High Performance Human Resource (HP-HR) Practices: 20 Years of Experience

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
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)
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%
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
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
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
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?
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
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
NUMMI: New United Motor Manufacturing,
Inc.
GM plant built in Fremont CA, 1962

High absenteeism
Poor quality
Closed in 1982
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, ….?
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
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?
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
VOICE:
presence -
VOICE: rate
+
QUITS
HP-HR -
Reengineering
+
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

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

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
Union Leadership Union Membership
Labor Management Problem Solving Teams

Off-line Committees (Problem Resolution Circles)
(Decision Rings)
Partnering: Self-Directed Work Teams

On-line
(Operating and Middle
Management)
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
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?
Hypotheses
1. Information flows will differ between union and

nonunion managers
2. Quality will be improved in union managed sectors
due to improved communication, coordination and
problem-solving
3. Quality enhanced when there is a balance between
people and production management
4. Quality enhanced when union and nonunion
managers share common goals
Hypotheses
1. Information flows will differ between union and nonunion

managers (data on communications network)
2. Quality will be improved in union managed sectors due to
improved communication, coordination and problem-solving
3. Quality enhanced when there is a balance between people
and production management (time use survey of managers)
4. Quality enhanced when union and nonunion managers work
more closely (degree of agreement on goals between advisors)
Hypotheses
1. 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
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
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
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
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
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
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

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High Performance Human Resource (HP-HR)

Practices: 20 years of experience

Batt, Colvin and Keefe: High Commitment

Verma and Fang: High Involvement Human

Careful screening of workers down the job ladder to

Osterman (2000) reports that between 1992-1997

=>Multiple HP-HR methods make incentive

=>Multiple HP-HR methods make

=>Multiple HP-HR methods make multi-

Innovative HR system: labor productivity 6.7% higher

Track efficiency, quality

Prevalence in new plants makes it difficult to

GM plant built in Fremont CA, 1962

Reopened in 1983: joint Toyota-GM venture

Considered one of the most productive automobile plants in

Is it HP-HR, new production methods, new management,

Interact with more workers, managers on their own

Broadened communication links appear to

Grievance mechanism (good sign) vs. Grievance use (bad sign)

Table 2: Relationship between Union and use of HR mechanisms

Table 3: Empirical Model of Quits

Table 4: Grievance rate does not significantly affect quits

HP-HR raises pace of both product and process

Unions do not alter pace of innovations

Do unions enhance or limit HP-HR implementation?

Because unions foster communication among workers,

Union Leadership Union Membership

Labor Management Problem Solving Teams

Partnering: Self-Directed Work Teams

Teams organized into departments of ~100 employees each

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

1. Information flows will differ between union and

1. Information flows will differ between union and nonunion

1. Information flows will differ between union and nonunion

Figure 2: Union advisors had denser communication networks

Union advisors spent more time on people problems, Nonunion

Better performing units devoted considerably more time to quality

Table 4: Note small sample size!

Balance is ratio of time spent managing production vs

Alignment, union communications are tied to improved

Large airplane manufacturer

Long-time traditional (adversarial and sometimes militant)

Monthly data 1974-1991 follow the producton of a new line of

Inverse productivity measure: Actual relative to planned hours

 Ongoing plant—transaction costs for change

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