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In 2003 the CIPD published a seminal report exploring the connection between people management and organizational performance: 'Understanding the People and Performance Link: Unlocking the Black Box'. [1] Based on 12 case study organizations from various sectors examined over a two- and-a-half year period, the report attempts to explain how and why HR policies and practices affect performance.
Several studies in the past have established the existence of a link between people and performance, but none, according to the report, have succeeded in getting to the heart of the matter, often known as the ‘black box’ problem.
Discretionary Behavior
The framework that forms the basis of the research is the ‘AMO’ model, which states that high performance is generated when employees:
AMO Model
- have the skills and knowledge, i.e. ability, to perform well
- have the motivation to do so
- are given the opportunity to do so
This engenders satisfaction and commitment, leading to ‘discretionary behavior’, or the (often unconscious) desire to do a job as well as possible. In most jobs, employees have a level of choice or ‘discretion’ over how well they perform. The report contends that the factors leading to discretionary behavior – and therefore high performance – are HR policies and practices that embody the AMO principles.
A ‘Big Idea’
Through extensive analysis, which included the examination of policies, practices and operational data as well as interviews with employees and managers, the research uncovered a key characteristic common among the successful organizations, termed the ‘Big Idea’. This is defined as ‘a clear sense of mission underpinned by values and a culture expressing what the firm is and its relationship with customers and employees’.[2] There are five key components to this ‘Big Idea’:[3]
- Embedded – the organization’s values are more than just a formal mission statement written by the board: they are meaningful to all employees and are embedded into behavior and practice across the organization.
- Connected – the values govern the way in which everything is done in the organization, thereby connecting customers, employees and all business functions and setting a consistent standard.
- Enduring – the values provide a solid base upon which the organization can build and adapt its policies and practices. Strong and lasting values create commitment among employees, even during difficult times.
- Collective – the values connect people, processes and policies and create a collaborative culture in which everyone works together towards a common goal.
- Measured and Managed – the organization measures performance from various perspectives, often using a Balanced Scorecard approach. This ensures that all business functions are connected and seen as integral to success.
In the six case study organizations that had a strong ‘Big Idea’, levels of employee commitment were higher than in those that did not; and the level of performance in those same organizations was higher than the national average for their sector. Conversely, in the six case study organizations in which no ‘Big Idea’ was present, performance was lower than the national average for their sector.[4]
A strong set of meaningful values that guide organizational culture, behavior and practices is therefore crucial for engendering employee commitment and, as a result, higher levels of performance.
The Importance of Line Managers
A key aspect of the people and performance link is the role of line managers and the way in which they interpret and implement the organization’s HR policies and practices. Managers, too, have a great deal of scope for discretion over how they perform their job, particularly in the areas that the report defines as the ‘leadership’ or people management aspects of their role. Even in organizations with highly standardized policies and procedures, managers still have their own ways of implementing them.
Furthermore, the level of discretion exercised by line managers can have a significant effect on employee attitudes. The evidence for this can be found in the vastly differing fortunes of four similar retail stores in one of the case study organizations, where variations in the local implementation of standardized HR policies from the head office were linked to differences in levels of employee satisfaction and, consequently, performance between the stores.[5]
‘A gap exists between espoused and operational policies which can be attributed to the exercise of discretionary behavior by managers. This in turn has an impact on the discretionary behavior of employees, which we believe is critical to performance.’[6]
A key issue for HR is, therefore, to foster good leadership and gain the commitment of line managers, ensuring that they embody the culture and values of the organization and implement HR policies and practices successfully.
Conclusion
A culture of high performance and success can be fostered by creating a ‘robust association’ between people management and performance. This must begin with a solid foundation of meaningful organizational values, upon which HR policies and practices that encourage commitment, satisfaction and motivation can be built. This must be combined with a focus on the development of line managers to encourage discretionary behavior throughout the organization.
Further Reading
Human capital
References[1] John Purcell et al, Understanding the People and Performance Link: Unlocking the Black Box (CIPD, 2003).
[2] As above, p 13.
[3] As above, pp 13-15.
[4] As above p 15.
[5] This multi-site comparison was conducted in four similar Tesco stores in towns with similar demographics. As above, see pp 46-48.
[6] As above, p 53.
