Customer Reviews

The Human Equation: Building Profits by Putting People First

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The premise of Pfeffer's book is that companies' success is directly correlated to the quality of people and their management. This seems like common sense. After all, many companies proclaim "people are our biggest asset." In practice, however, it's uncommon sense: companies often lack the deep conviction necessary to follow through. It's much easier to take a "tough love" approach to "management," cut training and lay off 10% of the workforce than it is to focus on the long-term people issue.

Based on his research, Pfeffer offers several HR practices that are common in effective organizations. Among them:

* Maintain a sense of employment security. Psychologically speaking, people will work more effectively when they can focus on doing their job rather than worrying about keeping it. Similarly, if employees are your company's hugest asset, then it behooves you to ensure they're not working for your competition. This is common sense. More companies practice uncommon sense and get sucked into the peformance death-spiral. For example, we frequently read where a new CEO is brought in and his first action is to initiate layoffs. (Apple Computer is an often-cited case study of this.) With their sense of security threatened, the remaining employees will become less motivated. Profits begin to sag, so the company reacts by cutting training. Employees may have more accidents, and customer service is affected. The spiral continues until it or the company broken.

* Hire selectively - a recurring theme is that to avoid layoffs, you need to be operating efficiently enough not to *have* extra employees.

In a perfect world, we would have a large number of applicants, screen them based on corporate fit and their attitude, then filter them out through several rounds of screening. Senior staff should become involved in the latter part of the process to emphasize the importance of hiring. After hiring, we need to evaluate the success of our hiring practices and adjust them as necessary. This follows the axiom "that which gets measured, gets done." This common sense approach is used by highly successful companies such as Southwest Airlines and Cisco. Companies exhibiting "uncommon sense" may get so desperate to fill the position that they go against their own guidelines. Having made this mistake before, I am very much aware that a bad hire is far worse than no hire.

* Facilitate ownership and responsibility through decentralized decision making.

Assuming you hire the "best and brightest," you should trust them to use their brains. This provides a sense of ownership, challenge, and supports the organization's organic development. We all hope to have the equivalent of the "Post-It" note developed internally by folks taking initiative.

Pfeffer had an interesting comment from Bill Gurley about the effectiveness of stock options. Specifically, they're not really as much a sense of ownership as we'd like to believe because if the market has a violent downswing (as it did in early 2000), employees are almost incented to leave their underwater options.

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Pfeffer's book is an evolution of his previous ideas. What's also interesting in his analysis was seeing that long-term company success was *not* correlated to technology or industry.

Pfeffer's suggestions seem like common sense, but Pfeffer realizes they're not AND is aware of the need to quantify the information. The case studies and quantitative research are very helpful in supporting these ideas. In a few of the cases -- Lincoln Electric springs to mind -- it would be especially helpful to have a more recent examination, perhaps a follow-up.

This sequel should have been first. The prof's book: Competitive Advantage through People gave tactical initiatives to create a motivated and productive workforce. But like so many people in industry who want to implement the type of intiatives discussed in that book, I found myself needing substantive validation on why should our firm engage in these behaviors. THIS BOOK SAYS WHY!! We all know instinctively that many of the tactics outlined in Competive Advantage are the right things to do, yet we are all faced with needing tangible explanations for why we should engage in these behaviors. The Human Equation can help develop the business case for that explanation.

Thanks Dr. Pfeffer

Peffer, along with Alfie Kohn and a few others (like W. Edwards Deming, Peter Senge, and Douglas McGregor), is a paragon of sanity, clarity of thought and analysis, and uncommon common sense, in a world of business increasingly driven by bizarre fads, inappropriately mechanistic models, unreal economic assumptions, macho narcissists, callow market analysts, and assorted other narrow thinkers. In a book that is a logical extension of his previous work (Competitive Advantage Through People, which I also recommend), he not only compellingly and objectively demonstrates why putting people (the work force) at the center of company strategy is the key to long-term success (rather than the short-term, cost-cutting downsizing approach), but also he provides the guidance for operationalizing this approach. Unlike most business books, which often seem to consist of little more than unsupported personal opinion and empty platitudes, this is a work of scholarship, substance, and practicality. The writing is clear, the examples are enlightening and interesting. I highly recommend this book, and all of Pfeffer's other books as well.

The Human Equation (1998) is an exceptional book. In the first chapter Pfeffer shows that conventional wisdom about the sources of organization success are not correct. In particular he disproves the ideas:

- that it is essential to work in the right sector,
- that the size of the organization is crucial,
- that it is necessary to have an international precense,
- that downsizing is indispensible, and
- that it is necessary to have a technological lead.

Then the author clearly and impressively presents the enormous amount of evidence of the last decade showing the strong association between how organization treat people and how they score on financial and operational performance indicators. Pfeffer describes the following seven HR practices that demonstrable correlate with organization success. He names these practices High Performance Work Practices. They are:

1. Employment security
2. Selective hiring of new personnel
3. Self-managed teams and decentralization of decision making as the basic principles of organization design
4. Comparatively high compensation contingent on organizational performance
5. Extensive training
6. Reduces status distinctions and barriers, including dress, languag, office arrangements, and wage differences across levels
7. Extensive sharing of financial and performance information throughout the organization

This list contains some elements that may seem counterintuitive to some. For instance: how can it be that high wages contribute to financial performance? Don't they just keep the profits low? And how can you afford to be selective in this hard labour market? And how can companies afford to invest much in training of personnel? Aren't employees so mobile and disloyal that you run the risk of training them for your competitor? Speaking about this, how can you in this time of employability of employment security? And it is wise to have an open information policy? If you'd do that, wouldn't you weaken your position by feeding your competitor with valuable information?

If you read this book you will find crystal-clear answers to these questions. The conclusion is that the seven practices do indeed work.

This book is very well researched, although perhaps over-long in some parts.

The underlying message is that "do you see people as labour costs to be reduced or eliminated, or do you see your people as the only thing that differentiates you from your competition?"

I did find it quite satisfyingly radical for a US author to actually recommend that US Managers need to look overseas, as in this quote :
"One might be well-served to spend more time outside of the United States ... What has come to be taken as 'good management practice' in the United States is very, very culturally specific to the United States. Managing in a different way may require developing a broader world view ..."
I can related to that, given that I work in the UK for a US Fortune 500 Company.

The Case Studies cover a broad range of Industries such as Automobile, Banking, Steel, Clothing, Semiconductors, Retailing, Oil Refining, Energy, Airlines; and Geographical coverage includes not only North America, but quite a number of Countries in Europe & Asia.

A Chapter dedicated to Unions but yet not to Union-bashing is a pleasant change.

All in all, an interesting book that I wish more CEO's & HR Officers would read to see the alternatives to boom-and-bust downsizing & outsourcing.

Pfeffer presents a very readible summary of the relationships between "people-oriente" management practices and positive organizational outcomes. He reviews what he considers the various obstacles to managment in terms of implementing such practices (e.g. short term emphases, etc.). He argues that unions are valuable and can be profitably utilized by firms. He is somewhat shallow in his analysis of why managers are reluctant to fully embrace such enlightened practices--managers arn't as dumb as Pfeffer implies...All in all, a book that makes one sit up and think about your own organizatin.

Using hard data and perceptiveness, Pfeffer cuts through today's conventional 'wisdoms' to reawaken us to the human core of organization. In this age of downsizing, outsourcing, and quarterly-bound thinking, the author convincingly argues for putting people at the heart of strategy. While on target for the 21st Century, this book is in the spirit and best tradition of such pioneers as Douglas McGregor, Abe Maslow, Frederick Herzberg, Chris Argyris, and many more. Indeed, in these times it is radical to argue for putting people first and assert that, to paraphrase Pfeffer, profits are achieved through people. A 'must-read' for every executive!

Putting people first is more often said than done. From extensive research and over ten years of firsthand experience I can honestly say that this is rarely put into practice, particularly in larger organizations.

The very title conveys a powerful message "... Building Profits by Putting People First." Since the dawn of the Industrial Age, people were considered costs and therefore something to be minimized or eliminated as much as possible.

However, this attitude is of little relevance in the Information Age of today. While larger organizations struggle to adapt to actually valuing people for what they are - highly valued assets, a golden opportunity exists for Entrepreneurs who, in forming the companies of tomorrow, seek to maximize profits by putting people first.

Based on his research, Pfeffer offers several HR practices that are common in effective organizations. His book is divided into two main sections:

Part I - People-Centered Management And Organizational Success
Part II - Barriers to Implementing Performance Knowledge: How Conventional Wisdom Is Wrong


For a quick assessment of the power of this book, I recommend you read chapter 10 first - "People, Profits, and Perspective" and be sure to review figure 10-1 "WHAT A PEOPLE-BASED STRATEGY DOES" on page 301.

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Michael Davis - Editor, Byvation

Summary:
This book highlights the importance of respecting employees in an organization. By treating employees as a strategic asset, a firm can make lucrative profits. The book can be divided into the following parts.

¡P Wrong sources of organizational success that firms
commonly use
¡P Seven practices of successful organizations
¡P Reasons why smart organizations sometimes do dumb
things and the suggested solutions
¡P How conventional wisdom about employment contract,
compensation method, and unions is wrong
¡P The role of public policy in making profits through
people

Comment:
- Good points:

1. Good insights provided:
The author provides his opinions about why and how putting people first can bring great returns to organizations with different detailed examples such as Lincoln Electric. This can make me understand the importance of employees to organizations.

2. Lots of evidence provided:
This book explains why putting people first can help companies make great profits by providing lots of examples, which include companies in different industries. Some examples are explained in a more detailed way such as Albert Dunlap.

3. Clear illustration of the concepts:
The main message of each chapter is clearly delivered.

Also, as the main theme of this book is about ¡§building profits by putting people first¡¨, the author has provided a diagram called ¡§Downward Performance Spiral¡¨ to illustrate the relationship between organization¡¦s poor treatment of its¡¦ employees and its¡¦ corresponding performance. Besides, he provided a diagram about how ¡§People-based strategy¡¨ can make sustained profits to organizations. All these diagrams can increase my understanding about these concepts.

4. Comprehensive information provided:
The author not only states what are the wrong sources of organizational success that firms commonly use, he also provides what and how organizations can do to make lucrative profits.

- Bad points:

1. Not interesting enough:
The author has repeated the main theme of this book ¡V ¡§building profits by putting people first¡¨ many times in different chapters. Although this can remind readers about the main theme of this book, readers may feel too bored.

Monarchs are rarely envisioned as capitalists because they need not earn the funds they spend. Capitalists are those who through the talents of others, and the development of talent, earn the profits distributed to shareholders who place faith in their ability to manage.

While cost cutting, and particuarly, people cutting, may save money and enhance earnings, there is no capitalism involved except to move people off of the payroll, or reduce their pay. It is an illusion of cost efficiency meant to simulate capitalism but without delivering it.

The erosion of long term value, or ignoring it, operates to enhance the short term effect of earnings per share, the deceptive measure by which company shares are traded, idolizing earnings over the value not created, or retained for future growth.

Those who participate in such deceptions cannot call themselves capitalists by virtue of the fact that they capitalize upon saving money to overstate the value, or lack of value, that exists in their corporate nurturing. Capitalists are hired to nurture and develop VALUE of a company, not to reduce it.

Earnings is the measure by which companies measure cash flow of a company, not it's value. Capitalism is about preserving and increasing value of the company through management of its people, not by manipulating its balance sheet.