Strong HR practices lead to strong profits
by Wendy Webb

A recent study conducted by Cornell University in Ithaca, N.Y., revealed what human resource professionals have trumpeted for decades: A strong HR department makes a strong company and boosts its bottom line—even, I might add, if that HR department consists of only one person doing a great job, as is the case in many small businesses.

Cornell includes some figures with its findings: A company with strong HR practices has a market value of $16,000 to $40,000 per employee higher than companies that give only lip service to HR. Further, the probability of survival of start-up companies committed to HR is a full 20 percent higher than the survival rate of companies that don’t practice strong HR.

The Cornell study is the first on my radar screen to delve into this topic. It’s useful because Cornell didn’t just look into the fact that strong HR practices create strong companies—we in the HR field already knew that. Cornell studied which particular HR practices were the most effective in creating strong companies and came up with a list of the best HR efforts to ensure overall profitability—specific ways to focus on hiring, managing and motivating employees that produce the best results. Now that’s useful.

The key is to use hiring, management and motivation to create an elusive state called “workforce alignment.” What is that, exactly? Here’s a quote from the study: “A company with the right people has employees with the knowledge and skills necessary to help the firm achieve its goals. A company with people in the right places at the right times effectively utilizes its people and, thus, gets the most out of its employees knowledge and skills. A company with people doing the right things right has employees that always act in ways that help the company succeed. The three components of workforce alignment are highly interrelated. It is tough, for example, for people to act in ways that foster firm success if they do not possess the knowledge and skills necessary to do so or if they are mismanaged (i.e., in the wrong places at the wrong times). In short, then, when all three components are present there is workforce alignment and this, in turn, drives company success.”

Hiring

You can go about hiring in three ways: person-job fit, person-organization fit and person-future fit. The best of the three? You might think it’s person-job fit, but Cornell says its person-future fit. Here’s why: Focusing on the applicant’s ability to contribute to the company in the long term creates a stable, aligned workforce.

At first, that theory took awhile to sink in for me. After all, isn’t hiring a person on the basis of how well they’re suited to the particular job the best way to go? I thought about it, and determined that’s too narrow a focus if you’re trying to achieve the best possible fit for your company. If you simply hire the best dishwasher, where will your kitchen managers come from? Who will you promote up the ranks? The way I see it, hiring people who have the skills and abilities to do the job you’re filling, and who also have the potential for future growth, is the way to staff your business to the fullest.

Management

So, you’ve hired the right people. How best to manage them?

You can emphasize formal processes and procedures, with specific job duties and descriptions so that employees know their roles and responsibilities and also provide them with regular feedback about how they’re doing.

Or, you can focus on direct monitoring, with managers closely monitoring the day-to-day activities of employees and tightly controlling the pace and schedule at which employees complete their work.

You can also rely on professional standards, giving employees a great deal of discretion to monitor their own performance, trusting employees to get the job done right the first time without direct oversight.

You can also emphasize culture and peer pressure, expecting employees to track one another’s work and effort and to provide feedback to one another about job performance.

Which of these is best? The study found that formal processes and procedures and professional standards are the most effective way to manage people.

Motivation

You’ve got the right people in the right jobs, and you’re managing them in the right way. Now, how do you motivate them to give 100 percent every day? Again, the study identifies three typical strategies.

The first strategy is creating a family-like community in which employees are motivated primarily out of a sense of responsibility to one another and the company. Ways you can do this include sponsoring company social events and outside activities so that employees can get to know one another outside of work. You can also hold regular company-wide meetings to share information about the company with employees.

Companies can also favor interesting and rewarding jobs. These companies provide employees with challenging work opportunities and chances to learn and grow.

Finally, of course, companies can rely on fair compensation. Companies that use compensation to motivate people pay higher wages than their competitors. They also use incentives to attract, reward, and retain their people. Which of these three human resource motivation strategies work best? The answer is: Family-like community.

Key thoughts

What should HR professionals take away from this study? Here are a few key points from the study to remember:

• Companies with well-aligned workforces outperform companies with less aligned workforces.

• Keep an eye on the future when hiring. When hiring new people, most companies seek to match people to specific jobs. Instead of just hiring the right people for the job, hire new people capable of making a positive, long-term contribution to the firm.

• Manage employees through formal processes and procedures or professional standards. In small businesses, it’s easy for managers to make the mistake of constantly looking over the shoulders of employees. That’s the wrong choice.

• A family-like community is a powerful way to motivate employees. Many scholars and managers assume that compensation is the best way to motivate people. The results of this suggest that workforce alignment is best achieved by developing a family-like sense of community.