In January of this year, professor Cary Cooper of Lancaster University Management School published a paper indicating that the single biggest determinant of an organisation’s productivity was the degree of engagement that the employees have with the task. It was just over 70 years since the psychologist Elton Mayo came to the same conclusion.
In the intervening period, dozens of studies have reached the same outcome. So why has this wealth of evidence had barely more than a pin-prick’s influence on the way the vast bulk of companies organise themselves? Why is the average call centre still run on the basis of transaction cost, rather than employee skill and commitment?
Some commentators argue that most HR studies only show a direct correlation between satisfied staff and good business, not a cause-and-effect link. However, the gains from high employee commitment can be huge, so the explanation must run deeper.
Andrew Lambert, founder director of the Corporate Research Forum (CRF) – a network of researchers and employers dedicated to looking at the link between people development and business success – says there are no simplistic, linear relationships.
“It is certainly not done and dusted that you just spend money on people and see a return,” he says. “A number of things have to come together.”
Many organisations are now using internal measurements of their workforce and comparing them with business results to help understand the relationship between the two. Last month, a poll of CRF members revealed that employee surveys were far from just a ‘nice to have’ and were now positioned as a core management tool.
Standard Chartered Bank, for example, has worked with research company Gallup to measure engagement since 2000.
“We have found that bank branches with high levels of engagement outperform those with weaker engagement on a range of measures, including revenue and profit margin growth, customer satisfaction, and employee loyalty and retention,” explains Debbie Whitaker, group head of human capital management at Standard Chartered.
The bank also has a human capital scorecard to ensure that core people measures – such as the talent pipeline and retention of top performers – are integrated with business planning.
Nick Starritt, a director of the Performance and Reward Centre – a sister organisation to the CRF for senior reward directors – agrees that the next step is to develop more standardised methods.
“The HR function hasn’t been codified in the same way as other disciplines,” he says. “Therefore, I don’t think it has appealed to professional business people.”
The importance of measurement methodologies can be illustrated by examples from history where breakthroughs in employee engagement practices have become corrupted over the years.
W Edwards Deming, considered to be the intellectual father of the ‘quality’ movement, set out 14 management principles, eight of which were people-related. These included driving out fear, promoting teamwork and instilling continual learning. Companies such as Sony and Toyota embraced the principles and have been strikingly successful. But in other attempts the ‘people’ elements mysteriously disappeared.
Driving out the fear
Clive Morton, director of the Morton Partnership, is a former HR director who has worked for both British and Japanese manufacturing firms.
“Deming was talking about teamwork at a time when, frankly, it was not common parlance,” says Morton. “He believed, fundamentally, that you had to drive fear out of the workplace. Nowadays, you still have people at the highest levels in our organisations who firmly believe in fear.”
Some argue that the HR profession itself is to blame for the failure of management principles. Rhiannon Chapman, adviser on people and skills at the Society of British Aerospace and a former chief executive of the Work Foundation, says HR has been an obstacle to disseminating these principles.
“HR, to its own misfortune, has developed an air of mystique about what it does. It uses a lot of jargon and keeps itself to itself,” she says. “I have heard HR people claim to be the conscience of the business, which is outrageous and appallingly insulting to their line colleagues. That distancing hasn’t helped at all. Line management thinks that HR is complicated and mystifying and best left to the HR people.”
At the Society of British Aerospace, Chapman has made an effort to work closely with process experts to build the skills the sector needs, using language that line managers are familiar with.
Rules of engagement
According to Starritt, mainstream management thinking has to change too.
“A highly engaged workforce outperforms a merely satisfied one time and time again. Why wouldn’t business schools be teaching aspiring managers more on the softer skills needed to create conditions for an engaged workforce?” he asks.
And there is a wider conceptual barrier. The operating and financial reviews – proposed, then scrapped and now under reconsideration by the government – rest on the assumption that people reporting is a mere supplement to traditional measures that are more commercially useful.
It could be argued that the opposite is nearer the mark. A recent article by Rick Guzzo and Haig Nalbantian of Mercer HR stated that “about a quarter of the company reports seem oblivious to the fact that business operations actually require a workforce”.
Most HR managers would contest that it’s unfair that they should have to demonstrate conclusive evidence of their worth when no other discipline in management has to. Either way, history has thrown up a wealth of different approaches to measuring how developing people affects business growth. Choosing the right one is the challenge.
Philip Whiteley is a writer for the Corporate Research Forum and Performance and Reward Centre.
HR theories through the years
1920s-1930s: Elton Mayo and the Hawthorne experiments
The Hawthorne experiments were conducted by the psychologist Elton Mayo in Western Electric’s Hawthorne plant in Cicero, Illinois, US, between 1927 and 1932. The researchers selected a group of workers and increased the lighting as they worked. Productivity went up. Then they decreased the lighting. Productivity went up again. The researchers concluded that it was the initiative of paying attention to people’s efforts that was the biggest single determinant of improved performance.
1930s-1950s: W Edwards Deming and ‘total quality management’
W Edwards Deming developed the total quality management (TQM) approach, which is based on teamwork, multi-skilling and driving out fear. He, along with Joseph Juran, is largely credited with devising the ideas of teamwork that led to the rise of the Japanese manufacturers in the 1960s, 1970s and 1980s.
1970s to the present: Gallup, International Survey Research, Sirota
Sirota compares US stock market performance over two 12-month periods. Client companies with high engagement scores were compared against peer companies, likewise those with low engagement scores. In 2002, when the Dow index was struggling, share price of companies with high engagement outperformed their peer group by more than 18%, whereas the low engagement companies’ stock price declined by about 3% more than their peers. The 2004 scores had slightly different percentage scores, but showed the same reciprocal relationship.
1980s to the present: Jeffrey Pfeffer & Mark Huselid
Jeffrey Pfeffer, professor of organisational behaviour at the Stanford Graduate School of Business in the US, has amassed a wealth of evidence on the links between effective management of people and business success. Mark Huselid at Rutgers University has published research showing that firms that make people development a strategic objective consistently perform better
Corporate Research Forum
Performance and Reward Centre
People still matter – just ask the top companies
Events that shaped HR