High performance work system (HPWS) is a specific combination of HR practices, work structures and processes that enhances employee skill, knowledge, commitment, involvement and adaptability. The key concept in HPWS is the system.
HPWS is composed of many interrelated sub-systems that complement one another to attain the goals of an organization, big or small.
Though it may be difficult to list the ‘best practices’ in HPWS, there are a few important components of HPWS. They are work design, HR practices, leadership roles and information technology.
All the features of HPWS are important individually. But as a system to be effective all these features must be integrated. A careful planning is essential to ensure that all the features fit together and linked with the overall strategic goals of the organization. Internal and external linkages should fit HPWS together.
A HPWS is all about determining what jobs a company needs to be done, designing the jobs, identifying and attracting the type of employee needed to fill the job, and then evaluating employees’ performance and compensating them appropriately so that they stay with the company.
Learn about:-
1. Basic Principles of HPWS 2. Features of HPWS 3. Internal and External Linkages 4. Implementation 5. Design 6. Value 7. Improving Organizational Performance 8. Benefits 9. Key Strategies.
High Performance Work System: Principles, Features, Implementation, Design and Benefits
High Performance Work System – Basic Principles behind the HPWS
High performance work system (HPWS) is a specific combination of HR practices, work structures and processes that enhances employee skill, knowledge, commitment, involvement and adaptability. The key concept in HPWS is the system. HPWS is composed of many interrelated sub-systems that complement one another to attain the goals of an organization, big or small.
Generally, companies try to blend the important competitive challenges (adapting to global business, assimilating technology, managing change, responding to customer needs, mobilizing and developing intellectual capital and reducing costs) and the employee concerns (managing a diverse workforce, recognizing employee rights, accepting new work attitudes and balancing work and family demands) to attain competitive advantage.
But, nowadays, the successful companies go beyond simply balancing these requirements; they create work situations that combine these demands to get the best out of the employees to meet the short-term and long-term needs of the companies. E.g., Google, Toyota etc.
The primary principles behind the HPWS which are the building blocks for managers are shared information, knowledge development, performance – reward linkage and egalitarianism.
1. Shared Information:
In the past, organizations did not bother to supply information about the organizations to the employees and employees were also not interested to ask for information. But, nowadays, sharing of information between the managements and employees is highly critical.
i. When employees are given timely and useful information about business performance, plans and strategies, they are more likely to offer suggestions to improve the business.
ii. Sharing of information leads to better cooperation in effecting major organizational changes.
iii. Employees feel more committed to new courses of action if they have adequate information from the management.
iv. Sharing of information results in the shift from the mentality of command and control to focus on employee commitment.
v. Relationship between management and employees improves by sharing information.
vi. Employees are more likely to be willing to work to attain the goals in a culture of information sharing, and
vii. Employees will know more, do more and contribute more when information is shared.
2. Knowledge Development:
Information sharing and knowledge development coexist. As organizations compete through people, they must concentrate and invest in developing employees.
Knowledge development takes place through many activities:
i. Selecting the best and brightest candidates available in the labour market
ii. Providing opportunities to all the employees to sharpen their knowledge continuously
iii. Training to improve the employees’ technical, problem-solving and interpersonal skills to work either individually or in teams
iv. Arranging for the right environment to learn in ‘real time’ on the job, using innovative new approaches to solve real problems
v. Making employees aware of the firm’s progress and
vi. Displaying vital statistics of the firm including production and cost of production
3. Performance-Reward Linkage:
The personal objectives of employees and the organizational goals of management, naturally, cannot go hand in hand. Employees, by nature, pursue outcomes that bring in personal benefit to them and not necessarily to the organization as a whole.
When the goals of employees and that of the organization are aligned through some means there will be benefits both to the employees and the organization. It has been found that when rewards are connected to performance, employees pursue outcomes that are mutually beneficial to themselves and the organization.
i. When rewards are connected to performance, supervisors need not have to constantly watch to make sure that employees do the right thing.
ii. Appropriate performance-reward linkage makes people to go out of the way to make certain that co-workers are getting the help they need, systems and processes are functioning are functioning efficiently and customers are happy.
iii. Connecting rewards to organizational performance also ensures fairness and tends to focus employees on the organization.
iv. Performance-based rewards ensure that employees share in the gains that result from any performance improvement.
4. Egalitarianism:
In HPWS, conflicts among managers, employees and labour unions are increasingly being replaced by more cooperation approaches to managing work. Present day employees feel that they are a part and parcel of the organization, not just workers.
i. In an egalitarian environment where everyone is treated alike, status and power differences are eliminated.
ii. There will be more of collaboration and teamwork.
iii. When people work together as a team without inhibition, productivity improves.
iv. Egalitarian environment ensures employee loyalty.
v. Empowering employees in HPWS give them more control and influence over decision-making.
vi. With decreasing power distances, employees can become more involved in their work and their quality of work is improved simultaneously.
High Performance Work System – 4 Main Features
Though it may be difficult to list the ‘best practices’ in HPWS, there are a few important components of HPWS. They are work design, HR practices, leadership roles and information technology.
Feature # 1. Work Design:
High Performance Work Systems generally start with a new work design.
i. Total Quality Management (TQM) and reengineering are important components in new work designs.
ii. In HPWS, instead of separating jobs into separate units, the focus is on the key business processes that drive customer value and creating teams that are responsible for the processes.
iii. Employees are given liberty to alter their work schedule.
iv. Advanced communication systems are employed in effective HPWS.
In HPWSs, the various components of HRM stress certain important activities.
a. Work Flow:
i. Self-managed teams
ii. Empowerment
b. Staffing:
i. Selective recruiting
ii. Team decision making
c. Training:
i. Broad skills
ii. Cross-training
iii. Problem solving
iv. Team training
d. Compensation:
i. Incentives
ii. Gain sharing
iii. Profit sharing
iv. Skill-based pay
e. Leadership:
i. A few layers
ii. Coaches/Facilitators
f. Technologies:
i. HRIS
ii. Communications
By redesigning the work flow around key business processes, companies are able to establish a work environment that can facilitate teamwork, utilize the skills/knowledge effectively, empower employees and provide meaningful work.
Feature # 2. HR Practices:
Work design, quality management or reengineering alone or in combination cannot bring in any desired change unless they are supported by adequate HRM elements. An environment of high performance and satisfaction is possible only when work resigns are combined with relevant HR practices to encourage skill development and employee involvement.
Staffing Practices:
i. HPWSs generally start with highly directive recruitment and selection practices.
ii. Recruitment is broad as well as intensive to get the best pool of candidates to choose from.
iii. Organizations compensate the expenses and time invested in selection by selecting the skilled individuals Capable of learning continuously and working cooperatively.
iv. Human Resource Information System is extensively used to compile an inventory of talents to enable the HR managers select the people with specific skills needed.
Training and Development:
i. Training focuses on ensuring that employees have the needed skills to take higher responsibility.
ii. Beyond individual training, a training certification process is established to make sure that intact teams progress through a series of maturity phases.
iii. Teams are required to certify their abilities to function effectively. Teams are certified only after effective demonstration of knowledge and skills in areas such as customer expectations, business conditions and safety.
iv. Skills must be continually updated.
v. Certified teams are required to review their competencies periodically.
Compensation:
i. In HPWS, there are alternative compensation systems.
ii. To link pay and performance, employee incentives are included.
iii. There are incentives for goal achievement and even training.
iv. Incentive schemes such as gain sharing, profit-sharing and employee stock ownership schemes are common in HPWSs.
v. Scanlon plan, Rucker plan and Improshare are used in HPWSs to elicit employee suggestions and reward them for contribution to productivity.
vi. In some companies there are skill-based pay plans. Paying employees based on the number of different skills they possess, it is possible to create both a broader skill base among employees and a more flexible pool of people to rotate among interrelated jobs.
vii. In some HPWSs, employees can use the funds available on capital improvements.
viii. The open pay plan in HPWS in which everyone knows what others get is another feature of compensation systems used to create an egalitarian environment that encourages employee involvement and commitment.
Feature # 3. Leadership Role:
Leadership issues assume importance in every level in the HPWS. To support the HPWS environment, to bring changes in the culture and to modify business process, the role of leadership plays an important role.
i. Many companies have found that the success of any HPWS depends on first changing the roles of managers and team leaders.
ii. Fewer layers of management and focus on team-based work culture bring in substantial improvement in productivity.
iii. In HPWS, managers and supervisors are seen as coaches, facilitators and integrators of team efforts.
iv. There is no place for autocratic leadership style in a HPWS. Managers always share responsibility for decision making with employees.
v. In HPWS, the term manager is replaced by the term team leader.
vi. In many cases leadership is shared among the team members.
vii. Some companies rotate team leaders at various stages in team development.
viii. HPWS allows individuals to assume functional leadership roles when their particular expertise is needed most.
Feature # 4. Information Technology:
i. Communication and information technologies are important components of HPWS. Technologies of various kinds help creating a system for communicating and sharing information which is vital to any business.
ii. IT in service sector is used to help employees monitor its service, communicate with customers and identify and solve problems quickly.
iii. Computerized system helps budget and track the employee time spent on different projects. Information needs to be about business plans/goals, unit and corporate operating results, hidden problems/ opportunities and competitive threats.
iv. HPWS cannot succeed without timely and accurate communications.
v. Information technologies need not always be very high-tech as the best communication occurs face to face.
High Performance Work System – Internal and External Linkages
All the features of HPWS are important individually. But as a system to be effective all these features must be integrated. A careful planning is essential to ensure that all the features fit together and linked with the overall strategic goals of the organization. Internal and external linkages should fit HPWS together.
Internal Fit:
It is a situation in which all the internal elements of the work system complement and reinforce each other.
Example:
A good selection system will be fruitful only when it is used in conjunction with training and development activities. Similarly, a new compensation will be effective only when it complements the goals laid in performance planning.
i. As changes in one component affect all other components there must be relevant changes in all the sub-systems.
ii. Because the various features of HPWS are interdependent, any improvement in a single feature will not have any effect on performance fit if it is implemented in isolation.
iii. Horizontal fit is to make certain that all the HR practices, work design, leadership and IT complement each other.
iv. The synergy obtained through overlapping work and HR practices is the essence of HPWS.
External Fit:
It is the situation in which the work system supports the organization’s goals and strategies. External fit starts with an analysis of competitive challenges, organizational values and concerns of employees and results in strategy statements.
i. Some companies use planning processes which begin with statements of corporate values and priorities.
ii. Values and priorities are the basis for establishing medium-term goals for the organizations.
iii. Each business unit decides annual objectives based on the goals and the process goes down to every level of management.
iv. Finally each employee will have a clear view on the values and goals of the organization so that the employees can see how individual efforts make the difference.
v. Individual efforts to achieve vertical fit help focus the design of HPWS on strategies.
vi. Objectives such as cost reduction, quality improvement, customer service etc., directly influence what is expected of employees and the skills required achieving them.
vii. Terms such as involvement, flexibility, efficiency, problem solving, teamwork etc., are seriously translated directly from the strategic requirements of HPWS as HPWS is designed to link employee initiatives to the organization’s strategy.
High Performance Work System – Implementing
It has been reported that formulating a plan of change is much easier than implementing the same. Surveys showed that many issues arise during implementation. Before attempting any change it is imperative that change is linked to company’s business strategy.
i. Change is owned by senior and line managers
ii. There is sufficient resources and support for the change efforts
iii. There is early and wider communication
iv. The teams are formed in a systematic context
v. There are established methods available to measure results of change, and
vi. There is continuity in leadership
As any new system, HPWS also brings in apprehensions as people have to abandon the old ways of doing things and accept new approaches. Top managers have to build a case that HPWS is essential.
i. Top management should play the role of sponsor/champion and spend substantial time to communicate with employees the need for HPWS.
ii. Instead of leaving it to the middle managers, the CEO and the senior management team should establish the need for change and communicate the vision of HPWS broadly to the entire organization.
iii. Top management’s commitment is essential to establish mutual trust between employees and managers.
iv. Employees must be made to know the current performance of the company and its capabilities and where the organization should be in future.
v. The gap between today and the future is the starting point for initial discussion.
vi. There is also a need to survey on attitude and turnover costs.
Providing adequate communication system is an essential part of HPWS implementation. Two-way communication results in better decisions alleviating fears and concerns of employees.
i. Open exchange and communication at an early stage pay off later as the system starts to work.
ii. On-going dialogue at all levels helps reassure commitment, answer queries and identify areas for improvement throughout implementation.
iii. Sharing of information through effective communication is instrumental to success during the implementation stage as well as after implementation.
With the present day knowledge-workers autocratic styles of management and confrontational approaches to deal with labour problems are getting replaced with approaches which promote cooperation and collaboration. It is quite beneficial to involve union members early and keep them as close partners-in-charge as implementation of HPWS demands radical changes. In implementing HPWS a bridge is to be built between managers and unions through cultivating mutual gains, establishing formal commitment, fostering support for constituents and adhering to procedures.
1. Developing Mutual Gains:
Managers and representatives of employees should try to create a “win-win” situation, in which everyone gains from the implementation of HPWS.
i. ‘Interest-based’ rather than positional bargaining leads to better relationships and outcomes.
ii. Parties must trust each other in sharing information and making decisions.
iii. Trust must lead to involvement of union members taking active part in decisions about work practices such as designing, selecting and implementing new technologies.
iv. When there is mutual trust, the organization will be more competitive, employees will have a higher quality of work life and unions will have a stronger role in representing employees.
2. Creating Commitment:
Management-Union relationship must be made legitimate. There must be a policy document detailing union involvement, letters of understanding, and clauses in collective bargaining agreement or establishment of joint councils with specific mandate. Formal commitments are a sign of management commitment and institutionalizing of relationship.
Following Procedures:
i. Processes, agreements and rules are vital to the integrity of relationship.
ii. Procedure is the core of alliance.
iii. Procedure keeps the parties focused and ensures that there is democracy as well as fairness.
iv. Processes developed within the organization are better than adopted ones.
Establishing commitment to HPWS is an on-going activity which has no end. In many cases performance is not achieved as the pieces of the system are changed incrementally rather than as a whole system. There must be both top-down and bottom-up approaches. While top-down approach communicates manager support and clarity, bottom-up approach ensures employee acceptance and commitment. The way HPWS is implemented differs from organization to organization. In start-ups, HPWS can be implemented at once.
But in established businesses, implementation of HPWS may not be smooth. For effective implementation there must be adequate resources in terms of finance, time and expertise. Though the responsibility of implementation lies with the line managers, HR managers can be invaluable partners in making the required changes. There are special HR units and transition teams of senior line as well as HR managers to implement HPWS.
Assessing the Success of HPWS:
Monitoring and assessing the HPWS is essential for implementation. There must be a process audit. Process audit is a process to determine whether the HPWS has been implemented as desired.
The audit should contain questions to know whether the employees are really working as teams:
i. They are getting the needed information to make decisions.
ii. The training programmes help in developing knowledge and skills.
iii. The employees are rewarded for good performance/useful suggestions, and
iv. They are treated fairly.
Further, the audit should get answers whether:
i. Desired behaviours are exhibited on the job.
ii. Objectives of quality, productivity, flexibility and customer service are met.
iii. Quality of life goals are achieved for the employees, and
iv. The organization is more competitive than in the past.
Finally, HPWSs must be periodically evaluated in terms of new organizational priorities and initiatives.
High Performance Work System – Designing a HPWS
Now it is your turn to design a High-Performance Work System (HPWS). HPWS is a set of management practice that attempts to create an environment within an organization where the employee has greater involvement and responsibility. Designing a HPWS involves putting all the HR pieces together.
A HPWS is all about determining what jobs a company needs to be done, designing the jobs, identifying and attracting the type of employee needed to fill the job, and then evaluating employees’ performance and compensating them appropriately so that they stay with the company.
At the same time, technology is changing the way HR is done. The Electronic Human Resource Management (e-HRM) business solution is based on the idea that information technologies, including the Web, can be designed for human resources professionals and executive managers who need support to manage the workforce, monitor changes, and gather the information needed in decision making. At the same time, e-HRM can enable all employees to participate in the process and keep track of relevant information.
For instance, your place of work provides you with a Web site where you can login; get past and current pay information, including tax forms (i.e., 1099, W-2, and so on); manage investments related to your 401(k); or opt for certain medical record-keeping services.
More generally, For example- many administrative tasks are being done online, including:
i. Providing and describing insurance and other benefit options;
ii. Enrolling employees for those benefits;
iii. Enrolling employees in training programs; and
iv. Administering employee surveys to gauge their satisfaction.
Many of these tasks are being done by employees themselves, which is referred to as employee self-service. With all the information available online, employees can access it themselves when they need it.
Part of an effective HR strategy is using technology to reduce the manual work performance by HR employees. Simple or repetitive tasks can be performed self-service through e-HRM systems that provide employees with information and let them perform their own updates.
Typical HR services that can be formed in an e-HRM system include:
i. Answer basic compensation questions.
ii. Look up employee benefits information.
iii. Process candidate recruitment expenses.
iv. Receive and scan resumes into recruiting software.
v. Enroll employees in training programs.
vi. Maintain training catalog.
vii. Administer tuition reimbursement.
viii. Update personnel files.
Organizations that have invested in e-HRM systems have found that they free up HR professionals to spend more time on the strategic aspects of their job. These strategic roles include employee development, training, and succession planning.
High Performance Work System – Value (With Examples)
Employees who are highly involved in conceiving, designing, and implementing workplace processes are more engaged and perform better. For example – a study analyzing 132 U.S. manufacturing firms found that companies using HPWSs had significantly higher labor productivity than their competitors.
The key finding was that when employees have the power to make decisions related to their performance, can access information about company costs and revenues, and have the necessary knowledge, training, and development to do their jobs—and are rewarded for their efforts—they are more productive.
For example- Mark Youndt and his colleagues demonstrated that productivity rates were significantly higher in manufacturing plants where the HRM strategy focused on enhancing human capital. Delery and Doty found a positive relationship between firm’s financial performance and a system of HRM practices. Huselid, Jackson, and Schuler found that increased HRM effectiveness corresponded to an increase in sales per employee, cash flow, and company market value.
HPWS can be used globally to good result. For example- Fey and colleagues studied 101 foreign-based firms operating in Russia and found significant linkages between HRM practices, such as incentive-based compensation, job security, employee training, decentralized decision-making, and subjective measures of firm performance.
High Performance Work System – Improving Organizational Performance
Organizations that want to improve their performance can use a combination of HR systems to get these improvements. For example- performance measurement systems help underperforming companies improve performance.
The utility company Arizona Public Service used a performance measurement system to rebound from dismal financial results. The company developed 17 “critical success indicators,” which it measures regularly and benchmarks against the best companies in each category. Of the 17, nine were identified as “major critical success indicators.”
They are:
i. Cost to produce kilowatt hour;
ii. Customer satisfaction;
iii. Fossil plants availability;
iv. Operations and maintenance expenditures;
v. Construction expenditures;
vi. Ranking as corporate citizen in Arizona;
vii. Safety all-injury incident rate;
viii. Nuclear performance; and
ix. Shareholder value return on assets.
Each department sets measurable goals in line with these indicators and a gain-sharing plan rewards employees for meeting the indicators.
In addition, companies use reward schemes to improve performance. Better-performing firms tend to invest in more sophisticated HRM practices, which further enhances organizational performance. Currently, about 20% of firms link employee compensation to the firm’s earnings. They use reward schemes such as employee stock ownership plans, gain-sharing, and profit-sharing. This trend is increasing.
Researcher Michel Magnan wanted to find out – Is the performance of an organization with a profit-sharing plan better than other firms? And, does adoption of a profit-sharing plan lead to improvement in an organization’s performance?
The reasons profit-sharing plans would improve organizational performance go back to employee motivation theory. A profit-sharing plan will likely encourage employees to monitor one another’s behavior because “loafers” would erode the rewards for everyone. Moreover, profit sharing should lead to greater information sharing, which increases the productivity and flexibility of the firm.
Magnan studied 294 Canadian credit unions in the same region (controlling for regional and sector-specific economic effects). Of the firms studied, 83 had profit sharing plans that paid the bonus in full at the end of the year. This meant that employees felt the effect of the organizational performance reward immediately, so it had a stronger motivational effect than a plan that put profits into a retirement account, where the benefit would be delayed (and essentially hidden) until retirement.
Magnan’s results showed that firms with profit-sharing plans had better performance on most facets of organizational performance. They had better performance on asset growth, market capitalization, operating costs, losses on loans, and return on assets than firms without profit-sharing plans. The improved performance was especially driven by activities where employee involvement had a quick, predictable effect on firm performance, such as giving loans or controlling costs.
Another interesting finding was that when firms adopted a profit- sharing plan, their organizational performance went up. Profit-sharing plans appear to be a good turnaround tool because the firms that showed the greatest improvement were those that had not been performing well before the profit-sharing plan. Even firms that had good performance before adopting a profit-sharing plan had better performance after the profit-sharing plan.
High Performance Work System – Benefits to Employees and Organization
HPWSs bring in benefits HPWSs bring in benefits the organization in terms of performance, productivity to the organization in and profitability and the employees through better quality of work life and job security.
Benefits to Employees:
There are many potential benefits to employees from HPWSs-
i. Employees have the advantage to decide how to achieve their goals.
ii. They can take risks, generate new ideas and make mistakes which in turn lead to new products, services and markets.
iii. Because of their involvement and commitment, the employees are likely to be more satisfied and find that their needs for growth are fully met.
iv. Due to sharing of information and empowerment, they feel that they have important role to play in the organization.
v. They feel proud that their opinions and expertise are valued more.
vi. Consequent to gaining higher skills and greater potential for contribution the employees will have more job security and also be more marketable to other organizations.
vii. Employees with higher qualifications can achieve their potential by utilizing their skills and abilities.
viii. They can contribute to organizational success while fulfilling their personal job growth and work satisfaction needs.
ix. HPWS serves to unite organizational objectives and employee contributions.
Organizations get many benefits from HPWS which include higher productivity, lower costs, and better responsiveness to customers, greater flexibility and higher profitability.
i. HPWS increases value by establishing means to increase efficiency, decrease costs, improve processes and provide unique services to customers.
ii. It helps organizations develop and utilize skills, knowledge and abilities that are not equally available to all organizations.
iii. HPWSs are designed around team processes and capabilities which cannot be duplicated or copied by rival firms.
iv. The systems combine the talents of employees and deploy them quickly in various new assignments with maximum flexibility.
High Performance Work System – Key Strategies
High performance working systems involve the development of a number of interrelated processes that together make an impact on the performance of the organization through its people in such areas as productivity, quality, and levels of customer service, growth, profits, and ultimately ensuring the delivery of increased shareholder value.
This is achieved by ‘enhancing the skills and engaging the enthusiasm of employees’ the starting point of which is leadership, vision and benchmarking so as to create a sense of momentum and direction amongst employees at various levels in the organization. HPWS also emphasize on the concept of continuous performance assessment and evaluation for future performance improvement and development.
High performance work systems (HPWS) ensure that business and HR issues are strategically linked with each other. Such linkages facilitate catalyzing organizational changes in terms of structures, procedures and systems and adjust the overall HR strategy and processes to cope with the same.
This radical transformation is achieved by developing competencies and skills of people, instigating a holistic performance management system and motivating employees by a comprehensive compensation and reward management system.
The HPWS stream, at its name implies, focuses on organizing systems- in particular, the organization’s operations or the production systems. Rooted in socio-technical systems theory, HPWS research digs deeply into interrelationships among people, process and technology.
MacDuffie, 1995 had emphasized the “organizational logic” in favour of matching HPWSs to flexible production systems and control-oriented human resource strategies to classic mass production approaches. Since the focus is on the organizing system, the HPWS stream also tends to emphasize human resource strategy principles — general themes that theoretically guide the selection and grouping of human resource activities — rather than just the human resource activities themselves.
HPWSs ensure to enhance workforce skill levels, providing employees discretion and opportunity to use their skills in collaboration with other workers, and offering an incentive structure that enhances employee motivation and commitment. HPWS are typically characterized as focusing on the work system performance, emphasizing human resource management principles, and greatly specifying human resource activities.