Research: Key HR strategies boost profit, sales

Small organizations create 22 percent higher growth in sales, 23 percent higher profits and a nearly 67 percent drop in turnover when they implement three key HR management strategies, a Cornell University study has found.

Implementing those strategies—hiring based on fit with the organization instead of just the job; creating a family-like environment; and giving employees greater discretion, trust and empowerment to perform their duties—allows companies to outperform companies that did not, according to the fourth phase of the university’s two-year workplace study.

“The study is groundbreaking because we’ve proven that specific human resources strategies have a meaningful, and statistically significant, impact to small business financial performance,” lead researcher Christopher Collins said in a press release.

Collins, an associate professor of HR studies at Cornell’s School of Industrial and Labor Relations, and doctoral student Matt Allen conducted the study, which was sponsored by the Gevity Institute.

The Florida-based institute sponsors research at leading universities and business organizations and provides HR services to small and medium-sized businesses.

“Our research clearly supports the importance of having a formal employee management strategy as part of any small business plan,” Collins said.

The latest findings, released in July, are based on surveys of top managers/owners and employees from 323 small businesses. Organizations ranged in size from eight to 600 employees; the average was 53. Sampling was nationwide, but Florida had the largest participation rate, with 30 percent of the businesses sampled from that state.

Researchers used employee surveys to assess the extent to which organizations used certain HR practices or strategies. They surveyed top managers to assess company performance and different organizational characteristics, according to the report.

HR impact and company type

Effects were magnified for companies with high-growth goals, businesses with more than 50 employees, and those in highly competitive markets. Even using just one of the three strategies affected business performance outcomes significantly, researchers found.

Businesses with a no-growth goal saw a one-year revenue increase of 7.1 percent by using the person-organizational fit strategy, for example, while businesses with a high-growth goal saw a 14.7 percent increase doing this, they found.

Those with fewer than 50 employees that used the self-management approach saw an 8.4 percent growth in their one-year revenue; those with more than 50 employees saw a 15.8 percent increase, they found.

Businesses in highly competitive markets that foster a family-like environment had 7.9 percent employee turnover in one year; those relying on individual monetary incentives had 27.8 percent turnover in one year, they found.

Businesses that considered themselves in highly competitive markets varied based on location, according to Collins. Construction was very competitive in some markets, health care and manufacturing in others, he said.

“This research is in line with existing data from SHRM and other organizations about the value HR delivers to business,” Society for Human Resource Management spokesperson Frank Scanlan said.

“Not all business leaders fully understand HR’s contributions,” he said, “but the onus is on human resource professionals to be able to effectively implement strategic human capital practices and prove that their efforts are substantially adding to the success of the business.”

Matching employee with organization

One company hires an individual based on the person’s overall fit with the company’s values; another focuses its hiring practices on how well the individual fits with the company culture, according to the paper.

One way to do this is through structured interviews that get at specific aspects of the culture or work environment that are unique to the company, such as assessing if a candidate works in teams the way the company in question does, Collins recommended.

Some companies used an outside service to help assess this type of fit with online tests conducted before any on-site interviewing took place, he said in a follow-up e-mail to HR News.

Self-management

Employers can help employees manage themselves by using performance appraisals and feedback sessions to train employees how to perform tasks, by setting broad goals, and by having frequent discussions, he said.

The idea is to help give employees “a clear sense of what is expected and when they are not hitting performance targets, but then allowing them to perform their jobs without constant oversight,” Collins said.

Companies that excel at self-management have a high-degree of employee participation. Employees take part in decision making, suggest new ways to do their job better, and set goals for their work group, he added.

Family-like work community

One company sponsors social events so employees get to know each other; another regularly holds companywide meetings to share information with employees about the company; and one offers employees profit-sharing or gain-sharing.

“I think this is all about making their job more than a job,” Collins said in an e-mail, “because if it is only about money then the person is a free agent that is only looking to maximize their own earnings and will do this wherever they can make the most money.”

A family environment, however, “creates a social aspect to the job in which employees get more than money—they have friendships, feel a part of the company, etc.

“The companies that do this best have events where employees get to know each other in more of a social setting, share information about what is going on in the company, continue to invest in developing the skills of employees, [and] create a setting where it is easy for employees to meet and talk with one another.”

As their previous research found, the report says, “human resource management practices and beliefs play an important role in small businesses.”

“No one disputes that talent matters,” Professor Dave Ulrich of the University of Michigan told HR News in an e-mail. “The greater challenge is finding out how to attract top talent and engage them. This study seems to indicate that people can adapt their skills to what the job requires (‘draft the best athlete’ vs. the best person in a position),” said Ulrich, an SHRM member whom Fast Company Magazine identified as one of the top creative minds of 2005.

“The study also seems to indicate that when employees are surrounded by those who give them support (family atmosphere), they respond favorably. It also shows that good employees can be trusted to do good work.”

Collins and Allen were scheduled to present the latest findings at the Annual Academy of Management Meeting in Atlanta on Aug. 14.

Kathy Gurchiek is associate editor for HR News. She can be reached at kgurchiek@shrm.org.