High Performance Working Systems (HPWS) are defined as those in which management adopts a coherent set of practices that provide employees with; a) The opportunity to influence operational decisions. b) The skills and abilities to effectively participate in these decisions and c) The incentives to motivate discretionary effort. (Applebaum et al. , 1998) Smarter working- or high performance working is a distinctive approach to managing people at work that raises productivity and at the same time improves the well being of employees.
Achieving high performance poses a major challenge for private and public sector organisations as they face ever increasing competition and more demanding performance targets. Its main rationale is that the way in which the people in the organisation are managed offers perhaps the best route to gaining performance improvement and competitive advantage. High performance working conventionally contains three core components that address the opportunity to contribute, competence and motivation of the work force. High performance working requires a workforce that possesses the appropriate level of knowledge and skills.
If resources such as technology are to be considered, then it is likely that workers will need high level knowledge and skills. They must be able to work with new technologies, make complex deals or offer sophisticated services. Secondly, any competitive environment is evolving the capacity to innovate requires a workforce that not only possesses the requisite knowledge and skills but is also willing and able to continue to acquire new knowledge and skills. One of the key distinctive features of high performance working is that it should be viewed as a system.
In other words, it is not enough to consider competence or motivation in isolation. Logically, there is no advantage in having highly competent workers who are demotivated or under utilised. Equally there are dangers in highly motivated but incompetent workers or high commitment in workers who are neither competent nor motivated. The challenge is to manage all four elements at once. No one has consistently defined, or even uniformly named High Performance Work Systems (HPWS). They have been called “high performance work practices”, “alternative work practices and “flexible work practices”.
Despite the variances, many of these programs share common elements including selection procedures, vigorous recruitment and incentives based upon performance and extensive training programs focused on the needs of the business. Essentially High Performance Working Systems, require heavy investment in human capital. This is intended to enhance employee knowledge, skill, flexibility and motivation, with the expectation that the employer is providing employees the ability and the opportunity to provide input into workplace decisions. (Val Buren & Werner, 1996).
Companies expect this empowerment to enable employees to adapt readily and quickly to rapidly changing product and labour market conditions, and to improve operational efficiency and firm performance. Although high performance work systems have often been seen as being good for both employers and employees, these practices require significant investments in human capital through training, coordination of initiatives, and time for managerial and employee input. Because of the large investment in human capital the value of these practices may be lost if the investment does not result in increased efficiency and effectiveness.
High Performance Working Systems are usually associated with increased productivity. However, examining only productivity effects businesses ignores the cost side of the equation. Despite this caution, numerous studies also find a strong relationship between HPWS and firm performance. These studies consider both costs and the benefits of HPWS. (Huselid, 1995, Baker 1999). Performance of business can be measured on four dimensions: marketing, market share, profitability and sales growth. It is often argued that human resources have an important role to play in facilitating innovation.
HPWS are focused upon such objectives as enabling people to think for themselves and to manage their work. High Performance Working Systems can increase innovation by: encouraging team practices that allow learning to go through increased multidisciplinary knowledge, decentralising management in order to allow employees to discover and use knowledge; encouraging team practices that allow learning to go through increased multi-disciplinary knowledge; and putting that knowledge to good use. (Laursen, 2002).
High Performance Working Systems systematically try to create organic organisations by moving decision-making downward. If for instance the organisational objective is efficiency, more effective Human Resource Management (HRM) systems are likely to increase firm performance because HPWS effectiveness focuses on better production or service delivery system. In contrast when a firm pursue innovative activities they are more likely to benefit from HPWS since they move the level of decision making downward, making the organisation better able to respond to environmental changes. (Capelli and Neumark 1999)
More extensive use of HPWS is positively associated with increased organisational innovation since they are done in a holistic, meaningful and effective manner. It matters how a firm employs its organisational capabilities and its ability to manage human resources because resources or practices do not produce on their own. (Russo and Fouts, 1997). Traditional Human Resource Management systems concentrate on an efficiency objective, offer stable procedures and protocols with set processes for dealing with routing employment problems such as discipline, absenteeism and discharge.
These systems also establish procedures, and rules that promote consistency and fairness throughout the organisation. Thus an effective HRM system should enhance the firm’s ability to attract and retain qualified employees and promote efficiency. However, effective Human Resource Management practices most likely lack flexibility of High Performance Working Systems. If a firm is pursuing an innovation objective then effective HRM practices may interfere with this goal by focusing on routines and rules that do not provide an environment conducive for stimulating innovation.
Furthermore, organisations that are structured to deal with stable routing tasks are less able to adapt to uncertain, dynamic environments. Many organisations today face complex environments. Firms’ management strategies must adjust and conform to the existing business environment. The present business environment demands that firms respond to change and, at the same time, promote efficiency. Thus firms that can combine effectiveness and flexibility objectives may be put in the optimal strategic position whether they are pursuing objectives of innovation or market performance.
More extensive use of High Performance work systems with HRM effectiveness is positively associated with organisational innovation. The banking industry for example has become a highly competitive environment because of banking industry deregulation. The regulatory changes coincide with such technological advances as telephone banking, ATMS, pc-based banking and information system advances. The industry responded to the changes by a significant wave of consolidation that has reduced the number of banks.
Regulations essentially prevented firms from implementing the full range of strategic choices. Deregulation frees financial institutions to exercise strategic choice. Since deregulation, many banks have introduced new products and services that do not fit the traditional margin-maximing scheme where margin is the difference between the loan rate and the deposit rate. Instead fee income such as origination fees from corporate cash management accounts, home mortgages and letter of credit have become an increasing important source of bank revenues.
Hence, the proportion of total income generated by these alternative fee based products and services represents an important measure of banking innovation. (Pfeffer, 1994). HPWS universally benefit all employers. High investments in training and employees pay off in terms of employee commitment and work effort. However, these HPWS do not come cheaply, firms either need to offset these expenses with productivity increases or operate in an innovate environment that can absorb these costs.
This makes HPWS less compatible with firms pursuing efficiency objectives and more compatible with firms whose success is more dependent on innovation as opposed to efficiency. A major benefit of High Performance Working Systems is to move the level of decision making downward to reduce the need for formal supervision so that employees are to think for themselves. These objectives may be of great importance for employers seeking to innovate or provide a responsive service but may be problematic for employers pursuing efficiency objectives.
Employers who have highly developed hierarchical and formal structures that follow an evolved model of scientific management may not benefit from HPWS. These employers have designed formal roles and procedures specifically to avoid employees thinking for themselves. Thus it can be argued that employers with innovation objectives would benefit more from HPWS than would employer seeking a marketing efficiency objective (Capelli & Neumark 1999). There are three main set of potential benefits of high performance working system; organisational performance, the worker well being and labour turn over and retention.
The major reviews that have been conducted in North America, Europe and elsewhere consistently show a clear association between application of high performance working and organisational performance. These reviews are cross sectional and therefore cannot establish clear cause and effect. It is therefore possible that the more successful organisations have the capacity to introduce high performance working. The ability to retain staff is an important feature of a high performance work system and is a key reason why commitment to the organisation can be considered as a core dimension.
The presence of High Performance Working Systems is likely to encourage more people to stay with the organisation. This will help to justify the investment in higher performance working and will also feed into other performance outcomes in the sense that experienced staff who understand the business and its products can contribute to higher productivity and to a higher quality of goods and services. For some managers a concern for worker well-being may appear to be an outcome of marginal interest. Well being is usually defined as a combination of job satisfaction, mental and physical health and broader life satisfaction.
Work related well being can be narrowed down to the first two but should extend to include work-life balance. There is evidence that workers who experience high performance work practices report higher job satisfaction. They are also more likely to participate in a range of extra activities and to report both better general health and better mental health reflected in less anxiety and depression. The only downside is some suggestion that under high performance working staff may experience greater work-related stress.
This could be through highly committed workers tending to choose to work longer hours and to accept more responsibility. High performance working systems have received the endorsement of many governments and organisations. These include Chartered Institute of Personnel and Development (CIPD), Chartered Management Institute and Lisbon European Council for more and better jobs. HPWS face challenges and barriers. The skills for Business Employer Survey published in August 2006 shows some recent progress has been made in raising the uptake of individual high performance practices.
However, one of the most reliable sources of evidence, the workplace Employment Relations surveys, show that in 1998, there was at best only modest application of these practices in workplaces across the UK and the 2004 survey shows that there has been very little if any further progress with implementation since then. There is evidence that levels of autonomy in jobs have actually been declining suggesting that managers are tending to assert greater control rather than trust in the competence and commitment of staff.
Three factors prevent a stronger adoption of High Performance Working Systems. These can be summarised as ignorance, inability and doubts about the case. Some people especially managers have doubts about the benefits of high performance working. These doubts operate at a number of levels. First there is scepticism about the claim that people- or at least the current work force is the key basis for competitive advantage, allied to belief that priorities for performance ought to be directed elsewhere.
Secondly managers are unwilling to take the risk of giving workers greater autonomy and control. There is evidence about a trend to reduce worker autonomy and reveals a generally low trust dynamic. Thirdly, there is doubt about the specific pay-offs and more particularly, whether they would generalise to their own work setting. Given these constrains, should we give up and leave High Performance working Systems to those few organisations that have managed to adopt it successfully and are reaping benefits?
If relatively few firms are adopting HPWS working and it does bring benefits, then there is a strong case for gaining a lead on competitors. At the individual level, there is good evidence that workers benefit from being part of an organisation that engages in high performance working systems. Furthermore, job design aimed at enhancing levels of autonomy and control is likely to be associated with higher levels of well being. It will be associated with greater commitment and less likelihood of wanting to move on.