Running head: DO HIGH PERFORMANCE WORK PRACTICES ALWAYS IMPROVE

ORGANISATIONAL PERFORMANCE? A CRITICAL REVIEW 1

Do High-Performance Work Practices Always Improve Organisational Performance? A

Critical Review

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DO HIGH PERFORMANCE WORK PRACTICES ALWAYS IMPROVE

ORGANISATIONAL PERFORMANCE? A CRITICAL REVIEW 2

Do High-Performance Work Practices Always Improve Organisational Performance? A

Critical Review

The relationship between how an organization treats its employees and its

performance has been a hotly debated topic in the academic as well as the corporate world

since the 1980s (Boxall & Macky, 2007; Combs, Liu, Hall, & Ketchen, 2006). Procedures

and process within an organization concerning high-performance work practices (HPWPs)

have been at the center of this prolonged debate. An expansive academic literature has

resulted to numerous definitions of HPWPs. Gritti and Leoni (2012) defines them as practices

and process that result in high-performance work organizations (HPWOs). HPWOs are those

organizations that emphasize on highly empowered and engaged employees dedicated to

offering high-quality goods and services. Jorgensen and Newton (2013) give an expansive

definition while discussing HPWPs in the context of strategic management. According to the

study, HPWPS are those practices geared towards building knowledge, skills, and abilities

(KSAs) while empowering the employees to use leverage those KSA to support the

organization objectives. HPWPs include human resource management practices such as

flexible working arrangement, increased job autonomy, employee participation in making

decisions, incentive compensation, and training and development (Jorgensen and Newton,

2013; Kling, 19954; Sung & Ashton, 2005).

The debate that HPWPs result in improved organizational performance has attracted

support as well as criticism. A wide body of literature exists finding a link between HPWPS

and improved organizational performance based on different metrics. Combs, Liu, Hall, and

Ketchen (2006) used meta-analysis to find to which extent that HPWPs matter in the

manufacturing sector. The research finds a strong correlation between HPWPs and four

measures of performance used to measure organizational performance. The findings were

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similar to a study on the relationship between high-performance work practices and an

organization’s financial performance conducted by Boxall and Macky (2007). The study

found out that high-performance work organizations tended to have better financial

performance than those that did not adopt the practices. However, other researchers feel that

HPWPs are just and are resulting in working intensification rather than improve

organizational performance. Such were the findings in research by Sparham and Sung (2007)

that when such practices are centered on organizational rather than workers, they are likely to

increase pressure on workers resulting in working intensification hence reduced

organizational performance. Wood et al. (2012) echo similar sentiments while evaluating the

effect of HPWPs on workers. The research established when such practices target individual

employees rather than placing them on a team, the high expectations may result in

demotivation of employees hence reducing the overall performance of the organization.

Although the increased debate HPWPs become an integral part of human resource

management in the modern multinational operating highly competitive market, there is a

strong correlation between HPWPs and organization performance than there is a negative

correlation. A key goal of the paper is to examine how strong the opposing claims are.

Though the claims that HPWPs will affect have a negative impact on an organization’s

performance, evidence to this end is very circumstantial. Therefore, utilizing a wide array of

researchers and case studies, the paper argues that HPWPs always lead to improved

organization performance when they aligned with the business strategy of the organization.

Supporting Arguments that HPWPs Results to Improved Organizational Performance

Expanding literature has documented a strong link between HPWPs and high

organizational performance (Jorgensen & Newton, 2013; Tamkin, 2004; Tregaskis et al.,
DO HIGH PERFORMANCE WORK PRACTICES ALWAYS IMPROVE

ORGANISATIONAL PERFORMANCE? A CRITICAL REVIEW 4

2012). Moreover, a wide array of case studies has also found compelling evidence showing

organizations who invest in HPWPs records better performance measured on innovation,

financial performance, or increased returns on investment. Kling (1995) conducted such as a

study in the context of the steel industry and found out that steel firm that utilized HPWPs

practices recorded better performance than those that continued to use traditional human

resource management practices. Specifically, the study emphasizes the role of increased trust

in increasing employees’ selflessness in achieving better results for the company. Similar

research by Wood and Van Veldhoven (2012) arrives at similar observations after

undertaking a similar study in the technology industry. The study established that companies

such as Google Inc. Facebook Inc. and Apple Inc. that invests heavily in HPWPs posted

better performance from all fronts compared to competitors who are still using the traditional

employee performance. Such researchers and cases studies that give real life examples that

link HPWPs to better performance are the key reason for supporting the debate that HPWPs

always leads to improved organizational performance (Tregaskis et al., 2012).

The paper makes key claims in the support that HPWPs leads to improved

organizational performance. With the help of evidence derived from the past researches and

case studies, the paper argues that though HPWPs may affect some workers negatively, they

always result in improved organizational performance.

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HPWPs Facilitate Trust Building Leading to Improved Performance

A key challenge that traditional organizations face is mistrust between the

management and the junior employees. Mistrust between management makes it hard for the

management to motivate employees to be selfless in pursuing the organizational objectives

resulting to poor performance. HPWPs practices help address such challenges through two

key ways:

Reducing the Power Gap between the Junior Employees and the Management

A key source of mistrust between employees and the management is a breakdown of

communication as information tends to spread through informal channels (Kalleberg, Berg, &

Appelbaum, 2002). Therefore, rather than feeling like a part of an organization that cares for

their needs and feelings, employees in such organization feel as if they are a tool for meeting

managers agenda. As such, open communication between the management is one of the

employee empowerment tool envisioned in HPWPs. High-performance organizations achieve

this goal by encouraging bottom-up communication where employees placed in teams have a

better chance of communicating their ideas when the managers listen. A study conducted by

Sætren and Laumann (2014) in the high-risk industry established that junior employees who

had greater access to the management recorded high levels. The study attributed the

observation to the fact that when managers who listened to their juniors demonstrated

concern for them hence winning their trust. Wood, Van Veldhoven, Croon, and De Menezes

(2002) had similar findings noting that junior employees look up to their leaders for

guidance. As such, a show of concern by the managers towards the employees encouraged

such workers to reciprocate.

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HPWPS practices also build trust through delegation by top managers to the junior

employees. A delegation of duties to junior employees by the management serves as both a

motivating factor as an ethos of building trust. Tamkin (2004) observes that in high-

performance organizations, a manager may delegate more challenging to their juniors with

the key goal of showing their belief in the employees’ ability to perform a more challenging

task. However, Timiyo (2014) cautions that while such as strategy can work in many

organizations; it is best suited in a knowledge-based organization. Delegating a more

challenging task motivates the employees have more trust in their managers resulting to a

cordial working environment hence improved organization performance. In fact, a study

conducted by Guest, Brown, Peccei, and Huxley (2008) on role partnership in building trust

in the steel industry established that employees who had higher levels of trust on their

managers had higher job satisfaction and autonomy. Combined, the two factors resulted in

faster production cycles and high levels of innovation leading to high performance in the

organization.

Cultivating Team Work

HPWPs also cultivate teamwork hence enhancing partnership amongst employees.

Team building is a foundation employee empowerment and involvement tool. Tregaskis et al.

(2012 observe that lack of teamwork results to unfair competition amongst the employees.

Such an environment reduces employee effectiveness, as they are less likely to share ideas

hence improving their job outcomes. To this end, high work performance organizations

overcome such challenges by decentralizing operations and putting employees into teams

each allocated particular jobs in the organizations (Kalleberg, Berg, & Appelbaum, 2002;

Kling, 1995; Sætren & Laumann, 2014). Such teamwork creates an environment of trust

among the employees as well facilitating sharing of tasks. Timiyo (2014) notes that teamwork
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goes further to help employees in the same teams become friends through uniting them to

pursue similar goals geared towards the achievement of the organization’s mission and

vision. Consequently, employees in the same team assigned to perform the same task will be

assigned parts of the task in which they have competence. Consequently, employees in a

high-performance organization have higher job satisfaction as job pressure is distributed

among members resulting in improved productivity hence organization performance (Combs,

Liu, Hall, & Ketchen, 2006; Gould-Williams, 2004; Guest, Brown, Peccei, & Huxley, 2008).

Guest, Brown, Peccei, & Huxley (2008) investigate whether partnership at work is

likely to increase trust. The study established that increased trust at a workplace where

employees rather than representatives had a direct connection with the management increase

trust between the employees and the management. To this end, Kalleberg, Berg, and

Appelbaum (2002) ponder on the link between trust and organizational performance. The

study finds out that in organizations where employees trust their managers registers more

commitment towards the organization in addition to having higher job satisfaction. Such

employees who are committed to the organizational goals exhibit organizational citizenship

behaviors due to high levels of job satisfaction. Consequently, such employees are likely to

exhibit selfless actions in execution of their jobs by doing more than their jobs requires

(Kalleberg, Berg, & Appelbaum, 2002). Sætren and Laumann (2014) arrived at similar

observations when evaluating ways in which HPWPs contributes to organizational

performance. In addition to encouraging employees to go beyond their job requirement; trust

between the employees and the employer facilitates employees to adapt to change, which is a

key operational strategy in high-performance organizations.

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HPWPs Promotes Creativity and Innovation

A wide body of literature exists seeking to find the relationship between HPWPs and

a firm’s propensity for innovation. Leoni and Gritti (1996) conducted such as a study in the

context of industrial relations and found that firms with HPWPs had high innovation levels

compared to those that shied away from such best practices in managing employees. The

expansive literature reveals three key ways in which HPWPs increases creativity and

innovation in an organization resulting in better organizational performance.

HPWPs Results to Product and Process Innovation

Gritti and Leoni (2012) research provides formidable insights regarding ways in

which HPWPs encourages innovation and creativity in an organization. Concerning product

innovation, democracy in workplace governance and participatory industrial relations have a

direct impact on creativity and innovation in the large organization while the effect is rather

moderate in medium organizations (Jorgensen, & Newton, 2013). A democratic workplace

gives employees more autonomy in executing their duties while they enjoy increased

attention from the management. Consequently, increased autonomy in doing the job gives the

employee a room to learn about changes that can be changed in products and forward the

ideas to the management (Gritti & Leoni, 2012; Jorgensen, & Newton, 2013).

HPWPs also facilitate innovation through the advocacy role of the union. However,

the approach used by the union has a profound effect on the outcome of HPWPs in bigger

firms. Advocacy by the union is more likely to reduce product innovation in an organization.

As Gritti and Leoni (2012) study establishes, increased product innovation would make

unions demand higher wages for their employees. However, when the union takes a

participatory role in the bargaining, it encourages the management to invest in product

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innovation resulting to enhanced performance of for the company. Participatory nature of the

union is achievable through participatory bargaining that fosters efficiency between wage

considerations and the former (Jorgensen, & Newton, 2013).

Concerning process innovation, Gritti & Leoni (2012), Jorgensen, & Newton (2013) and

O'Regan (2011) observe that job rotation and technological changes were two formidable

HPWPs practices that resulted in processing innovation. Job rotation is a high-performance

organization undertaking where employees are posted to do the task in different departments

or same tasks in different branches of the same company. O'Regan (2011) observes that job

rotation exposes employees to different challenges when performing the same task in

different departments. When bundled together with other HPWPs practices, job rotation gives

the employees a chance to introduce changes in their new workstations and use their

experience to optimize their performance. Consequently, the company achieves better

performance due to process innovation (Gritti & Leoni, 2012; Kalmi & Kauhanen, 2008).

Technological change is another key activity underpinning high-performance organizations.

As such, employees in such organizations are expected to remain relevant with the current

technology in a high-performance organization. Such extensive investment in current

technology positions the company results in process innovation resulting to high-quality

products hence better organizational performance (Kalmi & Kauhanen, 2008).

HPWPs Promotes Open and Trust-based Organizational Climate Facilitates Innovation

High-performance organizations advocate for trust and openness through effective

communication channels. Teece (2007) study categorizes trust and open communication as an

organization’s dynamic capabilities that determine its propensity to innovate. Such dynamic

capabilities enable an organization to adapt to the changing needs of customers as well

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technologies presenting opportunities to come up with new products and process that lead to

better organization performance. To this end, openness and trust facilitate innovation in two

key ways. First, openness compels a company to depart from centralized or hierarchical

management structures to decentralized management structures that help the top managers

have a close relationship with the customers (Tregaskis et al., 2012). Such approach implies

that the management has to expend more time listening to the junior employees who interacts

with the customer most of the time. As such, openness is vital as it helps the management to

communicate the organizational expectations, goals, and values of the organization hence

improving employee motivation and inspire organizational commitment to augment

enterprise performance dramatically (O'Regan, 2011; Sung & Ashton, 2005).

Secondly, trust is another dynamic capability that fosters innovation in high-

performance firms. Developing new products and process requires pooling of the

organizational talent into high-performance team each dedicated to achieving particular goals

for the organization. Teece (2007) observes that modern organizations require coming up

with new products and intellectual property that is close to impossible to imitate. Therefore,

trust and teamwork are necessary for ensuring that such intellectual properties are developed

and protected. Such environment is possible when the employees have organizational

citizenship and trust towards their managers and teammates (Jorgensen, & Newton, 2013).

HPWPs undertake activities such as training and development, sufficient incentives and

motivation technique geared towards cultivating trust and commitment towards the

organizational mission and vision. Besides, trust between the employees and the management

is invaluable in making radical and rapid changes in a high-performance organization (Boxall

& Macky, 2007). Innovation requires high levels of adaptability to remain ahead of
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competition and technology in the market. In the absence of trust, employees become

increasingly adamant to change as they see job residing as new demands aimed to intensify

their work. However, HPWPs overcome the barrier by bringing the management closer to the

employees and the clients, hence, building the trust needed to foster innovation in the high-

performance organization (Kalmi & Kauhanen, 2008).

HPWPs Promotes Investment in Research and Development

Guthrie et al. (2002) study on high-performance organizations in New Zealand

established that firms with differentiation strategy were highly inclined to purpose high-

performance work practices that their counterpart inclined towards cost-saving practices.

Differentiation strategy compels firms to come up with products that are very unique and

difficult to imitate. Such firms require highly talented, highly motivated, and a highly

innovative workforce. Therefore, a key activity in high-performance firms in heavy

investment in research and development. Research and development are the key driver of

creativity and innovation in any firm (Kalmi & Kauhanen, 2008). In fact, high-performance

firms such as Google, Apple, and Samsung are such high-performance firms pursuing

differentiation and making extensive use of bundled HPWPs. O'Regan (2011) study had

similar observation noting that high-performance organizations in Finland tended to invest

heavily in research and development. Key HPWPs activities in such companies include high

job security, heavy investment in training and development, and very flexible working

schedule.

Research and development require firms to support part of its staff for further training

in schools in special cases where knowledge of the market, as well as emergent technologies,
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is imperative in coming with new products (O'Regan, 2011). Secondly, job security is

invaluable for workers in high-performance organizations as such firms rarely layoff staff to

hence compelling employees to stay for longer periods with the company. In fact, Kalmi &

Kauhanen (2008) observe that high-performance organizations have very low staff turnover.

Low staff turnover acts as an incentive for innovation and creativity resulting in better

differentiation n the market hence better financial performance. Besides, HPWPs work

practices such as investment in training and development is a part of R&D strategy in high-

performance firms (Kalmi & Kauhanen, 2008; Jorgensen, & Newton, 2013). Such

investments ensure that employees possess the requisite skill needed to make new

technologies hence better performance in the market through differentiations. For instance,

Apple has leveraged on research and development to come up with highly differentiated and

difficult to imitate products making the company the largest global firm by both market

capitalization and profit (Gritti & Leoni, 2012).

HPWPs Increases Employees Productivity

In the corporate world, productivity is the rate of output per worker(Combs, Liu,

Hall, & Ketchen, 2006; Edwards & Wright, 2001). The productivity of workers is a key

metric used to measure the performance of a firm. Firms with a higher productivity per

worker post better performance due to better utilization of fixed assets, increased production,

and improved quality of products. Therefore, a key goal of high-performance organizations is

to increase output per worker resulting in improved performance of the enterprise. HPWPS

improve productivity on three fronts:

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Skills training and Development

Firms operating in a rapidly changing market leverages on employees ability to

foresee problems, ensure quality, eliminate bottlenecks, and develop new products (Gritti &

Leoni, 2012)). Such goals are better achieved through teamwork where employees bond and

participate in making decisions regarding increasing productivity. For instance, in modern

manufacturing, workers are grouped depending on their workstations, and each has goals and

objectives geared towards improved production and reduced defective products (Sparham &

Sung, 2007). However, increased emphasis on quality and learning from past mistakes

requires employees who have a broader understanding of the production process and

subsequent ramification of the company’s bottom line. As such, training and development

geared towards leadership and creative problem solving become invaluable (Tamkin, 2004).

A study by Vandenberg, Richardson, & Eastman (1999) seeking to investigate

training programs in 155 manufacturing firms established that firms that introduced formal

training programs for its employees recorded a 19 percent rise in productivity three years

after the commencement of the program. Further, the study found that of the 155 studied

firms, those whose labor productivity was below par had the plans of introducing training and

development to improve their worker's problem-solving skills and quality management at

team levels. To this end, training programs had a direct impact on firms’ productivity growth

helping firms reduce wastage. Similar study by Tregaskis et al. (2012) observe that in

addition to improved productivity, training and development resulted in increased quality of

products, leveraging a survey on 157 small manufacturing firms located in Michigan, the

researchers found out that training and development reduced the product scrapping rates by

74 percent with seven hours of training. Reducing scrapping of products and increasing
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productivity per worker goes further to improve the company’s productivity. High output per

worker results to improved profit margin for the company as is the case with reduced rate at

which products are scrapped during the production process (Timiyo, 2014).

Compensation Policy

Compensation policy is at the heart of HPWPs organizations. A vast academic

literature using both quantitative and qualitative has found a strong link between pay and

increased the productivity of the firm. In a modern high-performance organization, employers

are not only paying their employees better salaries but also sharing the profit with highly

skilled and employees considered an asset to the company (Sung & Ashton, 2005). Jorgensen

and Newton (2013) examines ways in which attractive compensation increases the

productivity of the firm. The study noted that compensation policy that awarded employees

generously encouraged such employees put the interest of the firm first leading to a longer

job tenure, greater adaptability to technological change, and increased product quality.

Profit sharing is another aspect compensation policy that is driving organizational

performance in modern firms (Gritti & Leoni, 2012). Modern companies such as those

operating in the technology industry and retailing industry have profit sharing agreement with

top managers to cultivate loyalty and improve performance. Besides salaries, such managers

enjoy hefty perks from stock options (Gritti & Leoni, 2012). For instance, Microsoft CEO,

Satyam Nadella, has become a major shareholder in the company thanks to stock options.

Other executives in the company also enjoy extensive stock options. A study conducted by

Tregaskis et al. (2012 sought to investigate how profit sharing affected a firm’s productivity

by reviewing 26 econometric studies. Fifty-percent studies found a positive correlation

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between profit sharing and productivity as managers were more likely to push for efficiency

and innovation in the company to improve the company’s bottom line hence increases their

earning through the rise in share prices as well as increased dividends (Sung & Ashton,

2005). The studies conducted before and after organizations established that a firm’s

productivity increased by three to five percent after introducing profit sharing compensation

policy (Tregaskis et al., 2012; Wood, Van Veldhoven, Croon and De Menezes, 2012).

Opposing Arguments that HPWPs Results to Improved Organizational Performance

HPWPs Will Result in Work Intensification

Contrarily to the gains evident in the high-performance organization, critics of

HPWPs, particularly from traditional labor practices argue that HPWPs always result to work

intensification rather than improving organizational performance. Sparham and Sung (2007)

reviews some of the claims against the use of HPWPs in the modern organization. The

research notes that while most critics of higher performance practices recognize that there

may be margin benefits to the organization such as high involvement, commitment, and

higher levels of discretion, the negative effect on the employees outweigh the benefits. The

increase in responsibility increased instances of work-related stress, and work-home spill

over is some negative effects of HPWPs on employees. Timiyo (2014) had similar

observations while undertaking a study on the link between HPWPs and the struggle between

work life balance that employees in modern organizations are struggling to achieve. The

study observes that intensification of work-life balances has made it increasingly harder for

employees to maintain a healthy lifestyle and seeking to meet organizational deadlines that
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are seeing employees take home assignments leading to stressed workers with poor

performance and productivity (Sparham & Sung, 2007; Timiyo, 2014; ).

However, the assertions that HPWPs are leading to workplace intensification rather

than improve the performance of the organization are far from the gains witnessed in the

industry. Most high-performance workplaces have put in place measures that facilitate

employees learns how to strike a balance between work and family life. Google is a company

whose renowned strategic human resource management practices have factored in employee

leisure time in their working hours. Such commitments seek to help reduce work-related

stress hence improving organizational stress. Besides, in high-performance organizations,

workers work in teams where very member work on a specific part of the task. Sharing of

tasks through teamwork does reduce not only work-related task but also reduces job

intensification contrary to the opponents’ assertions.

HPWPs Results to Anxiety and Job Burnout

According to Gulzar, Moon, Attiq, and Azam (2014) HPWPs have negative

psychological outcomes on the workers that degrade their performance hence reducing the

overall performance of the organization. First, critics of HPWPs argue that high involvement

performance practices raise the bar too high for employees resulting in performance anxiety.

Employees have different competencies as well emotional intelligence meaning they are a

maximum extent they can go to realize organizational objectives (Jensen, Patel, &

Messersmith, 2013). Whereas some workers can overstretch themselves to the limit and post

better results, others can only go to moderate extents. The discrepancy and increased

competition make other employees feel anxious that their performance is below par hence
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resulting in reduced productivity. Such anxiety results to job burnout where the worker may

experience both mental and emotional exhaustion due to the anxiety resulting from

deteriorating performance rather improved performance (Gulzar, Moon, Attiq, & Azam,

2014; Jensen, Patel, & Messersmith, 2013).

However, openness and trust that are key foundation pillar of HPWPs compliant

organizations leave no room for job anxiety. Open communication makes it easy for

employees to share their challenges with the management when they feel they cannot

accomplish a particular task as needed. In fact, Jorgensen, & Newton (2013) notes that job

anxiety is rife in organizations that do not make use of HPWPs since employees do not share

task whereas everyone struggles to outshine their colleagues. However, in high-performance

organizations, employees work as a team where task shared in line with everyone best ability

hence reducing any chances of job burnout.

Conclusion

The debates on the role of HPWPs continue to expand and intensify with the

expansion of academic literature on the topic. The effect of HPWPs in organizational

performance has taken the stage of the debate with the proponents arguing that such practices

improve organizational performance whereas critics opine otherwise. An evaluation of

academic literature shows that HPWPs always result in better organizational performance

when bundled together. A wide of past researchers have found a link between HPWPs and

improved organizational performance by building trust, increasing creativity and innovation,

and promoting employee productivity when bundling together. Though the critics of the

practices raise genuine concerns such as work intensification and job burnout and anxiety due
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to the practices, the negative implication on some employees fails to outweigh the outright

benefit of HPWPs to the organization. As such, it is authentic to argue that HPWPs will

always lead to improved organizational performance when crafted and implemented in a

manner that promotes the integration of organizational objectives and the needs of

employees.
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