High Performance Work System

Every company must design a set of HR policies and practices that make sense for its own strategy and situation. The employee-testing program that works for hiring engineers may not work for a retail store, for instance. And Ford Motor Corp. lost a president in part because he tried unsuccessfully to impose GE’s famous ‘forced distribution’ appraisal process on Ford’s managers. GE’s appraisal system didn’t make sense for Ford.

However, research shows that the HR systems of high performing companies do have many things in common, and that they differ in measurable ways from those of low-performing companies. Specifically, these HR systems are “high-performance work systems” (HPWS). HPWS generate more job applicants, screen candidates more effectively, provide more and better training, link pay more explicitly to performance, and provide a safer work environment, among many other things. In terms of measurable outcomes, these HPWS produce more qualified applicants per position, more employees hired based on validated selection tests, more hours of training for new employees, and a higher percentage of employees receiving regular performance appraisals. The general aim of the HPWS is to maximize the competencies and abilities of employees throughout the organization.

Every manager makes decisions within the context of the guidelines laid down by his or her company’s strategic plan. As we’ll see in this chapter , the company’s strategic plan defines the nature of the company’s business, for instance, in terms of the markets in which it will compete and the ways in which it will differentiate itself from its competitors. The strategic plan lays out the broad guidelines within which the company’s managers take decisions. It thereby has a big influence on things like: “What sorts of people should we hire?” What kind of sales force do we need?” What production methods will we use?” and “How should we build our brand image and market our products?” In a very real sense, then, the HR manager can’t make intelligent decisions regarding how to design the company’s HR systems unless he or she understand how each of those systems helps the company achieve its strategic goals.

The main purpose of this is to show how to develop an HR system that supports, and makes sense in terms of, the company’s strategic goals. In this article we are trying to explain the strategic management process, how to develop a strategic plan, and the HR manager’s role in the strategic management process. Also discussed is how to create a strategy oriented HR system, and explain the step-by-step “HR Scorecard approach” to creating a strategy oriented HR system.

The central challenge facing human resources management is always to provide a set of services that make sense in terms of the company’s strategic plan. A strategic plan is the company’s plan for how it will match its internal strengths and weakness with external opportunities and threats in order to maintain a competitive advantage. The basic strategic planning process involves asking, “Where are we now as a business, and where do we want to be? The manager then formulates specific (HR and other) strategies to take the company from where it is now to where he or she wants it to be. A strategy is thus a company course of action. The company’s various strategies – its HR, sales, finance, and manufacturing strategies, for instance — need to support the company’s strategic plan. Suppose the strategic plan calls for improving the quality of the company’s products such as Ford’s former plan to “Make quality Job” then one HR strategy might be to “boost employee quality”.

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