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The Human Equation: Building Profits by Putting People First Hardcover – January 30, 1998
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The lure of new and profitable markets has lead many companies to formulate strategies to capture these markets. This focus on strategy often leads to downsizing and the shedding of old businesses in favor of a "lean" economic model that stresses outsourcing. The strategy that leads to downsizing has its short-term rewards--a fatter bottom line and happy shareholders.
Jeffrey Pfeffer argues that much of this downsizing is nothing more than a throwback to 100-year-old employment practices. Instead of cutting costs as a means to increase profits, companies should focus more on building revenue by relying on solid people-management skills. Through dozens of examples, Pfeffer demonstrates that successful companies worry more about people and the competence in their organizations than they do about having the right strategy. Pfeffer contends that the strategy part is relatively easy--it's the day-to-day execution that's hard. Companies that understand the relationship between people and profits are the ones that usually win in the long run.
From Library Journal
Pfeffer (Competitive Advantage Through People, LJ 2/15/94) argues persuasively that organizations typically fail to consider their culture and capabilities, particularly when planning for change. He addresses a number of people issues, such as downsizing, hiring practices, compensation approaches, and alignment of management practice with stated values. Although the author favors a fundamental approach, he shores it up with anecdotal information, logic, and wit, noting, for example, that downsizing does not eliminate costs but could be radically counterproductive (i.e., no expenses, no enterprise). Further, he gives examples of organizations that, while decidedly low-tech, manage to produce profits often associated with high-tech enterprises. Pfeffer further points out how a number of organizations in typically low-margin sectors outperform their competitors through an alignment of values. Indeed, Pfeffer's examples emphasize doing the right thing the right way. This book should be required reading for those planning organizational change.?Steven Silkunas, SEPTA/FRONTIER, Lansdale, Pa.
Copyright 1997 Reed Business Information, Inc.
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- 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.
Thanks Dr. Pfeffer
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.
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.
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