MGMT20144 Management Business Context Master of Business Administration (MBA) School of Business and Law MGMT20144 Management Business Context Unit 4 The Organization and Business Practices Introduction Business practices represent the essential systems and behaviors within an organization which aid in driving performance. If an organization is to have any opportunity to develop a high performance capability it must ascertain what exactly constitutes best, better and promising practices in its chosen business field. In developing its product and service offerings, achieving customer satisfaction and ensuring intelligent and efficient allocation of its resources of time, finances, equipment and personnel it needs to determine exactly the business practices that support and sustain high performance. Many of the issues covered in this topic, in particular Best Practice will be touched on again in courses such as MGMT20130 Operations Management and in looking at effective Business Practices implementation of change to systems, processes and team and organizational wide behavior within a course such as HRMT20028 Organisational Change Management. Learning objectives This unit has the following learning objectives: ⦁ To understand the concept of Business Practices and how it relates to the performance of the organization. ⦁ Examine the nature of positive work practices as Business Practices and how these add value and aid performance for the organization. ⦁ Consider the opportunities from study of best, better, promising and innovative business practices and also the threats imposed by maintaining poor business practices that embed in the organization over time. ⦁ Apply knowledge and skills gained from this unit towards resolving business challenges and issues. ⦁ Business Practices One definition of Business Practices identifies them as the following: ‘Essential features of processes needed to effect standard operating procedures in a consistent manner’ (Law Dictionary, 2016). Key features of this conceptualization of Business Practices are the notion that they are essential features to drive consistent standard operations within the organization. This is consistent with the remarks from the introduction that Business Practices underpin the the organizational systems and people performance characteristics. Business Practices – High Performance Work Practices (HPWP) According to Konrad (2006) research indicates that high performance work practices can develop the positive beliefs and attitudes associated with employee engagement (refer Lawler & Worley, 2006; May, et al., 2004). Furthermore, these business practices can generate the kinds of discretionary behaviors that lead to enhanced performance. As Konrad states, the upshot of this is that employees who conceive, design and implement workplace and process changes are engaged employees. Employee engagement is crucially important to competitiveness in the contemporary business environment. Research by Harter et al (2002) focused on a meta-analytic review of 7,939 business units in 36 companies to assess the link between employee outcomes of satisfaction and engagement and business outcomes of customer satisfaction, productivity, profit, turnover and accidents. Their results indicated that higher levels of both employee satisfaction and employee engagement were associated with greater customer satisfaction, productivity, and profit, and decreased turnover and accidents. This equated to increased profits of $80,000 to $120,000 on average. This research along with others has identified that business practices that promote employee involvement and engagement lead to a positive performance environment in the workplace as well as higher financial returns related to performance and cost control. Konrad (2006) suggests that Employee engagement has three related aspects: a cognitive, an emotional, and a behavioral aspect. The cognitive aspect of employee engagement involves employees’ beliefs about the organization, its leaders, and the working conditions for the employees. The emotional aspect concerns how employees feel about each of those three factors and also whether they have positive or negative attitudes toward the organization and its leaders. The behavioral aspect of employee engagement is the value-added component for the organization. This aspect consists of the discretionary effort engaged employees bring to their work in the form of additional time, their brainpower and energy they are willing to expend on the task and the firm. Lawler and Worley (2006) identified four integrated principles for building a high performance work practice system that help to ensure that the system will be effective and that the various practices will work together to have a positive impact on employee engagement. These principles can be summarized as a system providing employees with Power, Information, Knowledge and Rewards. Power means that employees have the power to make decisions that are important to their performance and to the quality of their jobs and their working lives. Power can mean a relatively low level of influence, as in providing input into decisions made by others or it can mean having final authority and accountability for decisions and their outcomes. Involvement is maximized when the highest possible level of power is devolved to the employees that have to carry out the decisions. That is the decision is made where work is carried out and product finalized or service delivered. Information relates to data, including information on the quantity and quality of workplace output, costs, revenues, profitability, and customer reactions. A key challenge for managers is to create an information system that provides employees with data that is timely and relevant to their particular work process, that they can influence personally by either expending or withholding effort, and that they can also comprehend. Knowledge or includes employee skills and abilities as it refers to know how and know why of the job, role and industry. Improving employees’ knowledge means a commitment to training and development. Training investments are essential in a high- involvement organization because when employees are making important workplace decisions, it is critical that they have the skills and abilities to make the best decisions. Rewards as a component of the high-involvement work system means rewarding employees for expending discretionary effort to augment organizational performance. Rewards for performance ensure that employees use their power, information and knowledge in the best interests of the organization. These four integrated business practices form a high performance work practice system that underpins positive employee engagement for organizational success Konrad, (2006). How effective are High Performance Work Practices (HPWP)? Konrad (2006) points out the evidence of the effectiveness of high performance work practices has been documented in several research studies. The multivariate statistical analyses conducted on the research data have ensured rigorous statistical controls for a variety of factors extant in the environment. In essence for the research that has been undertaken thus far on high performance work practices and the positive relationship to employee engagement and organization performance factors other external factors to the models have been decisively ruled out as to plausible alternative explanations for the findings (Konrad, 2006). As a result, fairly strong inferences can be drawn regarding the impact of the high performance work practices as a system to develop positive business practices and performance in organizations. In a study by Appelbaum et al (2000) of 15 steel mills, 17 apparel manufacturers, and 10 electronic instrument and imaging equipment producers. Their purpose was to compare traditional production systems with flexible high performance production systems involving teams, training, and incentive pay systems. In all three industries, the plants utilizing high performance work practices achieved superior organizational outcomes. In addition, workers in the high performance work practice plants showed more positive attitudes, including trust, organizational commitment and intrinsic enjoyment of the work. According to Applebaum, et al., (2000), the study of steel, apparel, and medical electronics and imaging plants revealed much and indicated that positive work business practices could significantly improve organizational performance. In self-directed teams, workers were able to eliminate bottlenecks and coordinate the work process. In task forces created to improve quality, they communicated with individuals outside their own work groups and were able to solve problems. Expensive equipment in steel mills operated with fewer interruptions, turnaround and labor costs were cut in apparel factories, and costly inventories of components and medical equipment were reduced. Applicability of High Performance Work Practices to the Service Industry Researchers have asked the question as to whether high-involvement work practices can be generalized to the service industry sector. Vandenberg, Richardson and Eastman (1999) undertook studies of employees in the life insurance industry. They examined the impact of employee perceptions that they had the power to make decisions, sufficient knowledge and information to do the job effectively, and rewards for high performance. The study included a substantial sample (3,570 employees in 49 organizations). Results identified that high involvement processes influenced organizational effectiveness (defined through return on equity [ROE] and turnover) both directly and indirectly through positive influence on employee morale. Further research undertaken by Riordan, Vandenberg and Richardson (2005) again involving service employees in the insurance industry involved a sample of 4,828 employees in 92 organizations. In this study, high performance work practices as evidenced through a hi employee involvement workplace climate were positively associated with employee morale, employee retention, and stronger organizational financial performance. Workman and Bommer (2005) tested high-involvement work practices in a call center environment. In a field experiment, 149 call center employees were randomly assigned to either high involvement work practices, autonomous teams, aligned job design (essentially new performance metrics aligned with the business strategy), or the traditional management system. Findings comparing pre- and post test scores showed substantial improvement in organizational commitment and intrinsic job satisfaction in the high-involvement work practices group compared to no change for the control group or the autonomous work team group, and impact on organizational commitment only for the aligned job design group. The high-involvement work practice group also showed the most improvement in performance on a variety of measures. The researchers found that high-involvement work processes produced the most potent effects on job satisfaction and organizational commitment attitudes, as well as on performance (i.e., improved customer satisfaction scores, increased closed problems, reduced problems escalated, and fewer repeat calls). In every sense whether for production or service oriented workplace environments business practices that focus on employee involvement lead to improved employee job and workplace satisfaction and organizational performance. In more recent research Posthuma, et al, (2013) have undertaken a meta analysis of the research over the past 20 years to consider the factors now confirmed as core and most frequently applied across work performance locations across the globe. A precis of the top High Performance Work Practices (HPWP) is provided at Table 1 below. High Performance Work Practice – Taxonomy – Core Practice, Frequency, Temporality & Cross Regional Application (Posthuma, et al, 2013) HPWP Category HPWP Individual Practice Number of recognitions in research % Stable or Growing Cross-Regional Compensation & Benefits Pay for Performance Core 77 3.8 * * Formal Appraisal for Pay Core 73 3.6 * * External Pay Equity/Competitiveness Core 56 2.7 * * Job & Work Design Decentralized Participative Decisions Core 101 4.9 * * Job Rotation/Cross Functional Utilization Core 52 2.5 * * Training and Development Training Extensiveness Core 99 4.8 * * Use of Training to Improve Performance Core 68 3.3 * * Training for Job or Firm Specific Skills Core 55 2.7 * * Recruiting and Selection Hiring Selectivity or Low Selection Ratio Core 50 2.4 * * Specific and Explicit Hiring Criteria Core 50 2.4 * * Employee Relations Job Security/Emphasis on Permanent Jobs Core 71 3.5 * * Communication Formal Information Sharing Program Core 67 3.3 * * Performance Management and Appraisal Appraisals Based on Objective Results/ Behaviors Broad 32 1.6 * - Promotions Promotions from Within Broad 29 1.4 * - Implementing High Performance Work Practices (HPWP): The importance of alignment Edward Lawler suggests that to implement high involvement management under a system such as High Performance Work Practices, almost every major aspect of the organization needs to be designed differently (Lawler & Worley, 2006). Faced with such a monumental task, managers may well wonder where to start. Providing an insightful answer to this question, researchers Ledford and Mohrman (1993) developed the method of “self-design”. The self-design change strategy requires managers to develop a vision of the new organization and state it in broad terms, allowing the more specific designing to be done by the members of the work groups and units that have to make the design work locally. Change proceeds in a decentralized manner, with different business units creating changes at their own pace. Competition between managers and the need for coordination press slower-moving units to catch up with the leaders as the entire organization evolves from a traditional to a high involvement system. Self-design is effective because the movement to a high-involvement system requires an extremely high amount of learning among managers and front-line employees. By participating in the process of investigation and development of system changes, employees and managers gain the opportunity to both absorb the information needed to make the change and develop the knowledge and skills needed to change successfully. In self-design, changes are developed and implemented iteratively as business units identify an appropriate starting point for change, design and pilot the new system, and make adjustments. Over time, participants in the process re-design more and more systems and build their change management and system design skills. Ledford and Morhman (1993) argue that, the strategy for change is suited to in handling large-scale change where all potentialities and relationships cannot be known in advance. The approach is most suitable where organizations and staff are required to learn substantially new behavior patterns in order to support the required change to a high performance work system. As outlined by Konrad, (2006) high performance work practices that provide employees with the power to make workplace decisions, training to build their knowledge and skills in order to make and implement decisions effectively, information about how their actions affect business unit performance, and rewards for their efforts to improve performance. This process can result in a win-win situation for employees and managers. Employees seem to enjoy working in high-involvement workplaces, and managers reap enhanced performance from these systems. Designing and implementing a high-involvement system is not a trivial task, however. Although the four principles of power, knowledge, information and rewards can be generalized to both manufacturing and service environments, their application to any particular workplace requires fitting these principles to specific and somewhat unique situations. Converting to a high-involvement work system requires that managers and employees work together to virtually remake the entire organization through the process of self-design. Self-design can start with small pilot projects almost anywhere in the organization, and handing responsibility for a piece of an interdependent system over to employees can naturally result in the cascading of employee involvement throughout the work flow process. Hence, high involvement is a rigorous, long-term process, but the result can be a uniquely structured organization with highly engaged employees and a strategic advantage over competitors. Employee Engagement According to a 2013 Harvard Business Review Analytics Report ‘Employee engagement has become a top business priority for senior executives. In this rapid cycle economy, business leaders know that having a high-performing workforce is essential for growth and survival. They recognize that a highly engaged workforce can increase innovation, productivity, and bottom-line performance while reducing costs related to hiring and retention in highly competitive talent markets. … But while most executives see a clear need to improve employee engagement, many have yet to develop tangible ways to measure and tackle this goal’ (2013, p. 13). The HBR analytics survey was global in nature and cross industry. A total of 568 respondents completed the survey. All were from organizations with 500 or more employees; more than 42 percent of respondents were from organizations of 10,000 or more employees. The survey was global, representing companies with headquarters in North America (54 percent), Asia (18 percent), Europe (16 percent), MEA (7 percent), and South/Central America (5 percent). The respondents were from a variety of industries: 16 percent worked in IT/telecommunications firms; 14 percent were from financial services; 12 percent were in manufacturing; 9 percent were in energy/utilities; 8 percent were in healthcare and 8 percent were in education; and other sectors made up the remaining 33 percent, (HBR Analytic Services, 2013). The report’s findings indicated the following: ⦁ 71% of respondents rank employee engagement as very important to achieving overall organizational success. ⦁ 72 % of respondents rank recognition given for high performers as having a significant impact on employee engagement. ⦁ 24% of respondents say employees in their organization are highly engaged To reflect on these results - the importance of these results it is clear that Employee Engagement is a high priority to respondents as it is recognized as it is perceived as very important to achieving organizational success, yet less than a quarter of the respondents (24%) indicate that their employees are highly engaged. Clearly based on this research there is a failure in developing business practices and a business practice system within global businesses that develops employee engagement – job satisfaction, morale, work environment satisfaction and the like. To consider the corollary of the data upwards of 74% of respondents are NOT highly engaged. They may still be identified as engaged but not highly so – this is the inference to be drawn. So in aiming for excellence and the types of results seen in research on High Performance Work Practices (HPWP) it would seem that the leaders and managers and organizations represented may not be pursuing the type of Business Practice systems clearly identified under the growing amount of HPWP research. There is clearly some work yet to do in developing the internal business practices that support Employee Engagement and achieve the organizational performance outcomes that have been reported in the applied research area for more than 25 years. Best Practice According to BPIR.com, (2016) best practices are “those practices that have been shown to produce superior results; selected by a systematic process; and judged as exemplary, good, or successfully demonstrated”, these practices are then adapted and modified to meet the needs of a particular organization. The process of Benchmarking applies industry, competitor and cross industry analysis in the organization’s own operating region and more frequently now globally to appraise the operations, systems, processes and behaviors that underpin excellence in contemporary organizational performance. According to the DHHS (2010) when identifying effective practices, it is important to begin with a clear understanding of what qualifies as a practice. A practice can refer to an activity, strategy, methodology, system, process, technique, tactic, or approach. In a guideline resource document, the U.S. Department of Health and Human Services outlines an approach to identifying and promoting effective practices for the not for profit sector. The advice in this document lends itself to application for for profit corporations, non profit organizations and public sector organizations. Definitions and standards around what constitutes an effective practice vary across for profit and not for profit sectors. Different organizations use different criteria to identify and classify effective practices. In addition to a variety of criteria, there is also limited agreement on the terms used to refer to an effective practice. As argued by the U.S. DHHS (2010) regardless of the terminology, it is important that a practice has clearly defined parameters that can be assessed for effectiveness and compared against similar practices. DHHS (2010) defines the following aspects with regard to practices. In essence these relate to the nature of business practices that the organization relies upon for efficient and effective performance outcomes. Effective practice — a general term used to refer to best, promising, and innovative practices as a whole. This term may also refer to a practice that has yet to be classified as best, promising, or innovative through a validation process. Best practice — a method or technique that has been proven to help organizations reach high levels of efficiency or effectiveness and produce successful outcomes. Best practices are evidence-based and proven effective through objective and comprehensive research and evaluation. Promising practice — a method or technique that has been shown to work effectively and produce successful outcomes. Promising practices are supported, to some degree, by subjective data (e.g., interviews and anecdotal reports from the individuals implementing the practice) and objective data (e.g., feedback from subject matter experts and the results of external audits). However, promising practices are not validated through the same rigorous research and evaluation as best practices. Innovative practice — a method, technique, or activity that has worked within one organization and shows promise during its early stages for becoming a promising or best practice with long-term, sustainable impact. Innovative practices must have some objective basis for claiming effectiveness and must have the potential for replication among other organizations. NHHS (2010) indicates the information in the following chart provides a comparison of the criteria characterizing each type of effective practice: EFFECTIVE PRACTICE ⦁ Proven effectiveness in addressing a common problem ⦁ Proven effectiveness in more than one organization and in more than one context ⦁ Replication on a broad scale ⦁ Conclusive data from comparison to objective benchmarks, with positive results ⦁ Conclusive data from a comprehensive and objective evaluation by an external, qualified source (most often an academic institution or individual with the appropriate academic credentials) PROMISING PRACTICE ⦁ Effectiveness in addressing a common problem ⦁ Effectiveness in more than one organization and in more than one context ⦁ Replication on a limited scale ⦁ Supporting data from comparison to objective benchmarks, with positive results ⦁ Supporting data from an internal assessment or external evaluation INNOVATIVE PRACTICE ⦁ Suggested effectiveness in addressing a common problem ⦁ Successful use in one organization and context ⦁ Potential for replication ⦁ Limited supporting data from comparison to objective benchmarks, with positive results ⦁ Limited supporting data from internal assessment Benchmarking Nature of Informal Benchmarking This is a type of benchmarking that most of us do unconsciously at work and in our home life. We constantly compare and learn from the behavior and practices of others – whether it is how to use a software program, how to cook a better meal, or play our favorite sport. In the context of work, most learning from informal benchmarking comes from the following: ⦁ Talking to work colleagues and learning from their experience (coffee breaks and team meetings are a great place to network and learn from others). ⦁ Consulting with experts (for example, business consultants who have experience of implementing a particular process or activity in many business environments. ⦁ Networking with other people from other organizations at conferences, seminars, and Internet forums. ⦁ On-line databases/web sites, such as the ⦁ BPIR, and publications that share benchmarking information provide quick and easy ways to learn of best practices and benchmarks. Formal Benchmarking There are two types of Formal Benchmarking - Performance and Best Practice Benchmarking. These are: ⦁ Performance benchmarking - this involves comparing the ⦁ performance levels of organizations for a specific process. This information can then be used for identifying opportunities for improvement and/or setting performance targets. Performance levels of other organizations are normally called benchmarks and the ideal benchmark is one that originates from an organization recognized as being a leader in the related area. Performance benchmarking may involve the comparison of financial measures (such as expenditure, cost of labour, cost of assets such as buildings/equipment, cost of energy, adherence to budget, cash flow, revenue streams) or non-financial measures (such as absenteeism, staff turnover, ratio of administrative staff to front-line staff, budget processing time, complaints processing, environmental impact or service level performance). ⦁ Best practice benchmarking - this is where organizations search for and study organizations that are high performers in particular areas of interest. The processes themselves of these organizations are studied rather than just the associated performance levels, normally through some mutually beneficial agreement that follows a benchmarking code of conduct. Knowledge gained through the study is taken back to the organization and where feasible and appropriate, these high performing or best practices are adapted and incorporated into the organization’s own processes. Therefore, best practice benchmarking involves the whole process of identifying, capturing, analyzing, and implementing best practices. There are a number of best practice benchmarking methodologies. Which Best Practices are ruining your business? Freek Vermeulen (2013) discusses one of the key issues with following a path of Best Practice. The situation eventually arises when that practice which was once Best in Class may now have reached its use by date and no longer adding value or at worst even be destroying value. Vermeulen (2013) cites the practice of the newspaper industry that once held that only quality newspaper media was printed in broad sheet format. It was more expensive than the tabloid size. The newspaper management insisted that customers did not want the tabloid size so persisted with the out sized broadsheet format until one of the major news papers in the UK changed from broadsheet to tabloid size and in doing so boosted its flagging circulation. The Best Practice broadsheet was a hangover from a time when newspapers were taxed per page of print, hence the move in and early 18th century to the large cumbersome format. This stayed the ‘Business Practice’ for three centuries until upstart minor newspapers around the world challenged the model and practice and then major newspaper like the Independent in the U.K. made the move to a new ‘Business Practice’ – the tabloid format. Vermeulen’s key point is that some ‘Business Practices’ thought to be ‘Best Practice’ at the time become embedded as a status quo. They then become unchallengeable due to the prevailing cognitive biases supporting them regardless of any contrary evidence that the practice no longer serves the system, process, client or organization for which it was adopted. Vermeulen (2013) advances the following propositions regarding Business Practices that are ruining a business: The first is the everybody does it response - As Vermeulen (2013) argues, most companies follow “best practices.” Often, these are practices that most firms in their line of business have pursued for many years, leading people in the industry to assume that it is simply the best way of managing and operating. The second is the short-term trap - Some “best practices” may in fact start out as bad practices, but practices whose harmful effects only materialize years after their implementation. Yet with short-term consequences that are quite positive, firms go ahead and implement them — and never connect the problems of today with the practice launched years ago. The third is self-perpetuating myths - When seeming best practices become self-fulfilling prophecies, they can become more difficult to expose. Vermeulen (2013) cites film distributors who have preconceived ideas about which films will be successful. For example, it is generally expected that films with a larger number of stars in them, actors with ample prior successes, and an experienced production team will do better at the box office. Certainly, those films have higher attendance numbers. However, because of their belief that those films will succeed, film distributors assign a much bigger proportion of their marketing budget and other resources to those films. The critical issue in dealing with the adoption of any business practice for the smooth and efficient operation of the firm or adopting a ‘Best Practice’ is to regularly scrutinize and review the practice for its currency, relevancy and value adding capacity for the area for which it was adopted. The practice should also be scrutinized in relation to how it configures with other practices in an ongoing basis. What once assisted the company holistically across the organization may now provide only value to a small section of the organization or indeed be restricting the organization from other value creation opportunities. The activity presented below is designed to aid your thinking through issues associated with the the arguments for globalization and the impacts of globalization on nations, societies and businesses generally. Required Reading References: Applebaum, E., Bailley, T., Berg, P. & Kalleberg, A.L. 2000. Manufacturing Advantage: Why High Performance Work Systems Pay Off, Harter, J. K., Schmidt, F. L., & Hayes, T. L. (2002). Business-unit-level relationship between employee satisfaction, employee engagement, and business outcomes: A meta-analysis, Journal of Applied Psychology, Vol. 87, Iss. 2, pp. 268-279. HBR Analytics Services, 2013. The Impact of Employee Engagement on Performance, Harvard Business Review website at https://hbr.org/resources/pdfs/comm/achievers/hbr_achievers_report_sep13.pdf accessed 2 July 2016. Law Dictionary, 2016, What is Business Practice? The Law Dictionary website definition of business practice at http://thelawdictionary.org/business-practice/ accessed 2 July 2016. Lawler, E.E. & Worley, C.G. 2006. Built to Change: How to Achieve Sustained Organizational Effectiveness, Jossey-Bass, San Francisco. Ledford, G.E. & Mohrman, S.A., 1993, Self-Design for High Involvement: A Large-Scale Organizational Change, Human Relations, Vol. 46, No. 2, pp.143-173 May, D.R. Gilson, R.L. & Harter, L.M. 2004. The psychological conditions of meaningfulness, safety and availability and the engagement of the human spirit at work, Journal of Occupational and Organisational Psychology, Vol 77, pp11-37. NHHS (2010). Identifying and Promoting Effective Practices, U.S. Department of Health and Human Services, website at http://www.acf.hhs.gov/sites/default/files/ocs/id_bestpractices.pdf accessed 4 July 2016. Posthuma, R.A., Campion, M.C., Masimova, M. & Campion, M.A. 2013. A High Performance Work Practices Taxonomy: Integrating the Literature and Directing Future Research, Journal of Management, Vol. 39, No. 5, pp. 1184-1220. Raynor, M. & Ahmed, M, 2013. Three Rules fir Exceptional Performance, Ivey Business Journal website at http://iveybusinessjournal.com/publication/three-rules-for-exceptional-performance/ accessed 21 June 2016. Riordan, C.M., Vandenberg, R.J., & Richardson, H.A. 2005. Employee Involvement Climate and Organizational Effectiveness, Human Resource Management, Vol. 44, No. 4, pp. 471–488. Vandenberg, R.J., Richardson, H.A. & Eastman, L.J. 1999. The Impact of High Involvement Work Processes on Organizational Effectiveness: A Second-Order Latent Variable Approach, Group Organization Management, Vol. 24, No. 3, pp. 300-339.