Many factors can affect the performance of individual employees—their abilities, motivations, the support they receive, the nature of the work they are doing, and their relationship with the organization. The Human Resources unit in an organization exists in part to analyze and help correct problems in these areas. Exactly what the role of the HR unit in an organization “should be” depends upon what upper management expects. As with any management function, HR management activities should be evaluated and reengineered as necessary so that they can contribute to the competitive performance of the organization and individuals at work.
In many organizations the performance depends largely on the performance of individual employees. There are many ways to think about the kind of performance required of employees for the organization to be successful; but here, we will consider three key elements: productivity, quality, and service.
The more productive an organization, the better its competitive advantage, because its costs to produce a unit of output are lower. Better productivity does not necessarily mean more is produced; perhaps fewer people (or less money or time) were used to produce the same amount. A useful way to measure the productivity of a workforce is the total cost of people per unit of output. In its most basic sense, productivity is a measure of the quantity and quality of work done, considering the cost of the resources it took to do the work. It is also useful to view productivity as a ratio between input and output. This ratio indicates the value added by an organization or in an economy.
GLOBAL COMPETITIVENESS AND PRODUCTIVITY
At the national level, productivity is of concern for several reasons. First, high productivity leads to higher standards of living, as shown by the greater ability of a country to pay for what its citizens want. Next, increases in national wage levels (the cost of paying employees) without increases in national productivity lead to inflation, which results in an increase in costs and a decrease in purchasing power. Finally, lower rates of productivity make for higher labor costs and a less competitive position for a nation’s products in the world marketplace.
Productivity at the organization level ultimately affects profitability and competitiveness in a for-profit organization and total costs in a not-for-profit organization. Decisions made about the value of an organization often are based on the productivity of which it is capable.
Perhaps none of the resources used for productivity in organizations are so closely scrutinized as human resources. Many of the activities undertaken in an HR system deal with individual or organizational productivity. Pay, appraisal systems, training, selection, job design, and compensation are HR activities concerned very directly with productivity.
Another useful way to measure organizational HR productivity is by considering unit labor cost, or the total labor cost per unit of output, which is computed by dividing the average cost of workers by their average levels of output.
Using the unit labor cost, it can be seen that a company paying relatively high wages still can be economically competitive if it can also achieve an offsetting high productivity level.
Unit labor cost=The total labor cost per unit of output, which is the average cost of workers divided by their average levels of output.
INDIVIDUAL PRODUCTIVITY
How a given individual performs depends on three factors: ability to do the work, level of effort, and support given that person. Figure illustrates these three factors. The relationship of these factors, widely acknowledged in management literature, is that performance (P) is the result of ability (A) times effort (E) times support (S) (P=A xEx S). Performance is diminished if any of these factors are reduced or absent.
Recruiting and selection are directly connected to the first factor, innate ability, which involves choosing the person with the right talents and interests for a given job. The second factor—the effort expended by an individual—is influenced by many HR issues, such as motivation, incentives, and job design. Organizational support, the third factor, includes training, equipment provided, knowledge of expectations, and perhaps a productive team situation. HR activities involved here include training and development and performance appraisal.
Components of Individual Productivity
INCREASING PRODUCTIVITY
U.S. firms have been on a decade-long crusade to improve organizational productivity. Much of the productivity improvement efforts have focused on the workforce.The early stages included downsizing, reengineering jobs, increasing computer usage, and working employees harder. These approaches have done as much good as possible in some firms. Some ideas for the next step in productivity improvement include:
· Outsource: Contract with someone else to perform activities previously done by employees of the organization. For instance, if UPS can deliver products at a lower cost than a manufacturing company can internally, then the firm could outsource shipping to UPS.
· Make workers more efficient with capital equipment: A study of productivity in four countries found that in each country the less spent on equipment per worker, the less output per worker.
· Replace workers with equipment: Certain jobs are not well done by humans. The jobs may be mindless, physically difficult, etc. For example, a ditch usually is better dug by a person operating a backhoe than by a person with a shovel.
· Help workers work better: Replace outmoded methods and rules, or find better ways of training people to work more efficiently.
· Redesign the work: Some work can be redesigned to make it faster, easier, and possibly even more rewarding to employees. Such changes generally improve productivity. The need for productivity improvement will never end. With global competition there will always be a need to produce more at less cost, which entails working both harder and smarter in many situations.
Quality of production also must be considered as part of productivity, because one alternative might be to produce more but at a lower quality. At one time, American goods suffered as a result of this trade-off. W. Edwards Deming, an American quality expert, argued that getting the job done right the first time—through pride in craftsmanship, excellent training, and an unwillingness to tolerate delays, defects, and mistakes—is important to quality production.
Organizations throughout the world are proceeding on the quality front in many different ways, ranging from general training of workers on improving and maintaining quality to better engineering of products prior to manufacturing. One way in which organizations have focused on quality is by using international quality standards.
ISO 9000
A set of quality standards called the ISO 9000 standards has been derived by the International Standards Organization in Geneva, Switzerland. These standards cover everything from training to purchasing and are being implemented widely in European countries. Companies that meet the standards are awarded a certificate. The purpose of the ISO 9000 certification is to show that an organization has documented its management processes and procedures and has a trained staff so that customers can be confident that organizational goods andservices will be consistent in quality.
TOTAL QUALITY MANAGEMENT (TQM)
Many organizations that have made major improvements in the quality of their operations have recognized that a broadbased quality effort has been needed. Total Quality Management (TQM) is a comprehensive management process focusing on the continuous improvement of organizational activities to enhance the quality of the goods and services supplied.
TQM programs have become quite popular as organizations strive to improve their productivity and quality.
At the heart of TQM is the concept that it is customer focused, which means that every organizational activity should be evaluated and analyzed to determine if it contributes to meeting customers’ needs and expectations. Another characteristic of TQM is the importance of employee involvement. Often, quality improvement teams of other group efforts are used to ensure that all employees understand the importance of quality and how their efforts affect quality. Benchmarking is another facet of TQM, in which quality efforts are measured and compared with measures both for the industry and for other organizations.
It is hoped that providing measurement information on quality will help to make continuous improvements in quality a part of the organizational culture.
For some organizations, the promises of TQM have been realized; but for others, TQM became a short-term program that later was dropped. A nationwide study of over 1,000 executives and managers found that only 45% of the organizations that had implemented TQM thought their programs had been successful. However, some observers contend that quality concerns have become much more basic to the way work is done. They argue it is a widespread philosophy caused by competitive pressures. The idea of continuous improvement has indeed been built into the approaches of many producers of goods and services.
Delivering high-quality customer service is another important outcome that affects organizational competitive performance. High quality and productivity are both important in the third aspect of performance considered here—customer service. Service begins with product design and includes interaction with customers, ultimately providing a satisfactory meeting of customers’ needs. Some firms do not produce products, only services. The U.S. economy is estimated to be composed of over 75% service jobs including retail, banking, travel, government, etc., where service is the basis for competition.
Overall, customer satisfaction has declined in the United States and other countries. The American Customer Satisfaction Index revealed that in many U.S. industries, customers are growing more dissatisfied with the customer service they receive. However, if their expectations are met, customers are likely to be more satisfied, make favorable comments to others, and/or become repeat customers.
Consequently, organizations working to enhance their competitiveness must work to enhance service.
Service excellence is difficult to define, but people know it when they see it. In many organizations, service quality is affected significantly by individual employees who interact with customers. The dimensions of service are depicted in Figure . Employing organizations have used many approaches attempting to improve productivity, quality, and service. In the process of doing so, the relationship between the organization and individual employees has been changed in many cases.
Customer
Service Dimensions
4. INDIVIDUAL/ORGANIZATIONAL RELATIONSHIPS
At one time loyalty and long service with one company were considered an appropriate individual/organizational relationship. Recently, changes have been noted in both loyalty and length of service, with employees leaving more frequently.
Several
factors are driving the changes, including the following:
- Mergers and acquisitions
- Self-employment and contingent work
- Outsourcing jobs
- Loss of employment security
- Less management job tenure
- Altered “psychological contracts”
Surveys show that workers have grown more skeptical about their chances to share equitably in the success of the organizations that they helped create.
While some 60% or more of workers report they are satisfied with their jobs, only about half would recommend their employer as a good place to work and only 35% trust top management. As a result, faith in management and belief in workplace reciprocity has eroded.
The idea
of reciprocity seems to be a very significant issue in these changes.
Reciprocity
means to “give in return” and is basic to
human feelings of fair treatment.
When organizations merge, lay off large numbers of employees, outsource work, and use large numbers of temporary and part-time workers, employees see no reason to give their loyalty in return for this loss of job security.
Reciprocity = A feeling of obligation to “give in return” or reciprocate good treatment.
5. IMPORTANCE OF
EMPLOYEE/ORGANIZATIONAL RELATIONSHIPS
It can be argued (and it is) that the relationship between an employer and employee really does not affect performance. The employer exchanges pay for the performance of specified work, and that is all that is necessary. As in a legal agreement, one party contracts for specific services of the other party. Recent research suggests that employees perform better when they work in a situation with mutual investment, or even overinvestment by the employer, than they do in a legal agreement situation. The implication is that the employee-organizational relationship does matter and should be chosen carefully. Many employees seem to respond favorably in performance and attitude when organizations are willing to commit to a mutual relationship.
Such a commitment might
include traditional benefits, rewards for longevity, flexible schedules,
communication with supervisors, and work-life balance. These observations
suggest that despite all the changes in workplaces, many employers still want
committed workers willing to solve difficult problems. Many employees still
want security and stability, interesting work, a supervisor they respect, and competitive
pay and benefits.
6. THE PSYCHOLOGICAL CONTRACT
The long-term economic
health of most organizations depends on the efforts of employees with the
appropriate knowledge, skills, and abilities. One concept that has been useful
in discussing employees’ relationship with the organization is that of a psychological
contract, which refers to the unwritten expectations that employees and
employers have about the nature of their work relationships. Because the
psychological contract is individual and subjective in nature, it focuses on
expectations about “fairness” that may not be defined clearly by employees.
Both tangible items (such
as wages, benefits, employee productivity, and attendance) and intangible items
(such as loyalty, fair treatment, and job security) are encompassed by
psychological contracts between employers and employees.
Many employers may attempt
to detail their expectations through employee handbooks and policy manuals, but
those materials are only part of the total “contractual” relationship.
TRADITIONAL
PSYCHOLOGICAL CONTRACT
In the “good old days,”
employees exchanged their efforts and capabilities for a secure job that
offered rising wages, comprehensive benefits, and career progression within the
organization. But as organizations have downsized and cut workers who have
given long and loyal service, a growing number of employees question whether
they should be loyal to their employers.The transformation in the psychological
contract mirrors an evolution in which organizations have moved from employing
individuals just to perform tasks, to employing individuals expected to produce
results. Rather than just paying them to follow orders and put in time,
increasingly employers are expecting employees to utilize their skills and
capabilities to accomplish organizational results. According to one expert, the
new psychological contract rewards employees for contributing to organizational
success in the competitive marketplace for goods and services.
LOYALTY
Studies suggest that employees do believe in these unwritten agreements or psychological contracts, and hope their employers will keep their sides of the agreement.When employers do not, employees feel a minimal necessity to contribute to the organizational productivity because they no longer trust the company. Thus, employees’ loyalty has been affected negatively.26 Not everyone feels that a decline in employee loyalty is a problem.However, more employers are finding that in tight labor markets turnover of key people occurs more frequently when employee loyalty is low, and they have concluded that a loyal and committed workforce is important.
Perhaps loyalty is
necessary, but it should be based on a new psychological contract with the
following expectations:
Employers
provide:
·
Competitive compensation
·
Benefits tailored to the workforce
·
Flexibility to balance work and
home life
Employees
contribute:
·
Continuous skill improvement
·
Reasonable time with organization
·
Extra effort when needed home life
The remainder of this chapter uses the conceptual model shown in Figure . This model shows the linkages, beginning with individual and job characteristics,that lead to job satisfaction, organizational commitment, and affect the organizational outcomes—productivity, quality, and service—already discussed.
All five output variables can be used
to measure HR effectiveness.
Model of
Individual/Organizational Performance
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