be accurate and unbiased. Exit interviews

PART 5 GENDER AND FAMILY ISSUES102

If women do have higher rates ofattrition, when do they leave andwhy?

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provide a harsh lesson. Psychological researchhas shown that once people have left a company,they explain why they left in ways that bear onlya weak correlation with earlier reasons for leav-ing. Women, for example, may say they areleaving the company to stay at home with thechildren, when their true motives are more com-plex. Surveys of people who leave also uncoverdissatisfaction that may just as well apply tothose who stay. If you want to understand whogoes and who stays, or who moves up and whoderails, you cannot just study people who leaveor the success cases because you will not knowwhether the others are any different.

Benchmark

Any company can draw from a wealth of experi-ence when planning women’s initiatives. Differentdivisions – or competing organizations within thesame industry – may have adopted easy, low-costapproaches. A common approach, for example, isfor managers to participate in industry workinggroups that share best practices.

Once it is known what a reference group isdoing, it is important to tailor the practice to suitboth specific needs and local cultures. IBMEurope, for example, formed a multinational task-force to explore best practice on staff flexibility. Inthe US, it had good results with telecommuting.However, a survey pinpointed potential problemswith attitudes towards working from home inother countries.

Mentoring programmes are another goodexample. Many organizations have jumped onthe mentoring bandwagon without giving muchthought to their own needs. One company, forexample, launched a programme in which verysenior people were assigned to mentor high-potential women. Later they discovered thatwhat the group most needed was the detailedcoaching that only someone closer to their levelcould provide.

Manage expectations

Organizations worry about raising expectationswith women’s initiatives, fearing that everyonewill expect results right away. It is certainlytrue that when a change programme islaunched, expectations can run high. But that

is exactly what managers want, otherwise noth-ing happens.

The trick is being able to raise urgency whilesetting realistic expectations. Interim objectiveshelp and having the right comparison group iscritical. When sceptics say, “There is not muchwe can do – our business is a 24/7 business andwomen just don’t want to work like that”, ithelps to know how your company compares withothers in the same industry. An interim goalmight be an incremental move up in the rank-ings, relative to similar companies.

Accountability practices also help. Schlumberger,a Franco-American oil services company, forinstance, has incentives for managers based ontheir ability to recruit women.

Hard and soft levers

It is tempting to try to find the one programmeor practice that will make all the difference andeven more tempting to pick something tangiblesuch as a daycare centre or a recruiting pro-gramme. But basing an initiative on one issue,or on issues that can be dealt with exclusivelyas a matter of policy, is a mistake. Managersincrease their chances of success by interveningon many fronts and by using “hard” and “soft”levers. Hard levers are matters of policy thatare identifiable, such as flexible work guide-lines, recruiting practices and accountabilitytargets. Soft levers involve culture and valuesand so are harder to identify and implement.They are concerned with the way people aredeveloped and include mentoring and leader-ship training.

The challenge is how to design “hard” and“soft” levers that work together. JournalistRochelle Sharpe found that US companies withexcellent family-oriented benefits were amongthe worst in promoting women to senior levels.Flexibility practices are important but are nosubstitute for training and succession planning.

LIFTING THE CORPORATE BARRIERS TO WOMEN 103

Managers increase their chances ofsuccess by intervening on manyfronts and by using “hard” and“soft” levers.

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Career development

Career success requires three ingredients: theright assignments, mentors and a good network,and a credible image. An initiative that takes allthree into account has a better chance of success.

Access to important positions

The job histories of “star” senior managersinvariably show that they have passed throughcertain posts. Historically, women have been lesslikely than men to get these jobs. A 1994 Centerfor Creative Leadership study, for example,found that women were less likely than men tobe given start-up and turnaround assignments,precisely those that grow the competenciesneeded in a senior executive.

Deloitte Touche started its women’s initiative byanalyzing what assignments in each practice areaprovided better opportunities for advancement.Top-rated women were reviewed to ensure thatthey were assigned to high-visibility clients andstrategic initiatives. This yielded good results interms of new women partners. However, theresults were disappointing for women moving fromjunior partner to company-wide leadership roles.To improve the proportions at the highest level, thecompany created an executive course that broughttogether top women partners to develop intangibleskills such as leadership and negotiation.

Mentoring and networking

Few make it to the top without strong mentorsand networks. That is why mentoring pro-grammes that link women at all levels with moreexperienced guides are now common. Yet nomatter how good the connection, a single mentoris not enough. In a 1997 study of managers infour large corporations, I found that having amentor matters less for moving up than having abroad mix of professional contacts that includesmen and women.

That is why many organizations now supple-ment mentoring programmes with women’snetworks, conferences and off-site meetings.IBM, for example, started bringing togetherexecutive and high-potential women in 1997 todiscuss barriers and possible remedies. From the

start they discovered an unexpected pay-off –attendees found peers, mentors and role modelsthey would never otherwise have met.

Events that bring together women from avariety of organizations are increasingly popular.“Women on Wall Street”, an annual conferenceorganized by Deutsche Bank employees, hasgrown from an internal company event to aninstitution that draws together thousands ofwomen. Through such events companies canenlarge the pool of role models until the numbersat the top catch up.

A matter of style

Women may drop out of the contest for top jobsbecause of subtle nuances of image and style. Inprofessional services firms, for example, I foundthat women were much more likely than men to bedescribed as “not aggressive enough” or “lacking inpresence” in appraisals. These image problemswere barriers to reaching partner status.

Acting on this finding can be tricky as organi-zations select their leaders on the basis ofintangible but critical qualities, such as theirability to inspire others. Revamping performanceappraisal forms to make such criteria moreexplicit is a starting point, but it will not beenough. Research suggests that part of theanswer lies in helping women find role modelsfrom whom they can learn both substance andstyle. That is why networking events are soimportant. Many organizations also offer moreintensive coaching and targeted executive devel-opment aimed at developing the more intangibleskills of a senior executive. Until recently thesewere discounted as “remedial programmes”.Today, with the increasing popularity of personalcoaches, they are in high demand.

ConclusionWhen women make choices about whether to stay orgo, whether to invest a lot or a little, much goes intothe calculation. One side of the equation includesmeasurable variables: am I given important assign-ments? What kind of training is available? Can Ibalance work and home life? The other side weighs“soft” factors about meaning and membership: do I


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feel valued in this company? Are there role models forme here? Do I belong? To win the war for talent forwomen, companies will have to take account of bothsides of the equation.

Copyright © Herminia Ibarra 2002

Further reading

Ibarra, H. (2000) “Making partner”, Harvard BusinessReview, 78, 2.

Kanter, R.M. (1993) Men and Women of theCorporation, New York: Basic Books.

Korn/Ferry International, Columbia Business School andThe Duran Group (2001) “What women want inbusiness: a survey of executives and entrepreneurs”(http://www.kornferry.com/focus/pubs_womens_study.asp).

Kotter, J. (1995) “Why transformation efforts fail”,Harvard Business Review, 73, 2.

McCracken, D.M. (2000) “Winning the talent war forwomen”, Harvard Business Review, November.

Sharpe, R. (1994) “The waiting game”, The Wall StreetJournal, March 29.

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F amilies with a working single parent or with both parents in full-time jobs have become the norm in the developed world and even

among the growing middle class in some developing countries. As thistrend continues, the need for novel and effective arrangements for thecare of young children continues to grow. Although government policiesin support of these efforts are evolving, the burden has been largelyborne by private businesses in a number of countries. While companieshave made considerable progress, the growth of their initiatives facessubstantial obstacles, particularly as the economy weakens.

Since the 1990s, companies have tried to address the personal andfamily needs of their employees. Our September 2000 survey shows thatleading US companies have moved from single-issue programmes andpolicies to meet the needs of employees with young children towards amore strategic, comprehensive approach. Many approaches are based ongiving autonomy to employees about where, when and how they work.

In addition, the number of creative public-private partnerships hasgrown. In the process, some companies have taken an interest in thecare of all children, not just those of their own employees. These compa-nies are redefining their relationship with the community. Yet in acompetitive world, businesses and community organizations face con-siderable challenges in advancing such programmes.

Accomplishments

Two major trends are evident in the US. First, family-friendly policieshave grown from a piecemeal collection of human resources benefitsinto a social movement characterized by a strategic, integratedapproach. Unlike a decade ago, when the emphasis was on dependentcare, many companies now offer comprehensive services that support

Corporate help is at hand for working parents

As demand for childcare from working parents grows,

companies have to be more creative in their provision.

Stewart Friedman and Ellen Galinsky outline the latest

developments.Stewart D. Friedman is

practice professor at the



and director of the

Wharton Work/Life

Integration Project.

Ellen Galinsky is president

of the Families and Work

Institute.

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the co-ordination of work and personal life.Second, and perhaps more importantly, work-place innovations increasingly depend onexternal stakeholders, such as communities,schools and government.

Companies give several reasons for supportingworkers in their family or personal roles.Foremost is increasing competition in the so-called “war for talent” – the desire to recruit andretain the best employees – and the sense thathelping staff to integrate work and personal lifeincreases their desire to go the extra mile for thecompany. As employees have become morediverse, with a variety of lifestyles and familystructures, companies have set up taskforces andcommittees to help resolve work–life issues usinga range of programmes. Training is needed toensure that employees are aware of how to makethese programmes useful and that supervisorssupport their implementation.

Multinational companies such as Merrill Lynchand Glaxo offer programmes including childcarecentres, summer camps, flexible work arrange-ments, help with dependents, resource andreferral for childcare, tuition, adoption reimburse-ment and parenting education. They also offerback-up childcare, family childcare homes, before-and after-school programmes, family leave, flexi-ble work arrangements, wellness programmes andcampaigns for women’s achievement.

Rather than imposing a standardized pro-gramme, some US companies such as VerizonCommunications, Allstate and Prudential havedesigned flexible programmes to meet employ-ees’ needs. These programmes (in addition tothose described above) include family illnessdays, college scholarships and preparation,summer camp, dependent care grants, lactationfacilities, parenting seminars and materials,adoption assistance, employee recreation eventsand discounts, resource and referral.

Applying a comprehensive approach towork–life initiatives is not limited to large compa-nies. Even small start-ups with limited resourcesrealize the importance of a comprehensivework–life programme. For example, ECS, an envi-ronmental risk management specialist in the US,offers flexible hours, reimbursement of tuitionfees, resource and referral services, extendedparental leave, health programmes, adoption leavewith subsidies and on-site childcare.

Federal agencies are also adopting a compre-hensive approach. The US Department of Justice,for instance, has created a comprehensivework–life programme. Such programmes wouldhave been unthinkable 10 years ago. Similarapproaches are also evident in academia, forexample at New York University. A decade ago theuniversity had no maternity leave other than thestatuary minimum of six weeks of disability. Nowfaculty members get a year off for the birth oradoption of a baby. This helps to level the playingfield for female academics and encourages men tobecome more involved in family life.

Implementing such flexibility is never easy.Companies must continue to educate managers onthe value of workplace flexibility and its compatibil-ity with superior business results. At the heart ofthese approaches is a respect for employees’ choices.

Partnerships

Companies no longer assume they can addressemployees’ work–life issues alone. They areincreasingly becoming involved in some sort ofpublic-private partnership to address childcareor education needs. In the US, such partnershipsare developing at local, state and national levels.Some are aimed at improving the quality of, andaccess to, childcare and school-age care pro-grammes; increasing the number of accreditedprogrammes; and improving training and pay forproviders. According to a survey by the Familiesand Work Institute, 11 per cent of companieswith 100 or more employees are involved in part-nerships between the public and private sectors.

For example, the American BusinessCollaboration for Quality Dependent Care (ABC)is a group of companies that aims to improve carefor children and the elderly. Between 1995 and2000, 18 lead companies and 50 local partners


Companies must continue toeducate managers on the value ofworkplace flexibility and itscompatibility with superior business results.

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invested $100m to ensure high-quality dependentcare services in communities for ABC employees.The group invests in communities that have largeemployee populations, as well as communitieswith critical business or employee needs. Theneeds of collaborating companies and employeesshape the community strategy. Detailed assess-ments begin the process by determining workers’needs and care availability. The results are used todevelop projects that aim to address specificissues. Participating companies make the finaldecision on whether to fund these projects.

Some companies have their own funds tofoster private-public collaboration. These includemajor companies such as IBM, AT&T, LucentTechnologies, Johnson & Johnson and MerrillLynch, which together have allocated over $100mto programmes. Such programmes have forgedpartnerships with local and state governments,universities and other social organizations.Companies have come to believe that it is partlytheir responsibility to address childcare and edu-cation, not only for their employees but for allchildren. Collaboration and public-private part-nerships are seen as the best way forward. Thesecompanies believe that services for their employ-ees cannot be improved without significantimprovements in early childhood care. A numbertake the view that public-private partnerships canbe more effective in bringing about change thanfederal and state governments have been. In fact,Marriott has helped establish a group to addresspublic policy, called Corporate Voices for WorkingFamilies. However, some business leaders remainwary of partnerships because they worry aboutbecoming bogged down in bureaucracy.

These activities demonstrate that companiesare expanding their definition of community asthey enlarge their sense of responsibility – to thecommunities where their employees live andeven nationally (a trend that has become evenmore pronounced since September 11).

Doing business

Communications technologies have led to changesin traditional business models. Boundariesbetween work and other domains are becomingmore permeable, and the speed with which we canmove across these domains is increasing. Time at

work can be used more intelligently, with agreater share of it dedicated to customers andother external stakeholders, including home andcommunity, and less to low-value activities. At thesame time, staying connected with people at work,at home and in the community is getting easier.

Yet these changes bring potential conflicts aswell. The number of hours worked (often on site)is still used as a primary measure of an individ-ual’s productivity and commitment, even when astraightforward connection between time at workand results no longer holds. More creativity willbe needed when measuring people’s contributions.

Towards this end, Ford has launched a leader-ship development initiative for high-potentialmiddle managers. Participants are required toexperiment and demonstrate how they canimprove results by integrating work, home andcommunity lives. They receive feedback fromparticipants and have to show that they canaccomplish things without the constraints ofplace and fixed schedules. This experiment isexpected to yield lessons on how to use communi-cations technology and leadership methods,carrying a message of cultural transformationbased on real-life examples.

Although respect for the employee andempowerment are at the core of the progresscompanies have made in the past decade, otherforces are at play. Employees are expressing agreater need for control of their destinies. Theyare bringing a new set of values to their careers,with a greater emphasis on being able to makemeaningful contributions to work and to society.Because the nature of organizations is shiftingfrom hierarchical to horizontal and the need forteams is growing, it is only natural that employ-ees exert more control; not just at work but intheir whole lives, of which work is one part. Yetempowerment can challenge a workplace that isused to command and control. So, companieshave to work out partnerships that combineautonomy with accountability. The key to suc-cessful change is to focus on results.

Another challenge is that boundaries betweenwork and family life are blurring. For example, aMay 2001 study called “Feeling Overworked” bythe Families and Work Institute found that41 per cent of employees are using technology todo their jobs during non-work hours and non-

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work days. This can result in the “every time,every place” work environment or, on the otherhand, it can lead to a better integration of workwith personal life. The former extends the bur-dens and stress of work beyond the work place,while the latter seeks to allow greater personalfreedom and choices for employees.

Job design must allow for the full range ofemployees’ needs rather than allowing flexibilityonly when the job structure permits it. Manymore decision makers will be in dual-career fami-lies themselves and will be younger.

Changes in how business gets done could makeit easier for working parents to be more availableto their children, both physically and psychologi-cally; with greater flexibility and control, parentsare better able to focus on their children’s needs.Yet the need for childcare by other adults will con-tinue to remain strong – indeed to grow – and thisneed is most pronounced at the lower end of thesocio-economic ladder.

Support

The issue of childcare is especially problematicfor low-wage earners. For far too many parents,the availability of adequate childcare can meanthe difference between working and not working.Leading companies are coming up with novelways to provide services for low-wage earners,but there is a long way to go before we see uni-versal access to early childhood education andcare in advanced economies.

One group of employees that typically havelittle access to work–life assistance is the childcareworkforce. Bright Horizons Family Solutions, achildcare provider, offers childcare to its teachersat half-price and recently began offering a back-upchildcare option to employees. This company isthe only childcare organization ever to be namedto the Fortune 100 Best Companies list.

The growing acceptance of family diversity hasled to an increased awareness that the needs oflow-income and hourly employees have not beenmet adequately. This is an area in which private-public partnerships could make a real differenceand to which resources must be applied. Theobstacles are substantial. Some employers whoseworkforce is dominated by low-wage employees,

for example, have studied on-site childcare manytimes, but have never built a centre because thereis not enough interest. Lower-paid employees maynot use licensed care facilities because of cost con-straints and instead use a neighbour, friend orfamily member or split shifts with their spouse.

What next?

Companies have moved from single-issue pro-grammes and policies to meet the needs ofemployees with young children to a more strate-gic, comprehensive approach. This approach isbased on granting more respect and autonomy toemployees about where, when and how theywork, and developing the tools to make theirdecision making more effective.

Companies are engaging in more public-private partnerships and these experiences haveled some corporate leaders to tackle the childcareneeds of all children, not just those of their ownemployees. These companies are redefining theconnection between company and community.

These changes could be either positive or neg-ative for working families and their children.However, if employed parents, their employersand their social institutions develop programmesthat invest in the whole lives of employees, theresult will be a more productive workplace and ahealthier and safer community – where childrencan continue to develop, learn and thrive as theyseek their place in society.

Copyright © Stewart Friedman and Ellen Galinsky 2002

Further reading

Brownfield, E. (2001) The Time Crunch: Work redesignand management in a 24-7 economy, New York:Families and Work Institute.


The growing acceptance of familydiversity has led to an increasedawareness that the needs of low-income and hourly employees havenot been met adequately.

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Friedman, S.D. and Greenhaus, J.H. (2000) Work and Family – Allies or Enemies?, Oxford University Press.

Galinsky, E. (2000) Ask the Children: The breakthroughstudy that reveals how to succeed at work and atparenting, New York: Quill.

Galinsky, E., Skim, S.S. and Bond, J.T. (2001) FeelingOverworked: When work becomes too much, NewYork: Families and Work Institute.

http://www.familiesandwork.org andhttp://worklife.wharton.upenn.edu containsummaries of studies by the authors.

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Managingconflict 6

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Contents

Turning disputes to corporateadvantage 117

Michael Sacks, Emory University, and AndyLewis, the Georgia Office of DisputeResolution

Disputes in the workplace can result in costlylitigation and drain management resources.However, companies are beginning to realizethat they can dramatically cut these costs bycreating a conflict resolution system.

How to earn commitment 123

Chan Kim, Insead, and Renée Mauborgne,Insead

When a company treats its workers badly,they not only demand a fair say in the waydecisions are made but also impose a penaltyfor their poor treatment.

Algebra lessons for older workers 127

Karen Cates, Northwestern University, andKimia Rahimi, Northwestern University

Having different generations working side byside can lead to conflict, as youngeremployees begin to make their ambitionsheard. Managers must learn what makesGenerations X and Y tick.

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I nternal wrangling between employees ordepartments can harm the implementation of

company strategy and cost the company money,especially if parties turn to the courts for redress.Executives are now seeking ways of managingconflict before it comes to litigation, by putting in

systems and policies to defuse disagreements atan early stage and identify the root causes of con-flict. Writers in this part look at the concept of fairprocess in the corporate environment, and thekinds of conflict that can arise from having twodifferent generations working side by side.


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C ompanies are realizing that workplace conflict can be expensiveand time-consuming. Resolutionworks, a US conflict management

training company, recently reported that Fortune 500 executives spendabout a fifth of their time on litigation-related matters. Companies usu-ally pay thousands of dollars in lawyers’ fees even when they win, letalone lose.

However, some companies have been able to cut significant costswhen handling conflict. For example, Motorola reported a 75 per centreduction in costs associated with litigation; NCR halved its legal costsand reduced the number of lawsuits brought against it from 263 in 1984to 28 in 1993. In a survey of 652 companies, all saved more than$300,000 each and some saved millions of dollars.

How were these companies able to save so much? The answer lies intheir use of integrated conflict management systems. This article showshow companies can design, implement and evaluate such systems. Theapproach goes beyond simply training employees in effective conflict man-agement skills or setting up procedures to resolve specific kinds of dispute.

Beyond skills

In recent years, companies seeking to cut the costs of conflict haveturned to training seminars, where employees learn communicationand conflict management techniques. A common theme of these work-shops is to focus on interests rather than positions. For example, if anemployee claims that a manager unacceptably interfered with a project,while the manager says plans were not communicated properly, they arelikely to remain at a stalemate. However, underlying these positions areinterests, and in separating the two, companies can often resolve the

Turning disputes to corporate advantage

Arguments between staff can result in costly litigation.

However, Michael Sacks and Andy Lewis believe a

resolution system can turn conflict into a potentially

creative force.Michael Alan Sacks is an

assistant professor at

Goizueta Business School,

Emory University.

Andy Lewis is deputy

director at the Georgia

Office of Dispute

Resolution and a director

of Neutral Resources.

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conflict. In this example, the employee’s interestmay have been to work with a level of autonomy,while the manager may have wanted a clear planfor the project.

By focusing on such interests rather thandefending positions, the employee may agree toprovide a plan for the project (meeting the man-ager’s main interest) and the manager will trustthe employee to handle the details (meeting theemployee’s main interest), producing a mutuallyagreeable outcome.

Another important topic in workshops is thenotion that conflict is not inherently bad; rather,conflict is inevitable whenever many people withdifferent opinions, interests, perspectives andcultures work interdependently towards commongoals. For example, in any given company, thereare many, often competing, ideas for how thecompany should proceed strategically, but allstrive for the same goal of organizational suc-cess. Unfortunately, the company typically has tochoose just one idea, causing managers to fightover whose idea will “win” and whose will “lose”.The struggle for competitive advantage turnsinto destructive competition, fostering conflictsthat can cause significant problems.

Conflict is productive only if it is primarily col-laborative rather than adversarial. In the aboveexample, a collaborative approach allows man-agers to offer opinions, discuss the merits of eachand choose the strategy that most benefits thecompany – rather than individuals within it.This process focuses on what is best for the com-pany and uses workplace conflict as a way ofmaking that goal happen.

Hierarchies

While skills-based workshops cover many impor-tant themes and are useful in addressingworkplace conflict, ultimately the results areoften disappointing. The problem is that conflictsare embedded in organizational systems thatlimit the effectiveness of these skills. In otherwords, people cannot use effective conflict man-agement skills if there is no integrated system inplace to support such efforts. In the first exam-ple, the employee and manager were negotiatingas if they were equals. In real life, the manager

has power, which may make the employee reluc-tant to raise concerns. The same reluctancemight exist among workers, who may be unlikelyto deal with conflict for fear of being perceived astroublemakers. In the second example, managershave individual incentives to press for the adop-tion of their strategic ideas, even if these ideasare not best for the whole organization.

The situation worsens when a company placesdispute resolution within the corporate hierar-chy, because hierarchy often discouragesindividuals from discussing conflict. For example,a school implemented a dispute resolutionprocess in which the head teacher was the formalarbiter of conflicts. However, the head teacherwas also responsible for performance evalua-tions, promotions and discipline. Accordingly,teachers were reluctant to seek arbitration forfear that it would damage their job aspirations.

A well-planned and integrated conflict resolu-tion system can overcome the challenges thathierarchy creates for workplace conflict resolu-tion. Yet what should a conflict managementsystem look like? How can managers assesswhether their conflict management system isproducing results for the company?

Integrated system

Businesses have long recognized the value ofarbitration for disputes at work and with tradingpartners. However, only in the past decade havesome integrated skills training, arbitration,mediation and other tools to create systems formanaging conflict. No two systems are alike –components differ, management responsibilitiesvary and policies are distinct. A common featureof successful systems is that the resources, goalsand needs of a company are assessed, producinga tailored and informed system.

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A well-planned and integratedconflict resolution system canovercome the challenges thathierarchy creates for workplaceconflict resolution.

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Planning is very important because a well-designed system does more than control conflict– it uncovers resources and creates value. It canturn a culture of competing individuals into oneof collaborative team-mates working towards acommon corporate goal.

Why do companies decide to manage their con-flicts more carefully? Often it is prompted by acrisis, either within the company, industry or econ-omy. It might be a messy class action lawsuit, aunion-related dispute, or an economic downturnthat requires cost-cutting measures. Changes inthe law also might cause a company to examine itstreatment of conflict. For example, in 2001, the USSupreme Court ruled in Adams v. Circuit City thatvirtually all agreements by employees to submitgrievances to binding arbitration are enforceable,thereby precluding employees from suing theiremployers in court. This case, combined with theeconomic slowdown and several high-profile classaction lawsuits, has spurred many companies tobuild conflict management systems.

A hastily designed system may offer immedi-ate benefits. After the court verdict, manycompanies began requiring their employees tocommit to binding arbitration for disputes. Sucha policy may protect the company from a classaction because it prevents classes from forming.However, companies that take a long-termapproach tend to produce much higher returnsin terms of system effectiveness and savings. Inassessing workplace conflict before formulatingpolicy, these companies often arrive at a moreenlightened view on handling conflict. If man-aged poorly or avoided altogether, conflict cansink an organization; managed well, it can be agreat resource for employee and company alike.

Three stages

To produce an integrated conflict managementsystem, companies must go through three phases:organizational assessment, system design andevaluation. Of these, the first is the most impor-tant, as it encourages organizational support,dictates design, informs implementation and givesa structure for evaluation. Unfortunately, mostcompanies, in their haste, pay insufficient atten-tion to assessment, or neglect it entirely.

Assessment

The assessment phase considers affected con-stituencies, trends and costs of conflict, existingresources and goals of the system. Data shouldbe gathered, analyzed and tested before craftingan integrated system.

First, managers must identify affected con-stituencies so they know where to look for trendsof conflict and associated costs. A first group ofsuch constituencies are those who are in directconflict – for example, line workers who disagreeover company policy, or women who feel discrimi-nated against because of their gender – but mayinclude shareholders, trading partners andunions. A second group consists of those whosejobs are indirectly affected by the conflict, such asHR managers, in-house and external lawyers, andemployee and shareholder relations personnel.

Trends and costs can be identified from vari-ous sources. HR departments can provideinternal data and industry trends. Lawyers cangive information on lawsuits and changes in thelaw. However, there is a problem in that mostworkplace conflicts never come to the formalattention of the company. This is becauseemployees rarely turn to formal dispute resolu-tion for help – most conflicts are either handledwithout the knowledge of the company or areavoided altogether. Such information must begathered from surveys and interviews with staffand other stakeholders. Only in this way can acompany’s situation and needs be assessed; italso helps in getting comments and support fromthose who will use the system.

The third step – analyzing resources – enablesmanagers to see what is available and whetherresources are co-ordinated. These may includehuman resources, employee assistance plans, ahierarchical system of complaint and appeal, andhotlines. The system should incorporate theseand co-ordinate the services offered by each.Employees should have access to such resourcesand the freedom to choose between them.

The fourth component of assessment, the goalsof the system, dictates the design and implemen-tation of the system. In the assessment phase,many organizations begin to see that the value tobe derived from a system is not just in preventinglawsuits and associated costs but in creating value

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by confronting conflict and addressing it early. Forexample, instead of allowing racial discriminationto fester over several years into a class action law-suit, a well-designed system can uncover theneeds and interests of a diverse workforce andhelp reap the full value of that workforce.

Most businesses aim to reduce the number oflegal actions they face, the costs of legal servicesand the frequency and size of awards and judge-ments to complainants. These goals can bemeasured. The assessment phase measures thelevel of legal activity and costs in the company. Byquantifying costs and measuring them over time,companies can assess the effectiveness of a system.

Other goals are more difficult to measure butare just as valuable. Many companies hope theirconflict management system will encourage col-laboration, increased efficiency, greater tolerancefor diversity and better working conditions.Companies tend to track these by employee sur-veys that ask generally about the company’sapproach to conflict, or rate the workplace envi-ronment. A less common approach, though onegrowing in popularity, is to identify componentswithin the broader goals of “increased diversity”or “better working environments”. Companiescan identify business-related goals that eithercomprise such goals or serve as a proxy for them.These subgoals might include a reduction in staffturnover or in sick leave. They can be measuredin the assessment phase, traced and evaluated toassess the broader goals of the system.

System design

The design phase addresses what goes in thesystem and how it is put together. The core com-ponents might be hierarchical appeal procedures,negotiation, coaching, facilitation, mediation,arbitration, an ombudsman, and skills trainingin communication and conflict resolution.

Managers should use their earlier assessment ofhow conflicts arise to select components.

Importantly, the system should be easy to useand fair. Those in dispute should be able to choosethe components they wish to use. It should beeasier to use the system than to avoid conflict andallow it to escalate further. Companies will placedifferent emphasis on certain components. In Shell,most disputes are settled in the ombudsman’soffice, whereas in the US Air Force the ombuds-man’s office is contacted in only a few cases.

When designing a system, a company must allowinput from all major constituencies. This helps itgather important data from those who will beaffected by the system and to secure commitmentfrom those who will use and support it. For exam-ple, when one company was designing its system,the head of human resources was replaced. His suc-cessor was unfamiliar with conflict managementsystems and opposed the idea. However, once theexecutive had the chance to learn about the systemand influence its design, it went ahead. Supportfrom important constituencies is essential.

EvaluationWhen companies perform the first two phases,evaluation becomes relatively easy. Assessmentsets a baseline to be used for future measurement.Evaluation should then consist of periodic assess-ments, bringing in factors that might havechanged, such as shifts in the economy, technology,or changes in the legal environment. Each can beidentified directly or by benchmarking againstother companies. Quantitative analysis allows theeffects of these shifts to be separated from theeffects of the conflict management system, produc-ing a clear picture of the system’s effectiveness.

ConclusionMany companies are realizing that investment in con-flict management systems outweighs the return oninvestment in other areas. Cutting the cost of conflict isa challenge but has financial and organizationalrewards. A rigorous process of assessment, design andcontinual evaluation will allow companies to achieve it.

Copyright © Michael Sacks and Andy Lewis 2002


Many companies hope their conflictmanagement system will encouragecollaboration, increased efficiency,greater tolerance for diversity andbetter working conditions.

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Further reading

Blake, R.R. and Mouton, J.S. (1985) Solving Costly

Organizational Conflicts: Achieving intergroup trust,

cooperation, and teamwork, San Francisco, CA:

Jossey-Bass.

Costantino, C. and Merchant, C.S. (1996) Designing

Conflict Management Systems: A guide to creating

productive and healthy organizations, San Francisco,CA: Jossey Bass.

Rowe, M. (1993) “The post-Tailhook navy designs anintegrated dispute resolution system”, NegotiationJournal, 9, 3.

Sacks, M.A., Reichart, K. and Proffitt, T. (1999)“Broadening the evaluation of dispute resolution:context and relationships over time”, NegotiationJournal, 15, 4.

TURNING DISPUTES TO CORPORATE ADVANTAGE 121

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1

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Twenty years after its creation, British Airways had transformeditself from “Bloody Awful” to the self-styled “world’s favourite air-

line”. By 1997, employee morale and customer service had earnedindustry-wide acclaim. However, the strategy pursued by Robert Ayling,who had become chief executive in 1996, sapped employee morale, trig-gered unrest and jeopardized service. In the peak summer months of1997, cabin crew walked out, causing hundreds of BA flights to be can-celled. Labour woes cost BA about £130m. What went wrong?

The airline’s managers violated fair process – fairness in making andexecuting decisions. At a time when planes were full and profits werehigh, managers took employees by surprise when they announced amajor cost-cutting programme. They did not discuss with employees whythis was necessary, nor did they engage employees in the plan. Employeeswere not given clear messages of what they could expect. In the absenceof engagement, explanation and clarity – the bedrocks of fair process –employees felt cheated, disrespected and vulnerable. They revolted.

We have spent the past 10 years studying the link between fairprocess and companies’ abilities to make the wrenching changes neededto transform themselves. In this time, we have seen one commonthread. With fair process, even the most painful and difficult goals canbe accomplished while gaining employees’ trust and co-operation.However, without fair process, even outcomes that employees mightfavour can be difficult to achieve.

Communication

Consider Burmah Castrol, the UK lubricants company. Burmah Castroldevised an innovative system for water coolants used in metalworkingindustries. Traditionally, customers had to choose from several hundred

How to earncommitment

The best-laid plans of managers will come to nothing if

employees are not behind them. Chan Kim and Renée

Mauborgne find fairness is the key.

Chan Kim is the Boston

Consulting Group Bruce D.

Henderson Chaired

Professor of International

Management at Insead.

Renée Mauborgne is the

Insead Distinguished

Fellow and an affiliate

professor of strategy and

management at Insead.

123

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types of complex coolants. Because of the deli-cacy of selecting the right coolant, products hadto be tested on production machines before apurchase was made – a challenge that involvedconsiderable expertise, costs and logistical diffi-culties for customers and salespeople alike.

An expert computer system promised to elimi-nate all that. Using artificial intelligence, itsynthesized the knowledge of the company’sexperts in selecting and testing coolants.Customers got a leap in value – the failure rateunder the expert system fell to 10 per cent from a50 per cent industry average, machine downtimewas reduced, coolant management was easier andcosts declined. Moreover, the company came out awinner too – the sales process was dramaticallysimplified, giving time for sales staff to attractnew customers while reducing the cost per sale.

Yet the expert system was doomed. All the won-derful benefits it offered sales reps – having a wayto avoid the hassling part of their job and pull inmore and bigger sales by standing out head andshoulders in the industry – went unappreciated.Not because the expert system wasn’t great, butbecause Burmah Castrol’s own sales reps workedto undermine its credibility with customers.

Why? In creating the artificial intelligencesystem, managers thought they were doing every-one a favour so they didn’t bother to engage salesreps in the process, explain the rationale behindthe system or clarify what would be expected ofthem. There was no fair process – fairness inmaking and executing decisions. BurmahCastrol’s sales reps felt suspicious of managers’intentions and saw the expert system in a lightmanagers had never dreamed possible. It was adirect threat to what sales reps viewed as theirmost valuable contribution – tinkering in the trialprocess. Feeling threatened, they worked againstthe system and sales did not take off. Great ideasmatter, but as companies such as Burmah Castrolhave discovered, so does fair process.

Fair process responds to a basic human need.Everyone, whatever their role in a company,wants to be valued as a human being and not as“personnel” or “human resources”. People wantrespect. They want their ideas to be taken seri-ously and to understand the rationale behinddecisions. In theoretical terms, they want intellec-tual and emotional recognition. Fair process has a

direct link to this recognition. The practice of fairprocess proves through action that there is aneagerness to trust and cherish the individual aswell as deep-seated confidence in the individual’sknowledge, talents and expertise. When peoplefeel recognized for their intellectual and emotionalworth, they demonstrate a willingness to co-oper-ate and give their all. They are inspired tovolunteer and share knowledge actively – essen-tial processes in achieving high performance.However, when fair process is violated, companiesinduce the hoarding of ideas, foot-dragging andother counter-efforts, including sabotage.

These counter-effects are known as retribu-tive justice. When people feel their intellectualand emotional recognition has been violatedthrough a lack of fair process, they seek toredress the situation not only by demanding areturn to fairness but also by imposing a penaltyfor their unfair treatment. Figure 1 traces therelationships found in our research. Thisexplains why, without fair process, even greatideas can fail, as seen at Burmah Castrol.However, with fair process, even the most diffi-cult goals can be achieved.

Self-help

Take the example of Siemens-NixdorfInformationssysteme (SNI). It was the largestEuropean supplier of information technologywhen it was created in the early 1990s afterSiemens acquired the Nixdorf ComputerCompany. However, by the mid-1990s, SNI hadcut head count from 52,000 to 35,000. Anxietyand fear pervaded the company.

Yet Gerhard Schulmeyer, newly appointed chiefexecutive in 1994, earned the trust and co-opera-tion of employees at this tumultuous time. He didthis neither by making large promises that satis-fied employees nor by putting off the emotionally


Everyone, whatever their role in acompany, wants to be valued as ahuman being and not as“personnel” or “human resources”.

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hard issues of restructuring. From his appoint-ment, Schulmeyer went out to talk to as manyemployees as he could. In meetings with morethan 11,000 people, Schulmeyer shared his mis-sion of engaging everyone in turning the companyaround. He painted a bleakly honest picture ofSNI’s situation: the company was losing money inspite of efforts to slash costs. Deeper cuts wereneeded and every business would have to demon-strate its viability or be eliminated. Schulmeyerset clear but tough rules about how decisionswould be made. People did not like what theyheard, but they understood. He then asked forvolunteers to come up with ideas.

Within three months the initial group of 30volunteers had grown by an additional 75 SNIexecutives and 300 employees. The total grewfrom 405 into 1,000, then 3,000, then 9,000 asothers were recruited to help save the company.Throughout, ideas were solicited from managersand employees alike concerning decisions thataffected them, and they all understood how deci-sions would be made. Ideas were auctioned off toexecutives willing to champion and finance them.If executives did not think a proposal had merit,it would not be pursued. Although 20 to 30 percent of proposals were rejected, employeesthought the process was fair.

People pitched in voluntarily – mostly afterbusiness hours, often until midnight. In spite ofaccumulated losses of DM2bn, SNI was operatingin the black and employee satisfaction almost dou-bled in just over two years, notwithstanding the

radical and difficult changes. However, intensecompetition finally led Siemens to sell the per-sonal computer unit in 1998 to Acer, the low-costTaiwanese computer maker, and merge the otherparts of SNI into Siemens. Yet few companieshave been able to muster such strong employeemorale and co-operation during such a stressfulcorporate restructuring. With many companiesneeding to restructure and change gears tobecome more competitive, they could learn impor-tant lessons from the way Schulmeyer exercisedfair process at SNI.

Without fair process, managers will either findthemselves facing a long, uphill battle to institu-tionalize much-needed changes or will have toback off as employees seek public support formanagers’ failure to pay intellectual and emo-tional respect to them.

Key questions

To put fair process to work in your company,begin by asking: do we engage people in decisions

HOW TO EARN COMMITMENT 125

Fairprocess

Intellectual andemotional

recognition

Active sharing ofideas and voluntary

co-operation

Highperformance

Violation offair process

Retributivejustice

Idea hoarding andlack of co-operative

behaviour

Lowperformance

FIGURE 1 The effect of fair process and its violation on idea sharing, co-operation and performance

Few companies have been able tomuster such strong employeemorale and co-operation duringsuch a stressful corporaterestructuring.

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that affect them by not only asking for input butallowing them to refute the merit of oneanother’s ideas? Do we explain why decisions aremade and why people’s opinions may have beenoverridden? People can accept pain if they under-stand why it is necessary. Finally, once a decisionis made, do we state the new rules clearly?Employees should be told the standards by whichthey will be judged and the penalties for failure.What are the targets and milestones? Who isresponsible for what?

To transform themselves, companies need toearn the intellectual and emotional commitmentof their employees. Fair process does that.

Copyright © Chan Kim and Renée Mauborgne 2002

Further reading

Kim, W.C. and Mauborgne, R. (1998) “Proceduraljustice, strategic decision making, and theknowledge economy”, Strategic ManagementJournal, April.

Kim, W.C. and Mauborgne, R. (1997) “Fair process:managing in the knowledge economy”, HarvardBusiness Review, July.

Kim, W.C. and Mauborgne, R. (1996) “Proceduraljustice and managers’ in-role and extra-rolebehaviour”, Management Science, April.


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G eneration Y, made up of people born between 1978 and 1994, isentering the workforce. It shares the workplace with baby-

boomers (1945 to 1961) and Generation X (1962 to 1977). These termsare often associated with the US, but young people everywhere emergewith their own voice, powered by affluence and characterized by adesire for change. Their arrival has sparked a good deal of debate, espe-cially among older workers, as this new breed makes its professionalneeds and beliefs known.

Who are they?

Generation Y has grown up in an era of technological advance and eco-nomic prosperity. More obsessed-over than any generation before, theyhave a confidence and optimism that comes from knowing that they arewanted. Their parents, who don’t want to repeat the abandonment ofthe previous generation, shower their children with gifts, attention andesteem-building activities. Generation X is now a stable force at work.Rebellious, resentful and realistic in the wake of their parents’ experi-ences of redundancies, as they move into management these formerlatch-key children have a no-nonsense approach, sometimes shockingolder workers with their cut-and-dried decision-making styles. Oldergenerations scrutinized Generation X when it entered the workforce.Generation Y now enjoys the spotlight – a source of bewilderment, frus-tration and relief all at the same time.

The plus side of working with late Generation X members andGeneration Y results from their early childhood. They are used to beingon the move and constantly stimulated by activities. They do theirhomework in the car between school and the soccer pitch. Their parentsfill their days with activities. According to a 1999 study conducted by

Algebra lessons for older workers

Baby-boomers, who are used to paying their dues, may

resent the forthright attitudes of younger employees. Karen

Cates and Kimia Rahimi urge managers to learn what

makes Generations X and Y tick. Dr Karen L. Cates is an

assistant professor of

management and

organizations at the

Kellogg School of

Management at

Northwestern University.

Kimia A. Rahimi is a recent

graduate of the Kellogg

School of Management at

Northwestern University.

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the University of Michigan’s Institute for SocialResearch, parents programme 75 per cent oftheir children’s weekday time compared with 60per cent in 1981 (leaving 6 hours a week ofunstructured time versus 9.5 hours nearly 20years ago). As a result, Generation Y grew upmulti-tasking and knows how to make the mostof every minute.

The downside of such a privileged, pro-grammed childhood emerges at work in severalways. Generation Y doesn’t want to perform themenial tasks of entry-level jobs and feels com-fortable voicing its dissatisfaction. They are usedto getting what they want. Coddled from an earlyage, Generation Y seems baffled when given aproject to do. Initiative was not encouraged byparents who relied on acquiescence to getthrough their busy days. Further, expectations ofwealth and opportunity born of the boom econ-omy of the 1990s have left Generation Y seekingambitious salaries very early. Their confidentand capable demeanour with elders and theirwillingness to make demands belies their inexpe-rience and need for guidance. Impatient withover-direction, they don’t always know what todo with the reins when they get them. Thesebright new workers demonstrate the promiseand frustrations their baby-boomer bosses expe-rience at home with their own children. Only atwork, the bratty behaviour doesn’t seem so cute.

The oldest members of Generation Y areentering the workforce just as the baby-boomgeneration is poised to retire. Boomers outnum-ber Generation X employees by as much as 30per cent, creating a labour shortage that employ-ers will have to address, partly with GenerationY workers.

Not only will older workers need to manage theyouthfulness of these workers, they will also need to

manage rivalry between Generations X and Y: bothwill be vying for the baby-boomers’ vacant posi-tions. Generation X, the resentful, achievement-oriented entrepreneurs bred by downsizing of the1980s, will not appreciate being leap-frogged asGeneration Y earns fast promotions.

Younger workers bring opportunities and pit-falls. In spite of the recent downturn in theeconomy, competition for talent continues.Companies that understand the characteristicsand motivations of Generation Y, and canmanage the tensions in multi-generationalorganizations, will have a competitive advantagein attracting and retaining these employees.

Implications

Managers at all levels must understand the expec-tations of the generations and use their strengths.Whereas Generations X and Y seek immediaterecognition for successes, Boomers embrace thenotion of “paying one’s dues”. Generations X and Ymay appear ungrateful for opportunities, yet theycannot understand an organization’s dedication toits “dead wood” (overpaid executives who seemunable to get things done). Boomers may viewyounger generations as slackers, always looking forfree time. Younger generations are indignant whenasked to do excessive overtime. Older generationsmight regard it as reasonable to entertain clients athome. The young have no such expectations – forthem, work ends at the allotted hour.

There are benefits to the views of all genera-tions, something that is not always easy toacknowledge. A company should identify how itcan benefit from the expectations and values ofeach generation, and sell those benefits to others.To maintain the peace, however, assumptionsabout the organization and how it is understoodby employees need to be modified and communi-cated. Everything, from the organization’s visionto its human resources practices, needs to beevaluated for its message to the generations.Much of the “old way of doing things” is to bepreserved, but much can benefit from a facelift.

Vision

Vision statements may need more depth to moti-vate younger workers. Generations X and Y want


Coddled from an early age,Generation Y seems baffled whengiven a project to do. Initiative wasnot encouraged by parents whorelied on acquiescence to getthrough their busy days.

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to feel they are making a difference in people’slives or working for the good of society. Visionstatements should include a value-driven compo-nent. For example, Ford updated its visionstatement, which had been: “To become theworld’s leading consumer company that providesautomotive products and services.” It added: “Inthe process of meeting this vision, the companywill focus on its customers, deliver superiorshareholder returns and improve the quality ofpeople’s lives worldwide.” This signals toyounger workers that, at Ford, they are not justdoing a job but also making a difference.

Strategy

The vision for DuPont is to “dedicate ourselvesdaily to the work of improving life on ourplanet”. To achieve this vision, the company hasadded “corporate citizenship” to its core compe-tencies of “superior research and development”and “the ability to adapt”.

Developing a competency in corporate citizen-ship means ensuring manufacturing policiesinclude protection for the environment.Recruitment would focus on people whose valuesmatch those of the company. Performanceappraisals would evaluate how well managerssupport environmental initiatives. Developingvalue-aligned strategies will demonstrate toyounger workers that the organization followsthrough on these aspects of its vision.

Communication

Younger workers communicate directly. Theyexpect to be involved in decisions that affectthem (much like they contributed to family deci-sions at the kitchen table). They seek directaccess to leadership. Some organizations haveresponded by encouraging e-mail correspondencewith top managers or scheduling online “chats”with the chief executive. Opportunities for directupward communication are valued by theseworkers. Top-down communication processes arescrutinized by younger workers. They shunbureaucracy and politics and so do not enjoypower games. More concerned with doing theirwork so they can focus on other aspects of theirlives, young workers want clear goals, adequateresources to do their job and for managers to let

them get the work done. For older workers usedto politics and trading favours, this approach canappear naive. Younger workers wonder why com-panies let older workers waste so much time.

CultureIn general, Generation Y is attracted to team-ori-ented cultures. Unlike members of Generation X,who are individualists and achievement-oriented,members of Generation Y prefer working withothers and have a strong need for affiliation.Therefore, organizations should consider ways ofencouraging team-oriented behaviour. Theseinclude designing offices to accommodate the shar-ing of ideas (placing desks in groups); assigningprojects to groups of people who are evaluated onreaching the same goal; and ensuring thatappraisals assess the team as well as the individual.

Senior managementYounger workers admire honesty, integrity andethical behaviour. They expect leaders to practisewhat they preach and see no distinction betweenlevels within the organization when it comes towhat is considered fair.

Companies that share the burden of salarycuts and redundancies across all levels are seenas more fair than those that target lower levels.The US government’s agreement to bale out thecountry’s airlines prohibits the use of the moneyfor salary increases to executives earning$300,000 or more. Public response to this weakcaveat was less than enthusiastic given the tensof thousands of employees expecting redundancy.The chairman and chief executive of AmericanAirlines, perhaps sensing this, suspended hissalary until the end of 2001.

Such gestures are not lost on young workers.Generation Y in particular is seeking a more

ALGEBRA LESSONS FOR OLDER WORKERS 129

Generation Y in particular isseeking a more committedemployment relationship and islooking for clues that everyone inthe organization is in it together –for better or worse.

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committed employment relationship and is look-ing for clues that everyone in the organization isin it together – for better or worse. If they areasked to follow rules that managers ignore, theywill value the employment relationship less.

HR systems

Managers should pay attention to the messagesthey convey when recruiting: the fairness of theappraisal system; the fairness of salaries and otherrewards; and the apparent value placed on the indi-vidual when designing jobs and training systems.

Hiring strategies

Young employees evaluate every step of therecruiting process, so organizations need to puttheir best foot forward at all times. Online adver-tising and targeted messages will be read byGeneration X and Generation Y. Organizationsmay also want to send recruiting messages totheir parents. A 2000 survey by the NationalAssociation of Colleges and Employers in the USfound that 45 per cent of students say their par-ents’ opinion of a potential employer isimportant. For a recent student recruiting effort,KPMG used posters featuring a picture of amiddle-aged couple smiling into the camera. Thetext read: “Now that you’ve made your parentsproud, join KPMG and give them something toreally smile about.”

Generation Y is used to older adults whospend time on nurturing them. Make them feelsought-after by having upper-level managersmeet prospective candidates. Top managers whomake time in their schedules demonstrate com-mitment to the candidate.

Job design

When designing jobs, treat young workers as indi-viduals who have specific goals. Managers shouldfind out what is important to them. Based onthese interests, employees should be given infor-mation on customizing their careers to give themcontrol over their destiny and an understandingof opportunities. By giving them the tools tomanage their own careers, managers will increaseemployees’ commitment to the organization.

Baby-boomers often balk at asking whatyounger workers want. If open-ended questionsare too threatening, give them choices. If theorganization has selected them well, young work-ers’ expectations should not be surprising ordifficult to manage.

Defined goals and monitoring ensure inexperi-enced workers have early successes. Too muchhandholding can foster resentment, however.Give responsibility for manageable tasks toreduce errors and increase confidence. A focus onoutcomes rather than processes will challengeand develop young employees.

Training

Training should focus on specific skills needed todo the job as well as more general skills that canbe used for developmental goals. Interactivetraining programmes that operate online can becustomized, so allowing employees to learn attheir own pace. Team-based training sessionsallow employees to interact with their peers, aplus for Generation Y. Finally, mentoring pro-grammes transfer institutional knowledge andreduce tension between generations by buildingunderstanding among workers.

Performance appraisals

For young workers, the process of performanceappraisal is as important as the outcome.Organizations should consider using a 360-degree appraisal process in which feedback isgathered from managers, peers, subordinates,customers and the individual. These assessmentstend to feel fairer because they mitigate individ-ual biases. Emphasis should be on employeedevelopment, especially the transferable skillsthat are a priority for young workers. They seekconstant affirmation and feedback, suggestingannual reviews be supplemented with more fre-quent feedback. Informal talks, at leastquarterly, help keep this group on track.

Generation Y is used to being applauded byadults and feels a pressure to excel. They may feelthat any criticism is a sign of failure. Therefore,negative feedback should focus on behaviour thatis under the employee’s control and shoulddescribe how things can be improved. Boomersmay feel this is taking too much time to stroke


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employees. However, frequent two-way communi-cation is an oft-cited desire of all workers.

Compensation and rewards

The carrot, not the stick, drives young workers tosucceed. Traditional pay packages can be fraughtwith inconsistencies and unclear formulas.Further, in a survey conducted by NorthwesternMutual Life/Louis Harris, only a third ofGeneration Y respondents said salary was mostimportant and many would not trade free time forhigher pay and gruelling hours. Motivating youngemployees takes creativity and an appeal to theirvalue systems.

To accommodate their varying interests, organ-izations can create flexible plans that allowemployees to select benefits that are most impor-tant to them. Some benefits appeal directly toyoung workers: paid time off for voluntary work,days off to spend with family and friends, andtuition reimbursement. Non-monetary rewardscarry weight as well. Consider memos of commen-dation that are copied to senior managers. Awardsand gift vouchers show recognition without beingcostly. Young people need frequent feedback, but itneed not blow the departmental budget.

Start anywhere

A sixty-something graduate recently reflected:“We wanted what they want. We just felt wecouldn’t ask.” Herein lies the truth: what young

workers want isn’t so different from what every-one else wants. However, young workers areasking for it. Granted, young workers can cometo the workplace full of themselves and theirideas. And granted, they may not have the expe-rience to manage or complete all of the ideasthey bring. Having various generations workingside by side can lead to stress and conflict. But itcan also lead to creativity and opportunity.

The first step to making sure that genera-tional differences work in favour of anorganization is to acknowledge the differences.Then reassess the organization and the messageit delivers to all of its employees through sys-tems, policies and processes. Some of the changesthat younger workers seek will be good for theorganization as a whole.

Copyright © Karen Cates and Kimia Rahimi 2002

Further reading

Brooks, D. (2000) “The organisation kid”, The AtlanticMonthly, April.

Coupland, D. (1996) Generation X, Abacus.Howe, N. and Strauss, W. (2000) Millennials Rising,

Vintage.O’Reilly, B. (2000) “Today’s kids”, Fortune, July 24.Zamke, R., Raines, C. and Filipczak, R. (2000)

Generations at Work, Amacom.

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1

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Law and regulation 7

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1

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Contents

Employee rights and managementwrongs 137

Murray Fairclough, Abbey Legal Protection,and Claire Birkinshaw, Abbey LegalProtection

Employees enjoy more legal rights now morethan ever before – and are increasingly likely touse them. So managers must stay abreast ofthe law or face the prospect of heavy penalties.

HR practice: vive la différence 143

Mark Fenton-O'Creevy, Open UniversityBusiness School

Variations in the forms of capitalism adoptedacross Europe influence the way relationsbetween workers and employers are managed.There are forces for both convergence anddiversity in European HR practices.

Myths and methods of downsizing 149

Larry Hunter, the Wharton School,University of Pennsylvania

Researchers can find no evidence thatdownsizing improves financial performance,yet companies continue to carry it out for anumber of reasons. Effective downsizingrequires clarity of purpose, credibility andclear communication.

Upholding standards for ethicalpractice 155

Peter Dean, Wharton School, University ofPennsylvania

Organizations with ethically sound businesspractices attract the best employees. But howcan companies show their commitment tosuch practices?

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T he story of employment law is one inwhich employees have, over the course of

decades, won a succession of rights in the work-place. Any company wishing to carry out commontasks in HR – disciplining employees, adjudicatingcases of discrimination, hiring staff or making

them redundant – had better be well aware of thedetail of laws that apply in all its territories, orface potentially protracted defeat in court.Globalization may be a powerful economic force,but it has yet to smooth out important distinc-tions in the world’s legal systems.


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T he annual report of the Employment Tribunals Service shows thatmore than 130,000 claims were lodged by employees in the UK

during 2000–01 – three times the number 10 years ago (see Table 1).The increase is due to new employment protection legislation and to agrowing “compensation culture”. Such trends are common to manycountries and certain personnel issues are universally topical. Theseinclude disciplinary practice, discrimination and harassment, changingterms and conditions of employment, and redundancy. This article aimsto encourage managers to familiarize themselves with the law and totake control of personnel matters. Failure to do so can prove costly.

Employee rights and management wrongs

Employees enjoy more legal rights now than ever before.

This makes it even more important for managers to know

the law, say Murray Fairclough and Claire Birkinshaw.

Dr Murray Fairclough is

director of legal services at

Abbey Legal Protection, a

specialist provider of

insured legal services.

Claire Birkinshaw is an

employment solicitor and

legal information manager

at Abbey Legal Protection.

137

Year Applications registered

1990/91 43,243

1991/92 67,448

1992/93 71,821

1993/94 71,661

1994/95 80,061

1995/96 108,827

1996/97 88,910

1997/98 80,435

1998/99 91,913

1999/00 103,935

2000/01 130,408

Source: Employment Tribunals Service

TABLE 1 Employment tribunal applications

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The perils

Even the most reliable employees can cause prob-lems and when they do, doing nothing is not anoption. Ask the London Fire and Civil DefenceAuthority. It was recently ordered to pay £245,000in damages to an employee for unlawful race discrimination. In the US, awards can be signifi-cantly greater. In August 2001, a New Jerseycourt affirmed a $1.6m jury verdict in favour of amale prison guard in a sexual harassment claim.In addition, in June a federal judge approved a$192m settlement of a class action on race dis-crimination brought by 2,000 African-Americanemployees of Coca-Cola. These figures are notunusual. Ignorance is no defence, so managersmust make sure they know employment law.

It is important to recognize that there is noglobal standard for employment contracts. Somejurisdictions, such as France, offer substantialprotection for employees. Others, such as the US,offer considerably less in some areas of employ-ment (for example, there are no statutory lawsgoverning unfair dismissal) but significantlymore in other areas (for example, US anti-dis-crimination laws are very broad).

Consider these scenarios:

� An employee with three years’ service has a poortimekeeping record. His timekeeping hasdeteriorated over the past six months and he is now,on average, 20 minutes late each day. Informalcounselling has failed to deliver any improvement.

� An employee has alleged that she is being sexuallyharassed by a fellow worker. The harassment is notblatant but it is unwanted.

� To keep up with competitors, staff hours need tochange so that a call centre can be staffed round theclock rather than just during normal business hours.

� As a result of economic downturn, a business in thefood production industry needs to shed more than100 staff out of a workforce of 1,000.

Would your HR department know what to doin each of these cases?

Employment laws generally require both a justcause for termination and due process (for exam-ple, consultation and pre-dismissal meetings). Inthe UK, this is known as substantive and proce-dural fairness. In France, an employee can bedismissed only for a “real and serious” cause. InSweden, dismissal requires “just cause” and inGermany, for businesses with more than fiveemployees, dismissals of workers with more thansix months of service must be “socially justified”.

However, in the US, the practice of “at-willemployment” covers about 80 per cent of employ-ees. This means they can be fired at any time, forany or no reason. Other US employees have whatare effectively fixed-term contracts, promisingeither employment for a specified period or to dis-charge the employee only for specific reasons.Whatever the contract, the employment relation-ship is seen as a private arrangement.

Bearing that in mind, consider again the fourscenarios above.

Disciplinary practice

All employers have problem staff. Some employ-ees are a perennial problem, others mayoccasionally allow personal problems to affecttheir work, conduct or performance. It is clearthese employees cannot be left to “get on with it”in the hope that their conduct or performancewill get better. More likely, their behaviour willstart to harm the business.

The solution lies in improvement, by effectivedisciplinary procedures. Disciplining an employeeis an uncomfortable exercise. Procedures shouldnot be viewed as a way of imposing sanctions.Rather, they should be seen as helping peoplewhose conduct or performance is unsatisfactory toimprove. Some businesses will have a separateprocedure for performance issues, others will dealwith all issues of conduct and performancethrough a single disciplinary procedure. Eitherway, it is important that the procedure is fair andis followed in a consistent, professional manner.

In the UK, employers with 20 or more staff haveto specify disciplinary rules to go with the statutorywritten terms of employment. The Advisory

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It is important to recognize thatthere is no global standard foremployment contracts.

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Conciliation and Arbitration Service (Acas) hasproduced a code of practice that sets out what a fairdisciplinary procedure should include. In short,Acas recommends that allegations should be thor-oughly investigated. The employee should receivedetails of the allegations in advance of any hear-ing and be given an opportunity to explain whathappened and any mitigating factors. Recent UKlegislation also allows the employee to bring eithera trade union official or a fellow employee to thehearing. Finally, other than in cases of potentialgross misconduct, a fair warnings procedureshould be followed, comprising a verbal warning,a written warning, a final written warning anddismissal. Failure to follow a fair procedure mayresult in an otherwise fair dismissal beingdeclared unfair by a tribunal. In the UK, the gen-eral rule is that employees with one or more yearsof continuous service with their employer canclaim for unfair dismissal.

In Italy, disciplinary and grievance rules arestatutory, requiring a disciplinary code to be dis-played. The employee must be notified in writingabout problems and be given five days to producejustifications. Sanctions vary from a verbal warn-ing to dismissal, according to the nature of thebreach and the employee’s record.

In the US, there is no legal requirement tohave a disciplinary procedure and to do so maybe unduly burdensome on the “at will” relation-ship. That said, most employers will still wish totreat staff fairly and consistently by adoptingnon-contractual disciplinary procedures. In thisrespect, the UK provides a useful model.

Finally, documentation is the key to defendingan employment claim, so managers should ensurethe employee’s personnel file is in order and con-tains the paperwork relating to appraisals,meetings, counselling sessions and disciplinaryhearings.

And the “golden rule” is this: never try tocounsel or discipline an employee when you areangry or upset.

Discrimination

Much of the discrimination law in the EuropeanUnion is derived from directives and the Treaty ofRome. The EU has become much more interven-

tionist in the area of equal treatment and direc-tives have been approved that will soon be makingtheir way into the national laws of member states.In the US, federal laws cover discrimination inareas such as gender, disability and age.

In particular, sexual harassment claims are onthe increase. These are often expensive to resolveand they damage morale. Therefore managersshould take measures to ensure harassment doesnot happen. The first step is to understand whatsexual harassment is. Harassment is unwelcomephysical contact or sexual advances. It usually cre-ates a hostile environment. Examples includesexual innuendo, uninvited touching, commentsof a sexual nature, requests for sexual favours andsexual jokes or pictures.

In the UK and the US, employees can claimharassment even if they have never complainedto a manager. Employers can be liable eventhough they did not know harassment wastaking place. Finally, there is no requirement forthe employee to suffer tangible job detriment,such as loss of promotion or dismissal.

So, managers must have an effective anti-harassment policy and a complaints procedurewith clear directions for reporting workplace con-duct. The policy should not just be distributed orpinned on notice boards; staff should be given reg-ular training on behaviour. The policy shouldinform staff that workplace harassment based onsex or some other protected classification willresult in disciplinary action. Having such a policywill create a more business-like environment andreduce the likelihood of an employee succeeding ina claim. When complaints are made, employersmust respond promptly, treat them seriously,investigate and take action.

Dealing with such claims is time-consuming,costly if lawyers are involved and can result in large damages against employers. While

EMPLOYEE RIGHTS AND MANAGEMENT WRONGS 139

While implementing policies takestime and effort, the litigation andliability costs of successfulharassment claims mean thatprevention is better than cure.

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implementing policies takes time and effort, thelitigation and liability costs of successful harass-ment claims mean that prevention is better thancure. In the UK, the burden of proof has recentlybeen reversed for sex discrimination claims, sothat once an employee proves facts giving rise toa prima facie case of discrimination, the burdenof proof then shifts to the employer. In effect, thecompany must prove its innocence.

By comparison, in the US, employers can beheld liable for same-sex harassment and harass-ment based on race, age, religion, national originand disability. In the UK, there is no protectionagainst discrimination on grounds of age, sexualorientation and religion (except NorthernIreland, which has laws on religious discrimina-tion) but this is set to change as a result of theEU’s Equal Treatment Directive.

Changing terms

While the contract of employment will set outthe terms of the relationship between employerand employee, it must comply with the law. Forexample, as a result of the Working TimeDirective, employees within the EU must begiven at least four weeks of paid annual leave. Inthe US, federal and state wage laws set overtimeand minimum wage provisions. If workers arepaid hourly, they are entitled to overtime pay ofone and a half times their hourly rate for weeklywork in excess of 40 hours.

In most countries, an employment contract islegally binding. This means any changes shouldeither be in accordance with the contract or beagreed by the employee. In the UK, employeeswith one year’s service can claim constructive dis-missal if an employer changes a fundamental termof the contract and the employee resigns as aresult. It follows that contracts should expresslyprovide that the employer is free to change theterms at any time. However, UK courts do not likesuch a broad approach and will interpret flexibil-ity clauses restrictively. This is because there is animplied obligation not to act in a way thatdestroys trust. As a result, clauses permittingchanges must be specific and reasonable.

In many jurisdictions, employers must consultworks councils before changing terms or making

redundancies. In Germany, these play a signifi-cant role in dismissals.

Redundancies

Redundancy law has rarely been more topical.Following the terrorist attacks in the US inSeptember 2001, Sabena failed and Swissair wason the verge of bankruptcy. KLM axed 2,500 jobsand British Airways 7,200 jobs. The US govern-ment gave the airline industry more than £10bnto see it through the crisis. Only time will tellwhether the airlines will recover.

Employee termination – even in times of eco-nomic difficulty – always presents a risk of legalaction. In the US, actions frequently take theform of discrimination claims (for example, anemployee has been selected over another becauseof a protected characteristic), claims for failureto keep promises on compensation, claims forback wages and accrued holidays, and claims forfailure to provide notice. In most cases, decisionsthat give rise to employment litigation are notill-intended, rather they usually lie in simpleignorance of the law. Even the largest employerscan fail to effect redundancies properly. In 2001,employees from Marks and Spencer’s Europeanoutlets protested against plans to close its 38European stores. A challenge in French courtswas successful because M&S had failed to con-sult employees. Closure of the French stores hadto be suspended for consultation. Under Frenchlaw, injunctions in these circumstances are avail-able. In the UK, they are not.

Reductions in the number of staff should becarefully planned and decisions communicated ina sensitive way. All issues relating to selectionshould be documented and employers must beconsistent in their selection policies and in the procedure they use for carrying out redundan-cies. In the UK, there are three elements toredundancy: consultation, fair selection and con-sideration of suitable alternative employment.Ignoring any of these can result in an unfair dismissal claim. In Germany, employers mustobserve “social considerations”. This means theymust examine whether the selected persondeserves less social protection than comparableemployees. Social selection is related to length of


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service, age and the duty of the employee to sup-port a family. Any employee who is unfairlyselected and dismissed is entitled to bring pro-ceedings, with reinstatement as the likely remedy.In Sweden, provisions are similar and redundantemployees have priority rights to re-employment.

Of course, employers can “buy out” potentialclaims with termination payments. Such agree-ments must comply with the legal formalitiesand be carefully drafted. They may be invalidunless, for example, the employee has had inde-pendent legal advice.

ConclusionCompanies that fail to comply with employment laws takeserious legal risks. If the potential liability for compensa-tion or damages were not enough, time spent indefending a claim distracts managers and legal fees pose asignificant cost. Yet in spite of the costs, companies con-tinue to break the law. Given that workers are becoming

more familiar with the law and less tolerant of corporatemisdemeanours, it seems safe to say that the number ofclaims will continue to rise. It may be a daunting task butmanagers need to ensure they keep abreast of the rele-vant laws and that they comply with them.

Copyright © Clare Birkinshaw and Murray Fairclough 2002

Further reading

Acas (2000) Code of Practice on Disciplinary andGrievance Procedures(http://www.acas.org.uk/publications/pub_cop.html)

Blanplain, R. (2000) European Labour Law, The Hague:Kluwer Law.

Employment Tribunals Service (2001) Annual Report2000-01, Stationery Office(http://www.clicktso.com).

Mayne, S. and Malyon, S. (eds) (2000) EmploymentLaw in Europe, Oxford: Butterworths.

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1

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S ince the collapse of the Soviet Union, it has become common forcommentators to declare “victory” for the capitalist system of eco-

nomic and political organization. However, there is no universal form ofcapitalism. Even within Europe, one can find strikingly different forms.These differences influence the way human resource management ispractised. This article reviews some distinctive forms and their conse-quences for HR.

In the UK, economic development has been marked (as in the US) byearly industrialization and a long period of market development andcapital accumulation. Hence the UK economy is characterized by theoperation of markets. Relatively unconstrained labour markets havemeant companies adjusting to demand by hiring and dismissing work-ers. This has relied to an extent on narrow job definitions and relativelygeneric skill sets, so that workers might be seen as a substitutableresource. Efficient capital markets have encouraged an arm’s-lengthrelationship between owners and managers. The UK labour market fea-tures job mobility, little legally mandated job security and, to someextent, low skill levels. There has been an emphasis on managerialautonomy and little employee representation by law.

In contrast, the Rhineland model seeks to balance the interests ofcompany owners with those of other stakeholders. The exemplar isGermany, although it also applies, in a form, to the Netherlands andBelgium. In Germany, there is political commitment to a social marketeconomy and social partnership. In practice, this means highly influen-tial and centralized employers’ organizations and unions, both of whichinfluence HR policies.

The German economy developed later than that of the UK and hastherefore had less advanced capital markets. Banks have been moreimportant in supplying capital and have tended to develop long-term

HR practice: vive la différence

Various forms of capitalism across Europe influence the way

relations between workers and employers are managed.

Mark Fenton-O'Creevy sees little likelihood of a common

approach in the near future.Mark Fenton-O'Creevy is a

senior lecturer in


at the Open University

Business School.

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relationships with companies. Such relationshipshave led to a longer-term view of financial objec-tives. Another feature of the German economy isthe set of employee relations institutions thatdeveloped out of the need for industrial peaceduring post-war reconstruction. Perhaps themost important element is the system of “peakbargaining”, whereby wages and conditions foreach sector are negotiated by employers’ associa-tions and trade unions. Wage bargaining is takenout of the workplace, so reducing tension.Employee representatives sit on the supervisoryboard of companies and betriebsräte (works coun-cils) have the right to information, consultationor joint decision making on many HR issues.

Scandinavian countries also have less manage-rial autonomy in respect of HR issues, largely byvirtue of strong labour unions. Changes inemployment practices are subject to bipartiteagreements, with the state acting both as a medi-ator and a guarantor. A legal framework ensuresthat conflicts are resolved at the company level.Labour unions are legally entitled to be con-sulted on issues such as mergers, downsizing andoutsourcing. The Scandinavian model preservesthe rights of labour unions to withdraw co-opera-tion in the case of a dispute with management.However, the security granted by the nationalframework of government-backed agreementsmakes it possible for unions to get involved indeveloping collaborative agreements to improvethe company’s effectiveness.

The French model is different again. Althoughunions have significant power – often dispropor-tionate to their membership – the scope of theirpowers is restricted. There is a tradition of man-agerial autonomy and even autocracy, basedaround an elite of managers educated in thegrandes écoles. However, government legislationrestricts managerial autonomy in many areas ofHR practice (such as training and the use of tem-porary workers). Personnel departments must

maintain good relations with the Inspection duTravail, a public body that enforces employmentlegislation, particularly with regard to temporarylabour. Unionization is only slightly higher than10 per cent but French law extends collectivebargaining agreements to non-unionized work-ers. Consequently, personnel departments devoteconsiderable resources to detailed wage bargain-ing and to ensuring regulatory compliance.

Each model has strengths and weaknesses,and different implications for HR management.Supporters of the Anglo-American model oftensuggest that greater management autonomyaids international competitiveness because com-panies can respond more flexibly to marketconditions. Critics suggest this flexibility has anunacceptable social cost in job insecurity. Also,they suggest that long-term competitiveness isdamaged because unconstrained markets do notlead to sufficient investment in training or capi-tal equipment.

There is evidence that the constraints withinEuropean economies (the Rhineland model inparticular) have caused companies to take alonger-term view and to invest in both skills andequipment as an alternative approach to flexibil-ity. However, this may be at the expense of bothflexibility and employment levels.

US influence

US models of HRM have influenced practices inEurope, through US multinationals and US busi-ness schools. The US approach seeks to matchmanagement of human inputs with companystrategy. Two elements of this can be identified:hard and soft.

The “hard” approach considers people asanother variable factor of production. Behaviouris managed in line with strategic goals. Practicesinclude appraisal, performance-related pay andevaluation of training for contribution to strate-gic goals. Such an “individualized” approach isdifficult where wages and conditions are deter-mined collectively or where there is strongregulation of HR practice.

The “soft” approach also seeks to alignemployee behaviour with strategic goals. However,rather than being seen as passive resources,


There is a tradition of managerialautonomy and even autocracy,based around an elite of managerseducated in the grandes écoles.

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employees are seen as active partners whose cre-ativity and commitment are vital to success. Thisapproach is typified by attempts to build commit-ment and manage culture. Practices includeemployee involvement and communication aboutvision and strategy.

Research suggests that the extent of US influ-ence on Europe varies considerably. AcademicPaul Gooderham and colleagues used data fromthe Cranet study of European HR to look atadoption of the hard and soft models (see Figure1). They found the UK to be closest to the USmodel (high on both dimensions). The decline of union power and lack of legal constraint has made it easy for companies to introduce indi-vidualized performance management. Also,professionalization of the personnel function hasinfluenced the adoption of policies designed tolink employee behaviour to strategic goals.

Germany came lowest on both dimensions.Here, wages and working hours are determinedby unions and employers’ associations. Employeerelations matters are often subject to nego-tiation through works councils. Personneldepartments focus on works councils and rarelyhave a strategic role. So, personnel managersplay little part in developing communicationabout strategic objectives.

France scored high on the hard dimension.Unions have little power to block practices butdo affect the role of personnel managers.Resources are devoted to complex (often hostile)industrial relations negotiations, leaving littlescope for building commitment and aligning cul-ture to strategy.

In Denmark and Norway, there was littleadoption of the hard model but considerable useof the soft. Co-operation between companies and unions at a local level and high union mem-bership make it difficult to introduce individ-ualized performance management. However, theScandinavian system has tended to support prac-tices designed to enhance partnership andcommitment to common goals.

In terms of legislation, Spain could be charac-terized as fitting the Rhineland model. However,there is a tradition of managerial autonomy andunions are weak. So Spain tends to fall closer tothe UK than to Germany.

Sources of diversity

Several factors contribute to the diversity of HRpractices in European countries. Academics PaulSparrow and Jean-Marie Hiltrop identify industry

HR PRACTICE: VIVE LA DIFFÉRENCE 145

Low “Soft” HRM High

High

“Hard”HRM

NorwayDenmark

Germany

UK

Spain

France

FIGURE 1 Adoption of strategic HRM models

Source: Adaption from Gooderham et al.

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structure, institutional structures, culture anddifferences in the role and development of per-sonnel managers. First, industry structuresdiffer. For example, the economic role played bysmall companies varies greatly. Small companiestend to have far fewer formalized HR policies.While small companies are less significant in theUK, in Italy about 70 per cent of workers in theindustrialized private sector are employed incompanies of 100 people or less. The role of thepublic sector also varies. In some countries (suchas Spain and Italy) HR policies in the publicsector have been explicitly used as instrumentsof social policy.

Second, economic and political institutions setan important context for HR policies. Many ofthese relate to different models of capitalism.Relevant institutions include employers’ associa-tions, labour unions, welfare systems and taxregimes. Third, national cultures can have signifi-cant effects. For example, there are differences inthe understanding of managerial work in France,Germany and the UK. The Anglo-Americannotion of management as a set of skills that is sep-arable from its context is not shared in Germany.While a senior manager from industry might berecruited into a senior role in a bank in the UK,this would be considered bizarre in Germany. In France, managers are expected to have had an intellectually rigorous training in the elitegrandes écoles. Management is seen to requireintellectual rather than interpersonal skills.

Finally, the role of personnel managers maydiffer. In Germany, the relationship with workscouncils encourages personnel managers to con-centrate on operational issues. There is also anemphasis on legal skills, as there is in France.However, here, as in the UK, there has been aprofessionalization of the personnel function andmanagers have tried to link HR practice to com-

pany strategy. In contrast, in Italy and theNetherlands many personnel managers have afinancial background.

Convergence

While it is clear that there are many reasons fordiversity of HR practice among European coun-tries, there are also forces for convergence. Theextent of globalization is sometimes exaggerated.However, there is no doubt that companies operat-ing in different countries face common competitiveenvironments. This is particularly true within theEU. In the face of common pressures there is atendency to adopt similar HR solutions.

Research suggests that multinationals do notalways seek to standardize HR practices inter-nationally. Nonetheless, they are often importantin disseminating practices among countries.Often this will be via expatriate managers or acentral advisory HR function rather than a head-office diktat. However, some companies doimpose a common model (more commonly US-owned companies).

Management education is also an importantmechanism for the dissemination of ideas. HereUS schools have been an important influence.European schools have tended to reinforce theUS model rather than develop a distinctiveEuropean approach.

EU legislation

One driver for EU action that affects HR practicesis the concern to remove barriers to the movementof goods, services and people. For example, theEuropean Commission is keen to harmonize theacceptance of national qualifications in differentstates. Much legislation relevant to human resourcemanagement arises out of the social agenda of theEU. The Commission is charged with pursuing asocial agenda as part of economic and politicalunion. The underlying assumptions of the socialagenda are closer to those of the Rhineland modelthan to those of the Anglo-American approach.

There is a strong assumption in EU policymaking that markets need to be tempered withadequate social protection and that the interests


While a senior manager fromindustry might be recruited into asenior role in a bank in the UK, thiswould be considered bizarre inGermany.

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of owners need to be balanced with those ofother stakeholders. The Commission promotessocial justice, especially where there is evidencethat countries may seek competitive advantageby adopting lower levels of social protection(known as social dumping). EU legislation hasaffected HR practices in areas such as:

� parental leave;

� working periods and paid leave;

� part-time workers;

� collective redundancy;

� transfer of an undertaking or business from oneemployer to another;

� informing and consulting with employees inmultinationals;

� fixed-term contracts.

To take effect, EU directives must be adoptedby national legislation. The principle of subsidiar-ity requires that the detail of implementation beleft to the lowest appropriate level. In practicethis means that legislation may be treated verydifferently under different national systems. Agood example is the Working Time Directive,adopted by the Social Affairs Council of the EU inNovember 1993. The main provisions of thisdirective are to limit maximum hours of working(48 hours per week) and to provide minimumentitlements for rest periods and paid leave. Itcould be argued that this EU legislation is a forcefor convergence. In practice implementation hasbeen diverse and is interesting for what it revealsabout different national systems.

Under German law, the 1994 Working TimeStatute establishes an eight-hour working day,although, subject to an average of eight hoursper day over a six-month period, employers mayextend the day up to 10 hours. Variations to thiscan be negotiated between employers and unionsfor a company or sector. In the Netherlands andBelgium there is a national framework, butagreements are negotiated between employers’associations and unions in each sector. In Francethe so-called “Aubry” law enacted in 1998 limitsthe working week to 35 hours, sets an annuallimit on overtime of 130 hours, and sets a maxi-mum of 10 hours per day and six days per week.

In the UK, the Working Time Regulations

were ratified in 1998. The government tookadvantage of provisions in the directive thatallow the exclusion of some groups of workersand adopted the minimum provisions. In particu-lar, the UK was the only member state to allowindividuals to opt out of the limits on workingtime. There is evidence that a high proportion ofUK companies have made use of these individualopt-out agreements. This is partially accountedfor by some organizations putting illegitimatepressure on employees to opt out, but much pres-sure for opt-outs has come from employees notwishing to give up overtime earnings.

So, the basic models of capitalism are reflectedin implementations of the Working TimeDirective. In the UK there is a continuation ofthe liberal voluntarist tradition with minimallegislation; in France strong government action;in Germany, the Netherlands and Belgium,emphasis on sectoral dialogue and a high stan-dard of social protection.

ConclusionsIn any country, HR practices are embedded in complexsocial, economic and political structures. These struc-tures have arisen out of particular sets of historicalcircumstances and lead to diversity within the EU.

There are forces for convergence, not least the evercloser economic and political union, but convergence isnot automatic. Because they are embedded in widerinstitutions, HR practices do not always work whentransferred to a new environment. Legislation andagreements at an EU level are bringing about someconvergence. However, it is clear that different nationalimplementations reflect the diversity of socio-economicsystems within the EU. It seems unlikely that anyEurope-wide enterprise will, in the near future, be ableto implement a single set of HR practices across itsEuropean operations.

Copyright © Mark Fenton-O’Creevy 2002

Further reading

Adnett, N. and Hardy, S. (2001) “Reviewing theworking time directive: rationale implementation

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and case law”, Industrial Relations Journal, 32, 2.

Flood, P., Heraty, N., Morley, M. and McCurtin, S. (eds)(1997) The European Union and the EmploymentRelationship, Dublin: Oak Tree Press.

Gooderham, P., Nordag, O. and Ringdal, K.(1999) “Institutional and rational determinants

of organizational practices: Human resource management in European companies”, Administrative Science Quarterly, 44, 3.

Sparrow, P. and Hiltrop, J.M. (1994) European HumanResource Management in Transition, London:Prentice-Hall.


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P erhaps surprisingly, evidence suggests that companies which down-size achieve no financial gains and, in many cases, the aftermath of

job cuts leads to poor performance and pressure to cut even more jobs. Many academic studies have looked for evidence that downsizing leads

to improvements in financial performance. The results are mixed, due inpart to the difficulty of separating out several distinct phenomena. Forexample, in the case of a company confronting falling demand for itsproducts, downsizing looks like the only way to survive. Asking whetherthis sort of lay-off might lead to positive results puts the question back-wards. Lay-offs result from financial difficulties; it is unsurprising, then,that researchers have had difficulty attributing financial recovery to thelay-offs rather than changes in market conditions.

As academic Peter Cappelli notes, however, “downsizing” in its con-temporary form reverses the traditional, demand-driven formulation, ascompanies, beginning in the 1980s, sought to improve operating effi-ciency by cutting jobs, even with serial execution of such programmes,even in good times. These efforts were very different from demand-based lay-offs. Executives and consultants described them usingeuphemisms, such as “rightsizing”, “re-engineering”, “restructuring”and “corporate renewal”.

Studies assessing the effects of these kinds of initiatives offer little tosuggest, on the whole, that they improved financial performance.Cappelli himself, in a study conducted with David Neumark, found thatgains from these kinds of initiatives were scarce. Stock markets mayreact positively to downsizing announcements in the very short run,particularly when such announcements are coupled with a credible planfor improving performance. However, there is scant evidence to suggestthat on average, long-run financial performance or stock prices areimproved by job cuts.

Myths and methods of downsizing

There is little evidence that job cuts improve financial

performance, yet in a recession they may be the only way for

companies to survive. Larry Hunter examines the difficulties

of downsizing.Larry W. Hunter is an


management at the



149

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Of course, looking for average effects remindsone of the statistician who had his head in anoven and his feet in a bucket of ice and on aver-age felt just fine. These studies do notdistinguish between companies that do down-sizing well and those that do it poorly. Neither domost of them consider whether the companiesthat downsize might have problems that weremore deeply entrenched and difficult to attack.In addition, these two phenomena are probablyrelated: deeply rooted problems may be largelythe result of poor management and there issurely no reason to expect companies with weakmanagement to carry out downsizing effectively.

Qualified losses

It is important to note that much of the down-sizing, job cuts and the like that we read aboutdo not require any lay-offs. Hiring freezes orslowdowns, when combined with natural attri-tion, may cut the workforce and associatedlabour costs. For example, nursing homes rarelylay off nurses because turnover of nursing assis-tants is so high that they don’t need to. Andwhen was the last time you heard of a lay-off at alocal McDonald’s? These are extreme examples,but when your competitors appear to be slashingjobs, it is important to understand just what theyare slashing. Sometimes, it turns out, job “cuts”may even refer to the elimination of planned newpositions – this gives the impression that jobs arebeing cut, even though total employment staysthe same or grows.

Over the past decade, articles have often toldof the demize of lifetime employment in Japan.The job security that large Japanese companiesgave their core workforces supported practicesthat helped them compete effectively: good unionrelations; flexibility in deployment of employees;loyalty; extensive training investments; and joint

approaches to solving problems. However, theJapanese model has fallen into disrepute: someof its rigidities have been revealed and itsvaunted employment guarantees have begun tolook more like a Ponzi scheme requiring contin-ued growth in market share to be sustained.

Yet consider other ways in which these compa-nies managed their employees. They typicallyprotected their core workforce from economicshocks with layers of other workers. Older work-ers, those in smaller companies and women hadlittle job security. When demand contracted,employers shed contractors and part-timers.Although these companies have been strugglingfor a decade, they have been able to cling to theircore workforces and practices.

While the wisdom of this approach can bequestioned, it is clear that Japanese companieshave protected their “lifetime” employees tena-ciously. More often than not, a story about alarge Japanese company downsizing is not aboutcore employees losing jobs. Rather, it refers to ahiring freeze, to reassignment from one divisionto another, or to a group of workers who had for-mally retired already and were genuinely beingasked to leave for good.

Companies that aim to downsize successfullymight think through the lessons from thisapproach. Tasks that can be pulled in from con-tractors and reassigned to core employees, forexample, prevent companies from having tomake lay-offs. Similarly, where core employeescan be shifted around to parts of the businessthat are growing, or likely to grow, the need forlay-offs can be minimized.

Buy-outs and voluntary departures can alsomake things easier. However, as Japanese compa-nies have found, this can be a very slow way torestructure in a rapidly changing world. Hiringfreezes and reliance on attrition come with theirown costs: it is difficult to infuse new skills andabilities into an organization when you’re nothiring. Relying on attrition alone is particularlyrisky: in this mode, organizations are purelyreactive. And asking for volunteers to leave theorganization runs the risk that the most ableemployees leave. Intel Ireland, for example,found that its voluntary redundancy programmewas oversubscribed.


There is scant evidence to suggestthat on average, long-run financialperformance or stock prices areimproved by job cuts.

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Why downsize?

Nevertheless, some companies do manage to down-size effectively and some themes can be identifiedamong them. Effective downsizing requires clarityof purpose, credibility and clear communication ofthat purpose. Companies seeking to cut jobs inresponse to market-driven downturns, for example,can make this clear and credible by setting outstraightforward criteria for re-employment shouldthe company see its market recover. Failure to doso leads employees to suspect, often with goodreason, that the market is being used as a scape-goat for other kinds of changes and in turn leadsto a scepticism that makes it difficult to imple-ment those changes.

On the other hand, companies may also seekto downsize as a way of changing the mix ofskills and attributes of their workforces. In thisview, downsizing can be a small part of a strategyof continuous improvement and renewal. Again,clear communication of this strategy and itsunderlying rationale is critical – employees, withgood reason, will want to know how they fit intothe plan, and if not, what they might do about it.

A third rationale is one taken by companiesthat begin with far-flung, unfocused empires andwish to concentrate on core competencies: adopt-ing a “core-plus-contractor” model. Companiesthat have not previously given this model muchthought are quite likely to discover that not allemployees belong in the core. One version of thisapproach can be seen in many of the decisionstaken by Jack Welch during his time at GeneralElectric. Early in his tenure, Welch was knownas “Neutron Jack” – he got rid of employees andleft only the buildings intact. But over time,employees came to understand the logic ofWelch’s plans and the kinds of efforts it wouldtake to save their jobs.

Managers might find any or all of theseapproaches necessary given their understandingof markets and the competitive challenges theyface. None of the approaches, however, is likely tobe successful if its execution is muddled. Onemight imagine good reasons to mask a market-based lay-off under the guise of restructuring, orvice versa. However, when employees sniff outthese ruses, the consequences can be devastating.

Facing employees

Nevertheless, many managers are faced withmaking lay-offs. Most employers find this processdifficult and distasteful: the fall from grace of“Chainsaw Al” Dunlap, former chief executive ofSunbeam in the US, has certainly discouragedexecutives from crowing about making such cuts.

Many, though not all, of the problems of down-sizing can be associated with low levels of trustbetween those making the decisions and those onthe receiving end. Generally, a convincing ration-ale for initiating downsizing is immenselyhelpful. It should give objective reasons forchoosing the specific positions eliminated andpeople dismissed, and clearly communicate thesereasons and criteria.

There is a prerequisite here, however: such arationale must exist. If, in the process of develop-ing it, managers conclude that downsizing is apoor way forward, so much the better for all con-cerned. Workers keep their jobs and managersavoid the headaches. Yet that may not always bethe case. Some organizations do face significantmarket downturns; others find themselves with amix of human resources that leaves them unableto compete effectively. What should they do?

Interestingly, there is little persuasive evi-dence that downsizing requires detailed, up-frontplanning. In fact, a study I conducted with aca-demics Clint Chadwick and Steve Walstonsuggests the opposite. Of more than 100 hospi-tals that went through restructuring, the studyfound that careful, pre-designed downsizing wasassociated with poorer subsequent performance.Hospital executives suggested that this was plau-sible. Those with detailed redundancy planslocked themselves into procedures that did notaddress deeper problems. In contrast, those thatfocused on strategic challenges were able to letdetails emerge in talks with employees.

More generally, such plans may be flawedbecause they rely on organizational charts andfail to take into account the importance of infor-mal employee networks. When downsizing pullsindividuals out of important places in such net-works, whether voluntarily or involuntarily, theresults can be devastating. As academics DebraDougherty and the late Ned Bowman showed,

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downsizing can disrupt networks that are crucialfor sustained performance, such as those thatpermit innovation. In fact, the human side ofdownsizing is more important than detailedplanning. No kind words can entirely overcomethe fact that people do not like to lose their jobs.Even when monetary losses are not pronounced,there are psychological blows.

It might seem easy for employees to rational-ize lay-offs caused by economic slumps: the factthat they have lost their jobs does not reflect ontheir individual worth. Such processes may bemore debilitating than straightforward dis-missals for performance failures: lay-offs caninduce a sense of helplessness or loss of controlthat can be stressful and de-motivating.Understanding this is an important first step inapproaching downsizing.

Managers themselves occupy a peculiar posi-tion with respect to downsizing. Specific people,not disembodied forces, design and carry out lay-offs. Yet managers are also on the receiving end.Their jobs and responsibilities change, and theyand their colleagues are often targets of job cut-ting. Indeed, shrinking the supposedly bloatedranks of “middle management” is frequentlycentral to job-cutting. Understanding that man-agers play these twin roles is also central to anysensible approach to downsizing.

While support for dismissed employees may beimportant, problems with remaining employeesare more likely to be at the heart of difficulties inachieving performance goals after downsizing.Downsizing greatly affects the remaining employ-ees and the methods managers choose to carry outlay-offs carry powerful messages to the survivorsabout their relationships with their employer.

The degree of dignity and compassion affordedto colleagues during termination affects the way

survivors expect they will be treated. Practicalguides to redundancy often advise hustlingemployees off the premises, keeping them awayfrom their remaining colleagues, and generallyensuring that they are not able to damage thecompany. Managers applying such guidelineswill find that such violations of employees’ dignity arouse feelings of compassion and indig-nation among those remaining. Similarly,organizations sometimes avoid giving muchadvance notice. But this allows rumours tofester and is disrespectful. Advance noticeallows dismissed employees time to exploreoptions, gives time for both survivors and termi-nated employees to adjust to the changes, andsends a message of concern to survivors.

Procedural fairness is also important.Survivors will react negatively to downsizingthat appears to be imposed arbitrarily, especiallywhen employees were strongly committed to thecompany. A number of studies – in particularthose of academic Joel Brockner and colleagues –have shown that remaining employees’ percep-tions of fairness during lay-offs have a number ofeffects on subsequent effort and performance.

However, what is unfair in one company maybe reasonable in another. For example, demandsto reduce “headcount” (rather than cost) mayresult in dismissed employees returning to work,with more pay, as contractors. This seems bizarre.Yet if the goal is not to retrench but to transformthe mix of core and contract workers, and this isunderstood, such policies may make more sense.

Survivors

Regardless of how clear and credible the lines ofcommunication, downsizing is likely to increasestress and lead to feelings of insecurity amongsurvivors. Further stress is likely to result fromdemands to increase productivity, from the strug-gle to adapt to job changes and from changes instructure. It is folly to think the sources of thisstress can be made to disappear: better productiv-ity, employee re-assignments and organizationalchanges are exactly what are needed to makedownsizing effective.

Here, too, research by Brockner and others ishelpful: not all insecurity caused by downsizing


No kind words can entirelyovercome the fact that people donot like to lose their jobs. Evenwhen monetary losses are notpronounced, there arepsychological blows.

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is a bad thing. Survivors do not want to be tar-geted for the next round, so they can bemotivated. Moderate levels of insecurity, in fact,can help – but not high levels. When peopleremain insecure in spite of their best efforts,motivation suffers. Such employees will redirecttheir attention from the good of the company toprotecting themselves.

After more than a decade of downsizing, USemployees now understand that they cannotcount on guarantees of continued employment.Europeans are coming to the same conclusion.As Peter Cappelli points out, their employershave been insistent on this point and employeeshave taken the lesson to heart, reciprocatingwith job-hopping and lower commitment of theirown, particularly in the tight labour markets ofthe 1990s. Few sensible employees expect bettertreatment when unemployment rises; rather,with diminished opportunity, they are likely tobecome even more concerned with protectingthemselves. Cappelli suggests that even ifemployers want to look to longer-term promisesof employment, employees will not find suchpromises credible.

So, employers should consider ways to providemore global security even as they generate localinsecurity, by assessing employees’ interest inskill development. Employees who believe thattheir organizations are committed to keepingthem employable will reciprocate with greatercommitment. Such organizations may also bemore likely to retain valued workers who havegood labour market options.

The circumstances that lead to cost-cuttingmay make it difficult for companies to focus onstaff development: short-term exigencies maketaking a broader perspective difficult. Such chal-lenges are intensified by the difficulty employershave in listening to employees to make sure theyunderstand what kinds of skills are desired andfew structures exist for these kinds of informedexchanges. To take an example, in a recent studyof employees in call centres, my colleaguesSteffanie Wilk, Rosemary Batt and I found thatpeople had a clear idea of the skills they neededto advance both inside and outside their organi-zations. In particular, they knew that general

technical skills and experience with a range ofcomputer applications would help. Yet theirorganizations provided them only with trainingto do their current jobs. These employers, shouldthey take the decision to downsize, will find aworkforce that is frightened and resistant.

ConclusionsThere is an irony here. Managers may in fact realize thatapproaches other than job cuts may be better solutionsfor the problems that they face. Yet markets and ana-lysts make demands and job cuts are a quick way to hitfinancial targets. Overall, however, evidence suggeststhat this approach is unlikely to bear dividends even inthe medium term and investors seem to understand thatdownsizing is not a panacea for poor performance.

Clarity of purpose, credible, two-way communicationand attention to the psychological and economic well-being of employees are hallmarks of effective downsizing.This should not be a surprise: these characteristics reflectgood strategic and human resource management.Organizations that downsize skilfully are likely to be wellmanaged and it would be surprising if those that arebadly managed could master such a process.

Copyright © Larry Hunter 2002

Further reading

Brockner, J., Grover, S., Reed, T.F. and Dewitt, R.L.(1992) “Lay-offs, job insecurity, and survivors’ workeffort: evidence of an inverted-U relationship”,Academy of Management Journal, June.

Cappelli, P. (1999) The New Deal at Work: Managingthe market-driven work force, Boston: HarvardBusiness School Press.

Cascio, W.F. (1993) “Downsizing: What do we know?What have we learned?”, The Academy ofManagement Executive, February.

Dougherty, D. and Bowman, E.H. (1995) “The effectsof organisational downsizing on productinnovation”, California Management Review, 37, 4.

Pfeffer, J. (1998) The Human Equation, Boston: HarvardBusiness School Press.

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H ow can managers choose the right course of action when planningand making decisions? One way is to set ethical standards in their

work practices. Such guidelines, governing areas as diverse as integrity,production and accounting, can be used by all managers, in particularthose whose responsibilities include the health, welfare and protectionof company stakeholders.

A few examples demonstrate how such standards might help. In 1985Martin Marietta Corporation, now Lockheed Martin, the US aerospaceand defence contractor, was under investigation for improper travelexpenses. The investigation prompted managers to create an internalprogramme of standards governing integrity in working practices. Afterthey had implemented the programme, employees at Martin Mariettareported better morale among the workforce and improved, sustainablerelationships with many suppliers and other stakeholders.

In 1988, managers at NovaCare, then called InSpeech, one of thelargest providers of rehabilitation services to hospitals and nursinghomes in the US, found an annual 57 per cent turnover rate amongstaff. One of the explanations they gave for this was that the companylacked a common and explicit set of values. In response, managers cre-ated guidelines describing the company’s purpose, fundamental beliefsand principles. Over the next decade, employee turnover reduced to 27per cent, with executives reporting that the statement of values hadmade a significant difference.

Ethics are important for individuals as well as for organizations. Ifethical practice is not responsibly acknowledged and housed somewherein the organization with a plan to create an ethical culture, executivesrun the risk of liability. If an organization lacks a sense of responsiblebehaviour, personal choices and decisions on the job will begin to slide.Put a good person in an unethical environment and the environment

Upholding standards for ethical practice

Without a base of norms and values companies can end up

with commercial and legal problems. Peter Dean sets out a

way to establish a practical set of principles.

Dr Peter J. Dean is a

lecturer at the Wharton

School of the University of

Pennsylvania and the Fels

Center of Government at

the University of

Pennsylvania.

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will usually triumph over the individual. Byrequiring an active ethical effort, not just legalcompliance, standards can lead to more than justthe reduction of business misconduct. They con-tribute to a more successful organization.

Also, potential recruits with a long-term viewof employment seek out the company that hasestablished standards and a reputation forupholding those standards.

Standards

Standards for ethical practice proposed herecomprise norms of behaviour and decision princi-ples within each norm (see Box 1). The numberof decision principles may vary between compa-nies. The standards are not comprehensive butprovide a good place from which managers canconsider their personal, company and cultural

values before interpreting and applying them.The guidelines were drawn from the ethical stan-dards of seven different organizations, businessethics research and experience of HR depart-ments in large corporations.

Integrity

Businesspeople must be honest, play fair and actin good faith to others in all dealings for the com-pany. They should reflect on their own beliefsystems, values, needs and limitations to knowhow these might differ from those of others, andbe conscious of the potential effect of these dif-ferences on their work. They must refrain frommaking false, misleading or deceptive statementsand must provide accurate information. Theyavoid relationships that create conflicts of inter-est, as well as expensive gifts, bribery, nepotismand abuse of government relationships. They


Box 1 Decision principles and norms

Integrity

Uphold honesty, fair play and good faith actions.

Refrain from false, misleading and deceptive statements.

Avoid conflict of interest relationships.

Disclose and clarify intentions of policies, proceduresand processes.

Productivity

Know your area of responsibility.

Exercise careful judgement in the use of your expertise.

Know the mechanics to create a productiveenvironment.

Master communication, management and leadershipskills.

Work towards advancement of a bias-free, ethicalenvironment.

Strive for continuous learning of skills and knowledge.

Responsibility

Uphold these standards in application to free enterprise.

Comply with your assigned duties and proper businessconduct.

Honour all promises, commitments and contracts made.

Cause no harm.

Be aware of responsibility to the community and society.

Respectfulness in relationships

Honour the intrinsic worth and dignity of all individuals.

Honour the liberty, human rights and freedom of allindividuals.

Be sensitive to power differences that threaten freedom.

Be aware of potential conflict between rights andduties.

Resolve all conflicts with honesty and patience, notcoercion.

Create a good reputation for dependability andresponsiveness.

Avoid fear of speaking about these standards withothers.

Practise courage in upholding the standards.

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must clarify to all parties the nature of their per-formance and function. They must act with anexpectation that each exchange in business is ineffect one of many more to come. They must actwith the intent of a long-term relationship.

Productivity

Professionals are expected to know about allaspects of their work and to perform in an exem-plary way. They should exercise judgement toprotect those for whom they are responsible.They use appropriate information, resources,incentives, research and applications to securethe best service for each stakeholder. They areaware of cultural, individual and role differencesinvolving age, gender, race, ethnicity, nationalorigin, religion, sexual orientation, disability, lan-guage and socio-economic status. They workcontinuously to eliminate the effect of bias basedon the above differences.

They do not condone or participate in unfairdiscriminatory practices. They strive to advanceindividual and organizational learning, perform-ance and development while mitigating thecauses preventing stakeholder welfare. Theycomply with laws and social policies that servethe interests of stakeholders, the public, societyand the environment. Moreover, they should pos-sess skills such as:

� managing client relationships;

� conducting analyses;

� identifying root causes of conflicts;

� forming partnerships within a company;

� negotiating;

� conflict resolution;

� technical;

� building consensus and commitment;

� project management;

� speaking;

� facilitating change.

ResponsibilityProfessionals uphold the law and these ethicalstandards, and prevent harm to any stakeholder.They should consult with colleagues and clientsregarding ethical compliance. They shouldengage in proper business conduct to preventunethical dilemmas. They should share credit forwork accomplishments when appropriate and beworthy of trust as a professional. They serve thecompany by honouring contracts, promises andany agreed commitment.

Moreover, they should be aware of theirresponsibility to the community in which theywork and live, to the society to which they belongand to the planet. They understand that there isa necessary confluence of a healthy ecosystem,stable governments, a healthy economy andhealthy organizations. Professionals have anobvious responsibility not to bring harm toanother individual, department, division, com-pany, community or any other element in society.

Respectfulness in relationships Professionals recognize, respect and are con-cerned about the worth of individuals, theirinteractions with each other, as well as theirrights to privacy and confidentiality within thecontext of fundamental dignity, financial infor-mation and worth of all people. They shouldadvocate that restricting the rights of individualsat work should be limited and used only withclear business justification. They will be alert tothe fact that legal obligations manifested as com-pliance policies and procedures may lead toinconsistency and conflict with the exercise ofthe rights of individuals.

When conflict does occur among stakeholders’obligations, concerns and rights, they attempt toresolve these conflicts in a responsible and ethicalmanner, avoiding or minimizing harm to others.They are sensitive to power differences among allstakeholders and do not mislead or exploit otherpeople before, during or after professional workexchanges. Respectfulness in relationships cre-ates confidence among stakeholders.

Business needs and the standards

How are the standards reflected more generally incompanies? The modern business environment,

UPHOLDING STANDARDS FOR ETHICAL PRACTICE 157

Businesspeople must be honest, playfair and act in good faith to others inall dealings for the company.

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as well as demanding such attributes as competi-tiveness and technological innovation, creates abasic need for fair play, competence, keepingpromises and democratic values.

In An Inquiry into the Nature and Causes ofthe Wealth of Nations (1776), the Scottish econo-mist and philosopher Adam Smith wrote thateveryone, as long as he does not violate the lawsof justice, is free to pursue his own interest andto bring that interest into competition withanyone else. Many hang on to this advice and useit as the only true standard of conduct. In 1759,though, Adam Smith wrote the Theory of MoralSentiment, in which he indicated that howeverselfish a person may be, there are principles inhis nature which give him an interest in the hap-piness of other people. Smith remarks that thisinterest in others involves “fair play” and thatwithout some ethical foundation the fabric ofhuman society would fall apart.

Fair play is a core need of business. Without itthere is no connection between the effort madeto succeed and access to opportunity withinwhich people can develop their talents and beproductive for the betterment of society.

The second norm of productivity is inextrica-bly linked with competence. Productivity resultsfrom competence unless obstacles intervene.High productivity relies on exemplary perform-ance by workers. Individual performance canbecome exemplary if the organizational culturehas the backdrop of the standards cited above.Understanding the mechanics to improve per-formance and productivity within an ethicalculture is critical for mutual reinforcementwithin an organization.

Too often average ethical performance in agroup is taken to be the standard, leading to a com-placent culture. Once employee performance hasbecome complacent, it begins to deterioratebecause of the lack of an ethical backdrop. Whenthat degeneration begins, people are increasinglyresistant to efforts to bring about improvement ofethics in the culture. Performance and productivitycan be improved if there is the same message ofstandards cited above in the organizational culture.

Keeping promises is critical for the stability oftransactions. Many traders at stock exchangespromote and practise the maxim that “my word

is my bond”. There are other promises in therealm of business that may be more invisible.Professionals have a tacit responsibility not tobring harm to other people.

Finally, the value of respect towards individu-als and relationships and values such asaccountability, equality, patience, freedom,human rights and liberty should directly benefiteconomic life. Human rights cannot exist with-out people accepting their responsibilities andduties to each other in society. The purpose andimportance of rights and duty always arise inrelationships. Freedom is a right to one’s dignity.Duty is measured in our contributions to others,the company, the community and society.

Fear of the truth itself decreases our hopes andaspirations to be free in respectful relationships.Honesty helps overcome fear and is the first stepto business wisdom. Courage is doing that whichyou fear. Honesty helps us practise courage. Forprofessionals, speaking the truth is often one ofthe most difficult things to do, yet one of the mostimportant for growth and success.

Companies in crisis

At the beginning of this article I outlined howstandards had improved company performancein two examples. It may also be instructive toreflect on what happens when a company lacksnorms and decision principles in its culture.

Beech-Nut Nutrition

In 1987 the US Food and Drug Administrationinvestigation of Beech-Nut Nutrition Corporationregarding the misbranding of its apple juice led to10 counts of mislabelling by the courts at an esti-mated cost of $25m. The company had misled thepublic in claiming that one of its products con-tained real apple juice. The deception showed


Freedom is a right to one’s dignity.Duty is measured in our contributionsto others, the company, thecommunity and society.

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that the company culture lacked integrity as wellas good judgement, because it caused harm to thecompany and its stakeholders.

Sears, Roebuck

In 1992, Sears, Roebuck and Company receivedcomplaints from 40 states in the US about mis-leading customers by selling unnecessary partsin its vehicle services departments. Although thecompany did not intend to defraud customers, itsincentive system had gone awry with unduepressure for quotas on sales. After a long investi-gation, the cost of settlement was estimated at$60m. Here, we see a clear case of culture caus-ing unethical behaviour.

With proper standards as a backdrop in theorganizational culture, the loss of confidence inSears might have been prevented.

Salomon Brothers

In 1991, four Salomon Brothers executives failedto take appropriate action when learning ofunlawful activity on the government tradingdesk. This failure to take action in respecting thestandards of trading, stakeholders and customersled to a crisis in the perception of SalomonBrothers as a leader in the investment industry.Salomon Brothers lost nearly $1bn and the confi-dence of the public.

ConclusionManagers must go beyond complying with regulations– they should also promote standards of fair play, pro-ductivity, promise-keeping and humanistic values.

These four norms, aligned with the core business needs(integrity, competence, productivity and respectfulnessin relationships) in a global economy, give direction forthe rethinking of organizational culture within whichethical practice can emerge.

While they can be adopted by any part of the com-pany, such standards offer an expanded role to humanresource departments to include the responsibility forencouraging stakeholders to aspire to excellence inethical conduct. As the chief advocates for ethical prac-tices, HR could act as the standard bearer for ethics inthe company – not just as a force for legal compliance.

Copyright © Peter Dean 2002

Further reading

Dean, P.J. (1997) “Examining the profession and thepractice of business ethics”, Journal of BusinessEthics, 16, 15.

Dean, P.J. (1994) “Customising codes of ethics to setprofessional standards”, Performance ImprovementJournal, 33, 1.

Dean, P.J. (1992) “Making codes of ethics ’real’”,Journal of Business Ethics, 11.

Donaldson, T. (1996) “Values in tension away fromhome”, Harvard Business Review, September.

Paine, L.S. (1994) “Managing for organizationalintegrity”, Harvard Business Review, March.

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Skills 8

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Contents

Seeking success by involving workers 165

Mark Fenton-O'Creevy, Open UniversityBusiness School

Managers have long wrestled with theproblem of how to co-ordinate and controlemployees without dampening motivation andstifling innovation. There are both benefits anddifficulties with employee involvement.

Unlocking the secrets of businessinnovation 171

Thomas Mannarelli, Insead

Most people think about managing creativity interms of handling creative people. Butcompanies must also scrutinize the creativeaspects of products and processes to remaincompetitive.

In search of strategic meaning 177

Theresa Welbourne, University of MichiganBusiness School

Managers often talk about the new“strategic” role of HR but rarely agree onhow things have changed for the profession.One argument is that nurturing employeerelationships is a crucial role for the HRfunction.

The ups and downs of leading people 181

Michael Useem, Wharton School, Universityof Pennsylvania

Leadership lessons are typically directed atthose in charge of the organization. However,it is just as important for managers andworkers to exercise “upward leadership”when they see problems in the business.

The failure factor in leadership 187

Manfred F.R. Kets de Vries

The fear of failure can lead to leadershipincompetence. And while it is tempting toblame external forces for this fear, theresponsibility lies much closer to home – inour own inner psychological theatre.

163

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A s managers rise steadily through theorganization, they acquire the technical or

market-based skills in different areas of the busi-ness through training and experience. At thesame time, they are expected to pick up the gen-

eral skills of managing people in organizations,such as leadership, team building, negotiationand motivating employees. In this part, writersask what people skills are required of seniormanagers and how they can best execute them.


164

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M anagers have long wrestled with the problem of how to co-ordi-nate and control the organization to achieve their objectives. A

guide to farm management from the Mesopotamian civilization (writtenabout 5,000 years ago) illustrates one approach. It suggests farm super-visors should: “Brook no idleness. Stand over [the field workers] duringtheir work and brook no interruptions.”

Many organizations have, like the Mesopotamians, exercised manage-ment via tight supervisory control, through an autocratic hierarchy. Oftenthis has been highly successful. The Mesopotamian temple organizationthat produced the above guide lasted for 3,000 years. However, if the ideaof tight command and control is not new, neither is the contrasting notionthat involved employees are more committed and more productive. In AD 100, Columella, a Roman estate owner, wrote a treatise on estate man-agement (De Re Rustica) in which he remarked: “Nowadays I make it apractice to call [estate workers] into consultation on any new work …I observe they are more willing to set about a piece of work on which theiropinions have been asked and their advice followed.”

Changing patterns

In the past century, labour unions have been an important channel foremployee involvement. More recently, however, union membership andconsultative committees have declined, prompting growth in more directforms of involvement such as team briefings or problem-solving groups.

Perhaps the best evidence of this comes from the UK’s WorkplaceEmployee Relations Survey (WERS). Figure 1 shows a steady decline inrepresentative involvement and a rise in the use of direct involvement.Evidence suggests similar changes elsewhere in Europe and the US.

Seeking success by involving workers

How do managers balance tight supervision against staff

self-management? Mark Fenton-O’Creevy outlines the

pros and cons of employee involvement.

Mark Fenton-O’Creevy is a

senior lecturer in


at the Open University

Business School.

165

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Words such as participation, involvement andempowerment have become common parlanceamong managers. Is this just a matter of fashion?Will we see throughout history a swing from tightcontrol to employee involvement and back again?Some, such as the late Harvie Ramsay, Professor ofInternational Human Resource Management atthe University of Strathclyde, have argued thelatter. Ramsay suggested that when labour mar-kets are tight and managers are under threat fromorganized labour, employee involvement practicesare introduced to appease workers and thenallowed to wither after the threat has passed.Others, such as Harvard academic Rosabeth MossKanter, have argued that to contrast employeeinvolvement and control is a false dichotomy. Theysuggest that everyone can gain greater controlthrough employee involvement. To understandthis, we need to distinguish between control overwhat is achieved and how it is achieved.

By giving workers greater control over howobjectives are achieved, it is said, managers canreach those objectives more easily. Greater con-trol for workers over how they carry out tasksallows them to exploit their capabilities andunderstanding of the task. Genuine involvementin decisions about tasks also often leads togreater commitment. However, there is a caveat:this works only if workers understand and sub-scribe to managers’ objectives and have thenecessary skills to achieve them.

Benefits

Employee involvement is concerned with eitherhow best to achieve organizational goals or whatthe nature of those goals should be and how thebenefits should be distributed. Direct involve-ment is typically concerned with the former andrepresentative involvement with the latter. So,for example, improving quality is often a goal ofdirect involvement. Issues such as pay, workinghours and the consequences of strategy for jobsecurity and the nature of work are frequentlydealt with through representative involvement.

Representative involvement

The objectives of representative involvement aregenerally not to improve productivity, so itwould be unreasonable to judge it on that basis.Where representative involvement is mandatedby law (as in much of Europe), objectives tend tobe concerned with ensuring that the interests ofemployees are given weight compared with thoseof managers and owners. There is a case thatthis has been successful at the country level inensuring a good climate of industrial relationsand investment in both physical and human

PART 8 SKILLS166

Workplaces (per cent)

50

45

40

35

30

25

20

15

10

5

01984 1990 1998

*Based on stratified sample of about 2,000 UK workplaces

Direct only

Representative and direct

Representative only

FIGURE 1 Changes in the pattern of involvement*

Source: Adapted from Millward, Bryson and Forth (2000)

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capital. Equally, some argue, the associatedlack of managerial autonomy has resulted in alack of flexibility, to the detriment of someEuropean economies.

At the company and workplace level, researchsuggests, consultative committees and workscouncils do not in themselves affect productivity(in either direction). However, research in themotor industry by Mari Sako of Oxford Universitysuggests that the productivity effects of directinvolvement are strongest where there is alsosome form of representative involvement. If work-ers feel that their interests are adequatelyaddressed through a representative process, theyare more likely to avail the organization oftheir full skills, knowledge and effort throughdirect involvement.

Direct employee involvement

Direct involvement processes tend to be initiated bymanagers and fall into two broad categories: com-munication-focused and task-focused involvement.Communication-focused involvement concernssystems for directly informing and listening toemployees, such as “town hall” meetings, teambriefings, employee attitude surveys, suggestionschemes and formal grievance systems.

These methods are in many ways weak formsof involvement. However, there is evidence ofbenefits where employees have a channel throughwhich they can voice concerns. In particular,employees who feel able to raise concerns (and belistened to) are much more likely to believe thatmanagerial processes and decisions are fair. Inturn, employees who believe that fair process isfollowed are more likely to be committed to theirorganization and to remain in it, and less likely toengage in actions harmful to the organization.

Task-focused involvement concerns involve-ment in decisions about the work itself. Studiesshow that, overall, such practices have a signifi-cant positive effect on employee attitudes such asjob satisfaction, commitment and organizationalcitizenship; they have a positive, althoughweaker, effect on task performance. However, itis clear that in many companies such initiativeseither fail to become established or do not pro-duce positive effects.

Quality circles

Quality circles are small groups of employeeswho meet regularly to discuss quality and relatedissues. Their role may be to identify problemsand devise solutions. Where they are part of awider programme, quality circles are often alsoknown as continuous improvement groups.There is little evidence that participation in qual-ity circles (or continuous improvement groups)improves employees’ motivation. However, in areview of research into quality circles, JohnCotton found about half show performanceimprovements and about half show little or noeffect on performance.

What determines their success or failure?Importantly, there seems to be a life cycle.Quality circles typically take some months beforethey start to deliver benefits, with the greatestsuccess at between 6 and 18 months. Thereafterthe benefits often fade away. My own researchsuggests that quality circles have been most suc-cessful as part of a more radical transformation oforganization systems and working practices – andoften as a short-term measure, rather than as aninstitutionalized work practice.

Self-managing teams

Self-managing teams represent the most successfulapproach to performance improvement throughemployee involvement in recent decades. Termssuch as self-managing teams, self-directed teamsand semi-autonomous groups have all been used todescribe team-working practices. Names and meth-ods vary from organization to organization.

Self-managing teams complete a whole or adistinctive part of a product or service. Theymake a wide range of decisions, often includingtraditional management prerogatives. These may

SEEKING SUCCESS BY INVOLVING WORKERS 167

If workers feel that their interestsare adequately addressed througha representative process, they aremore likely to avail the organizationof their full skills, knowledge andeffort through direct involvement.

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include selecting leaders, assigning jobs, train-ing, redesigning processes, assessing internalperformance, judging and managing quality,managing budgets and liaising with other teams.

The most comprehensive estimates of theprevalence of self-managing teams relate to UKorganizations only. However, my own researchwith a Europe-wide sample suggests there aresimilar levels in other western European coun-tries. In the UK, research on the 1998 WERSsuggests about 35 per cent of workplaces useself-managing teams. However, their incidencevaries considerably with the type of core occupa-tional group in the workplace. Just over half ofworkplaces with professional workers as thelargest occupational group use self-managingteams as opposed to only 13 per cent of work-places with plant and machine operatives as thelargest occupational group.

Research on self-managing teams is more opti-mistic about their benefits than that for qualitycircles. Most studies have found self-managingteams to improve work outcomes, work attitudesand absenteeism.

Reasons for failure?

Economists have typically explained companybehaviour in terms of the search for economicadvantage. Many sociologists (while not denyingthe role of economic forces) have looked atthe importance to company survival when estab-lishing legitimacy in terms of relevant socialinstitutions. For example, researchers BarryStaw and Lisa Epstein made a study of the adop-tion of popular management techniques in topUS companies. They found that adoption wasnot associated (on average) with increased eco-nomic performance. However, such techniqueswere associated with a more positive companyreputation among top executives in othercompanies and higher remuneration for thecompany’s chief executive.

They concluded that chief executives aremotivated to adopt such practices not becausethey are always economically optimal for thecompany but because they are seen as highlylegitimate management practices, which reas-sure company stakeholders and send signals

about the chief executive’s competence to com-pensation decision makers.

Other evidence suggests that while new tech-niques may benefit early adopters, later adoptersmostly do not achieve performance improve-ments. Why? Because late adopters are followingthe trend and window-dressing, while earlyadopters are interested in the process itself.

Adoption as window-dressing certainly explainsthe contrast between the mediocre outcomes ofquality circles and the success of self-managingteams. The former can be “bolted on”, whereasthe latter require big changes to the way workis organized.

Another reason advanced for the failure ofemployee involvement is resistance from middlemanagers, who do not wish to surrender power. Iam sceptical of this argument. While such resist-ance undoubtedly exists, it is often merely asymptom of deeper problems: for example, divi-sions among senior managers about the value ofthe initiative, or poorly conceived and designedprocesses for involving employees. All too often,senior managers announce they intend toempower employees and send middle managerson a brief “sheep dip” training course. Thesemanagers are then exhorted to involve andempower employees, while reward systems andpromotions continue to show that what reallymatters is short-term performance. Core sys-tems, structures and control over resources donot change. Consequently, behaviour does notchange and middle managers become the scape-goats for another failure of vision at the top (seeBox 1, point 1).

How to succeed

Like anything that can deliver significant advan-tage, employee involvement is not an easyoption. Many organizations that claim to involveemployees do nothing of the sort. Many pro-grammes are nothing but rhetoric and windowdressing. So the first rule of success is: “Don’tjust talk about it, do it.”

If employees are really to be involved and man-agers are to change their behaviour in ways thatmake this possible, then organizational systemsneed to change. Reward systems, training and

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development, modes of communication, careerpaths and processes for allocating resources andsupport all need to reinforce and support theinvolvement programme. So the second rule ofsuccess is: “Real employee involvement requiresyou to transform the organization.”

As noted, direct involvement will succeedonly if workers understand and subscribe tomanagers’ objectives. This has two implications.First, objectives need to be communicated inways that make sense to employees. Second,employees may not automatically accept thoseobjectives as sensible or worthwhile. Objectivesneed to be “sold” to employees. So the thirdrule of success is: “Communicate and sell a

clear and engaging set of objectives” (see Box 1,point 2).

The reality of involvement can be tested byasking whether employees have the resourcesand authority to manage the work. Do they, forexample, have access to meeting space, tools,computing services and other resources thatmean they can implement decisions about how toorganize their work? Do they have the authorityto make decisions about how work is carried out,and how tasks and customers are prioritized?

This is not to say that employees can immedi-ately be given authority and left to get on with it.Most successful instances of high employeeinvolvement involve a gradual and negotiatedhandover of authority to individuals or teams,with managers and employees clear at each stageabout the extent and limit of authority. So thefourth rule of success is: “Give employees ade-quate control over resources and real authorityto manage their work.”

Finally, many successful involvement initia-tives have been dropped or damaged beyondrepair as soon as the organization hits hardtimes. In the drive to reduce costs, a hidden costcan be the loss of trust and capabilities that havetaken a long time to build. This is not inevitable.As some companies have found, employeeinvolvement can be valuable in difficult times(see Box 1, point 3).

So the fifth and final rule of success is:“Protect and build employee involvement in thehard times as well as the good.”

Copyright © Mark Fenton-O’Creevy 2002

Further reading

Cotton, J.L. (1993) Employee Involvement, London: Sage.Cully, M., Woodland, S., O’Reilly, A. and Dix, G. (1999)

Britain at Work: as depicted by the 1998 WorkplaceEmployee Relations Survey, London: Routledge.

Fenton-O’Creevy, M. (2001) “Employee involvementand the middle manager: antecedents of resistanceand support”, Human Resource ManagementJournal, 11 (1).

Fenton-O’Creevy, M. (1998) “Employee involvementand the middle manager: evidence from a surveyof organizations”, Journal of OrganizationalBehaviour, 19 (1).

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Box 1 Involvement in practice

1. A UK chain of car dealerships tried and failed toimprove service quality through employeeinvolvement. The senior team complained of alack of co-operation from dealership managers.This was perhaps unsurprising given themanagers’ bonus system, which focusedcompletely on monthly sales and was not relatedto quality targets or to employee development.

2. One successful self-managing team of customerservice engineers in Xerox stated its objective asfollows: “This team exists to keep customers sopleased with Xerox that they will remain withXerox; and the team aims to do so in a way thatuses Xerox resources as efficiently as possible.”

3. In the UK, car maker Nissan faced a large fallin demand and needed to reduce theworkforce. It engaged in a massive consultationexercise with employees about how best tomanage redundancies, while at the same timepreparing for the upturn.

If employees are really to be involvedand managers are to change theirbehaviour in ways that make thispossible, then organizational systemsneed to change.

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Kanter, R.M. (1989) “The new managerial work”,Harvard Business Review, November.

Millward, N., Bryson, A. and Forth, J. (2000) All Changeat Work?: British Employee Relations, 1980–1998:Portrayed by the Workplace Employee RelationsSurvey, London: Routledge.

Ramsay, H. (1991) “Reinventing the wheel? A review ofthe development and performance of employeeinvolvement”, Human Resource ManagementJournal, 1 (4).

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M anaging creative talent has always been a challenge. In business,however, creativity has only recently been given the attention it

merits. The rise of information technology and globalization hasfocused attention on product and service differentiation. While muchhas been said about the value of knowledge, managers are discoveringthat what you know is only a piece of the puzzle. It is the way knowl-edge is used that determines a company’s performance. Easier access toconstantly changing information hasn’t made life easier; in fact, it hasput most organizations on a more level playing field. To remain compet-itive companies must continue to find and hone innovative solutions tomarket problems.

When executives think of managing creativity they often think onlyin terms of how to manage the creative person. Certainly managing cre-ativity at the individual level is a vital component, but managers mustthink beyond the person to maximize the creative potential of theirorganizations. Social psychologists have discussed the importance ofvarious facets of creativity, which include not only the person but alsothe product, the process and the situation. As these facets are describedin detail, it will be clear that they are not distinct but closely related.So, when motivating creative people, managers must think about morethan just individual employees.

When experience counts for little

In one sense, the creative product (defined broadly as a product, idea orservice that is both novel and useful) is the essence of creativity.Regardless of the inventiveness of the people involved or the processesof production, it is only from the product or service that an organizationcan derive the benefits creativity provides.

Unlocking the secrets of business innovation

Good managers make quick, sound and efficient decisions.

However, they must be willing to accept ambiguity and

uncertainty when dealing with creative product ideas, says

Thomas Mannarelli.Thomas Mannarelli is an



at Insead’s Asia campus.

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Yet managing the product may be the mostimportant (and probably the most difficult) partof managing creative people. While employeesgive their blood, sweat and tears to a new prod-uct, it is the executive who must make thepainful decision of whether or not to back it,alter it or reject it. Such judgements aboutwhether to invest the company’s resources canalso be interpreted as a referendum on the cre-ator’s competence.

The problem is that managers typically makedecisions about product ideas in the same waythey decide about conventional issues such asfinancing and resource allocation. Yet creativityposes a fundamentally different problem for deci-sion makers. Traditional analytical models ofdecision making, while appropriate for evaluat-ing choices for which there are ample historicaldata, can often kill off creative ideas that mightbe extremely valuable.

An executive from a US record companybemoaned the fact that the new album from oneof his label’s most successful acts, while verygood, did not contain any “hits”. The disap-pointed band members were sent back to thestudio to keep working on it. When asked how heknew that the album had no hits, the executivesaid that his judgement was not based on anymystical talent but on an ability developed overthe years to spot hit songs, and a realization thata hit is one of those things that everyone recog-nizes when they hear it.

Perhaps he is right most of the time and thatmay be sufficient. But, then again, maybe it’snot. In an infamous example, Decca Recordsturned down an opportunity to sign The Beatlesin 1964 because it believed guitar music was nolonger marketable. Decca was not the only one;virtually every major label rejected the band

except George Martin, an inexperienced pro-ducer and head of the small EMI subsidiaryParlophone Records. Even Martin conceded thathis decision had more to do with the enthusiasmof the band members and of their manager,Brian Epstein, than it did with his belief in thequality and marketability of The Beatles’ music.

This phenomenon is not unique to music.History is replete with similarly faulty conclu-sions drawn by astute executives and otherexperts. Western Union declared in 1876 that thetelephone, with all of its shortcomings, was of novalue. In 1977 Ken Olsen, founder of DigitalEquipment Corporation, concluded that therewas no reason why people would want to havecomputers in their homes. And Fred Smith’s eco-nomics professor at Yale University gave him a“C” grade on a paper outlining his idea for whatwould later become Federal Express, claimingthat his plan for overnight package delivery,while interesting, was not commercially feasible.

Key decisions

The point is that creative product ideas cannot bejudged using the same informational shortcutsthat managers habitually employ to make otherdecisions. Good managers are quick, certain anddecisive. This type of behaviour is continuallyrewarded and reinforced. Subordinates, boardmembers and shareholders alike look to managersfor their wisdom and experienced leadership tomake sound and efficient decisions. Therefore, itis difficult for managers and stakeholders toaccept uncertainty about decisions involvingcreative products.

That is not to say managers cannot use theirknowledge and expertise to analyze creativepropositions. On the contrary, it would be foolishto suggest otherwise. But good managers of cre-ativity have learned to be cognizant of what theyknow and what they think they might know.Compared to a typical product evaluation, cre-ative products call for an agnostic approach.Product ideas must be assessed realistically,assuming a high degree of uncertainty abouttheir ultimate usefulness. Managers must bemore willing to tolerate the ambiguity thataccompanies such uncertainty and must not fall

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into the trap of assuming that just because some-thing did not occur in the past, it cannot occur inthe future.

The idea of product agnosticism could also beseen as a form of self-management. Executivestypically reach their positions after establishing atrack record of making good decisions. After sometime such confidence in decision making becomeshabitual. And that is when the danger sets in.

An agnostic approach asks only that managersreserve judgement, at least temporarily. Allocatingtime and effort to fully appreciate the possibilitiesof a counterintuitive idea can mean the differencebetween signing The Beatles and letting them go.One would be hard-pressed to find many examplesof creative entrepreneurs, inventors, scientistsand the like who were not told at least initiallythat their ideas were crazy or unworkable. Onlyafter much tenacity and perseverance do thesemavericks prove their critics wrong.

Albert Einstein once said, “If at first the ideais not absurd, then there is no hope for it.”Perhaps when it comes to creativity, managersshould learn how to think more like physicistsand less like traditional managers.

Motivation

Early research on the creative personality sug-gested that perhaps creative individuals wereneurotic or suffered from social or psychologicalimpairment. Systematic tests of this hypothesisproved it unfounded; creative individuals wereactually found to be normal or above average interms of mental health and stability. The origi-nal hypothesis may have stemmed from the factthat creative people face a lot of opposition totheir ideas in professional environments. Inresponse to the barriers they face, they oftenlash out with frustration.

However, the misunderstanding of creativepeople may also have something to do with theway in which most managers understand motiva-tion. Early behaviourist theories of motivationproposed that people respond positively toreward and negatively to punishment. Whilethere is obviously some truth in this, subsequentresearch has demonstrated that motivation ismuch more complex. Creativity is inextricablylinked to motivation. It blossoms when people

engage in tasks without expectation of reward ora vote of approval. Instead, they do it for thepleasure and feeling of accomplishment thataccompanies the activity. Further, creativity (andintrinsic motivation) on a given task is reducedwhen external factors are emphasized.

That is to say, when creative people are per-forming a task, if the extrinsic reasons forengaging in the task are more important thanthe intrinsic reasons, they will tend to performless creatively. Outside factors encourage peopleto focus purely on the accuracy and consistencyof the outcome; while the task may be accom-plished, creativity is blocked and interest in theactivity stifled. This is not to say that creativitycan be promoted by eliminating compensationfor performance – the most salient extrinsicfactor. Managers of creative individuals do havethe means to influence employee motivation.

A full-time culture

One approach is to move away from traditionaltools of motivation, such as salary and promo-tion, to remove perceptions of organizationalcontrol over work and to allow creative employ-ees to focus on the intrinsic attributes of thetask. Managers must be willing to relinquishsome control over subordinates and allow ahigher degree of freedom to perform not only interms of the product outcomes but also themeans they employ to reach their objectives.

Probably the most effective way of increasingthe intrinsic motivation of creative people is toestablish a culture of creativity. This is easiersaid than done. First, there are no foolproofmethods for creating a culture; an organization’sculture evolves organically, influenced by manyfactors, some within and others outside the con-trol of managers (see ‘A cultural evolution inbusiness thinking’ in Part 4). So while organiza-tions frequently try to change their cultures, theoutcome is never certain. Furthermore, if such atransformation involves a radical departure fromthe existing culture, the process can be lengthy,typically requiring years of effort.

However, if managers are committed to a cre-ative cultural transformation, success can bestbe achieved by acting on many fronts. The first

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and probably the most straightforward is aphysical transformation, which borrows from thetheory of “scientific management” advocated byFrederick Taylor in the early 1900s. Taylor’stheory suggested, among other things, that workshould be designed in a methodical and scientificfashion so that performance was optimized.Scientists should be able to determine the condi-tions (such as light levels, room temperature,ergonomic desk design and so on) for optimalproductivity through rigorous research.

Although many of Taylor’s ideas have beenrejected for their robotic treatment of humanbeings, his impact was undeniable. Interestingly,many of his principles are being applied in cre-ative industries to foster the ideal workingenvironment. Advertising agencies, consultantsand research and development laboratories areincreasingly turning to architects and interiordesigners for help construct physical workspacesthat enhance communication, interaction andopenness. Companies in Silicon Valley have beenpraised for their informal work environments,ranging from casual dress codes to flexible workschedules and elaborately decorated workspaces.

Policy changes and office design cannot beexpected to improve creativity directly but theydo contribute to a more relaxed, informal andless bureaucratic environment – all qualitiesthat encourage organizational commitment andintrinsic motivation.

Managers can also foster a creative culture byprocedural improvements. When advertisingexecutive Alex Osborn came up with the famousbrainstorming process in 1941, his ideaaddressed the creative needs of his particularindustry. The fact that brainstorming is nowused (although frequently incorrectly) in alltypes of organizations is a testament to both thebroad desire of managers for creative solutions toproblems and the need for tools to help stimulatecreative thought.

Brainstorming is not the only technique avail-able. Lateral thinking, mind-mapping and manyothers are also used. Creative consultancies providesuch tools, and even the more general consultingcompanies are adding a wide array of creativitytechniques to their repertoire of resources.

Often organizations identify one technique astheir primary tool. However, there may be greatvalue in using several techniques. Some takelonger than others and the choice of techniquemay depend on time constraints. Some methodssuit groups while others are designed for peopleworking alone. Furthermore, different tech-niques provide different benefits. For example,some are more effective at stimulating radicaldivergent thinking, others incorporate more sys-tematic and logical thought processes.

Finally, the use of several techniques can aug-ment efforts to develop a more creative culture.Many techniques incorporate a high degree ofplayfulness and fun into their procedures.Working in organizations and teams that usethese techniques can be more exciting and moreemotionally rewarding. By changing techniques,the process never becomes dull or routine.

Managers can also establish a creative culturethrough an “authentic transformation”. Herethe question is simple: do managers reallybelieve in and value creativity from employees?An organization can adopt the most effective cre-ative processes, craft the most creative physicalenvironment and implement more informal com-pany policies, but if there is no belief in the valueof creativity from senior managers, the transfor-mation is doomed. Certainly, this commitmentmust be communicated in words, but such wordsmust also be backed up by enthusiastic supportand visible actions that demonstrate the com-pany’s commitment to innovation.

Perhaps the most important point aboutestablishing a culture of creativity is that itcannot be a part-time effort. Often managersargue that creativity is desirable only when it isneeded and that it can hinder operations whennot needed. In fact, the flow of creativity cannotbe turned on and off at will. If creativity isencouraged only at those rare times when man-agers demand it, an organization will neverbecome creative by habit.

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If managers are committed to acreative cultural transformation,success can best be achieved byacting on many fronts.

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ConclusionThe past decade has witnessed an astonishing periodof innovation. While creativity contributed greatly tothe economic growth of the late 20th century, it canalso be argued that economic growth also contributedgreatly to creativity. Although managers routinely stressthe importance of creativity for prosperity, in practicethe resources devoted to creative endeavours are oftentreated as expendable.

When times are good, managers are more willing toinvest time and money in unconventional ventures andtake risks with novel ideas. But when the climatechanges, creativity is seen as a luxury that can nolonger be afforded. In these challenging economictimes, the importance of creativity should be givenadded emphasis. It may be precisely what is needed tolift struggling economies out of the doldrums.

Copyright © Thomas Mannarelli 2002

Further reading

Adams, J.L. (1986) Conceptual Blockbusting: A Guideto Better Ideas, Reading, MA: Addison-Wesley.

Amabile, T.M. (1996) Creativity in Context, Boulder,CO: Westview Press.

Csikszentmihalyi, M. (1996) Creativity, New York:HarperCollins.

Kao, J. (1996) Jamming: The Art and Discipline ofBusiness Creativity, New York: HarperBusiness.

Michalko, M. (1991) Thinkertoys: A Handbook ofBusiness Creativity, Berkeley, CA: Ten-Speed Press.

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1

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H uman resource management has been changing for some time. Itsearly focus on labour and industrial relations shifted to personnel

administration and has moved on to strategic human resource manage-ment. However, senior HR executives are by no means consistent aboutwhat they are doing differently now that they are “strategic”.

One group of executives might say: “We now report to the board andare involved in strategy; we help with mergers and acquisitions, forexample.” Another, by contrast, complains: “We continue to reportthrough the accounting or finance department, we are busy dealingwith paperwork and much of our job is being outsourced.” Even whenpushed, neither group can say how their work has changed. It seemsthat the work of the HRM department has changed little. If so, whatcontribution can the department make?

Before trying to answer this question, managers should ask whysaying that HRM has taken on a strategic role should change anything.Is it any more “strategic” than any other function such as marketing,sales, accounting, finance, technology or public relations? At the sametime, there has been growth in executive coaching, consulting and HRoutsourcing. What does this say about the future?

The executive effect

With academic Linda Cyr, I conducted a study on people managementissues within high-growth and high-change organizations. We exploredthe effect on performance of having a senior HR executive reportingdirectly to the chief executive. (In practitioner and academic journals,this is one agreed definition of “strategic HRM”.)

In search of strategic meaning

HR can make a difference in a strategic role – for better or

for worse, says Theresa Welbourne. The important factor

is to build positive relationships.

Theresa M. Welbourne is

an associate professor of

organization behaviour

and human resource

management at University

of Michigan Business

School and president and

chief executive of eePulse.

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The research was done on a sample of companieswe called the “fruit flies” of management. Theseare companies going through initial public offerings– they live and die quickly, allowing a researcher tostudy cause and effect in conditions that may becloser to those found in a laboratory. Generally, theystart up operations, obtain a product, hire a man-agement team, decide how to organize themselvesand are given a sizeable amount of money at IPOwith which to grow their operations. The studyincluded approximately 200 variables that describedthe companies at the time of their IPOs, revealinginformation about strategy and structures, andinvestigated more than 500 organizations.

Having a senior HR executive reporting to thechief executive did affect company performance.However, the relationship was complex. Sometimesthe HR executive had a positive effect on longer-term company performance (growth in stock priceand earnings over three years) and sometimes theeffect was negative. Under conditions of change,the HR executive effect was positive; whenthe company was experiencing little change, theeffect was negative.

It seems unsurprising that the HR executiveeffect may not be significant in some cases butodd that there is a condition under which it ismarkedly negative. Following this research, Iconducted a series of case studies with large andsmall companies to investigate these mixedaspects of HRM. An examination of initiatives inthese companies seems to explain how HRM canhelp or hurt an organization. This article reviewsthe experiences of two such organizations:Northwestern Memorial Hospital and eGM, adivision of General Motors.

Relationships

Northwestern Memorial Hospital inhabits a new$580m building in central Chicago and servesabout 40,000 inpatients and 800,000 outpatientsa year. Its strategic plan calls for it to developand maintain the “best patient experience”.

The aim of eGM is to create products and serv-ices for General Motors that will help the companyto get closer to its customers; its strategic plandemands that it “revolutionize the customer expe-rience”. Here, customers are defined as car dealers,consumers, employees and other stakeholders of

the company. In both cases, senior managers triedto build strong relationships with employees. Theywent about this by carefully listening to employeesin the same way that they listened to their cus-tomers, then responding in simple ways that builtloyalty. Such relationships require constant com-munication and both companies used innovativetechnology to help managers build their relation-ship management skills. Primarily, they usedweekly electronic communications with workers toprovide senior managers (and HR executives) withdata on the state of the workforce.

Hospital taskforce

The technological approach was particularlychallenging for Northwestern Memorial Hospitalbecause many employees did not have access tocomputers. Nurses, technicians, janitors andhousekeeping staff – employees on the operationsside – spend little time in front of a computerterminal. However, the hospital’s strategic plancalled for improving communication, obtaininggood results on its best people strategy andbringing technology to employees.

The hospital launched a weekly programme inspring 2001 that encouraged workers to discusstheir views on the hospital’s performance orworking practices. A third of employees on e-mailreplied at least once to the communication (thehospital employs about 7,000 people). However,while 64 per cent of managers responded, only 23per cent of people in an operations role replied (inthese jobs e-mail and computer use has not yetbeen integrated into employees’ day-to-day work).

The problems of obtaining information andhelping employees use computer technology wereeclipsed by the challenge of responding to whatemployees actually wrote. Four themes emerged:

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� inadequate staffing: at a time of low resources,there were numerous comments about some staffnot doing their share;

� unsatisfactory computers, fax machines and copiers;

� management issues – a lack of communication,support and coaching from managers;

� excessive workload and a lack of fulfilment.

The hospital created a taskforce of managers andHRM representatives to address each issue andformulate responses. The approach bears simi-larities with customer relationship management:the hospital used focus groups to help it under-stand, improve and monitor its relationshipswith employees.

High energy culture

Mark Hogan, eGM’s president, took a similarapproach but faced a problem. If the responseto the survey showed that employees wantedassurances of job security, higher pay or a nicerbuilding (with a shorter commuting time), hecould not satisfy them – no car company could.Instead, he asked employees what questionsthey had for him. Some of the most commonquestions were:

� What are the strategic goals of eGM?

� What is the company’s short-term outlook?

� Are there plans to relocate within the next year?

� How much of a stake does the company have inOnStar [a GM product]?

� Will Mark Hogan continue to share news by voice-mail updates?

Simply by answering these questions, Hogan wasable to encourage employees and keep theminformed of the company’s plans. In the sameway that most companies respond to customers,eGM used weekly employee communications tocreate a high-energy, communicative culture.

The company runs a string of more traditionalprogrammes, covering topics such as perform-ance management systems, succession planningand leadership. These initiatives may be symbolsof performance but they do not get at theculture of the company. The HR team at eGMconcluded that only by a continuing dialogue

with employees could managers hope to influ-ence the ingrained habits of corporate culture.

Customers and staff

What lessons can be learned from these cases?The key to building positive relationships is notjust in obtaining frequent data but in interpret-ing and responding to the data. If a companyasks customers what they think about its prod-uct but fails to change the product (or fails toexplain why it will not be changed), customerrelations will suffer. When customer relationssuffer, so do sales.

The same happens with employees. Whenmanagers ask about the workplace, employeesrespond; if managers are unwilling to react, pro-ductivity suffers; when productivity suffers,customer service and sales suffer.

If relationships are accepted as being crucialfor long-term success, then managers have totalk to customers and employees to remain inbusiness. In reality, however, many employersare so afraid of what employees will say that theydo not ask. Yet managers must ask; they need tocollect systematic, representative data andrespond to it. Often, that response is simplerthan expected.

The future of HRM lies in managing relation-ships. HR executives can improve their ownperformance and the financial performance oftheir organizations by learning to be relationshipmanagement coaches. Using marketing and salesmethods normally associated with customer rela-tionships is one way of gaining momentumquickly among employees.

Companies should consider other alterations inthe role of HRM. First, administrative HR worksuch as payroll administration can be outsourced orplaced in the accounting department. Second, HRexecutives with the relevant skills can create a newdepartment called “relationship management”.Senior managers should hire someone to lead this function, with the title of chief relationship

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Companies should consider otheralterations in the role of HRM.

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officer. The HRM department should go beyondrelationships with employees and ensure that theorganization takes a strategic approach to rela-tionships with all stakeholders.

What organization has both a strategic approachto its relationships with employees, investors, cus-tomers and suppliers, and a senior executive whoinfluences business decisions, branding andstrategy because that person has real-time informa-tion about the people in all of these groups?Management consultants are starting to under-stand that employee and customer branding, andidentity are important for long-term success, butfew people are helping individual managersthink about the people who are important to theirown success.

Not many organizations take on this task asan internal responsibility, but managers arehiring executive coaches to help them improverelationship management. At the same time, a$75bn market in customer relationship manage-ment is growing fast and a $30bn market inmanaging employee relationships is gainingmomentum. It is clear that companies are inter-ested in this area and a strategic approach torelationships can help a company succeed. Whatis the role of HRM in this movement?

In our IPO research, HRM in fast-growthcompanies was concerned with relationship man-agement. Executives help their leaders deal withthe amount of change in the companies – underconditions of fast growth, relationships are testedconstantly and need to be managed. When littlechange occurs, however, HRM often stays withinits traditional domain. The department’s mem-bers develop programmes that often do affectrelationship management but, unfortunately, theyoften do so in a negative manner. When was thelast time that performance appraisal or job analy-sis made anyone feel good about the company?Companies may continue to change the way theydo HR tasks, often making them more quantita-tive, complex and bringing in principles ofscientific research, but these large-scale pro-grammes do not necessarily build relationships.

Northwestern Memorial Hospital and eGMused customer relationship models with their

employees. The simplicity of the programmeshelped managers in two ways. First, weeklyemployee metrics helped them lead their busi-ness better. Second, frequent communicationwith employees allowed managers to improveproductivity by responding to short-term tacticalproblems that came up during the process, bymonitoring the progress of strategic initiativesand making changes as needed and by acting onemployees’ ideas, suggestions and complaints.

Problematic issues cannot always be resolvedor result in action, but acknowledging staff con-cerns and trying to solve a problem is greatlyappreciated by employees.

ConclusionTrust comes only with time. Most organizationalgrowth is stifled because employees will not go the“extra mile”. Why should they? They have learned notto trust – their actions are not appreciated and manyare scared in a climate of redundancies, downturn andpolitical uncertainty.

Northwestern Memorial Hospital and eGM havegained competitive advantage by telling employeesthat they are as important as customers. They, andother companies, can focus on relationships as a strate-gic asset and reap the benefits.

Copyright © Theresa Welbourne 2002

Further reading

Ghoshal, S. and Bartlett, C.A. (1997) The IndividualisedCorporation, New York: HarperBusiness.

Pfeffer, J. (1998) The Human Equation, Boston, MA:Harvard Business School Press.

Schmitt, B. and Simonson, A. (1987) MarketingAesthetics, New York: Free Press.

Welbourne, T.M. and Cyr, L.A. (1999) “The humanresource executive effect in initial public offerings”,Academy of Management Journal, 42, 6.

Some relevant articles are available at:http://www.eepulse.com/research.html.

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A n unexplored yet critical side of leadership is upward leadership,or getting results by helping to guide your boss. Rather than

undermining authority or seizing power from superiors, upward leader-ship means stepping in when senior managers need help and support ina way that benefits everyone.

Leading up is a matter of offering a superior your strategic insightsor persuading a boss to change directions before it is too late. Itrequires an ability to work in two directions at once, of stepping intothe breach when nobody above you is doing so – and of listening tothose below you before you step off a cliff yourself.

Upward leadership is not always welcomed. Many managers haveworked for a supervisor who ran the office with a fine level of detail ormisjudged the future. To come forward when a superior does notencourage it can be risky, but if the upward leadership works – whetherwelcomed or not – it can help transform decline into growth and, occa-sionally, turn disaster into triumph.

Upward leadership is not a natural skill but it can be mastered andthere are few better ways to appreciate its exercise than to study thosewho have had to apply it. Watching their efforts can provide lessons forleading up when it really counts.

Bold subordinates

In 2000, the then US vice-president Al Gore defeated Bill Bradley in thecampaign for the Democratic presidential nomination. Many factorscontributed to the defeat but among them was Bradley’s reluctance toreply to stinging attacks by his opponent. His instinct had been to runhis campaign above the fray – less as “a 21st-century politician,” saidThe New York Times, “than as an Old Testament prophet.”

The ups and downsof leading people

Managers have to be ready to take up the reins of

leadership, says Michael Useem, and that includes

calculating risks, voicing concerns and guiding uncertain

superiors.Michael Useem is a

professor at the Wharton

School of the University of

Pennsylvania and director

of its Center for

Leadership and Change.

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Although his campaign suffered defeat afterdefeat in the early stages, Bradley might haverecovered his momentum had he hit back hard.To do that, though, the candidate needed to beled into the fray, a form of leading up that no oneworking for him proved willing to risk. Bradleytended to take his own counsel more than that ofcampaign advisers. For their part, they did notalways say what he needed to hear. An aidesummed up the problem just after Bradley with-drew from the campaign in March followingdefeats in two states: “These people were alwaysconcerned about what their relationship withBill should be, as opposed to just doing what ittakes to win.”

The apparent inability of Bradley’s staff todistinguish between leading up and curryingfavour may have contributed to the aspirant’sdecline. However, the cause goes back to the manwho had created such a mindset in the firstplace. Had Bradley pressed those who worked forhim to do their best by him, even if it meantvoicing criticism, they might have bolstered hisrun for the party’s nomination.

Leading up can require fortitude and perse-verance. Managers might fear how superiors willrespond and doubt their right to lead up, but allcarry a responsibility to do what they can whenit will make a difference and to tell a superiorwhat he or she ought to hear. Many strategiesand more than a few organizations have failedwhen the middle ranks could see the problemsbut hesitated to challenge their command.

From the other point of view, there is also anobligation on managers to encourage peoplebelow to speak up and tell them what they needto know, to fill in for their shortcomings whenfuture success is threatened.

A culture of upward leadership is built, notborn. For that, managers should regularly insistthat more junior staff examine proposals andchallenge errors. Asking those of lesser rank tosay what they candidly think and complimentingthem for doing so are among the small measuresthat can make for a big improvement in attitude.

Risk and reward

Some individuals begin with a head start buteverybody can improve their ability for upwardservice. In 1997, David Pottruck, chief operatingofficer of broker Charles Schwab, faced a criticaldecision in his career, in which the outcomedepended greatly on his upward leadership skills.Could he convince his chief executive and companydirectors to make a radical move into internet-based client trading? It would be expensive andrisky but it could also be highly advantageous.

Founded in 1974, Schwab’s annual revenueexceeded $2bn by 1997. Through its thousands ofcustomer service representatives, the companybought and sold shares for a million clients and inthe astounding bull market of the 1990s everyoneseemed to benefit. The rise of the internet, how-ever, threatened to undo all that, undermining arich network of relationships painstakinglyassembled over many years. The web furnishedfree and fast access to company information thathad long been the brokers’ province and it openeda way to trade stock at a fraction of the time andcost required to call a broker.

For those willing to forgo personal contact,Schwab had built an electronic trading service,charging just $29 a trade. Many customers, how-ever, still wanted real dialogue with real peopleand it was from these people that the seriousmoney came – as much as $80 a transaction. Forhow long, though, would these clients continueto pay $80 when they knew other clients weretrading for just $29?

One solution would be to bundle full-serviceand online trading into one offering and so giveall customers the combination that manyincreasingly wanted. In the spring of 1997,Pottruck decided that the two-tier system had togo, even though he was personally responsiblefor building much of it. In its place, he wouldcreate a single full-service offering with internettrading and he reasoned that it could cost nomore than $29 a trade.

Pottruck turned to his boss, Charles Schwab,for approval. Charles Schwab had alreadyembraced the internet. He had appreciated thepower of the web early and had pushed the com-pany to move online in 1995. The founder was

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known to have a feel for market trends and asPottruck explained his thinking, Charles Schwabimmediately affirmed his interest in the proposedmove. However, he also posed hard questions: howmuch would it cost, how would it affect the organ-ization and how soon could benefits be expected?Charles Schwab was willing to take large risksand place big bets when the odds were known,and he pressed Pottruck to nail them down.

Pottruck instructed his staff to assess theeffect of slashing the full-service commission of$80 and providing full service to everybody at$29 a trade, including 1.2m customers using thelimited-service internet option. The strategistscame back with a shocking conclusion. If thecompany allowed account holders to migrate, itwould depress the company’s revenue in 1998 by$125m and its earnings by $100m, more than afifth of its projected pre-tax profits. Stock mar-kets would be likely to drive down Schwab’sshare price with a vengeance.

Although he was sure of the long-termchances of the new offering, Pottruck wasless sure whether returns would arrive quicklyenough to avert financial disaster. The planwould require vigorous support from the chiefexecutive and board members if it were to suc-ceed. Pottruck himself was in the best position tomake the case.

He gave Charles Schwab the financial implica-tions of the low-price full service and warned ofthe effect on profits in the short term. Followingweeks of discussion, Schwab endorsed the plan.The founder always insisted on putting customerservice first and Pottruck had made that his guid-ing principle; Schwab had consistently stressedcareful analysis, which Pottruck had done;Schwab had delegated much to those he trustedand Pottruck had already earned his confidence.

The next stop for Pottruck was the companydirectors, without whose wholehearted approvalit would be foolish to proceed. Pottruck broughthis plan to the board in September 1997. Somedirectors wondered why any change was neededsince the year was already proving to be the bestin company history. After-tax profits wereapproaching $270m, and what Pottruck was nowproposing would slash them by a third or more.Others wondered whether the options had been

studied thoroughly. Still others asked whetherthe downside could be weathered. Pottruck’sconfident response was: “It will be fine but it willtake some time” – possibly a year and a half ormore. The directors duly agreed on what wouldbe the company’s most fateful decision of the era.

On January 15, 1998, Schwab announced itwas offering web trading for $29 a time and wasextending all services to all customers – consulta-tions at branches and by telephone, and personaladvice. The first quarter’s results – as Pottruckhad forecast – were devastated. Schwab wasindeed cannibalizing its full-service, high-pricedaccounts. Quarterly revenues had been growingat 6.5 per cent per quarter in 1997; now theydeclined by 3 per cent. Pre-tax income had beenrising by 8 per cent per quarter in 1997; now itdropped by 16 per cent. Yet the expectation thatthe world was moving to the web proved pre-scient. By the end of 1998, the number ofSchwab customers with online accounts hadnearly doubled and Schwab finished the yearwith 20 per cent growth in revenue and 29 percent rise in profit.

Meeting the internet challenge at Schwabrequired keen insight and a reasoned capacity torisk much when others doubted the proposedpath. It also depended on a boss ready to be per-suaded and a board ready to be moved. However,that readiness was not automatic. Rather, it wasthe product of steps that Pottruck had earliertaken to establish a relationship of confidencewith those above him.

Learning to lead up is a lifelong endeavourand it is greatly helped by a willingness to learnfrom past mistakes and superiors who are willingto suggest how it is done. Taking risks is a defin-ing element of any leadership and calculatedmanagement of risk is essential. To succeed as arisk-taker on behalf of superiors, decisions needto be taken quickly and accurately. In spite of theuncertainties and large stakes that may beinvolved, if decisions are for managers to take, itis essential for them to do so rather than kickthe responsibility upstairs.

The first step in winning the support of superi-ors and the board is to ensure accuracy. Thesecond is to communicate carefully why the pro-posed course of action is necessary and how it canbe accomplished with the minimum upheaval.

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The cost of failure

When organizations foster upward leadership,the benefits can be great. Conversely, the costs ofignoring or discouraging it can be enormous.Consider this example.

In February 2001, the nuclear submarine USSGreenville suddenly surfaced and collided with aJapanese fishing boat, the Ehime Maru. The boatoverturned and nine passengers were killed. Anavy investigator reported that a visiting officeron the Greenville had sensed that CommanderScott D. Waddle was rushing preparations andcutting corners to give a demonstration to16 civilians on board – but the visiting officerhad said nothing to the commander abouthis concerns.

Similarly, Waddle’s second-ranking officer, whocarried the most explicit obligation to challengequestionable procedures, had failed to voice hisdoubts about his commander’s pace, including anabbreviated periscope inspection of the horizon justbefore the surfacing. The subordinate officer, theinvestigator found, “was thinking these things, butdid not articulate them to the commanding offi-cer”. The investigator concluded that the crewmembers so respected their captain that they werereluctant to challenge him. Commanding officerWaddle, he found, “doesn’t get a lot of correctiveinput from subordinates because he’s very busygiving directions and the ship has experienced a lotof success when he does”. Had the institution moreeffectively stressed its principle of upward chal-lenge, had the visiting officer and the commander’ssubordinates been emboldened to question theircommander’s actions, the fatal event may havenever happened.

Even short of the loss of life, the cost of failurefor upward leadership can be huge. Considerthe price of such an error for the chairmanof Samsung Group, Lee Kun Hee. In 1994, hedecreed that Samsung should invest $13bn tobecome a car producer, aiming to make 1.5mvehicles by 2010. Car manufacture was already acrowded field, plagued by global over-capacity,but Lee was a powerful chieftain and a passion-ate car buff, and none of his subordinatesquestioned his strategy.

A year after the first cars rolled off the line in1999, however, Samsung Motors sold its assets toRenault. Many of Samsung’s top managers hadsilently opposed the investment and Lee latertold them he was puzzled why none had openlyexpressed their reservations. By then, though,Lee had reached into his own pocket for $2bn toplacate his irate creditors.

Courage to lead up

A common element among those who success-fully lead up is a driving urge to make thingshappen on high, an unflinching willingness totake charge when not fully in command.

The exercise of upward leadership has beenmade easier by contemporary expectations inmany companies that managers learn not justfrom their superiors but from all points of thecompass. The phrase “360-degree feedback” hascome to mean a manager’s annual task of gath-ering reaction from direct subordinates andimmediate bosses. So it is with leading up:instead of just motivating those below, managersmust also muster those above; instead of justlearning from those above, managers need listento those below.

Such leadership can be inspired when execu-tives are willing to take the time to create theright culture. Once established, a company-wideemphasis on leading upwards serves as a kindof inertial guidance system, continually remind-ing everybody that they are obliged to stand upwithout the need for superiors to ask for themto do so.

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The exercise of upward leadershiphas been made easier bycontemporary expectations in manycompanies that managers learn notjust from their superiors but fromall points of the compass.

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Copyright © Michael Useem 2002

Further reading

Collins, J. (2001) Good to Great: Why some companiesmake the leap ... and others don’t, New York:HarperCollins.

Freedman, D.H. (2000) Corps Business: The 30management principles of the US Marines, NewYork: Harper Business.

Kennedy, J.F. (1964) Profiles in Courage, New York:Harper and Row.

Pottruck, D.S. and Pearce, T. (2000) Clicks and Mortar:Passion-driven growth in an internet-driven world,San Francisco: Jossey-Bass.

Useem, M. (2001) Leading Up: How to lead your bossso you both win, Crown Business.

THE UPS AND DOWNS OF LEADING PEOPLE 185

Box 1 Principles of leading up

For the company manager

� Building superiors’ confidence in you requiresgiving them your confidence.

� The bond between manager and executiveshould be a relationship based on an open flowof information and respect.

� The more uncertain or irresolute your superiorsare about achieving a goal, the more clear-minded and determined you must be informulating and executing your strategy.

� If your superiors do not appreciate a gravethreat, transcend the normal channels ofcommunication to drive home the message.

� Persistence often pays but it requiresdetermination to stay on a rocky path whenyou have persuaded those above and belowyou to follow.

� However hostile your superior, however harshyour message, the well being of those in yourhands must remain foremost.

For the chief executive

� If you want subordinates to offer their bestadvice, you must value and make use of it.

� Stay tuned to what your subordinates areimplying or communicating through othermeans. Because their personal stake in you andthe company is large, they may appreciate yoursituation better than you do yourself.

� If you expect those below to support yourleadership and step into the breach whenneeded, they will need to understand yourstrategy, methods and rules. That requiresrepeated restatements of your principles andconsistent adherence to them.

� Downward leadership and upward leadershipreinforce one another. If you are effective at theformer, it will encourage the latter; if you areadept at the latter, it can inspire the former.

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O rganizations are like cars. They don’t run themselves, exceptdownhill. They need people to make them work. And not just any

people, but the right people. The effectiveness of an organization’s lead-ership determines how the organizational “machine” will perform.Unfortunately, not all executives are the paragon of leadership excel-lence. Some leaders show an irrational side – a shadow side that cannegatively affect other people in the organization and even, in extremecases, bring down the organization itself. That shadow side can causehavoc in the organization. When I ask executives what their greatestsource of stress is, a full 70 per cent say dysfunctional leadership.

Where does this shadow side come from? Why do perfectly normal-looking executives turn into problem cases and wreak havoc aroundthem? What is this failure factor in leadership all about? It’s temptingto assign responsibility for the failure factor in leadership to externalforces, citing the words of Euripides: “Whom the gods want to destroythey first make mad!” But we can find responsibility much closer tohome, in our own inner psychological theatre. Let’s look at some of themost common reasons why leaders develop the failure factor.

Conflict avoidance

Though we tend to think of leaders as dominant and unafraid, manyhave a tendency towards conflict avoidance. There is a large group ofexecutives who have a desperate need to be liked and approved of. Theneed to be loved echoes in every line scripted for their inner theatre.Afraid to do anything that might threaten acceptance, they’re unable(or unwilling) to make difficult decisions or to exercise authority. Theybecome mere empty suits, unwilling to accept the fact – and it is a fact –that boundary setting sometimes takes precedence over conciliation.

The failure factor in leadership

It is tempting to blame external forces for the failure factor

in leadership. But responsibility lies much closer to home,

argues Manfred Kets de Vries.

Manfred F.R. Kets de Vries

is Clinical Professor of

Leadership Development

and Raoul de Vitry

d’Avaucourt Chaired

Professor of Human

Resource Management at

Insead.

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Conflict avoidance is neither a successful nor, inthe end, a popular management style: the leaderwho always appeases is like someone who feedscrocodiles hoping that they’ll eat him last.There’s nothing bad about being nice, but therecomes a point when every leader has to say: “Myway or the highway.” I don’t have an exact for-mula for success, but I know a sure formula forfailure, and that’s trying to please everyone.

A good case example of conflict avoidance isformer President Clinton. I sometimes arguethat if we want to know something about a maleleader, our best source is his mother. If we’relucky, she’ll reveal some of the underlyingdimensions of her son’s personality. And so it iswith Clinton. His late mother, in her autobiogra-phy, claimed that if her son went into a roomwith 100 people, of whom 99 liked him and onedidn’t, he’d spend all his time and his formidableenergy trying to win over that one last holdout.He realized the dysfunctionality of this pattern,however, and eventually used a chief of staff tomake unpleasant decisions for him while he wasin the presidency.

Richard Branson, chairman of the Virgingroup of companies, has similar characteristics.He perceives himself as the chief ombudsman ofhis organization and wants to be liked by hispeople. Like Clinton, he came to realize thisweakness and generally has other people in hisorganization making the unpleasant decisionsfor him. However, on multiple occasions Bransonhas rehired people who’ve been fired by otherssomewhere in his organization.

The tyrannization of subordinates

Another pattern that leads to leadership incompe-tence is the tyrannization of subordinates. Thispattern describes the Genghis Khans of the workworld – those abrasive (and sometimes sadisticallyoriented) executives who obviously graduated withhonours from the Joseph Stalin School ofManagement. Robert Maxwell, with his tendencyto engage in abusive behaviour, was clearly at thehead of his class. Former Prime Minister MargaretThatcher also possessed some tyrannical charac-teristics. She would make statements such as, “Idon’t mind how much my ministers talk as long as

they do what I say,” or “I’m extraordinarilypatient provided I get my own way in the end.”The “Iron Lady” could be a bit of a bulldozer.

A more recent example of destructively abra-sive behaviour can be seen in Al Dunlop, alias“Chainsaw Al”, Former CEO of Scott Paper andlater Sunbeam. An advocate of shareholder valuead absurdum, he believed that only short-termthinking mattered. What happened to a companybecause of his interventions in the long runwasn’t his concern. Of the eight companies hewas involved in, six no longer exist. When hestarted at Scott Paper he laid off one-third of thesenior management and 70 per cent of the work-ers in one fell swoop. He once said: “You’re notin the business of being liked … If you want afriend, get a dog. I’m not taking any chances;I’ve got two dogs!” Finally, his leadership stylecaught up with him, however: his own boardmembers fired him after he engaged in “creativeaccounting” to make his sales figures seem rosierthan they actually were.

The tyrannization of subordinates sometimestriggers a response that Anna Freud called“identification-with-the-aggressor syndrome”.Through unconscious impersonation of the“aggressor” (that is, the abusive boss), subordi-nates assume the leader’s attributes and thustransform themselves from threatened to threat-ening, from helpless victims to powerful actors.This is a defensive manoeuvre, a way of control-ling the severe anxiety caused by the aggressor.The people in the one-down position hope toacquire some of the power that aggressor pos-sesses. Unfortunately, all they accomplish is tobecome aggressors themselves, thus increasingthe total organizational aggression.

Micromanagement

Another cause for leadership derailment in micro-management. This is seen in executives who areso detail-oriented that they can’t let go of control.Not trusting anyone else to do a job as well asthey themselves, micromanagers are unwilling todelegate. I once consulted for an entrepreneurwho’d been quite successful at building up hiscompany. He was a control freak, however. Givenhis developmental history – where things had

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been running out of control – letting go of controlevoked highly emotional imagery. For example, hewas in the habit of opening all the mail that cameto the company, and he wanted all e-mail for-warded to him. This level of involvement wasmanageable as long as the company was in thestart-up phase, but once it had become a $20moperation, the entrepreneur’s lack of trust in thecapabilities of others had a stifling effect on allorganizational processes.

To illustrate this dysfunctional pattern fromanother perspective, I offer a cartoon I once saw.It showed an executive coming home to his wifeand saying: “I did it. I just fired all 324 of them.I’m going to run the plant by myself!” Funny asthis cartoon may be, micromanagement clearlyisn’t the way to get the best out of people. Infact, all it’s good for is ruining morale anddestroying organizations.

Manic behaviour

Manic executives, possessed of apparently bound-less energy, push themselves and others to thelimit. But they’re so hyperactive that they don’talways notice what it is they’re doing (even whenwhat they’re doing is dead wrong). From a clinicalperspective, “manic” behaviour can be seen as adefence against depression. Executives engaged insuch a manic behaviour pattern need to realizethat there’s a vast difference between workinghard and working smart. Another cartoon comes tomind to illustrate manic behaviour. Two executivesare talking to one another about a third person.The first executive says: “He hit the ground run-ning, but he was going the wrong way!”

A look at the history of Xerox reveals theeffects of disconnected, manic behaviour. In 1976,the market share held by Xerox was around 88 per cent. Six years later is was only 15 percent. Yet Xerox executives kept going their merry

way. The firm became increasingly good at repair-ing machines and selling copying paper, but no onegave much thought to technological innovation. Noone noticed that customers weren’t as taken withbroken-down machines as management was. Onthe contrary, customers liked problem-freemachines. Canon, a Japanese competitor adept atreading customers, identified Xerox’s weaknessesand was determined to gain market supremacy. Injust a short time it had succeeded.

Manic behaviour forces companies to lose sightof their main mandate. These manic leadersbecame so inward-looking that they forget theirmain constituency: their customers. Leadersshouldn’t look in the mirror; they should look outthe window! Only if they’re externally directedcan they remain close to their customer base.

Inaccessibility

Inaccessibility of leadership is another commonproblem. Some executives are so full of self-importance that they have no time for others. Itwouldn’t occur to them to manage by example or towalk around the workplace and marketplace listen-ing to their primary constituencies. Lofty andunapproachable, they shield themselves behind abattery of secretaries and assistants and closed-doorpolicies. One executive in a company I was visitingsaid: “Our president is like the yeti, occasionallyseen in high places.” Is it that such executives arelooking for more grandiose people to interact with,or are they afraid that if people come to close they’lldiscover a fraud with very little to say?

Game-playing

Every organization has its “operators” – politicalanimals who are master power calculators. Likeinaccessible leaders, these game-players can talkand think only about themselves, and theirattention falters when others talk (unlessthey themselves are the subject of discussion).Furthermore, their personal goals sway the orga-nizational goals.

Game-players follow their own golden rule:credit goes up while garbage goes down. Theyrefuse to let their subordinates shine, using and

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abusing them rather than helping them growand develop, and they do everything possible tosteal the attention from their superiors. They tryto hog the limelight, whether it’s aimed below orabove them. Not surprisingly, game-players expe-rience high turnover among their people. Theywould do well to heed Ann Landers’s advice:“Don’t accept your dog’s admiration as conclu-sive evidence that you are wonderful.”

Generational envy

Many senior executives have a hard time dealingwith their successor, even if they themselves havenamed the “crown prince”. A major reason is thatCEOs are, almost by definition, masters at powercalculation; power is an important property tothem, and they know how to acquire and manipu-late it. Appointing a successor changes thatpower equation. Power starts to flow away to thenew candidate as soon as that person has beennamed, and CEOs experience subtle changes inpower relationship patterns almost immediately.Loyalties shift quickly, relationships realign; newpower structures begin to emerge. I’ve often said,tongue in cheek, that the major task of a CEO isto find his likely successor and kill the bastard.Unfortunately, clinging to power through thederailment of that successor usually has disas-trous effects on the organization.

The acid test of excellent leadership is whathappens when the leader is no longer there. Howseamless is the succession? Does the processoccur without too much drama? Is the companystill performing successfully after the old CEOhas gone? Has the leadership in the companydone sufficient planning for leadership succes-sion? If not, give some thought to Charles deGaulle’s comment that the graveyards of theworld are full of indispensable men. If afterreflection you really believe that you’re indispen-sable, put your finger into a glass of water,withdraw it, and note the hole that you’ve left.

Executives incapable of leadership develop-ment may suffer from generational envy. Oneindication is being resentful of the young“upstarts”. They’re like Cronos eating his chil-dren. They sent promising subordinates to theorganizational equivalent of Siberia or fire them

for supposed incompetence – a “murder” if everthere was one – and then rationalize that fate soeffectively that they think they’re doing bothorganization and subordinates a favour.

A New Yorker cartoon shows an obviously pow-erful executive sitting behind his desk smoking abig cigar. In front of the desk stands a youngexecutive, listening deferentially. The text reads:“You remind me of myself at your age, Collins.You’re fired.” Clearly, this narcissistically inclinedexecutive is possessed by generational envy.Putting their interests far above the interests ofothers, such leaders spurn good corporate citizen-ship and use young people only as extensions ofthemselves. As long as the young people are will-ing to accept that role, all is well. when they wantto go their own way, however, envy strikes, as inthe cartoon. This “desertion” is not taken lightlyby executives who (having themselves had fan-tasies of overthrow – and more – when theywere young) fear that the young people may tryto depose them.

Escaping psychic prison

All of the above behaviour patterns contribute tothe two Ms of failed leadership: mistrust andmalaise. The acid test of effective leadership isthe extent to which people in the organizationtrust their leader. If the trust level is low, somekind of malaise will occur; it’s inevitable. Thoughthe details will vary from firm to firm, somesymptoms are universal: creative thinkingwill be suppressed, the “not-invented-here”syndrome will prevail, a “kill-the-messenger”culture will hold sway, infighting will take place,a cover-your-back mentality will predominate,and “bureaupathology” (that is, an excess ofpaperwork and supportive documentation) willemerge. When these two Ms sneak in, the conse-quences can be detrimental for an organization,particularly when the executive who opened thedoor to them occupies a senior position.

Many executives don’t pay much attention totheir inner world. In fact, they keep themselvesbusy just to make sure they don’t have timeto reflect. It’s not necessarily a conscious avoid-ance, but it’s an avoidance nonetheless. Theyrun faster and faster, giving very little thought

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to what they’re running for or where they’rerunning to. They’re like the proverbial rats ona treadmill.

Some of them are stuck in what amounts to apsychic prison. And yet they rarely try to escapefrom their self-imposed house of detention.They’re mired in their old ways of interacting,engaged in what psychoanalysts describe as repe-tition compulsion, an (unconscious) urge tore-enact troubling scenarios in the hope that rep-etition will eventually lead to liberation from thisneed. Many otherwise very bright people engagein a from of magical thinking: they believe thatby doing the same thing over and over again,they will produce a different outcome. They failto realize the common sense behind the oldNative American saying: “When you discover

that you’re riding a dead horse, the best strategyis to dismount!”

The challenge for many leaders is to find a wayout of that prison – to find other, better ways ofdoing things. Although at the age of 30, two-thirdsto three-fifths of one’s personality is formed(according to estimates of developmental psycholo-gists), there’s always ample room for change.Mental health is all about having a choice. And wedo have a choice, always. It’s true that our innertheatre stays largely the same – a certain amountof “hardwiring” is inescapable – but we can chooseto react differently to our core wishes.

Leaders need to be the architects of their ownfate, the authors of their own script. If we turnthat scripting over to others, we’re not reallyliving, we’re just playing a part. How muchbetter it would be to own our own lives. And wecan – if we’re willing to open ourselves to thepossibilities of change. If we are unwilling to doso, we will be the architects of our own decay!

Copyright Manfred Kets de Vries 2002

This article is adapted from The Leadership Mystique (London: FinancialTimes Prentice Hall, 2001).

THE FAILURE FACTOR IN LEADERSHIP 191

Many executives don’t pay muchattention to their inner world. Infact, they keep themselves busy justto make sure they don’t have timeto reflect.

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Rewards 9

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Contents

Rewards that work 197

Thomas Wilson, the Wilson Group

When it comes to paying employees, managerscan be more interested in being consistentwith industry practice than in doing thingsdifferently to create a competitive advantage.Yet companies can use reward programmes todrive strategy and reinforce values.

Firm benefits from share-owningworkers 203

Martin Conyon, the Wharton School,University of Pennsylvania, and RichardFreeman, Harvard University and the LSE

Employee share plans aim to persuadeworkers to think and behave like owners –and their use is on the rise.

195

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H R managers report that they spend thehighest proportion of their time on issues

relating to salary, bonuses and benefits toemployees. In recent years, companies havebegun to recognize the need to design andmanage reward systems for all employees,

incorporating any sophisticated stock optionsbenefits, pensions and other provisions. Here,authors describe the main features of such asystem and ask whether all-employee shareincentive schemes actually improve corporateperformance.


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I s a compensation system simply a way of paying people? Or is it a chan-nel by which managers can communicate important messages about

strategy and values? In comparing their compensation levels with those ofother companies, are managers more interested in being consistent withindustry practices or in doing things differently to create a competitiveadvantage? Do they think of compensation as a cost of doing business or asan investment from which they expect to see desirable returns?

Compensation programmes have a more substantial impact thanmanagers realize. This article explores how organizations can userewards to drive strategy and reinforce values.

Reward systems

There are four main types of reward programmes. First, salaries orwages are the regular payments people receive for their services whileemployed by a company. Second is bonus or incentive pay, based on theperformance of the individual, business unit or company – commonlyknown as variable compensation. The amount depends on results and isnot guaranteed. The difference between a stable salary and variablecompensation varies widely. Third, most organizations provide financialsecurity or services for which people would normally have to pay them-selves – known as benefits. Such services include health insurance,pensions and retirement benefits, and transport. They are not consid-ered tools needed to do the job. Finally, companies are increasinglyusing formal recognition programmes to award individuals for achieve-ments and special contributions. These awards usually take the form ofcertificates, public recognition, commendation letters or promotions.The value of these awards is largely symbolic, though this is not to min-imize their importance.

Rewards that work

Compensation systems should provide more than just a way

of paying people. Tom Wilson sets out the options and

shows how a portfolio of programmes can be assessed.

Thomas B. Wilson is

president of the Wilson

Group, a compensation

consulting company

(www.wilsongroup.com).

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There are two contrasts to be drawn when con-sidering these four types: cash rewards versusnon-cash rewards; and all-employee rewardsversus rewards for performance achievements.One set provides stability, security and entitle-ment; the other provides opportunity andappreciation. This framework can be used toassess a company’s portfolio of programmes andallows managers to determine whether pro-grammes are consistent with strategy and values.

Having placed the company’s programmes inone of the quadrants defined by this framework(cash versus non-cash and secure versus contin-gent), managers should ask themselves: in whichareas do I want to lead or match my competitors?What will be of most value to my people? Howeffective are these programmes in deliveringtheir intended value? By answering these ques-tions, managers can establish a strategy forcompensation and benefit programmes andassess the return on investment they deliver.They can identify priorities for change, thendevelop a plan for implementing it.

Competitive position

To answer the first question, one needs to knowwhat other companies are doing. Certain trendsin compensation can be identified. Salariesremain an important component, but as theymeet the basic security needs of individuals,other aspects become more important. The trendfor salary increases has not changed much overthe past few years. Increases reflect what compa-nies feel they need to pay to stay competitive. Inthe past decade, for example, salaries in the UShave been increasing by between 3.5 per centand 5 per cent a year.

While most executives have always receivedbonuses, over the past five years surveys show thepercentage of companies offering them to profes-sional and managerial positions has grown from 59per cent to 79 per cent and for hourly and adminis-trative positions from 27 per cent to 45 per cent.Further, stock option plans have increased from 66per cent to 74 per cent for professionals or man-agers and from 20 per cent to 29 per cent forhourly/administrative workers. The use of otherawards is also increasing (see Table 1).

Understanding what prevails in the market-place allows managers to assess the company’sability to attract and retain staff. However, thevalue lies in creating programmes that are suitedto the organization and enhance its ability to opti-mize the talent it employs. An integrated rewardstrategy encourages innovation, not imitation.

While there is an abundance of data on theprevalence of programmes, there is little reliabledata on the philosophy or practices of rewardsystems. In my research, about 70 companieswere questioned on how they used rewards todrive performance and reinforce their culture.The following examples describe two approachesto reward strategies.

A major US airline sets its hiring rates of paylow in the marketplace. When recruits passthrough the highly involved selection process andare hired, they receive rapid pay increases duringthe first two years if they demonstrate that theycan learn quickly, perform well and fit with thecompany. The company’s variable pay programmes

PART 9 REWARDS198

% of companies offering awards

Flexible time schedules 73

Non-monetary recognition awards 72

Hiring bonuses 70

Employee referral bonuses 68

Spot cash recognition awards 50

Formal career planning 21

Retention bonuses 26

Broad-based stock options 34

Pay based on skill or competency 19

Cash profit sharing 19

Source: US Compensation Planning Survey (2001) William M. Mercer

TABLE 1 Other types of award

Understanding what prevails in themarketplace allows managers toassess the company’s ability toattract and retain staff.

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are linked to team results and each individual alsohas a stake in the success of the company throughprofit sharing and stock options.

Benefit plans conform to industry standardsand the company tries to provide workers withhigh value at minimum cost. It makes much useof recognition programmes: it is reported that anindividual or a team is recognized for a business-related contribution every hour of the day. Oneof the criteria for hiring or promotion to the posi-tion of manager is the ability to recognize andreward performance. Because of these factors (asstated by the chief executive) the company is aleader in terms of growth, profitability andshareholder value.

In a second example, consider a large financialservices company. Since it is difficult to retainmargins while competing on fees and interestrates, the company distinguishes itself by service.This is highly dependent on its people. So it usesdifferent forms of individual variable pay, commis-sion plans and special bonus awards for thoseinteracting with customers and team incentivesfor those in sales and service functions.

It has adopted many performance awards forboth individuals and teams, believing recognitionprovides the highest return on investment. It hasseveral core benefit programmes, but distin-guishes such programmes with features that areconsidered “fringe” in the industry, such as com-petency-based career development and access toonline benefit programmes. Because of these fac-tors, the company excels in terms of return onassets, growth and customer retention.

In these cases, the companies know what com-petitors do but find their own path. Consequently,their reward systems have given them a uniqueculture and a competitive advantage.

What people value

The traditional method for assessing reward pro-grammes is to compare them against two factors:what others are doing in the marketplace andwhether the programme met the budget allo-cated to it. What is wrong with this perspective?

When a company conducts market studies forits products or services, it often examines poten-tial customers’ needs and determines what will

influence their behaviour. To apply this frame-work to reward systems, the most importantaffinity groups or segments must be defined.Most companies do this when they develop pro-grammes for executives, sales, production andservice employees. Other factors may also inter-vene such as age, gender or education.

In a preliminary research study we asked par-ticipants to rate more than 75 items. The datawas examined by age, gender and educationallevels. The two items that all groups rated as themost important were high-quality leadership andhealthcare benefits. Most differences emergedwhen examining data by age. Employees agedbetween 20 and 29 valued career advancement,training and involvement in major decisions (inaddition to items noted above). Mid-career indi-viduals (aged 30 to 49) valued paid time off,challenging work and regular performance feed-back, while established employees (aged 50+)wanted involvement in important decisions.

There were also differences by education. Thosewith high school diploma or associates degreevalued paid personal time off and career advance-ment opportunities. Those with a bachelor’s degreevalued challenging work assignments and involve-ment in work redesign. Those with masters’degrees or higher valued challenging work assign-ments and involvement in key decisions.

It is important to use such findings as a guideto understanding what people value. Some pro-grammes can be highly valued by all employeesand can make an organization distinctive. Otherprogrammes can be used to enable people to“earn the rights” to specific things they person-ally value through performance programmes.The company will need to assess the cost of theseprogrammes compared with their effect.

Programmes

The value of a reward programme is determinedby its recipients and the results they produce.While there is no single approach that works, itdoes not mean any programme will be effective.As in most strategies and programmes, it mustbe properly designed and implemented to workwell. A few features tend to emerge consistentlyas the most important.

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For programmes focused on providing securityand stability, it is crucial for the employee tounderstand the programme fully. Second, man-agers must find the right balance betweenconsistency and responsiveness to the individ-ual’s needs. Many companies have developedflexible benefit systems to enable employees totailor programmes according to their needs.Companies might offer annual gatherings or par-ties, sometimes including families, as amechanism to reinforce the community spirit ofthe company. Those who travel a great deal mayhave cars or special arrangements to supporttheir responsibilities and personal expectations.

Programmes also need to make the organiza-tion distinctive. Some companies have put detailsof schemes on the web to help people to under-stand how they are structured. Employees canplan for retirement or sign up for training. Acompany can always find ways to make its pro-grammes worth more to employees.

When rewards are focused on opportunity andperformance, managers should devote a good dealof attention to the measures that determine whenan award pays out. Programmes linked to per-formance require a clear understanding of themeasures, goals or standards and the actionspeople need to take. Second, feedback on progressis critical. Whether a company uses a scoreboardor regular discussions of progress, people need toknow how well they are doing and see how theirefforts are making an impact. Without feedback,programmes can rapidly become entitlements andpeople lose the connection to performance. Auseful guideline is to have three to five check-points between the beginning and the end of theperiod. In addition, goals should be both challeng-ing and achievable. If the effort is too simple, itwill not inspire the performance one seeks; if it isseen as impossible, people are likely to make aneffort but remain sceptical.

Performance-based programmes include cash,such as commissions, incentives, bonuses andrecognition awards. Managers should think beyondthe basic question of how much people receive fromsuch awards. Consider this example. Two medium-sized service companies each had an annualgoal-sharing programme for managers and employ-ees. Payouts were based on the annual results ofthe entire organization. Both achieved about thesame results for the initial year of the programme.

In the first company, senior managers conducteda series of employee meetings. They discussed thecompany’s annual results and the impact of theseresults on their customers and market position.They held open discussions of the challenges facedand what people did to overcome them. When itcame time to make the awards, executives ran-domly passed out the envelopes containing eachindividual’s cheque. They asked them to find theperson who was named on the envelope and, asthey handed over the envelope, tell them some-thing they appreciated about what they had doneduring the year. For without the combined effortsof all individuals, managers said, there would be nocheques to distribute.

In the other company, better managers sent e-mails or held brief discussions with the employeesabout their bonus payments; most did nothing.Otherwise, bonuses were deposited directly intothe individual’s bank account. Little else was said.

What is the difference in the impact of these twoapproaches? What do you believe would be thevalue given to the bonus cheques in each case?Which approach provided the highest return oninvestment?

ConclusionManagers can transform compensation, benefits andrecognition programmes into a reward system that drivesan organization’s strategy and core values. For the organi-zation such a system is an opportunity to encourage andreinforce those things that make it successful. For theindividual it is an opportunity to be paid fairly, to share inthe success of the company and to be rewarded for com-mitment and performance. Reward systems can beviewed as a cost of doing business or a source of compet-itive advantage. If you share the strategic view, this is thebest time to assess what is working and what is not.

PART 9 REWARDS200

Whether a company uses ascoreboard or regular discussions ofprogress, people need to know howwell they are doing and see howtheir efforts are making an impact.

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Copyright © Thomas B. Wilson 2002

Further reading

Risher, H. (ed.) (1999) Aligning Pay and Results, NewYork: Amacom.

Tulgan, B. (2001) Winning the Talent Wars, New York:Norton.

Wilson, T. (1999) Rewards That Drive HighPerformance: Success stories from leadingorganisations, New York: Amacom.

Wilson, T. (1995) Innovative Reward Systems for theChanging Workplace, New York: McGraw-Hill.

World at Work (2001) Annual Total Salary IncreaseBudget Survey for 1997–2001, Scottsdale, AZ.

REWARDS THAT WORK 201

Box 1 Equity and bonuses in tough times

The principles outlined in this article can be applied indifferent economic circumstances. When a companyand its markets are growing rapidly, variable pay pro-grammes – through cash or stock options or equity –are highly attractive. People will often see an immedi-ate gain. However, if a company comes to rely onthese tools, it exposes itself to substantial risk. Thetechnology industry is witnessing the result of suchreliance since equity values have plummeted.

Managers have addressed their over-reliance onequity plans in two ways: some have balanced it outwith increases in variable pay, leaving stock optionawards in place; others have increased or replacedexisting options with new ones set at a lower price.The aim is to accommodate both individual interestsand shareholder interests, but this is never an easyobjective to achieve.

In a downturn, managers may come underintense pressure to award bonuses or variable pay-outs regardless of performance, mainly to retainimportant contributors. However, when the linkbetween these payouts and performance is broken,employees quickly come to perceive such bonusesas entitlements. To avoid this, managers mustinstead focus on setting clear goals, discussing per-formance frequently and finding ways to celebratesuccesses without bonus payouts.

When performance is strong and cash is plenti-ful, managing rewards is easy. When performancesuffers and payouts are minimal or non-existent, thetask of management is to reinforce support forpeople’s efforts without undermining the principlesof their contingent reward programmes. This is thereal leadership challenge.

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1

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T here has been a resurgence of interest in employee ownershipplans. In the UK, chancellor Gordon Brown committed the gov-

ernment to a policy of encouraging ownership in the belief that it hasbeneficial social and economic effects. The 2001 US tax law improvedthe tax advantages of Employee Stock Ownership Plans (ESOP) – themajor form for employee ownership in the US – while limiting thepotential for employees to abuse the system. Korea passed a law thatgave greater tax advantages to a similar plan. Ireland lowered tax ratesfor broadly based employee stock options and France reduced taxationon qualified stock options.

In spite of recent increased volatility in equities (which have compleximplications for stock option granting policies), the trend in capitalistcountries is clearly towards increasing financial participation by staff intheir companies. The forms of participation and ownership that receivetax-favoured treatment vary across countries, depending on govern-mental policy stances. The US favours stock options and collectiveownership of shares through ESOPs. The UK has schemes that increaseindividual ownership of shares through options. France prefers profit-sharing. The Belgian government has enacted a law that allowscompanies to choose between cash-based profit-sharing and share-basedprofit-sharing.

Do companies that adopt employee share schemes perform betterthan others? Second, do companies that use shared compensation sys-tems provide employees with information so that they can performtheir jobs better? Namely, is shared compensation associated withgreater employee involvement and democracy of enterprise?

This article examines whether promoting all-employee share owner-ship has been good for company performance. Arguments for the use ofshared compensation schemes are reviewed and evidence to evaluatethe effectiveness of schemes is considered.

Firm benefits from share-owning workers

Employee ownership plans are on the rise. Martin Conyon

and Richard Freeman present the evidence to justify their

popularity.

Martin J. Conyon is an


management at the

Wharton School at the


Richard B. Freeman is a

professor of economics at

Harvard University and co-

director of the Centre for

Economic Performance,

London School of

Economics.

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The case for

Why is it important to encourage employees toown shares? The answer is that it can benefitemployees and companies alike, increasing thesize of the economic pie and improving the wellbeing of company and worker. The chief benefits,and some limitations, include the following.

Incentives

Probably the most important reason for pushingstock options down the organizational hierarchyto all employees is the perceived beneficial effectson incentives and employee behaviour. In turn,employee motivation increases, as, hopefully,does organizational success.

Owning shares or stock options can be a pow-erful motivation. Fixed salaries simply rewardindividuals for turning up at work – they focuson the input side of work rather than the outputside. Straight salary systems do not encourageemployees to focus on value-enhancing opportu-nities. Piece-rate pay does not allow for theco-operative nature of production methods and ishard to administer when technology changes thenature of production and goods.

Ownership of an asset, such as a share option,on the other hand, directly encourages employ-ees to increase the price of that asset, namely theshare price. In effect, employees are persuaded tothink and behave like owners.

Recruitment and retentionBy offering competitive pay packages, whichinclude share-based remuneration, companiescan attract and retain employees in competitivelabour markets. This is especially the case if staffturnover rates are high. In addition, recruitmentand retention effects may be particularly impor-tant for start-ups, companies with high growthopportunities or smaller companies. At the sametime, share-based plans reduce the danger thatan employee will leave to work for a competitorthat does provide such compensation.

Tax incentives

There are important tax and other institutionalincentives for companies to offer wide employeeownership. The UK government, for example, iscommitted to encouraging employee ownershipand nurturing an enterprise culture. It gives taxadvantages to both employees and companiesunder the employee share plan introduced inJuly 2000. Employees who meet the schemerequirements and hold shares for five years ormore do not pay income tax on their shares.Employers, too, can benefit from corporation taxrelief. The tax relief may induce individual com-panies and employees to choose the variousschemes, but the social test of their value is thatthey increase economic well being beyond the taxbreaks themselves.

Institutional context

Benefits from increased incentives and subse-quent performance do not come automatically.Changes in management style and context,notably greater employee communication anddevolved decision making, should accompanyincreased share ownership. For companies to besuccessful, the management process and corporateculture is central to implementing equity-basedcompensation.

In the US, Cisco makes extensive use of an all-employee stock option plan. Kate DCamp, globalcompensation leader at Cisco, stresses that stockoption programmes alone do not create an owner-ship culture: they are simply one manifestation ofit. Cisco believes in open management, workingthrough teams whose employees are empoweredto make significant decisions. Moreover, employ-ees won’t be motivated by options if they don’tunderstand them, so the company runs an educa-tion programme.

The key is to use financial rewards to createan ownership culture.

Any downside?

The benefits of all-employee share ownershipshould be set against potential problems. Thefirst is the “line-of-sight” argument. Companiesshould only give equity incentives to employees

PART 9 REWARDS204

Owning shares or stock options canbe a powerful motivation.

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who can influence outcomes. For this reason,share options are often given to senior managersand directors. These people clearly have thepower to affect the strategic direction of theenterprise, earnings potential and the stockprice. However, employees further down thehierarchy might find the link between their workand how it shapes performance more difficult toidentify. The benefits of wide ownership simplymight not materialize.

Then there is the “free-rider” problem. Inmost work settings, individuals will be rewardedafter meeting a group or aggregate measure ofperformance rather than an individual one. Anyextra effort by an individual that improves per-formance is shared among all participants. Whenreward is divided among very many employees, itmay contribute only a small amount to an indi-vidual’s compensation. So, any given employeemight be tempted to avoid his or her share of theeffort, hope that co-workers put in the effort togenerate performance increases, and then pickup his or her share of the pie. If everyone acts inthis way there will be no gains to be shared.

These arguments have led some economists todoubt that all-employee share plans can improvecompany performance. At the minimum, thesearguments make it clear why the simple intro-duction of pay that varies with companyperformance may fail to induce workers to do abetter job, and why economists are forced to talkabout corporate culture instead of pure pecu-niary incentives.

Empirical evidence

However, what of the evidence that relatesemployee share schemes and company perform-ance? A growing body of research, based on datafrom the US and UK, shows a positive linkbetween company performance and employeeshare ownership. In the US, the National Centerfor Employee Ownership (NCEO) provides onlineinformation on the benefits (www.nceo.org).

A study by academics Joseph Blasi and DouglasKruse covering more than 300 companies between1988 and 1994 found that sales, employment andlabour productivity growth was about 2.4 per centhigher than in non-ESOP companies. Another

study discussed on the NCEO website found thatthe performance of 229 new-economy companiesoffering broad-based stock options was significantlybetter compared with their counterparts withoutsuch plans. Companies offering stock options havegreater sales, more employees, greater capitalintensity, higher shareholder returns and higherlabour productivity. It may not be possible toextrapolate these studies but they do suggestemployee stake-holding can improve performance.

UK-based researchers, too, have examined theissue. John Cable and Nick Wilson used a sampleof 52 British engineering companies from 1979 to1982. They had detailed information on profit-sharing schemes. Their analysis showed thatcompanies with profit-sharing arrangements per-formed 3 per cent to 8 per cent better than thosewithout. In addition, quality circles, briefinggroups and job rotation also had a positive effecton productivity. Having both profit-sharing andemployee involvement added most to productivity.

Sandeep Bhargava considered the effects ofprofit-sharing in a sample of 114 UK companiesbetween 1979 and 1989 and found that profit-sharing had a significant effect on profitability.Other UK researchers have found similar pat-terns of results. UK academic analyses haveadded to the picture of a modest positive effect.Saul Estrin and colleagues reported a productiv-ity improvement of about 6 per cent in caseswhere profit-sharing bonuses were 5–10 per centof wages. Other studies, too, reported in their2001 paper, suggest that shared compensationarrangements tend to enhance performance.

In short, evidence reveals a positive, albeitsmall, effect of profit-sharing on company per-formance. As noted above, though, introducing ashared compensation system is a complex taskthat needs to be accompanied by changes in themanagement system. For example, information

FIRM BENEFITS FROM SHARE-OWNING WORKERS 205

Companies offering stock optionshave greater sales, moreemployees, greater capital intensity,higher shareholder returns andhigher labour productivity.

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sharing, communication and decision-makingprocesses may need to be adjusted.

Further evidence

Our recent work presents new UK evidence onthe effects of shared compensation on enterpriseperformance. We used several data sets andexamined the effect of share schemes approvedby the Inland Revenue on company productivity.Information was based on a survey of all UKlisted companies carried out in 1999.

The objectives of the research were twofold:first, to see whether companies that used InlandRevenue approved systems had superior levels ofperformance; second, to evaluate whether com-panies that did use such arrangements also hadgreater levels of employee involvement in deci-sion making or information sharing.

Various findings emerged. First, companieshad an appetite for using share-based compensa-tion with all employees and this had beengrowing in the mid-1990s. For example, theapproved profit-sharing scheme allows compa-nies to provide free shares to employees withouttax liabilities. Figure 1 shows that about 19 percent of companies responding to the 1999 surveyhad an approved profit-sharing scheme in 1995and this rose to about 25 per cent in 1998.

The research also established that companieswith certain schemes had greater productivity

compared with companies that did not (see Table1). The results indicate that only in two cases(approved profit-sharing and the company shareoption plan) can a positive productivity effect beestablished. The effect of the different sharedcompensation systems seems to square with pre-vious observations. Approved company shareoption schemes cover selected employees, typi-cally senior managers and executives, who canaffect company performance in response to stockoptions. Profit-sharing also rewards employeeswith shares and appears to be associated withhigher productivity.

We also examined the effect of such plans onshare prices of the sample companies that usedapproved profit-sharing or all-employee shareschemes. An index of their share prices from 1991

PART 9 REWARDS206

Percentage of companies

30

25

20

15

10

5

01995 1996 1997 1998

FIGURE 1 Companies with approved profit-sharing scheme

Compensation system/ Productivity effect Inland Revenue scheme

Approved profit-sharing 17% higher

Approved profit-related pay 4% higher

Approved SAYE 3% lower

Company share option plan 12% higher

Source: Conyon and Freeman (2001)

TABLE 1 Compensation schemes andproductivity

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to 1999 was formed. It was found that a £100investment in the portfolio of companies that usedshare-based compensation plans grew to £350,while the same £100 invested in the FTSE AllShare Index in 1990 was worth about £250 in1999 (see Figure 2). Again, the evidence is thatcompanies using broad-based share plans seem toperform better than those without such plans.

To see whether companies with shared compen-sation systems tended to consult and communicatemore with employees, we used survey data on con-sultation, communication and information sharing.In particular, we know whether a company has “ajoint committee of managers and employees prima-rily concerned with consultation rather thannegotiation”; “a formal structure for informationsharing with employees” (such as provision of dataon financial status, production and labour marketposition, market strategy); and finally “a formalstructure for communication between all levels ofemployees and management” (such as quality cir-cles, newsletters and suggestion schemes). Weaggregated these results to define a situation

where the company has at least one of these sys-tems (see Table 2).

Generally, the results indicate a positive correla-tion between information sharing/decision rightsand the use by companies of shared compensationstructures. Shared compensation increases the like-lihood of companies using consultation, informationsharing and communications systems. It makes theuse of shared compensation more effective.

FIRM BENEFITS FROM SHARE-OWNING WORKERS 207

400

350

300

250

200

150

100

50

0

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

FTSE All-Share

Companies with share schemes

Value of £100 investment (£)

FIGURE 2 Share-based compensation schemes and company performance

Compensation system/ Communication and Inland Revenue scheme information sharing

Approved profit-sharing 18% more

Approved profit-related pay 11% more

Approved SAYE 14% more

Company share option plan 4% less

Source: Conyon and Freeman (2001)

TABLE 2 Compensation schemes and communication

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ConclusionThe use of shared compensation can increase companyperformance by providing direct financial incentives toemployees. The type of incentive scheme may matter,but there are on average benefits to companies fromusing shared compensation practices. With renewedpolicy interest and with companies facing a new set ofall-employee share incentive schemes, such evidence isencouraging in terms of the benefits to productivity.

Copyright © Martin Conyon and Richard Freeman 2002

Further reading

Bhargava, S. (1994) “Profit-sharing and the financialperformance of companies: evidence from UK paneldata”, Economic Journal, 104.

Cable, J.R. and Wilson, N. (1989) “Profit-sharing andproductivity: an analysis of UK engineeringcompanies”, Economic Journal, 99.

Conyon, M.J. and Freeman, R.B. (2001) “Shared modesof compensation and company performance: UKevidence”, National Bureau of Economic Researchworking paper W8448(http://papers.nber.org/papers/W8448).

Estrin, S., Perotin, V., Robinson, A. and Wilson, N.(1997) “Profit-sharing in OECD countries: a reviewof some evidence”, Business Strategy Review, 8, 4.

NCEO (2001) “Performance effects of options in ’neweconomy’ and unionized companies”(http://www.nceo.org/library/option_corpperf_neweconomy.html).

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Recruitment, testing andtraining 10

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1

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Contents

Beyond the interview 213

Rob Yeung, Kiddy and Partners, and SimonBrittain, Kiddy and Partners

The search continues for an inexpensiveprocess that can deliver a perfect correlationbetween assessment of job candidates andtheir performance in the future.

A missing link in the strategic plan 219

Gary Latham, University of Toronto

What gains should companies seek fromtraining and development? Training isworthwhile only when it gives workers abetter understanding of company strategy –and makes them better at carrying it out.

Investments that build on humannature 223

Charles Galunic, Insead, and John Weeks,Insead

With the demise of job security, companies needto find new ways to encourage commitment.Certain kinds of training make people moreloyal – though, ironically, more mobile.

In search of the best performers 229

Victor Dulewicz, Henley ManagementCollege

The idea of emotional intelligence hasexpanded the potential of testing. At thesame time, easy access to psychometric testson the web threatens the very standards onwhich their credibility has been built.

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J ob candidates can be sifted and selected in anumber of ways, but for most companies the

interview is still the crucial determinant of therecruitment process. Here authors describe anddebate several means of linking assessment of arecruit with his or her likely future performance,including the increasingly popular psychometric

test. Other authors in this part discuss the roleof training in corporations. It is clear that train-ing improves performance, yet managers shouldbe open-minded about the kind of trainingemployees demand – generic training may para-doxically achieve the best results.


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T he world of business is fickle. Only a short while ago, companieswere talking about the “war for talent”, with leading blue chips,

investment banks and consulting companies fighting with dotcoms andother start-ups over the best individuals. Today’s climate is very differ-ent – with waves of redundancies and many people thankful to have ajob at all. However, boom or bust, good recruitment and selection prac-tices are essential.

During a boom, organizations may recruit managers who have atalent for launching services and products and thinking about new mar-kets. However, the skills needed in a downturn are very different. Theemphasis switches to recruiting managers who can cut costs aggres-sively, retrench and manage in the aftermath of mass redundancies.Research shows that while recruiting the wrong individual can have ahuge impact on a healthy business in terms of opportunity costs, it canbe fatal for an ailing one.

Unfortunately, the frightening reality is that many organizations – par-ticularly companies without HR representation at board level – do nothave selection practices that allow them consistently to distinguish out-standing candidates from those who are merely competent, or to selectmanagers who are different from those cast in the current mould. Assuch, these organizations handicap their ability to compete effectively.

The history of recruitment and selection techniques is littered withpractices that range from astrology to assessment centres. This articleconsiders past methods and current thinking in behavioural, or compe-tency-based, methods of recruitment and selection.

Beyond the interview

The search continues for an inexpensive process that can

deliver a perfect correlation between assessment and future

performance. Rob Yeung and Simon Brittain examine the

options.Rob Yeung is a senior

consultant at Kiddy and

Partners, organization and

business psychology

consultants.

Simon Brittain is a partner

and head of assessment at

Kiddy and Partners.

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The interview

The interview still forms the basis for most selec-tion procedures. Typically, a manager will look at acandidate’s curriculum vitae and ask questions thathe or she believes will help to predict whether a par-ticular candidate will perform successfully. A criticalconcept in selection is that of predictive validity – orthe extent to which measurement of some charac-teristics of a candidate will predict on-the-jobperformance. There are many characteristics thatcould be measured as well as an enormous diversityof performance criteria, which could include any-thing from salary growth to manual labourproductivity, sales earnings or ratings of success bypeers. However, a compelling body of evidence indi-

cates that the traditional, unstructured interviewhas very poor predictive validity.

Interviewers are prone to unconscious bias thatthey can only dimly perceive. Many recruit intheir own image, choosing people with similarbackgrounds or personal interests rather thanpossibly better, but dissimilar, candidates. Theymay also be deceived by the “halo effect”, wronglybelieving that a candidate who has charm andgood interpersonal skills will also be good ateverything else. Different interviewers can havedifferent standards – resulting in excellent candi-dates being turned away by overly harshinterviewers or poor candidates being offered jobsby benevolent interviewers. As such, the interviewis only marginally more successful at predictingjob performance than astrology (see Figure 1).

Other methods

Surprisingly, graphology (the analysis of hand-writing samples) is used by many companies incontinental Europe, where is it common practicefor candidates to submit a handwritten coveringletter with their application, whereas it is rarelyused in the UK or the US. However, research hasconsistently failed to find a significant correla-tion between graphology and job performance.

Neither are references very good predictors ofjob success. For a start, candidates tend to choosereferees who provide a flattering reference.Referees can also be reluctant to give poor refer-ences, for example when an employer feels guiltyfor having made employees redundant. On theother hand, references can occasionally eliminatecandidates who have exaggerated their experi-ence or lied about their qualifications, therebyboosting the predictive validity of an overallselection process.

As Figure 1 indicates, work sample tests areamong the best methods of predicting whether acandidate will perform successfully on the job ornot. Such tests ask candidates to do the tasksthat will be required of them in the job for whichthey are applying, so this might be a typing testfor secretaries or taking apart and repairing agearbox in the case of a motor mechanic.

In-tray exercises have become popular for sim-ulating the demands of many office-based jobs.

PART 10 RECRUITMENT, TESTING AND TRAINING214

A compelling body of evidenceindicates that the traditional,unstructured interview has verypoor predictive validity.

1.0 Perfect prediction

0.9

0.8

0.7

0.6 Assessment centres (for promotion)

0.5 Work sample tests

0.4 Assessment centres (potential performance)

0.3 Structured interviews

0.2 Typical interviewsReferences

0.1 Chance predictionGraphologyAstrology

FIGURE 1 Selection method and performance

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They require that candidates sort through a packof documents and respond in writing to the mostimportant – usually against the clock. However,they have been criticized for asking candidates towrite what they might normally say to others – itis difficult, for instance, to see how an in-trayexercise alone could identify a person with goodnegotiation or presentation skills. Second,employers simply do not like relying too heavilyon in-tray exercises as they are loath to recruitwithout face-to-face contact. As a result, organi-zations have been turning to competency-basedapproaches to recruitment and selection.

Competencies

Competencies are statements about the charac-teristics that result in effective, superiorperformance in a job. Typical management com-petencies, for example, focus on skills such asinnovation, leadership and change management.Companies such as Royal Bank of Scotland,Consignia, Amazon and Goldman Sachs use com-petency frameworks.

Adopting competencies helps a business toidentify criteria that can be used to assessemployees not just for recruitment but also toappraise performance, develop people and iden-tify successors. In the context of recruitment thismethod allows managers to identify the skillsthat they are seeking in employees. A businesscould also highlight competencies that it needs.For example, if an organization is trying toswitch from a short-term sales focus to a longer-term consulting relationship with customers, itmight include a competency to do with “partner-ing with customers”.

Competencies must be unique to each organi-zation. A company that takes a set ofcompetencies off-the-shelf will adopt a genericmodel that has limited relevance to its particularcompetitive market, the style of its managersand its culture. The rise of competencies hasredeemed the interview. In spite of having lowpredictive validity, the interview continues to beintegral to selection. Candidates expect a chanceto put their case and potential employers like tomeet prospective colleagues. Once competencieshave been identified, it becomes straightforward

to train managers to interview using them sothat decisions become more consistent and moreable to predict job performance.

Assessment centres

Structured, competency-based interviews havegreater predictive validity than traditional inter-views but assessment centres are even better.Candidates can be confused by the term, believ-ing it describes the location, or perhaps adedicated building. However, it merely refers toan approach that uses several methods to give athorough picture of the strengths and weak-nesses of a candidate.

As with the structured interview, an assess-ment centre tests candidates against a set ofcompetencies. However, the centre differs in thatit is likely to comprise not only an interview butalso written exercises, psychometric tests, casesstudies, group discussions and simulations (seeBox 1). There are likely to be several assessors.Assessment centres rarely run for less than a dayand can last for a week. A centre may even bedesigned to assess a single candidate.

Simulations are particularly important becausethey have led to a great increase in the predictivevalidity of selection methods, allowing assessors toobserve behaviour against a set of competenciesrather than just self-reports of behaviour. As anexample, rather than asking prospective salesexecutives how good they think they are at deal-ing with customers, why not actually watch themtrying to handle an irate customer?

The major disadvantage of assessment centresis their expense. There is a development cost,perhaps to create fictitious company materialsand write role-play scenarios. There is also thecost of training assessors and having them pres-ent throughout the duration of the assessment.Accordingly, assessment centres tend to be usedfor senior managers, internal promotion or forimportant roles in the business – such as high-flier graduate recruitment programmes (see Box1). Even though assessment centres are regardedas the best method for selecting candidates, theircost may go some way to explaining why theyhave been taken up by relatively few organiza-tions. In particular, UK companies lag their

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German and North American competitors intheir use.

However, organizations that balk at investingin assessment centres may be guilty of short ter-mism in that the costs are outweighed by thefinancial benefits, especially at senior levels. Forexample, academic Craig Russell examined thevalue of competency-based selection in 98 candi-dates for executive roles in a Fortune 50 company.Monitoring their performance over three years,he calculated that general managers selectedusing a competency-based process each generatedan additional $3m in annual profit as comparedwith recruits who were selected using a previousprocess that was not based on competencies.

On the other hand, organizations that havealready adopted assessment centres must notrest on their laurels. While some leading organi-zations quickly embraced the concept, manyearly centres were designed without sufficientconsideration of how and why performanceduring the assessment is supposed to link withfuture job performance. For example, it is diffi-cult to see how asking a group of candidates tobuild a structure from toy bricks could be said topredict managerial competence. Such organiza-

tions could be opening themselves up to legalchallenge from talented candidates who may berejected for seemingly irrelevant reasons.

Assessing selection

Research has tended to focus on the effectivenessor predictive validity of selection methods.However, organizations must also consider othercriteria in devising selection methods.

� Practicality: the ease of use of a selection method.For example, line managers can be trained relativelyeasily to conduct competency-based interviews,whereas they would need extensive training to workin an assessment centre.

� Generalizability: the extent to which results can beused across levels and job roles. A verbal reasoning testmay have high predictive validity for administrativestaff, but may be worthless for selecting managerswho need to coach and develop others. Similarly, anassessment centre for senior managers is likely to betoo demanding for graduate entrants.

� Cost-effectiveness: what will be the payback ofinvesting in better recruitment and selection methods?


Box 1 Sample assessment centre timetable

08:45 Introduction: candidate (for director post)welcomed and briefed on the schedule.

09:00 Personality inventory: 150 self-report paperand pencil questions completed bycandidate; results used to help interviewerprobe management style.

09:45 Interview: assessor interviews candidate indetail against the role’s competencies.

11:00 Business case analysis: candidate introducedto a fictitious company and given in-trayexercise to analyze and complete. This mayinclude detailed financial statements andforecasts to scrutinize, perhaps a budget toprepare, along with memos, letters andfaxes to respond to in writing.

13:00 Presentation: candidate asked to presentsummary recommendations on the fictitiouscompany to an assessor, role-playing thecompany’s chief executive.

13:30 Working lunch: while finishing the in-trayexercise.

14:00 Direct report meeting: candidate given 30minutes to prepare for a meeting with anunderperforming employee. The employeeis played by a second assessor.

15:00 Board meeting: candidate given 20 minutesto prepare for a meeting with two peers todiscuss a difficult issue. Both peers areplayed by assessors.

16:00 Aptitude test: timed test to measure thecandidate’s critical thinking ability.

16:45 Debrief: candidate’s opportunity to askfinal questions.

17:00 End of day: candidate leaves. Assessorsdiscuss candidate’s performance andrecommend whether to hire or not.

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� Acceptability: not only to candidates, but also to theline managers taking part in the selection process.

� Legality: to ensure selection does not infringecandidates’ human rights or discriminate unfairlyagainst minority groups.

The future

The holy grail of selection would be an inexpensiveselection process that could deliver a perfect corre-lation between candidate assessment and futureperformance. Given the diversity and unpredictabil-ity of human behaviour, this is unlikely to happen;however, assessment specialists do continue to seekways of improving selection methods.

Technology

The purpose of an assessment centre is to mimicwork situations. However, most centres are runas paper and pencil exercises – candidates arepresented with printed materials and asked towrite down their responses.

Organizations will increasingly incorporatetechnology in assessment centres to add to theirrealism, which should also enhance their validity.The application of technology would, for example,allow managers access to computers, voicemailand other tools they would have in their ownoffices. However, HR managers will need to con-vince line managers that such technologiesdeliver better recruits for the additional cost.

Retaining candidates

While organizations are getting better at recruit-ing the best candidates, they could pay greater

attention to retention during the selectionprocess. It is often the case that the way anorganization treats candidates during the assess-ment process is indicative of how it treatsemployees. Many organizations are guilty ofexpecting candidates to jump through hoopswithout explaining the purpose of each stage andthen failing to give feedback to unsuccessful can-didates. Good candidates often have several joboffers, so recruiters must make the process asmuch about helping candidates to choose theorganization as vice versa.

Change

Currently, when a vacancy arises, the role is firstdefined and then candidates are sifted andassessed to find the best person. However, organ-izations are increasingly changing at such a pacethat roles can soon be redefined or made redun-dant. It is no longer enough to find the bestcandidate for today’s needs. Recruiters must beable to identify candidates who will meet notonly the company’s current needs but also itsuncertain future needs.

Copyright © Rob Yeung and Simon Brittain 2002

Further reading

Arthur, D. (2001) The Employee Recruitment andRetention Handbook, New York: Amacom.

Cook, M. (1998) Personnel Selection: Adding valuethrough people, Chichester: Wiley.

Russell, C.J. (2001) “A longitudinal study of top-levelexecutive performance”, Journal of AppliedPsychology, 86.

Ryan, A.M., McFarland, L., Baron, H. and Page, R.(1999) “An international look at selection practices: Nation and culture as explanations for variability in practice”, Personnel Psychology, 52.

Schmidt, F.L. (1998) “The validity and utility of selectionmethods in personnel psychology: Practical andtheoretical implications of 85 years of researchfindings”, Psychological Bulletin, 124.

BEYOND THE INTERVIEW 217

The holy grail of selection would bean inexpensive selection process thatcould deliver a perfect correlationbetween candidate assessment andfuture performance.

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1

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C ompanies in Europe and North America spend $1bn a yearupgrading the knowledge, skills and abilities of their employees.

What do they hope to achieve? They want each division, unit andemployee to understand the overall strategy and, more importantly, tomake it happen. Second, they hope to bring down barriers – such aslack of knowledge and skills or ingrained bad habits – that hamperexecution of company plans.

Therefore, training and development aim to create what Jack Welch,former chief executive of General Electric, called “the boundarylessorganization”. In such an organization, active steps are taken to elimi-nate an attitude of “I know nine things, so I will teach you eight” andreplace it with one of “I will teach you nine things by the end of the dayand a tenth thing tomorrow morning”. Managers want to bring aboutchanges in employees’ ways of thinking and behaving. To accomplishthis, psychologists recommend improving each person’s self-awareness,knowledge and skills, and their motivation to apply newly acquiredknowledge and skills on the job.

Self-awareness includes understanding one’s roles and responsibili-ties. Training can give workers insights into any gap there might bebetween their behaviour and the organization’s culture or values. Itmight also show how others see them and how these perceptions affectthe way others pursue the organization’s goals.

Why is there such an emphasis on knowledge and skills? First, tech-nological innovation requires that office workers be retrained five toeight times during their careers. It is hardly surprising if people becomefrustrated as their jobs require more problem solving, analytical skillsand teamwork than they have been trained to deliver. In addition, withmergers and acquisitions, and globalization, managers need to be sensi-tive to changes in the organization’s culture, as well as the variouscultures of the places in which the company operates. The Center for

A missing link in the strategic plan

Value for money from training can come about only if

companies can improve understanding of their strategy and

ensure employees can carry it out, says Gary Latham.

Gary Latham is Secretary

of State Professor of

Organizational

Effectiveness at the

Rotman School of

Management, University

of Toronto, and a past

president of the Canadian

Psychological Association.

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Creative Leadership (CCL), an educational insti-tution in the US, reported that the main causesof the derailment of a successful leader is lack ofinterpersonal skills and their inability to copewith change.

There may be some truth in the adage “apoorly developed plan that is brilliantly executedis better than a brilliant plan that is poorly exe-cuted”. In most companies, senior managersspend time in the autumn revisiting the com-pany’s strategic plan, only to find that inJanuary employees quietly file the plan in adrawer. Just as managers develop a strategy,they must also develop the human resourcescapabilities to implement it.

At Travelers Insurance, senior executives recog-nized that the company would have to transformitself. They set out a plan for change with anemphasis on customer service. Managers weretrained to manage the transition to new technolo-gies and all employees were trained in computerskills so they could address clients’ needs withappropriate company services immediately.

Is training and development worth the cost?Only if programmes are evaluated to see whetherobjectives have been attained. Without this,managers cannot improve the training processand they will see no improvement in how work-ers carry out strategy.

Training design

Psychologists say: understand the outcomes thatpeople expect and you will understand why theydo what they do; change their expectations andyou will change their behaviour. In terms of ourargument, effective training is based on analyzingpeople’s needs. This analysis should show seniormanagers, and the people who will be trained,what needs to be done. In short, they must seethe links between what they do and expected out-

comes – between taking or not taking the train-ing and the likely impact that will have oncompany strategy. If there is no difference inresults after training, the programme is unlikelyto be supported. Any training analysis has to beexplicit about what people must start doing, stopdoing and continue to do to execute strategy.

Since the second world war, organizational psy-chologists have emphasized active participation,feedback and practice to make the most of theskills and knowledge that a course confers. In thepast two decades, four principles have alsoemerged that are central to increasing the efficacyof training in motivating an individual or group toacquire the skills necessary for resilience.

Efficacy refers to the belief that one can bringsomething about. It is critical to motivating peopleto master the knowledge and skills taught on atraining course and to apply them. Research hasshown that people with high self-efficacy commit togoals that are difficult to achieve and more valu-able to the organization. Obstacles and setbacksadd to the challenge and excitement of pursuingthem. People with low self-efficacy look for tangiblereasons to abandon the goal. They perceive thesame obstacles and setbacks as proof that the goalis not attainable and are more likely to give up.The four ways of increasing efficacy are:

� Arrange tasks to enable early successes and providesome tasks that all but guarantee early successes.Success inculcates confidence; trainees can say: “Inow think I can do this.”

� Find people similar to the trainees who have eithermastered the task or are in the process of doing so;this enables the trainee to speak to people withwhom they can identify and who have achieved thecourse’s aims. A problem with benchmarking – acommon element in courses – is that the lesseffective person or group may be discouraged bythe fact that “best practice” appears unattainable.Support from “significant others” who haveachieved these goals can help.

� Ascertain who is the “significant other” for theperson or group. Who whispers in their ear?Psychologists have found that people tend tobehave according to the expectations of those whoare significant to them. This is both good and bad:influential people can either build us up or tear us


Just as managers develop astrategy, they must also developthe human resources capabilities toimplement it.

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down. Trainers should make participants moreaware of these effects; those who undermineconfidence can then be put in perspective and thosewho boost it can be sought out.

� Set learning goals. Learning goals should be set whenthe person lacks the knowledge or skills to performthe task; outcome goals should be set when the issueis primarily motivation rather than learning. Outcomegoals refer to a desired end state, such as “increaserevenue by 18 per cent”. Learning goals emphasizethe discovery of ways of solving a problem ormastering a task, such as “find five specific ways ofincreasing revenue”. When people set outcome goalsbefore they have mastered the task, theirperformance gets worse. Because they are anxiousabout failing, they jump from one incorrect approachto another. Instead of setting outcome goals, trainersshould ask participants to seek out methods ofapproaching the task. Performance improvesdramatically when learning goals are set.

Evaluation

Another psychological truism is: “That whichgets measured gets done.” For many, the pres-ence of a metric signals that an activity is valuedin the company. If the system of measurement isnot aligned with the organization’s vision andvalues, however, most people will concentrate onthe metric and ignore the vision. To ensure thatthe knowledge derived from training is appliedon the job, managers must figure out a way ofmeasuring the expression of that knowledge inthe trainee’s performance – and build this metricinto performance appraisals.

Similarly, pay and promotion must to someextent depend on the transfer of training skills tothe workplace. For example, when clerical work-ers were given training in self-management, theirproductivity declined relative to that of theiruntrained colleagues. Interviews with the clerkswho had been trained revealed that after theywere given autonomy, they believed that theydeserved higher pay than clerks who had not beentrained. They became so disgruntled at not receiv-ing a pay increase that their output declined. Themoral is this: that which gets appraised andrewarded gets performed on the job.

Randomly selecting people to be trained firstand comparing their performance with those whohave yet to be trained can show the value of train-ing and development. If there is a significantdifference in the performance of the two groups,the training is clearly worthwhile. If managersthen train the remaining group and performanceincreases to the level of the first trainees, this isadditional proof of the programme’s effectiveness.

Technology-based training

In an effort to reduce the costs of training,organizations are increasingly turning to coursesoffered on the web and on CD-Roms or DVD-Roms. The latter are particularly effective forcreating realistic job simulations. Sales employ-ees can be given practice in dealing with iratecustomers, nurses in dealing with patients andnuclear power plant operators with emergencies.

Microsoft offers a host of computer-relatedcourses from independent training producers overthe internet. The company contends that a class-room course that normally costs $2,800 can betaken for $395. Companies such as Booz Allen &Hamilton, JC Penney and Eli Lilly use theirintranets for employees to share knowledge, skillsand abilities critical for the advancement of theirstrategy.

Most technology-based courses automaticallyassess what the worker has learned. Trainees arenot able to move to the next exercise until theyhave mastered the current one. As well as thecourses being cheaper, trainees taking computer-based courses are not forced to travel outside theworkplace. Further, these courses allow for dif-ferences in learning rates among people. Unlikehuman trainers, the internet does not get impa-tient with a slow learner, nor does it hold backthe quick learner because of colleagues havingdifficulty with the subject matter.

Senior management

The training of senior managers has become amajor source of profit for business schools inEurope and North America. Organizations such asthe London Business School and the University ofToronto customize programmes to suit the strategyof client organizations. These programmes aremini-MBA courses that last between 5 and 20 days.

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Although the content is tailored to the needs of theclient, the themes are usually the same: leadershipskills for senior managers; building teams; and thedevelopment and implementation of a customer-driven strategy. In short, these programmes focuson organizational behaviour, strategy, marketingand finance. Companies are also forming allianceswith institutions to offer MBA degrees to a studentbody that consists solely of their employees, super-visors and customers.

Development and succession

In the 1990s, Jack Welch said: “Choosing my suc-cessor is the most important decision I’ll make.It occupies a considerable amount of thoughtalmost every day.” Welch recognized how impor-tant leadership was in the pursuit of strategy.

A survey by CCL suggests that career develop-ment and succession planning encourage theorganization to scan its business environment. Thisalso shows the company intends to change and, ulti-mately, planning ensures survival. The downside isthat the process disrupts work. Employees learnabout and begin to apply new priorities and proce-dures. The study found a 33 per cent failure rate forexecutive succession. Further, there is often a dropin performance as staff turnover rises.

As well as being fair, leaders must be seen tobe fair. It is less important who gets what (suchas an assignment or promotion) than that thereare procedures to determine what gets distrib-uted to whom (for example, how profit is shared).If systems exist, employees tend to ask:

� Is the system representative of the thinking of theorganization at large or that of a select few?

� Are systems followed consistently?

� Are procedures ethical? If they were published in thebusiness press, would the organization beam withpride or blush with embarrassment?

� Do I have a champion who makes my strengths anddevelopment needs known to others?

� Is there an appeals process? If important data ismisinterpreted, will I be seen as a team player or amalcontent if I try to correct things?

� Do I have a voice? Will people listen to me beforemaking decisions?

If managers take these questions into account,employees are likely to accept the process.

Career development and succession plans shouldthen be linked to business strategy.

Self-management and coaching

The skills of coaching and managing oneself havebecome more important as cost cutting hasremoved layers of management. Such skills alsoincrease involvement in the workplace.

Drawing upon principles from clinical psychol-ogy, academic Colette Frayne and I developed atraining programme to reduce absenteeism amongunionized government employees. In brief, thetraining taught people to set high goals in relationto their job attendance, to monitor ways in whichthe environment helped or hindered them fromreaching that goal, to identify and administerrewards for working towards it, and punishmentsfor failing to work towards it. Such self-regulatoryskills taught employees how to manage personaland social obstacles to attendance, and raisedtheir perceived self-efficacy that they could exer-cise influence over their behaviour. Attendancewas much higher in the training group.

ConclusionTo ensure strategy is carried out, employees must havethe skills to do what is asked of them. They must seethe relationship between what they do and the out-come they can expect for themselves. Learning ratherthan outcome goals should be set when the way toachieve a goal is not readily apparent. Training pro-grammes must focus on the employee’s self-efficacy,the belief that “Yes, I can”.

Finally, managers should evaluate programmes rig-orously. If people are not implementing strategy moreeffectively after training, or more effectively than thosewho were not trained, kill the programme.

Copyright © Gary Latham 2002

This article is drawn from Developing and Training HumanResources in Organisations by Gary Latham and K. Wexley (PrenticeHall, 2001).


As well as being fair, leaders mustbe seen to be fair.

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O nce, managing people was simple – or so we are told. Jobs werestandardized and just needed filling, skills were learned in school,

and workers were happily married to companies by efficient formal con-tracts. And they all lived happily ever after, soothed into docility (andperhaps mediocrity) by the benevolent assurance of lifetime job security.

Even allowing for a generous dollop of myth, things have changed.Job definitions now evolve, advanced skills take time to define, andunstated and shifting mutual obligations – not formal contracts –inform the employment relationship. Developing people, not just man-aging them, has become a necessary yet tricky task. Investing in humancapital is complicated by the fact that the skills companies need keepchanging and it is risky because money is spent on training people whomay soon leave.

No wonder managers struggle with how to invest in developing andmotivating their people at a time when investment in people, not justtechnology, is returning to centre stage. So how should managers investin their human capital?

Fortunately, some things have not changed. Human nature remainsremarkably stable. People want to feel competent and secure, they areconsistent in reciprocating good or bad deeds; and they are influencedby, and often imitate, behaviours that surround them. Nothing changesfrom the sandpit to the boardroom, so managers should revisit thesetruths as they think about investing in people.

In the rush to transform employees into independent agents, managersbelieve that if they call them “talent” they can handle them at arm’s length.Use formal contracts to stipulate the task, the thinking goes, and careerdevelopment falls on employees. If employees fail to develop into value cre-ators, it’s their own fault. However, in managers’ eagerness to createself-standing agents it may have been forgotten that investments in humandevelopment have to keep pace. Moreover, these investments must be

Investments that build on human nature

With the demise of job security, companies need other

strategies to encourage commitment. Charles Galunic and

John Weeks propose generic training, which, ironically,

makes people more mobile.Charles Galunic is an



at Insead.

John Weeks is an assistant

professor of


at Insead.

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mindful of employee needs and motivations, andhere is where human nature can help. People like tofeel secure, especially about their livelihoods – fewhave jobs with pay-offs so large that they can ignoresafety nets. Companies need to bear in mind humanreciprocity when investing in employees.Reciprocity is an attribute that should emboldenmanagers to make what may, at first, appear asunorthodox and risky investments. And rememberthat people are natural imitators. Employees willtreat each other – and their customers – as they aretreated by the organization.

Job security

It is difficult to speak of job security without firstoutlining what is meant by the employment rela-tionship. Most employees start with a writtencontract. This documents the basics: title, salary,responsibilities and so on. However, written con-tracts are poor at dealing with the minutiae oftasks and behaviour that may be asked ofemployees over time, which are unforeseen andimpossible to codify.

In other words, much of what organizationsexpect from employees is not stated and developsas the relationship progresses. Certain exchangesare repeated – such as flexible working hours forweekend business travel – and shared assump-tions plant themselves in members’ minds,forming part of the organization’s culture.

These perceptions of the mutual obligationsbetween employers and employees form what iscalled the psychological or social contract. Thiscontract is more balanced than the formal one,obligating the employer, not just employees, tobehaviour in certain ways. Although seldom codi-fied, it is reproduced constantly and so always onthe minds of employees. Break this and employ-ees will know. Nevertheless, breaking ormodifying this social contract is exactly whatcompanies have been doing. Former understand-ings were simple: employees gave employersloyalty and commitment in return for job secu-

rity. As job security lost its status, eroded bywaves of downsizing, employees lost their corpo-rate religion.

Many books lament the loss of organizationalcommitment and wonder how companies can haltthe slide. Many remedies have been proposed andsome tried. A prime example is to pay more atten-tion to compensation (if not necessarily to paymore), particularly pay-for-performance, whichaims to obtain high-commitment behaviour bypaying for it. Other examples include flexibleworking hours, generous spending to supporttelecommuting and lifestyle-friendly perks, fromgyms and nurseries to coffee and confectionery.

Although such initiatives may encourageemployees to work hard, they are no substitutefor job security. There is something precious inknowing that one’s ability to earn a living issecure, a sense of freedom and independencethat things like modest increases in pay, nurs-eries and other perks have a hard time matching.

The difference between job, or more broadlyoccupational, security and these perks is also thedifference between the material and psychologi-cal benefits of an occupation. People derive notonly material benefits and independence fromjobs but also a sense of identity – a feeling ofcompetence, a place that supports social linksand family relations. Threaten this, and compa-nies threaten something near a person’s core.

This creates a dilemma. How do companieshalt the erosion of employee commitment andloyalty, an unquestionable strategic advantage, ifdemands for competitive flexibility destroy jobsecurity? Is there a way to cultivate dedicationand align behaviours to organizational endswithout lavish perks or, on the other hand,simply imposing more controls? The answer isthat there is no flawless way. The idea of“employability” has forced people to see them-selves and their companies in a different light.The company no longer serves as a clan but as amuch looser association, something approachinga talent agency, replete with fashionable butdepersonalized practices such as sharing desks.Ironically, managers were dumbfounded whenthese agents had the nerve to start job-hopping.Many became frenzied, forcing an arms race inperks and pay that has made some of them vul-nerable to recession.


If employees fail to develop intovalue creators, it’s their own fault.

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General skills

There are ways to restore commitment withoutagain offering job security. Part of the answerlies in how companies develop employees.Company-specific investments are made all thetime, of course, and these are vital, perpetuat-ing the skills and capabilities of the companyand possibly a source of competitive advantage.

Other investments can play a significant rolein generating employee commitment and loy-alty. These “generalized investments” focus on general skills and education to raise the pro-fessional level of employees. Topics includeleadership and personal development, technol-ogy, finance and teamwork. Whereas run-of-the-mill training focuses on things the companyknows how to do – but employees do not – gen-eralized investments are about expandinghorizons. In a sense, these investments are thedifference between training and education.Crucially, compared with company-specifictraining, generalized investments make employ-ees more employable and, potentially, mobile.Certainly from the employee’s perspective,increasing employability is what these invest-ments are all about.

It doesn’t take a suspicious finance director torecognize this advice as heretical and risky.Strategic thought has advocated that allresources should be as company-specific as possi-ble and so help distinguish the company fromcompetitors. Indeed, not long ago, The Economistdistrustfully asked why companies should spendmoney on improved skills when those employeescould be “poached at a moment’s notice”. It mayseem extravagant to develop employees in waysthat make them more mobile.

However, that is the point. From the perspec-tive of employee security – in a broader,occupational sense – these investments go along way to restoring confidence. In turn,employees are likely to respond with greatercommitment. The value proposition of general-ized investments is that, in their response tothem, employees will distinguish the companythrough greater commitment, dedication andindividual performance.

Evidence

There is corroborating evidence. Generalizedinvestments in a sample of insurance agentshave been found to raise their commitment sub-stantially. In this case, investments includedgeneral managerial development and technologyinvestments, both of which could be easily usedby other companies. Further, the raised commit-ment translated into greater satisfaction withagents, profitability and expectations of contin-ued benefits.

Why should companies expect such an effect?Why wouldn’t employees stay around just longenough – and do just enough – to grab theseinvestments and then leave? Clearly, some will.After all, young consultants and investmentbankers commonly justify their insane hours andshort careers with the knowledge that in a fewyears they can take their accumulated wisdom –company-specific and general – and go off intoindustry. Like most investments with interestingreturns, there is risk. Nonetheless, the insuranceagent study strongly suggests that people tend torespond well to such investments. Human nature,once again, explains why. People are exceptionallyconsistent reciprocators. In the words of anthro-pologist Marcel Mauss, generosity createsobligation. Successful salespeople learn this earlyin their careers; managers need to also. Giveemployees something of value and they tend torespond in kind. Company-specific investments, orthose that bound employees more tightly to theircompanies, also tended to generate some, albeitmore modest, levels of commitment. What makesgeneralized investments different, and perhapsmore powerful, is their altruistic quality. It iseasier to dismiss organizational investments inhuman development that are purely focused onproductivity and profits.

On the other hand, it is more difficult to dis-miss these investments when they show concernfor employees’ continued viability as profession-als – and at apparent cost and risk to thecompany. These investments should providereturns, but employees will notice that they aremore attractive in the employment market andhave more control over their future. This canweigh heavily on the mind.

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Indeed, because such investments signal con-cern for the individual per se, rather than as anagent of the company, they can generate a particu-larly strong need for reciprocity, manifested ingreater commitment. Just ask British Airways,whose popular Managing People First programmein the 1980s focused on self-development andleadership – not on skills – and was important inraising employee dedication and the company’stransformation under Colin Marshall.

In short, generalized investments offer a wayto interpret the employment relationship in emo-tionally engaging terms. A steady supply ofsweets in a competitor’s canteen will be lesslikely to lure employees away.

There are other advantages to generalizedinvestments. For one thing, because they are nottied to things the company already knows, theyare likely to generate innovation. In this sense,development involves not just the individual but,in the longer run, the organization, whose pool ofideas and routines should expand.

Imitation

Human nature suggests a further and neglectedadvantage. People are especially adept at imita-tion. This is not just triggered mimicking ofsomething that is already known, such as yawning.Rather, as psychologist Susan Blackmore describesin The Meme Machine, imitation involves acquir-ing understanding and appreciation about thebehaviour being observed, something that sepa-rates humans from other species and is animportant source of individual development.

Of course, anthropologists such as DanSperber and Ulf Hannerz caution that imitationis seldom as simple as copying. It involves muta-tions and is influenced by the status and power ofthe source. Nonetheless, much of what employeesknow how to do – what amounts to organiza-

tional culture – was acquired through selectingand imitating ideas and behaviours that competefor attention and circulate around companies.

It is because people are natural imitators thatgeneralized investments may have multiplyingeffects, helping to mould an organizational cul-ture that is less selfish and provincial, and moreco-operative and loyal. This is partly becausecommitment can be contagious. It is also becauseorganizational policies that are backed by leaderscommunicate something about desirable organi-zational behaviour.

Further, it is because employees are likely toreciprocate altruistic organizational acts by imitat-ing such behaviour in their dealings withcolleagues. Just as imitation is the greatest form offlattery, employees may copy the spirit of general-ized investments and so mimic such altruistic acts.A company’s social contract says something notonly about how employees should treat the com-pany but also how they should treat each other.

Caveats

A few caveats are in order at this point. Obviously,a good amount of employee development will be –and should be – highly company-specific. If a com-pany doesn’t provide training in its culture,methods and routines, it may mean that it doesnot have capabilities that are distinct. It is not anissue of company-specific or generalized invest-ments but of balance. Indeed, generalizedinvestments are likely to stand out more in theminds of employees than the usual corporatetraining. Remember that an important part ofgeneralized investments is to elevate the profes-sional level and well being of employees – if thismessage is lost, or implemented in an insincereway, a good portion of this investment may be lost.

Another consideration is that because thisform of human development can become per-sonal, its communication and implementationneeds to be handled delicately. Tell an employeethat you are sponsoring him for a programme on,say, taking care of his health or public speakingand he may feel insulted. As always, it is wise tolink these initiatives to corporate values andstrategy, and introduce them without singlingout individuals.


Generalized investments offer away to interpret the employmentrelationship in emotionallyengaging terms.

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Finally, remember that sometimes policiesaimed at generating high-commitment organiza-tions can work too well. Employees may devotemore of their time to the company than is neces-sary or acceptable. Like many management tools,these investments will further blur the dividebetween work and private life. Good manage-ment is about finding balance and is genuineabout its concern for employee welfare – there isnothing like hypocrisy to disengage employees.

No one knows what shape future social con-tracts between employees and employers willtake. However, the value placed on human devel-opment will continue to increase. The best andthe brightest are likely to choose companies thatprovide professional or occupational – not job –security. Generalized investments should not beregarded as a luxury or a perk but as a genuineinvestment in people and organizational culture.It is also safe to say that human nature will notchange and managers may be well served byrespecting the basics.

Copyright © Charles Galunic and John Weeks 2002

Further reading

Blackmore, S.J. (1999) The Meme Machine, Oxford:Oxford University Press.

Evans, P., Pucik, V. and Barsoux, J.-L. (2002) The GlobalChallenge: Frameworks for international humanresource management, Chicago: McGraw-Hill.

Galunic, D.C. and Anderson, E. (2000) “From securityto mobility: Generalized investments in humancapital and agent commitment”, OrganizationScience, 11, 1.

Ghoshal, S. and Bartlett, C.H. (1997) The IndividualizedCorporation, New York: HarperBusiness.

Ridley, M. (1998) The Origins of Virtue, New York:Penguin.

Waterman, R.H.J., Waterman, J.A. and Collard, B.A.(1994) “Toward a career-resilient workforce”,Harvard Business Review, 72, 4.

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S urveys have shown that a high proportion (about two-thirds) oflarge and medium-sized companies in the UK use psychometric

tests and questionnaires for recruiting staff and developing them, andfor building, recruiting and assessing teams. Such large-scale usageshows that companies see real benefits in testing. However, there arelimitations, which are likely to increase as testing using the webbecomes more popular.

This article describes benefits, problems and trends in psychometrictesting, focusing on internet testing and the assessment and develop-ment of emotional intelligence.

Benefits

Psychometric tests (use of the term here includes questionnaires) arenot a new fad and nor do they only measure IQ, as many people believe.They are designed to assess not only mental abilities and aptitudes, suchas verbal, numerical and spatial reasoning, but also personality charac-teristics, interests and values and, very recently, emotional intelligence.

Such tests have been the most widely used scientific assessment toolfor the past 100 years, for a number of good reasons. First, they are nor-mally based on well-researched models in the study of psychology andso have a sound scientific base. Concepts or traits measured are clearlydefined and so there is usually a common understanding of these amongusers. They are developed rigorously using trials that can take years ofpainstaking research.

Second, the results produced are objective. This is achieved by takingthe person’s “raw” score and comparing it against the range of scorespreviously obtained from a reference group such as the general popula-tion, managers or graduates. Thus, one can state that this person’s

In search of the best performers

The concept of emotional intelligence has expanded the

potential of psychometric testing, says Victor Dulewicz, but

online availability threatens established standards.

Victor Dulewicz is a

professor of management

studies and head of the

HRM and organizational

behaviour faculty at

Henley Management

College.

229

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score is higher than, say, 75 per cent of UK grad-uates. Third, users have to adhere to highprofessional standards of practice. To obtaintests in the first place, people must be trainedand accredited by the publishers. Fourth, andmost relevant to the bottom line, validation stud-ies have demonstrated the value of tests forpredicting performance in a wide range of jobs.

Validation is usually done by correlatingscores with measures of performance on a job ortraining course. An article in 2002 by IvanRobertson and Mike Smith, psychologists atUmist, shows that ability and personality ques-tionnaires are effective predictors of performance,especially when compared with other selectionmethods. Furthermore, cost-benefit and utilityanalyses conducted over 20 years using widelyaccepted models have consistently shown largesavings when the cost of using valid tests is com-pared with the actual or likely benefits ofselecting higher performing staff as a directresult of using tests. Generally, the higher thelevel, the greater the cost savings found.

So, rigour, objectivity and validity are the mainreasons these tests are widely used. Inevitably,though, they have limitations. First, while thevalidity of ability tests is widely accepted, doubtslinger in some quarters about personality ques-tionnaires, partly because more informal tests orquizzes have sprung up, many of which are on theweb. Since personality questionnaires are basedusually on self-reporting, there can be problemsresulting from inaccurate self-perception or from“motivational distortion” – when someone pres-ents a favourable self-image.

Nevertheless, adjustments can be made to takeaccount of this and Robertson and Smith’sresearch has shown it does not seriously affect theability to predict performance. Moreover, theseproblems are not unique to testing. In selectioninterviews, such problems can be even more acute.

Second, ability tests do sometimes have whatis called “adverse impact” – some groups may beat a disadvantage because of, say, language orcultural factors. The most common example iswhen someone whose first language is notEnglish sits a test written in English. They maynot fully understand every question and so theirperformance may suffer. However, reputable test

designers and publishers are aware of such prob-lems. Users are urged to review results and totake action whenever these problems arise.

Third, tests must be administered by peoplewho are trained and qualified, and materials arerestricted to them. Unfortunately, this can addsignificantly to the cost and can lead to the super-ficial attractiveness of so-called tests that havebeen devised in a day and can be used by anyone.

Fourth, tests cannot assess all competenciesneeded for a job, so they can never be a perfectpredictor of performance. As a general rule, thehigher the job level, the less predictive power testshave. Assessment centres, which often includetests as part of their programmes, are required tocover competencies not amenable to testing.

Finally, test results are extremely useful forself-development, for example careers guidanceor personal development, but they cannot pro-vide the degree of detailed and comprehensivebehavioural data generated by development cen-tres. These can be valuable for personaldevelopment when drawing up action plans.

Emotional intelligence

Two recent developments have taken place. Thefirst relates to what is being measured; thesecond relates to how people are being assessed.For most of the last century, tests were designedto assess mental abilities, aptitudes, personalitycharacteristics, interests and values. However, aconcept has emerged which has captured thepublic’s imagination. Emotional intelligence hasbeen defined as achieving goals through the abil-ity to manage feelings and emotions; to besensitive to and to influence other people; and tosustain motivation and to balance motivation anddrive with conscientious and ethical behaviour.


Assessment centres, which ofteninclude tests as part of theirprogrammes, are required to covercompetencies not amenable totesting.

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Its roots can be traced back to the 1980s andthe work of Howard Gardner, an academic psy-chologist. However, it was Daniel Goleman’sbook Emotional Intelligence that brought theidea to the world’s attention. Goleman arguedthat a person’s success in any aspect of life is duenot only to their IQ but more importantly totheir EI as well. He subsequently turned hisattention to employees and in 1999, on the BBCRadio 4 programme In Business, he claimed: “EIis twice as important as IQ and technical skills ...The higher up the organization you go, the moreimportant EI becomes.”

Studies have found that EI contributes to theperformance of various groups of workers includ-ing managers, team leaders, salespeople andeven board directors. Also, EI is an importantcomponent of leadership. In On Becoming aLeader, Warren Bennis said: “In those fields Ihave studied, emotional intelligence is muchmore powerful than IQ in determining whobecomes a leader.” Our own research has con-firmed this, including work on directors.

As implied above, EI can be measured. Thereare now two or three psychometric tests thatprovide an accurate profile of an individual’s EI.There are also courses to help people to developaspects of their EI, in particular self-awareness,interpersonal sensitivity and influence.

Assessment

Ability tests have recently been introducedwhich are aimed at assessing job-specific abilitiessuch as fault-finding and financial appraisal.They are closer to the job simulations found inassessment centres than to conventional psycho-metric tests. Publishers claim that people findthem more relevant and interesting and that thetests offer a taste of real work tasks.

A major innovation is “adaptive testing”,whereby software tailors the test for eachrespondent by generating questions based onprevious answers to an initial standard set. Thismakes testing sessions much shorter and itenables the questions to be varied when peoplehave taken the test before. It can also be veryuseful in graduate recruitment, where applicantsmay be given the same test on several occasions.

Over the past century, few other factors havehad a greater impact on the testing industrythan the internet. A search on the web for per-sonality-type questionnaires will find hundreds,most of which are not psychometric tests butsimple quizzes or lists of questions.

Recently, however, publishers have begun toput their tests online and HR professionals haveshown some demand for internet testing. A 2001survey by People Management found that “morethan three-quarters of the HR professionals wantthe [online testing] service”. However, 30 per centdid have reservations – they did not want it yet,mainly because packages did not give them suffi-cient control over the testing environment.

Advocates of online testing point to a numberof advantages. It offers access to anyone with acomputer linked to the web, the results can beprocessed almost instantly, and a report can begenerated and sent off in a few minutes.Publishers can then use the data for develop-ment work and research to improve tests anddemonstrate their effectiveness. Results can beused by companies to screen applicants for jobsand to reduce large applicant pools quickly andeffectively. In addition, the web could signifi-cantly increase the number of people able to taketests for self-development purposes and dramati-cally reduce the associated costs.

Any breakthrough raises concerns, however,and testing using the internet is no exception.Critics contend that testing should be conductedunder controlled conditions – ability tests, forexample, should be timed to the nearest second,and this is difficult to achieve remotely. Questionsare also raised about the confidentiality of resultsand reports, and about who should have access tothe data. Further, how can the lay person deter-mine whether a web-based test is a reputablepsychometric instrument or just a trivial quiz?

The question many people find most difficult toresolve is: how can the tester verify the identity ofthe person responding? If the test is being usedfor selection purposes, many candidates would betempted to ask, and perhaps pay, someone to takethe test for them. While sophisticated recognitionsystems have been invented, using fingerprints orthe iris of the eye, one would still need to have thecorrect original against which to compare thespecimen presented by the test-taker.

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Finally, technical issues remain, many ofwhich relate to compatibility of different operat-ing systems and software. If the testing system isnot highly reliable, ability testing under stricttime conditions becomes risky. If the test breaksdown mid-way, for example, one cannot ask thecandidate to start again, because of the practicehe or she will have had.

SHL, one of the largest test publishers,launched its first web-based service in 2000. Itsdirector of research and development, DaveBartram, reported that clients were alreadyseeing benefits in terms of time and cost ofrecruitment. However, he accepted many of theproblems and proposed that testing on the webcould take place under three sets of conditions:

� uncontrolled (no training or accreditation required)and unsupervised, the test-taker merely registers onthe internet;

� controlled but unsupervised, where the userregisters the candidate and checks their identity;

� controlled and supervised, where a qualified testuser conducts all aspects, exactly as would happenin a face-to-face situation.

Tests used under each condition would have dif-ferent classifications for use. Bartram, who ispresident of the International Testing Commission,also noted that the commission “is already consid-ering a classification and accreditation scheme thatall publishers could adopt and would provide anindication of the qualities of an instrument (forexample, whether its psychometric properties havebeen evaluated) and the conditions under which ithas been designed to be used”.

Robert McHenry, chairman of test publisherOPP, has argued against online tests and warnedagainst assuming that testing will be easier,cheaper and more convenient when it comes toremote candidates. At the moment, he claims,

internet test sites lack convenience. In future,systems based on software sent by e-mail willallow managers to assess candidates using a com-bination of computer-based and telephone tests.

Test publisher ASE is taking a twin-trackapproach. Traditional tests will remain restrictedto trained users on limited access sites and lessformal instruments will be designed for unpro-tected environments, with appropriate “healthwarnings”. The company has also been experi-menting with “distant feedback” on tests viaelectronic media and this method appears towork well. However, it is important that thefeedback skills of test users are enhanced so thatresults are returned electronically in the mostsensitive and meaningful way.

ConclusionThe internet can provide the test user with manyworthwhile benefits, but unless standards of controland supervision are maintained, there is a clear dangerthat those benefits will be compromised. Reputabletests could become debased as they enter the publicdomain and professional standards may decline. Theywould eventually become indistinguishable from unreg-ulated online tests, and companies and recruits wouldlose out. Further, ethical concerns about the use of per-sonal test data and reports need to be resolved.

On the wider front, psychometric testing has manyadvantages for assessment and development purposesbut, as with all goods and services, caveat emptorapplies. Choosing appropriate tests requires investiga-tion and professional advice from occupational ororganizational psychologists, and users are stronglyadvized to order tests from publishers that adhere tonational standards. In the UK, the British PsychologicalSociety reviews tests; overseas users are advised to con-tact equivalent bodies such as the AmericanPsychological Association.

People choosing to use the web for testing shouldthink hard about the professional and technical issuesbefore going ahead.

Copyright © Victor Dulewicz 2002


The question many people findmost difficult to resolve is: how canthe tester verify the identity of theperson responding?

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Further reading

Bartram, D. (2001) “Frames of Mind”, PeopleManagement, June 14.

Bennis, W. (1989) On Becoming A Leader, Reading,MA: Perseus Books.

Goleman, D. (1995) Emotional Intelligence: Why it canmatter more than IQ, New York: Bantam Books.

Higgs, M.J. and Dulewicz, V. (1999) Making Sense ofEmotional Intelligence, Windsor: NFER-Nelson.

McHenry, R. (2001) “Frames of mind”, PeopleManagement, June 14.

Toplis, J., Dulewicz, V. and Fletcher, C.A. (1997)Psychological Testing: A guide for managers,London: Chartered Institute for Personnel andDevelopment.

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ability tests 230, 231absenteeism 222accountability 7acquisitions see mergers and acquisitionsadaptive testing 231adding value 6–7, 129advice services 17, 18airline industry 129, 140, 198ambiguity and uncertainty 69–73analysis of work 11–12Anglo-American capitalism 143, 144–5anti-discrimination law 138, 139–40appraisals 104, 130–1arbitration 118–19, 138–9architecture 6, 31–2artificial intelligence 124assessment centres 215–16, 217, 230at-will employment 138Aubry law 147authentic transformation 174awards 197

baby-boomers 128, 130balanced scorecards 32, 33behaviour

and leadership 70modification 26, 57–8

benchmarking 220benefit plans 197, 199blue-collar workers 12board membership 18bonuses 51, 197, 198, 199boundaryless organization 219brainstorming 174business metrics 17business performance 15–19, 32–3

and downsizing 149–53see also performance measurement

business process re-engineering 12–13, 65–6

call centres 8capabilities 25, 65

capital markets 143, 149capitalist models 144–6career development 101–5, 222CEOs (chief executive officers) 190change champions 56change management 53–6, 57–61

and behaviour modification 26, 57–8costs and returns analysis 28and directives 60drivers for change 63–4failure of change programmes 53–5implementation 58–9initiation 60–1mental maps 54, 55and persistence 58proliferation of projects 59resistance to change 59and reward systems 56transformation and change teams 17

childcare services 110coaching 6, 222commitment 7, 40, 123–6, 224, 225communication 129community 94compensation culture 137compensation systems see reward systemscompetencies 7, 8, 17–18, 28

core competencies 151and recruitment 215, 216

competitive advantage 25, 31, 37conciliation 187–8conflict 117–20, 187–8continuous improvement groups 167contracts of employment 140core competencies 151core values 82corporate citizenship 129costs

of change 28of conflict 117cost-cutting programmes 123

creating value 6–7, 129

SUBJECT INDEX 235

Subject Index

8570 Subject Index p235-240 9/9/02 3:57 pm Page 235

creativity 171–5and culture 173–4

culture 17–18, 48, 79–82, 129and creativity 173–4and mergers and acquisitions 48, 49national cultures 146and retention 82and selection 80–1and variation 81–2

customized workplace 85–90

decision making 172designers 6directives 60disciplinary proceedings 138–9discrimination law 138, 139–40dismissing employees 138dispute resolution 117–20, 187–8diversity of HR practice 145–6diversity in the workforce 81division of labour 9downsizing 149–53drivers for change 63–4due diligence 49

efficacy 220–1Ehime Maru 184emotional intelligence 230–1employability 91–2, 94, 224Employee Stock Ownership Plans (ESOP) 203–8employees

dismissal 138effects of downsizing on 151–3engagement index 35generalized investments in 225–7involvement and empowerment 40, 109, 165–9loyalty 39, 92, 224, 225trust in management 87

employment agreements 51employment law see lawemployment relationship 224employment tribunals 137empowerment and involvement 40, 109, 165–9Encarta 72enclosure 11Encyclopedia Britannica 71–2engagement index 35entrepreneurial activity 39, 88ethics 155–6

European Union (EU)diversity of HR practice 145–6legislation 146–7

see also lawevolutionary theory 80–2external congruence 26–8

facilitators 6factory system 10–11fair process 123–6family-friendly policies 93, 107–10fear of failure 72–3financial performance see business performancefirst-move advantage 72flexibility 85–6focus 32French capitalism 144, 145, 146

game-playing 189–90generalized investments in employees 225–7Generation X 127–30Generation Y 127–31generational envy 190German capitalism 143–4, 145, 146graphology 214guilds 10

handwriting analysis 214harassment 138, 139–40Hawthorne experiments 87home working 103honesty 158human resources

and board membership 18diversity of HR practices 145future model 17history of 5–6leaders of 18partnership with business 15–19people involved in 7–8professional agenda 5–8role of 16

identity 7imitation 226in-tray exercises 214–15inaccessibility of leaders 189incentive pay 197, 200information sharing 89

SUBJECT INDEX236


innovation 7, 27, 171–5intangible assets 15–16, 31, 32integration of companies 49–51integrity 156–7internal congruence 26internet, and psychometric testing 231–2interpersonal skills 220interviews 214intrapreneurship 38, 39–40involvement and empowerment 40, 109, 165–9IPOs (initial public offerings) 178, 180

Japanese companies 150job descriptions 65, 89, 223job design 110, 130job satisfaction 39, 87job security 91–2, 150, 223–4

labour market 27, 28, 143land enclosure 11law 28, 137–41, 146–7

anti-discrimination 138, 139–40Aubry law 147contracts of employment 140disciplinary proceedings 138–9redundancy law 140–1Working Time Directive 140, 147

lay-offs see downsizingleadership 6, 7, 70

and conciliation 187–8and emotional intelligence 231failure factors 187–91, 220game-players 189–90inaccessibility of leaders 189and interpersonal skills 220leaders in HR 18manic behaviour 189micromanagement 188–9psychic prison 190–1succession planning 190, 222tyrannization of subordinates 188upward leadership 181–5

learning 7, 72–3, 221life/work balance 91–5

family-friendly policies 93, 107–10lifetime employment see job securityline managers 7, 16, 33loyalty 39, 92, 224, 225

management models 85–90manic behaviour 189matrix organization 82memes 80, 81, 226mental maps 54, 55mentoring 101, 103, 104mergers and acquisitions 47–52

and culture 48, 49due diligence 49failure of 48–9integration of companies 49–51pre-combination stage 49reasons for 47–8solidification and assessment 51–2three-stage model 49–52

metrics 17micromanagement 188–9mindset 7motivation 70–2, 173multi-divisional structures 63mystery-seekers 70–1

networksnetwork organizations 65, 66social networks 82women’s networks 104

older workers 127–31organization man 12organizational capability 25organizational structure 63–7

matrix organization 82outsourcing 8, 65, 66

partnership 15–19, 108–9pay cuts 39, 129people scorecard 37–41performance measurement 33–5, 221

balanced scorecard 32, 33people scorecard 37–41see also business performance

performance-based pay 197, 200persistence 58personal credibility 17personality questionnaires 230, 231personnel management 6, 67planning, and metrics 17product agnosticism 173product life cycles 64

SUBJECT INDEX 237


product-based companies 27productivity 157, 158, 205, 206

and self-management training 221professional agenda 5–8profit-sharing schemes 203–8proliferation of projects 59psychic prison 190–1psychological contract 224psychometric testing 5, 12, 229–32public-private partnerships 108–9

quality circles 167

race discrimination 138re-engineering 12–13, 65–6reciprocity 224, 226recruitment and selection 26, 129, 130, 204, 213–17

ability tests 230, 231adaptive testing 231assessment centres 215–16, 217, 230and competencies 215, 216graphology 214in-tray exercises 214–15interviews 214personality questionnaires 230, 231psychometric testing 5, 12, 229–32references 214retention of candidates 217and technology 217work sample tests 214–15

redundancy 5, 140–1and downsizing 149–53

references 214relationship management 179–80representative involvement 166–8respectfulness 157responsibility 157, 158restructurings 63retention 82retention bonuses 51retributive justice 124reward systems 26, 28, 37, 41, 131, 197–201, 221

awards 197benefit plans 197, 199bonuses 51, 197, 198, 199and change management 56and commitment 224and the competition 198–9employee preferences 199

incentive pay 197pay cuts 39, 129performance-based programmes 200profit-sharing schemes 203–8salaries and wages 197, 198stock ownership 37, 39, 203–8wage bargaining 144

Rhineland model of capitalism 143, 144role models 104

salaries and wages 197, 198see also reward systems

Scandinavian economies 144, 145Scientific Management 11, 174selection see recruitment and selectionselection, in evolution theory 80–1self-awareness 219self-efficacy 220–1self-management 167–8, 221, 222senior management training 221–2September 11 93–4sexual harassment 138, 139–40skills 8, 10, 40, 153, 225slaves 10small companies 146social contract 224sociological trends 86–7Spanish capitalism 145speed 7staff turnover 40standards 156–9stock markets 143, 149stock ownership plans 37, 39, 203–8strategic assets 32–3strategic business units 64strategic human resource management

(SHRM) 25–9external congruence 26–8internal congruence 26

strategy 6–7, 17–18, 31–5, 177–80, 219–22implementation 32

strategy map 33, 35succession planning 190, 222

talent management 7, 15, 25–6task-focused involvement 167taxation, and employee share ownership plans 204Taylorism 11, 174teamwork 6, 26

INDEX238


and individual task performance 26self-managing teams 167–8

technology and recruitment 217technology-based training courses 221telecommuting 103testing see psychometric testingtrade unions 10, 12–13, 144, 165training 40, 130, 225

and absenteeism 222efficacy of 220–1programme design 220–1retraining 219and self-awareness 219in self-management 221, 222of senior management 221–2technology-based courses 221

trust 87, 89, 190tyrannization of subordinates 188

uncertainty 69–73upward leadership 181–5USS Greenville 184

value chain 64value creation 6–7, 129

values 82vertical integration 64vision statements 128–9

wage bargaining 144see also reward systems

white-collar workers 12women

career development 101–5and family-friendly policies 93, 107–10leaving a company 102, 103women’s networks 104

work 9–13analysis of work 11–12customized workplace 85–90division of labour 9factory system 10–11life/work balance 91–5, 93, 107–10structure of work 40–1

work sample tests 214–15workforce development planning 40working hours 109Working Time Directive 140, 147

young people 127–31

INDEX 239


1


Arkwright, Richard 10, 11Ayling, Robert 58, 123Bacon, Francis 69Bartlett, Christopher 82Bartram, Dave 232Batt, Rosemary 153Becker, Brian 23, 31–5Benedict, Saint 10Bennis, Warren 231Bernstein, Aaron 87Bhargava, Sandeep 205Bilmes, Linda 23, 37–41Birkinshaw, Claire 135, 137–41Black, Stewart 45, 53–6Blackmore, Susan 226Blasi, Joseph 205Bouchikhi, Hamid 77, 85–90Bowman, Ned 151Bradley, Bill 181–2Branson, Richard 188Brittain, Simon 211, 213–17Brockbank, Wayne 8Brockner, Joel 152Cable, John 205Cappelli, Peter 149, 153Cates, Karen 115, 127–31Chadwick, Clint 151Chaplin, Charlie 11–12Chestnut, James 32Clinton, William 188Columella 10, 165Conyon, Martin 195, 203–8Copernicus, Nicolaus 85Cotton, John 167Craig, Elizabeth 77, 91–5Cyr, Linda 177Dawkins, Richard 80DCamp, Kate 204de Gaulle, Charles 190Dean, Peter 135, 155–9Dennett, David 80Donkin, Richard 3, 9–13

Dougherty, Debra 151Dreher, George 23, 25–9Drucker, Peter 66Dulewicz, Victor 211, 229–32Dunlap, Al 151, 188Dupin, Baron Charles 11Dyson, James 71Eaton, Robert 48Einstein, Albert 72Epstein, Brian 172Epstein, Lisa 168Estrin, Saul 205Fairclough, Murray 135, 137–41Fenton-O’Creevy, Mark 135, 143–7, 163, 165–9Ford, Henry 37Frayne, Colette 222Freeman, Richard 195, 203–8Freud, Anna 188Friedman, Stewart 99, 107–10Galileo Galilei 71Galinsky, Ellen 99, 107–10Galunic, Charles 77, 79–82, 211, 223–7Gardner, Howard 231Ghoshal, Sumantra 82Ghosn, Carlos 61Gibson, William 82Giddens, Anthony 86Gilbreth, Frank 11Gilbreth, Lillian 11Goleman, Daniel 231Gooderham, Paul 145Gore, Al 181Gregersen, Hal 53Gruber, Harry 51Gubman, Edward 26–7Hammer, Michael 65–6Hannerz, Ulf 226Harcourt, Chuck 93Higgs, Malcolm 3, 15–19Hiltrop, Jean-Marie 145–6Hodgson, Phil 45, 69–73Hogan, Mark 179

NAME INDEX 241

Name Index

8570 Name Index p241-242 9/9/02 3:58 pm Page 241

Hubbert, Juergen 48Hunter, Larry 135, 149–53Huselid, Mark 23, 31–5Huxley, Aldous 11Ibarra, Herminia 99, 101–5Jackson, Susan 26, 45, 47–52Kanter, Rosabeth Moss 166Kaplan, Robert 33Kets de Vries, Manfred 163, 187–91Kim, Chan 115, 123–6Kimberly, John 77, 85–90, 91–5Kogut, Bruce 81Kruse, Douglas 205Lake, Dale 25Latham, Gary 211, 219–22Lee Kun Hee 184Lev, Baruch 32Lewis, Andy 115, 117–20Lombe, Thomas 10Lynn, Marcy Scott 94McHenry, Robert 232Mannarelli, Thomas 163, 171–5Manzoni, Jean-François 45, 57–61Marks, Mitchell Lee 49Marshall, Colin 58, 226Martin, Bertrand 89Martin, George 172Mauborgne, Renée 115, 123–6Mauss, Marcel 225Morrison, Allen 53Munsterberg, Hugo 12Neumark, David 149Noll, Henry 11Norton, David 33Olsen, Ken 172Osborn, Alex 174Owen, Robert 10, 11Peters, Tom 79Pettigrew, Andrew 65Pottruck, David 182–3Rachimi, Kimia 127–31Rahimi, Kimia 115Ramsay, Harvie 166Rayman, Paula 93Rieul, Therese 89Robertson, Ivan 230Rockefeller, John D. 37Russell, Craig 216

Sacks, Michael 115, 117–20Sahlins, Marshall 10Sako, Mari 167Schremp, Juergen 48Schuler, Randall 26, 45, 47–52Schulmeyer, Gerhard 124–5Scott, Walter Dill 12Semler, Ricardo 88Sharpe, Rochelle 103Smith, Adam 11, 158Smith, Fred 172Smith, Mike 230Sparrow, Paul 145–6Spates, Thomas Gardner 12Sperber, Dan 226Stallkamp, Thomas 48Staw, Barry 26, 168Steere, William 41Storey, John 45, 63–7Strueven, Peter 37Strutt, Jedediah 10Taborga, Nico 94Taylor, Frederick W. 11, 174Taylor, Robert 87Thatcher, Margaret 188Thompson, E.P. 11Toffler, Alvin 12Toffler, Heidi 12Toynbee, Arnold 10Ulrich, Dave 3, 5–8, 15, 23, 25, 31–5Useem, Michael 163, 181–5Volpi, Michael 49Waddle, Scott D. 184Walston, Steve 151Waterman, Robert 79Weber, Max 12Weeks, John 77, 79–82, 223–7Welbourne, Theresa 163, 177–80Welch, Jack 15, 40, 151, 219, 222Wetzker, Konrad 37White, Dr Randall P. 45, 69–73Whyte, William H. 12Wilk, Steffanie 153Wilson, Nick 205Wilson, Thomas 195, 197–201Yeung, Rob 211, 213–17Zander, Udo 81Zetsche–Dieter 48

NAME INDEX242

8570 Name Index p241-242 9/9/02 3:58 pm Page 242

Acas (Advisory Conciliation and Arbitration Service) 138–9

Acer 125Allstate 108Amazon 215American Airlines 129American Business Collaboration for Quality

Dependent Care 108–9AOL 47ASE 232AT&T 109AT Kearney 48Beech-Nut Nutrition 158–9Bestfoods 47Bethlehem Steel 11Bilfinger and Berger 40Booz Allen & Hamilton 221Boston Consulting Group 37Bright Horizons Family Solutions 110British Airways 58, 123, 140, 226Burmah Castrol 123–4Cannon 189Center for Creative Leadership (CCL) 104, 219–20Chiron 41Chrysler 48Ciba 47Cisco Systems 47, 49, 204Citigroup 47Clifford Chance 102Coca-Cola 32, 138Compagnie Française de Defense et de

Protection 88–9Consignia 215Daimler-Chrysler 47, 48, 49, 51Decca Records 172Deloitte Touche 104Department of Justice 108Deutsche Bank 104Deutsche Telekom 47Digital Equipment 172DuPont 129The Economist 225

ECS 108eGM 178, 179Electrolux 71Eli Lilly 21Employment Tribunals Service 137Encyclopedia Britannica 71–2Families and Work Institute 108, 109–10Federal Express 172Ford 11, 109, 129Four Seasons Hotels 39General Electric 40, 49, 50, 57, 66, 151, 219General Food 12General Motors 27, 178, 179Glaxo-Smith-KlineBeecham 47, 108Goldman Sachs 215Google 95Hewlett-Packard 39, 40Hoover 71IBM 55, 103, 104, 109Ikea 54InSpeech 155Intel 150International Testing Commission 232Intervu 51JC Penney 221Johnson & Johnson 49–50, 51, 109JPMorganChase 47KA-L’informatique 89KLM 140Korn/Ferry 102KPMG 130Lockheed Martin 155London Business School 221London Fire and Civil Defence Authority 138Louis Harris 131Lucent Technologies 109McDonald’s 150Marks and Spencer 140Marriott 109Martin Marietta 155Merrill Lynch 108, 109Metanoiques 88

ORGANIZATION INDEX 243

Organization Index

8570 Org Index p243-244 9/9/02 3:58 pm Page 243

Microsoft 72, 221Motorola 117National Center for Employee Ownership

(NECO) 205NCR 117Nestlé 47Netpodium 51New York University 108Nissan Motors 61, 169Nixdorf Computer Company 124Northwestern Memorial Hospital 178–9Northwestern Mutual Life 131NovaCare 155Novartis 47OPP 232Paine Webber 47Panasonic 71Parlophone Records 172Penn, Schoen and Berland Associates 39People Management 231Pfizer 39, 47Prudential 108Purina 47Renault 61, 184Resolutionworks 117Royal Bank of Scotland 215Sabena 140Salomon Brothers 159Samsung Electronics 55, 184Sandoz 47

Schlumberger 103Schwab 182–3Scott Paper 188Sears Roebuck 34, 159Semco 88Shell 120SHL 232Siemens 124SNI 124–5Sony 55Sulzer 89Sunbeam 151, 188Swissair 140Time Warner 47Travelers 47, 220UBS 47Umist 230Unilever 47University of Toronto 221Verizon Communications 34, 35, 108Virgin 188Voice Stream 47Volkswagen 61Warner Lambert 47Watson Wyatt 49Western Electric 12Western Union 172Xerox 169, 189Yankelovich Partners 93–4

ORGANIZATION INDEX244

8570 Org Index p243-244 9/9/02 3:58 pm Page 244

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