High Performance Human Resource (HP-HR) Practices: 20 years of experience

1. High Performance Human Resource (HP-HR) Practices: 20 years of experience Inchniowski and Shaw: Innovative Human Resource Practices Batt, Colvin and Keefe: High Commitment Human Resource Practices Verma and Fang: High Involvement Human Resource Practices

2. High Performance Human Resource (HP-HR) Practices: 20 years of experience Production problem solving teams that maximize horizontal information flows Job rotation to build flexibility, team communication Careful screening of workers down the job ladder to identify team skills Job security used to build incentives to invest in firm’s future Training in problem solving, team skills Incentive pay Ichniowski and Shaw (2003)

3. High Performance Human Resource (HP-HR) Practices: 20 years of experience Compare to Traditional Human Resource Practices Wage and salary only loosely tied to performance Narrowly defined jobs Limited screening for nonmanagerial jobs Tight supervision Little training Layoffs in slack times Osterman (2000) reports that between 1992-1997 Proportion using at least one HP-HR practice rose from 65% to 85% Proportion using multiple HP-HR rose from 38% to 71%

4. High Performance Human Resource (HP-HR) Practices: 20 years of experience Group pay incentives have free rider problems Use smaller groups to foster peer pressure, mutual monitoring Train on workplace norms Combine with stronger screen on team work at hiring =>Multiple HP-HR methods make incentive pay more successful

5. High Performance Human Resource (HP-HR) Practices: 20 years of experience Fostering worker ideas to raise productivity Requires job security, or workers may fear job loss from suggestions Flexibility in job assignments makes commitment to job security more credible. Commitment to training makes commitment to job security more credible. =>Multiple HP-HR methods make decentralized decision-making more successful

6. High Performance Human Resource (HP-HR) Practices: 20 years of experience When employees are expected to multitask Requires combination of fixed compensation for routine tasks More complex compensation for innovatrive activities =>Multiple HP-HR methods make multi-tasking more successful

7. High Performance Human Resource (HP-HR) Practices: 20 years of experience Ichniowski, Shaw and Prennushi (1997) American Economic Review Examine use of alternative HR practices in the steel industry Innovative HR system: labor productivity 6.7% higher High teamwork: labor productivity 3.2% higher High communication: labor productivity 1.4% higher Reference is traditional HR Note: Individual HR practices had no effect in isolation—only in combination Does this mean profits higher with innovative HR?

8. High Performance Human Resource (HP-HR) Practices: 20 years of experience Ichniowski and Shaw (2003) review evidence from several studies. Higher returns from HP-HR also found in Nonluxury auto assembly Apparel manufacturing Metalworking and machine shops Customer service in communications Scientists in Pharmaceuticals BUT—not all studies find positives If positives not realized, companies change practices—selection These are not plug-in solutions

9. High Performance Human Resource (HP-HR) Practices: 20 years of experience Where are innovative HR practices more common? More complex production processes (more scope for returns) New or newly reopened plants (more costly to convert ongoing operations) May be complementary with information technologies Trace sales back to team Track efficiency, quality Enhance accountability Prevalence in new plants makes it difficult to disentangle HP-HR effects from other technologies

10. High Performance Human Resource (HP-HR) Practices: 20 years of experience NUMMI: New United Motor Manufacturing, Inc. GM plant built in Fremont CA, 1962 High absenteeism Poor quality Closed in 1982

11. High Performance Human Resource (HP-HR) Practices: 20 years of experience NUMMI: New United Motor Manufacturing, Inc. Reopened in 1983: joint Toyota-GM venture 85% of former workers HP-HR practices (teams, training, job flexibility, decentralized decision-making, …) Considered one of the most productive automobile plants in the U.S. (my Toyota) Is it HP-HR, new production methods, new management, shock of plant closing, ….?

12. High Performance Human Resource (HP-HR) Practices: 20 years of experience Do workers work differently in innovative HR plants? Surveys of workers—whom do you communicate or interact with? In innovative HR plants, workers Interact with more workers, managers on their own line Interact with more workers, managers on other lines Broadened communication links appear to be a major feature of HP-HR plants

13. HP-HR Practices with Unions Role of unions in productivity Shock Exit-Voice Tradeoff Union representation allows worker dissatisfaction to be addressed, lessens turnover Are teams another voice mechanism? Do they lower turnover?

14. Batt, Rosemary, Alexander J. S. Colvin and Jeffrey Keefe. “Employee Voice, Human Resource Practices, and Quit Rates: Evidence from the Telecommunications Industry.” Industrial and Labor Relations Review 55 (July 2002): 573-594. Grievance mechanism (good sign) vs. Grievance use (bad sign) Endogenous? Alternative HR practices: Reengineering vs. HP-HR

15. Batt, Rosemary, Alexander J. S. Colvin and Jeffrey Keefe. “Employee Voice, Human Resource Practices, and Quit Rates: Evidence from the Telecommunications Industry.” Industrial and Labor Relations Review 55 (July 2002): 573-594. VOICE: presence - + VOICE: rate - QUITS HP-HR Reengineering +

16. Batt, Rosemary, Alexander J. S. Colvin and Jeffrey Keefe. “Employee Voice, Human Resource Practices, and Quit Rates: Evidence from the Telecommunications Industry.” Industrial and Labor Relations Review 55 (July 2002): 573-594. Table 2: Relationship between Union and use of HR mechanisms Unions less likely to have HP-HR system More likely to have grievance procedure More likely to use grievance procedure Table 3: Empirical Model of Quits HP-HR lowers quit rate Union lowers quit rate even more Pay lowers quit rate Reengineering raises quit rate Table 4: Grievance rate does not significantly affect quits

17. Verma, Anil and Tony Fang. “Workplace Innovation and Union Status: Synergy or Strife?” IRRA 55th Annual Proceedings. (2003):189-198. Table 2: HP-HR raises pace of both product and process innovations Unions do not alter pace of innovations

18. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Do unions enhance or limit HP-HR implementation? Because unions foster communication among workers, they may foster implementation of HP-HR programs

19. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Union Leadership Union Membership Labor Management Committees (Decision Rings) Problem Solving Teams (Problem Resolution Circles) Off-line Partnering: (Operating and Middle Management) Self-Directed Work Teams On-line

20. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Implementation at Saturn New plant: Prior agreement to set up HP-HR between UAW and GM 5,500 employees in about 700 Work teams Teams organized into departments of ~100 employees each Each department has two advisors, one from union and one from management 1,100 union members have some sort of leadership responsibility

21. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Implementation at Saturn Assignments All decisions by consensus Union is a full partner in all business decisions Joint management at al levels, department to corporate With 20% of union members in some form of leadership position, are horizontal and vertical information flows enhanced?

22. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Hypotheses Information flows will differ between union and nonunion managers Quality will be improved in union managed sectors due to improved communication, coordination and problem-solving Quality enhanced when there is a balance between people and production management Quality enhanced when union and nonunion managers share common goals

23. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Hypotheses Information flows will differ between union and nonunion managers (data on communications network) Quality will be improved in union managed sectors due to improved communication, coordination and problem-solving Quality enhanced when there is a balance between people and production management (time use survey of managers) Quality enhanced when union and nonunion managers work more closely (degree of agreement on goals between advisors)

24. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Hypotheses Information flows will differ between union and nonunion managers Figure 2: Union advisors had denser communication networks Union advisors spent more time on people problems, Nonunion advisors spent more time on production problems Better performing units devoted considerably more time to quality issues vs other issues

25. Rubinstein, Saul A. “The Impact of Co-Management on Quality Performance: The Case of the Saturn Corporation.” Industrial and Labor Relations Review 53 (January 2000): 197-218. Hypotheses 2-4 Table 4: Note small sample size! Balance is ratio of time spent managing production vs people. Measure reflects closeness to 0.5? Alignment, union communications are tied to improved quality, less so to initial quality level

26. Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218. In defense of traditional HR…. Large airplane manufacturer Long-time traditional (adversarial and sometimes militant) relationship between union and firm Monthly data 1974-1991 follow the producton of a new line of commercial aircraft, redesigned in 1980 Inverse productivity measure: Actual relative to planned hours per plane

27. Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218. Over the period (Figure 1) 3 strikes Work-to-rule slow down 6 union presidents 1-3 moderate 4 most militant, drives union into receivership 5 promised to work closely with management 6 promised to end Total Quality Management (TQM) 4 CEOs 1: traditional adversarial relationship with labor 2: Quality circles 3: TQM 4: Return to tight management, ended TQM

28. Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218. Table 2: Concerted actions cost productivity Takes 1-4 months to return production to normal Costs in lost production Strike 1: $2.7 million Strike 2: $0.8 million Strike 3: $14 million Work-to-Rule: $21 million No gain from TQM, quality circles Although labor productivity had started to rise by the end of the TQM period

29. Kleiner, Morris M., Jonathan S Leonard, and Adam M. Pilarski. “How Industrial Relations Affects Plant Performance: The Case of Commercial Aircraft Manufacturing.” Industrial and Labor Relations Review 55 (January 2002): 195-218. Why the lack of return to HP-HR? Ongoing plant—transaction costs for change Initial implementation may lead to productivity losses First-line supervisors feared loss of jobs Some in the union saw TQM as a sell-out to management

30. High Performance Human Resource (HP-HR) Practices: 20 years of experience Where are innovative HR practices more common? More complex production processes (more scope for returns) New or newly reopened plants (more costly to convert ongoing operations) May be complementary with information technologies