Sub Heading

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High Performance Work Systems in Ireland Effects
on Employee Retention, Productivity Innovation
James P. Guthrie September, 2005
University of Limerick OLLSCOIL LUIMNIGH
Sub Heading And Date
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HRM Systems ? Human/Social Capital Human/Social
Capital ? Competitive Advantage

• An organizational resource can be a source of
  competitive advantage if .
• it adds value
• it is relatively rare
• it is difficult for competitors to imitate

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What is a High Performance Work System?

• A system of HR policies/practices
• a set of distinct but interrelated HRM
  practices used to select, develop, retain, and
  motivate a workforce that has superior abilities,
  applies these in their work-related activities,
  and whose work-related activities result in
  achieving superior (firm) performance.
• (Huselid, 1995)

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What is a High Performance Work System?

• Also known as ..
• High involvement work systems
• High commitment work systems
• High investment HRM
• Flexible labour systems

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What is a High Performance Work System?

• Intensive recruiting
• Emphasis on internal recruiting
• Promotion based on merit vs. seniority
• Sophisticated/intensive selection procedures
• Routine performance feedback
• Multi-source performance feedback
• Compensation based on skills/knowledge

• Compensation to align interests based on team,
  unit, or firm performance
• Extensive communication with employees re
  company information
• Self-managing teams
• Extensive training Depth and breadth
• Use of attitude surveys
• Participatory mechanisms
• Use of grievance procedures

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Survey-Based Research Project High
Performance Work Systems in Ireland University
of Limerick University of Kansas National Centre
for Partnership and Performance Patrick Flood
James P. Guthrie Wenchuan (Victor) Liu Sarah Mac
Curtain
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Study Questions

• Does greater HPWS use improve employee retention?
• Does greater HPWS use improve firm productivity?
• Does greater HPWS use enhance firm innovation?
• How do Irish-owned and foreign-owned firms
  compare?

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HPWS and Innovation

• The best way to have a good idea is to have a
  lot of ideas.
• Dr. Linus Pauling, Nobel Laureate
• Both process product innovation impacted by
  utilization of all employees tacit knowledge
• Decentralized decision-making
• Participatory mechanisms
• New combinations through team-structures
• Exposure to knowledge through training
• Better understanding through information
  dissemination
• Elicitation of tacit knowledge via group reward
  systems

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Participating Companies

• Matched surveys from 165 companies
• GM Survey Respondent
• HR Survey Respondent
• 95 Irish-owned 70 Foreign-owned
• Median firm age 27 years
• Median number employees 246
• Median sales revenue EUR 78 million
• Wide industry distribution

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The HR Survey

• Measured percentage of firms employees covered
  by each of 18 HPWS practices
• E.G.,
• Hired based on sophisticated selection
• Routine use of performance appraisals
• Participatory mechanisms, etc., etc.
• Group A production, maintenance, service,
  clerical employees
• Group B executives, managers, supervisors,
  professional/technical
• Weighted average summed into a single HPWS index
• Voluntary Turnover

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The GM Survey

• Company age
• Sales Revenue
• Number of employees
• Innovation Proportion of sales revenue from
  products/services introduced in the last 12
  months
• RD expenditures
• Primary Industry

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Study Results

• Does greater HPWS use improve employee retention?
• YES!
• Does greater HPWS use improve firm productivity?
• YES!
• Does greater HPWS use enhance firm innovation?
• YES!
• How do Irish-owned and foreign-owned firms
  compare?
• SEE NEXT ..

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Average use of High Performance Work Systems

• Irish Owned
• 41.4

• Non-Irish Owned
• 53.3

Note This HR gap remains after controlling for
differences in industry, RD, size, age,
unionization
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This HR Gap Helps Explain

• Several advantages enjoyed by foreign-owned
  firms
• Significantly lower voluntary turnover rates (
  16 lower)
• Significantly higher labor productivity ( 15
  higher)
• Significantly greater innovation
• Percentage of sales from new products ( 17
  higher)
• New product sales per employee (efficient
  innovation) ( 22 higher)
• Note These HR Gap induced advantages remain
  after controlling for differences in industry,
  RD investment, size, age unionization

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Summary
HPWS/HRM

• Employee Retention
• Firm Productivity
• Firm Innovation

Human Social Capital