Transcript Labour (HR) Practices - School of Business and Economics

WHAT SETS SUCCESSFUL FIRMS
APART FROM THE PACK?
Presentation to University of Canterbury
November 2005
Arthur Grimes
Motu Economic & Public Policy Research; &
University of Waikato
with
Richard Fabling
Ministry of Economic Development
Business Success
• NZ GDP grew faster than almost any other OECD
country in last 5 yrs
• GDP growth is built on business success
– I.e. built on:
&:
profitable firms expanding
new firms entering
• Which business practices create firm success?
– What can firms do to improve chances of success?
• That is what we investigate here
Approach
• Examine broad-based experience:
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Almost 3,000 firms
Business Practices Survey, 2001 (Stats NZ/MED)
Private sector firms with >5 FTEs
Mainly SMEs; also large enterprises
All sectors other than farming/fishing/forestry
Business Practices Survey (2001)
• Questions on “firm demographics”; e.g.
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Sector
Age
Size
% family ownership
Competitive environment
• Plus 180 questions on business practices
– 10 categories
Question Categories: 1 & 2
• Strategy
– (E.g.): Over the last 3 years to what extent did this
business focus on new export markets?
• Leadership & planning
– Does this business have a vision statement?
Question Categories: 3 & 4
• Customer focus
– To what extent do staff other than sales & marketing
staff visit the firm’s major customers
• Supplier focus
– How much does this business work with key suppliers
to improve each others processes?
Question Categories: 5 & 6
• Employee practices
– Does this business systematically measure employee
satisfaction?
• Quality & process
– Does this business have, or is it planning to implement
systems to gain quality management systems
certification (e.g. ISO9000)?
Question Categories: 7 & 8
• Information & benchmarking
– Have comparisons been made with competitors on
financial measures?
• Community & social responsibility
– Over the last 3 years were measures to reduce the
environmental impact of this business in place?
Question Categories: 9 & 10
• Innovation
– In the last 2 years how often did this business undertake
in-house R&D?
• Use of information technology
– Does this business have computers that are connected
to a wide area network?
Business Results
• Also surveyed 7 business results:
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Relative profitability
Relative return on investment
Relative productivity
Net cash flow
Market share change
Profitability change
Sales change
• We concentrate on:
– relative profitability
– relative productivity
– market share
Framework
• Firms employ inputs (labour, capital) to produce
goods/services
– & attempt to maximise profits
• Firms differ in their productivity depending on:
– Quality of labour (subject to hiring & training choices)
– Quality of capital (subject to purchase & R&D choices)
– Underlying management capability/productivity
• Productivity reflects internal resources/capabilities
& external environment
• Examine associations first; then causality
Results: Associations
• 4 groups of internal practices are important:
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Capital practices
Labour (HR) practices
R&D practices
Market research practices
• Broader economy, industry & finance issues also
affect performance
Capital Practices
• “Core equipment is fully up-to-date” (or no
more than 4 yrs old) is significantly
associated with each of:
– relative profitability
– relative productivity
– market share
R&D Practices
• Each of the following significantly associated with
at least 1 success measure:
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Commissioned external R&D over past year
Conducted continuous in-house R&D over past 2 yrs
Firm used some method to protect inventions
>20% of total exp. on development of new innovations
>30% of sales from completely new products
Market Research Practices
• Each of the following significantly associated with
one success measure (mainly market share):
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A great deal of focus on new domestic markets
Some focus on new export markets
A great deal of visits to major customers
Very close monitoring of competitors’ products
Industry NZ a very important source of innovation
ideas (-ve) [possibly a selection effect]
Labour (HR) Practices
• Each of the following significantly associated with
one success measure:
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Investment in innovation-related employee training
Performance pay for many or all staff
Measure employee satisfaction at least bi-annually
More than 50% of employees rotated over last year
Non-managerial staff have authority to contact
suppliers
– Health & safety processes in place (-ve)
High vs Low Performers
Market share
5
4
3
High performers
Low performers
2
Don't knows (out of sample)
1
0
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Causality vs Association?
• Associations do not imply causality
• We use additional techniques (IV) to predict which
firms will choose certain practices
– based on underlying firm characteristics & management
capability
• Then examine whether predicted practice “causes”
firm performance
– over & above effects of general management
capabilities & firm characteristics
Human Resources: Causal Findings
• Two key HR practices:
– Performance pay for most or all employees
– Innovation-related employee training
• Also regularly measuring employee satisfaction
• Suite of high performance HR practices affects:
– Relative profitability,
– Relative productivity, &
– Market share
How many firms adopt high performance
HR practices?
• 46%:
• 37%:
• 18%:
• 6%:
• 34%:
innovation-related employee training
measure employee satisfaction at least bi-annually
performance pay for most or all staff
all 3 of the above
none of the above
Which firms adopt high performance
HR practices?
• Size matters
– Large firms more likely than mid-sized firms
– Mid-sized firms more likely than small firms
• Age matters
– Start-up & old firms least likely to adopt
• Sector matters
– “Hi-tech” services firms more likely than agriculture,
manufacturing, construction, or other services
Distribution of HR Practices
0.6
0.5
Kernel density
0.4
Medium-sized & large, very
young & young, high-tech
services (66 obs)
Small, old, agriculture &
manufacturing (318 obs)
0.3
0.2
All firms (2742 obs)
0.1
0
-2.1
-1.8
-1.5
-1.2
-0.9
-0.6
-0.3
0.0
0.3
SFEP
0.6
0.9
1.2
1.5
1.8
2.1
2.3
2.6
Innovation: Causal Findings
3 key areas
• Investment in up-to-date core equipment
– New technology
• Investment in marketing new products
– New products & marketing both important
• Continuous in-house R&D
– Raises issues of firm size & capability
• Almost 2/3 firms do at least one of these
• Only 3% conduct all 3
Which Firms Innovate?
• Services firms innovate most
• Innovation mostly undertaken by firms that are:
– Large & old
– Medium-sized & young
[established firms]
[successful entrepreneurs]
• Both crucial to a dynamic economy
What About General Management?
• Good general management underlies strong
practices
– E.g.: Infrequent, strategic planning processes
• “Guru” general management irrelevant
– E.g. vision statements & company values
Lessons
• Innovation is crucial to firm success
• High performance HR practices also crucial
– Especially for hi-tech firms
• Differentiate your firm on product, quality,
service, etc
• Encourage & reward staff for performance
• Integrate innovation & HR practices