High Performance Human Resource

High Performance Human Resource (HP-HR) Practices: 20 years of experience

Inchniowski and Shaw: Innovative Human Resource Practices

Batt, Colvin and Keefe: High Commitment Human Resource Practices

Verma and Fang: High Involvement Human Resource Practices

Production problem solving teams that maximize horizontal information flows

Job rotation to build flexibility, team communication

Careful screening of workers down the job ladder to identify team skills

Job security used to build incentives to invest in firm’s future

Training in problem solving, team skills

Incentive pay

Ichniowski and Shaw (2003)

Compare to Traditional Human Resource Practices

Wage and salary only loosely tied to performance

Narrowly defined jobs

Limited screening for nonmanagerial jobs

Tight supervision

Little training

Layoffs in slack times

Osterman (2000) reports that between 1992-1997

Proportion using at least one HP-HR practice rose from 65% to 85%

Proportion using multiple HP-HR rose from 38% to 71%

Group pay incentives have free rider problems

Use smaller groups to foster peer pressure, mutual monitoring

Train on workplace norms

Combine with stronger screen on team work at hiring

=>Multiple HP-HR methods make incentive pay more successful

Fostering worker ideas to raise productivity

Requires job security, or workers may fear job loss from suggestions

Flexibility in job assignments makes commitment to job security more credible.

Commitment to training makes commitment to job security more credible.

=>Multiple HP-HR methods make decentralized decision-making more successful

When employees are expected to multitask

Requires combination of fixed compensation for routine tasks

More complex compensation for innovatrive activities

=>Multiple HP-HR methods make multi-tasking more successful

Ichniowski, Shaw and Prennushi (1997) A merican Economic Review

Examine use of alternative HR practices in the steel industry

Innovative HR system: labor productivity 6.7% higher

High teamwork: labor productivity 3.2% higher

High communication: labor productivity 1.4% higher

Reference is traditional HR

Note: Individual HR practices had no effect in isolation—only in combination

Does this mean profits higher with innovative HR?

Ichniowski and Shaw (2003) review evidence from several studies. Higher returns from HP-HR also found in

Nonluxury auto assembly

Apparel manufacturing

Metalworking and machine shops

Customer service in communications

Scientists in Pharmaceuticals

BUT—not all studies find positives

If positives not realized, companies change practices—selection

These are not plug-in solutions

Where are innovative HR practices more common?

More complex production processes (more scope for returns)

New or newly reopened plants (more costly to convert ongoing operations)

May be complementary with information technologies

Trace sales back to team

Track efficiency, quality

Enhance accountability

Prevalence in new plants makes it difficult to disentangle HP-HR effects from other technologies

High Performance Human Resource (HP-HR) Practices: 20 years of experience NUMMI: New United Motor Manufacturing, Inc. GM plant built in Fremont CA, 1962 High absenteeism Poor quality Closed in 1982

High Performance Human Resource (HP-HR) Practices: 20 years of experience NUMMI: New United Motor Manufacturing, Inc. Reopened in 1983: joint Toyota-GM venture 85% of former workers HP-HR practices (teams, training, job flexibility, decentralized decision-making, …) Considered one of the most productive automobile plants in the U.S. (my Toyota) Is it HP-HR, new production methods, new management, shock of plant closing, ….?

Do workers work differently in innovative HR plants?

Surveys of workers—whom do you communicate or interact with?

In innovative HR plants, workers

Interact with more workers, managers on their own line

Interact with more workers, managers on other lines

Broadened communication links appear to be a major feature of HP-HR plants

HP-HR Practices with Unions

Role of unions in productivity

Shock

Exit-Voice Tradeoff

Union representation allows worker dissatisfaction to be addressed, lessens turnover

Are teams another voice mechanism?

Do they lower turnover?

Batt, Rosemary, Alexander J. S. Colvin and Jeffrey Keefe. “Employee Voice, Human Resource Practices, and Quit Rates: Evidence from the Telecommunications Industry.” Industrial and Labor Relations Review 55 (July 2002): 573-594. Grievance mechanism (good sign) vs. Grievance use (bad sign) Endogenous? Alternative HR practices: Reengineering vs. HP-HR

Batt, Rosemary, Alexander J. S. Colvin and Jeffrey Keefe. “Employee Voice, Human Resource Practices, and Quit Rates: Evidence from the Telecommunications Industry.” Industrial and Labor Relations Review 55 (July 2002): 573-594. VOICE: presence HP-HR Reengineering QUITS - - + VOICE: rate +

Batt, Rosemary, Alexander J. S. Colvin and Jeffrey Keefe. “Employee Voice, Human Resource Practices, and Quit Rates: Evidence from the Telecommunications Industry.” Industrial and Labor Relations Review 55 (July 2002): 573-594.

Table 2: Relationship between Union and use of HR mechanisms

Unions less likely to have HP-HR system

More likely to have grievance procedure

More likely to use grievance procedure

Table 3: Empirical Model of Quits

HP-HR lowers quit rate

Union lowers quit rate even more

Pay lowers quit rate

Reengineering raises quit rate

Table 4: Grievance rate does not significantly affect quits

Verma, Anil and Tony Fang. “Workplace Innovation and Union Status: Synergy or Strife?” IRRA 55th Annual Proceedings . (2003):189-198. Table 2: HP-HR raises pace of both product and process innovations Unions do not alter pace of innovations

Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Do unions enhance or limit HP-HR implementation? Because unions foster communication among workers, they may foster implementation of HP-HR programs

Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Union Leadership Union Membership Off-line On-line Labor Management Committees (Decision Rings) Problem Solving Teams (Problem Resolution Circles) Partnering: (Operating and Middle Management) Self-Directed Work Teams

Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218.

Implementation at Saturn

New plant: Prior agreement to set up HP-HR between UAW and GM

5,500 employees in about 700 Work teams

Teams organized into departments of ~100 employees each

Each department has two advisors, one from union and one from management

1,100 union members have some sort of leadership responsibility

Implementation at Saturn

Assignments

All decisions by consensus

Union is a full partner in all business decisions

Joint management at al levels, department to corporate

With 20% of union members in some form of leadership position, are horizontal and vertical information flows enhanced?

Hypotheses

Information flows will differ between union and nonunion managers

Quality will be improved in union managed sectors due to improved communication, coordination and problem-solving

Quality enhanced when there is a balance between people and production management

Quality enhanced when union and nonunion managers share common goals

Hypotheses

Information flows will differ between union and nonunion managers ( data on communications network )

Quality will be improved in union managed sectors due to improved communication, coordination and problem-solving

Quality enhanced when there is a balance between people and production management (time use survey of managers)

Quality enhanced when union and nonunion managers work more closely (degree of agreement on goals between advisors)

Hypotheses

Information flows will differ between union and nonunion managers

Figure 2: Union advisors had denser communication networks

Union advisors spent more time on people problems, Nonunion advisors spent more time on production problems

Better performing units devoted considerably more time to quality issues vs other issues

Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Hypotheses 2-4 Table 4: Note small sample size! Balance is ratio of time spent managing production vs people. Measure reflects closeness to 0.5? Alignment, union communications are tied to improved quality, less so to initial quality level

Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218. In defense of traditional HR…. Large airplane manufacturer Long-time traditional (adversarial and sometimes militant) relationship between union and firm Monthly data 1974-1991 follow the producton of a new line of commercial aircraft, redesigned in 1980 Inverse productivity measure: Actual relative to planned hours per plane

Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218. Over the period (Figure 1) 3 strikes Work-to-rule slow down 6 union presidents 1-3 moderate 4 most militant, drives union into receivership 5 promised to work closely with management 6 promised to end Total Quality Management (TQM) 4 CEOs 1: traditional adversarial relationship with labor 2: Quality circles 3: TQM 4: Return to tight management, ended TQM

Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218.

Table 2:

Concerted actions cost productivity

Takes 1-4 months to return production to normal

Costs in lost production

Strike 1: $2.7 million

Strike 2: $0.8 million

Strike 3: $14 million

Work-to-Rule: $21 million

No gain from TQM, quality circles

Although labor productivity had started to rise by the end of the TQM period

Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218.