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HRM AND BUSINESS PERFORMANCE

1) Introduction

* Since the term HRM was developed and became widely used in the 1980s vast amounts of
academic research have been carried out into all its aspects all over the world.

* A number of distinct streams of research can be identified, but at any time there has generally
been one which has tended to dominate debate, and hence which has had influence beyond the
world of Business Schools.

* In today's session we are going to focus on two of these dominant streams of research activity,
reviewing the most influential and important studies, and explaining their significance.

* The two are linked, one following directly from the other.

* In the 1990s the key issue that the leading academic researchers sought to address was:

To what extent can a link be identified between HRM activity and relative business
performance?

* As Storey et al (2009:4) point out, unless HR activity can be shown to add value to an
organisation, there would be no point in devoting time and resources to it except insofar as is
necessary 'to comply with prevailing employment laws or to meet minimum operational
requirements in hiring, firing, labour deployment and the like'.

* By the first years of the twenty first century, most scholars working in our field had reached the
conclusion that there was indeed a link between HRM and business performance. What is more,
they had agreed broadly what approaches to HRM were most likely to be associated with superior
business performance.

* It is important to understand that a number of people took, and still take, a dissenting view on
these issues. But a dominant school of thought was now established.

* Researchers thus moved over the following ten years or so to ask (and to try to answer) a series
of further questions that sought to establish the nature of the link or association between HRM and
business performance.

* This second dominant stream of research thus, in large part, was about explaining the research
findings associated with the first.

2) Establishing the link between HRM and business performance

* Two American academic authors pioneered research into links between HR activity and business
performance, writing ground-breaking publications during the 1990s:

 Professor Mark Huselid of Rutgers University in New Jersey

 Professor Jeffrey Pfeffer of Stanford University in California


* Mark Huselid published what many would consider to be the most important single paper in the
history of modern HR research in 1995. It is certainly one of the most commonly cited:

'The impact of human resource management practices on turnover, productivity and corporate
financial performance'. Academy of Management Journal 38.3, p 635-72.

* Huselid's study involved 968 private firms. All were based in the USA and were US-owned. All had
over 100 employees, but they came from across the full range of industrial sectors.

* Huselid sent questionnaires to each organisation's most senior HR manager asking about a range
of HR issues and also some measures of financial performance.

* He then used the companies' annual reports to establish two further measures of financial
performance:

 Tobin's q, defined as the market value of the firm divided by the book value of its assets,

and

 Gross rate of return on capital.

* The HR measures he asked about were as follows:

The proportion of the workforce:

 who were included in a formal information sharing programme (eg; newsletters)

 whose job had been subjected to formal job analysis

 who were administered attitude surveys on a regular basis

 who participated in a quality management programme (eg: quality circles)

 who had access to incentive schemes (eg: profit sharing)

 who had access to formal grievance procedures

 who had been hired after carrying out a selection test

 whose pay was determined by reference to formal performance appraisal

 who received formal performance appraisals

* He collected further information on:

 the proportion of posts that had been filled internally over the past 12 months

 The average number of hours of training received by typical employees over the past 12
months.
* Having gathered all this data together - a huge amount given that nearly 1000 firms participated,
Huselid undertook regression analyses on the different variables. In other words, he looked to see
if there were any statistical correlations between the presence of the HR measures and his
measures of firm performance, including profitability.

* The findings were striking. Huselid was able to show that the more use of HR practices there was
in a firm, the lower its labour turnover, the higher its market value and the higher its profits. His
precise calculations were as follows:

* A 1 standard deviation increase in HR practices yields:

- a 7.05% decrease in staff turnover

- $27,044 in increased sales per employee

- $18,641 more in market value per employee

- $3,814 more in profit per employee.

* One of the things that made Huselid's research so ground-breaking was the way it appeared to
challenge the then dominant contingency or 'best fit' view of HRM.

* Contingency thinking supposes that there is no single 'best way' of doing HRM. What is
appropriate for a small organisation is not appropriate for a large one, that HR practice should
vary across industries and, most of all, that it should reflect and support the particular business
strategy being pursued by the organisation.

* Huselid's research questioned this established assumption about HRM. He demonstrated that, at
least within the US context, irrespective of the sector a firm belongs to, the more of its employees
who are managed using a group of formal HR practices, the higher the chances of that
organisation will achieving superior (ie: above average) outcomes.

* This is an important finding, but it is not quite the same as saying that best practice HRM = better
performance in all situations.

* For a start Huselid only includes relatively sizeable private sector organisations in his study. Small
businesses are excluded as are public and voluntary sector bodies. Secondly, all his firms are in
the US and are US-owned. So no universality is claimed. Thirdly, the range of HR practices he is
interested in are those which are associated with formal systems of the kind that are only usually
adopted once an organisation has reached a certain size.

* It is therefore not possible to argue, given Huselid's findings, that introducing these kind of
practices in smaller organisations will necessary bring them financial benefits. In fact a case could
be put for arguing that the approach to HR he tests for is inappropriate in small organisations
because they are informally managed and to adopt formal approaches of the kind associated with
employment in larger firms would increase their costs and might reduce performance.

* However, the absence of small firms from the study, did not prevent Huselid's research (together
with that of others) being used to kick-start a highly influential new school of 'best practice
thinking' about HRM.
* At the same time that Mark Huselid was number crunching in New Jersey, over in California
Jeffrey Pfeffer was coming to similar conclusions using a completely different type of methodology

* Pfeffer's case-study approach involved starting by identifying the most successful American
companies according to measures of profitability and growth in their industries.

* Having identified the most excellent performers in this way, he gained research access, went in,
and spent time interviewing and observing, trying to establish what it was that makes these
companies different from average ones.

* Pfeffer's conclusions are very much in support of the view that effective HRM is a major factor
contributing to the success of organisations.

* He published two highly influential books in which he set out his major conclusions:

 Competitive Advantage Through People (1994)

and

 The Human Equation (1998)

* In the first of these books he sets out the case for 'best practice' thinking, starkly towards the
beginning:

"Contrary to some academic writing and to popular belief, there is little evidence that effective
management practices are 1) particularly faddish (although their implementation may well be), 2)
difficult to understand or to comprehend why they work, or 3) necessarily contingent on an
organisation's particular competitive strategy".

(Pfeffer 1994:27)

* In 'The Human Equation' Pfeffer went on to identify seven practices which he had found to be used
in his outstanding firms and which he argued were associated with higher profitability 'being
achieved through people'. The seven are as follows:

 providing employment security

 investing heavily in recruiting the right people

 extensive use of self-managed teams and decentralisation

 high wages linked to organisational performance

 high levels of investment in training

 limited status differentials (ie: managers and staff are treated the same)

 willingness to share information.


3) Further studies establishing the link between HRM and business performance

* The work carried out by Huselid and Pfeffer and their ideas was subsequently replicated in a series
of further studies in other parts of the world.

* In the UK the most widely cited study of this kind was carried out by Malcolm Patterson and a
team based at Sheffield University and sponsored by CIPD (Patterson et al 1998). Here the focus
was mainly on manufacturing companies located in the north of England.

* Their results were also very striking, because they found plenty of evidence linking human
resource management practices with company performance:

"When we examine change in profitability after controlling for prior profitability, the results reveal
that HRM practices taken together explain 19% of the variation between companies in change of
profitability..... In relation to productivity, HRM practices taken together account for 18% of the
variation between companies in change in productivity."

(Patterson et al 1998:x)

* These are impressive figures and the study created a great deal of interest. The difficulty was that
the Sheffield study only looked at 67 private sector organisations, all of which were engaged in
manufacturing. This means that the results could not be generalised with great confidence across
different sectors.

* The same was true of several other similar studies carried out at this time, and many more in the
years since. Similar conclusions were reached, but only using relatively small samples in specific
industries.

* In addition to the Sheffield study on manufacturing plants in the UK (discussed above) others
have looked at death rates in NHS trusts, productivity in the clothing industry, wastage rates in
steel plants and sales generated in call centres. In each case performance was highest where HR
was taken seriously and applied in a relatively sophisticated way.

* One larger study was carried out in the UK, and this was notable for reaching rather more
cautious conclusions than had been reached by Pfeffer and Huselid had from their US-based
studies:

Guest D, Micie J, Conway N & Sheehan M (2003): Human Resource Management and
Corporate Performance in the UK. British Journal of Industrial Relations 41.2, p 291-314.

* The research carried out by David Guest and his colleagues sought both to replicate Huselid's
approach in the UK context and to take it forward somewhat.

* Like his, their study also sought to establish the extent of links between HR practice and labour
turnover, productivity and profitability, but they measured this data over a period of four years.

* They did this partly to ensure that one particularly good year or bad year did not make their
results misleading and partly so as to be able to discuss links between HR and changes in
profitability, productivity and turnover (ie: growth or decline).

* Their study involved carrying out telephone interviews with the most senior person with
responsibility for HR in 610 firms, some in manufacturing and some in services. They also included
smaller firms than Huselid in their sample, undertaking interviews with mangers in 300 firms that
employed between 50 and 200 staff.
* Guest et al's study covered many more HR variables than Huselid's. Some, like his, were
concerned with the proportion of employees who received performance-related pay or worked in
project teams, while others were more general yes/ no type questions such as 'Does your
organisation have harmonized holiday entitlement for all employees?'.

* Overall there were 53 measures taken in order to establish how close to common perceptions of
'best practice' and organisation's approach to HR was.

* The results, like Huselid's, were interesting, but much less conclusive. Guest et al found that there
was an association between HR practice and staff turnover in manufacturing, but not in the service
sector.

* They found no statistically significant links with productivity at all in either sector, but they did find
a significant relationship with profitability in manufacturing. Here though, they found no evidence
that HR was linked to profit growth across the period they collected data for.

* Their conclusion was that their study 'showed some evidence of an association between HRM and
performance' but that they 'failed to provide any convincing indication that greater application of
HRM is likely to result in improved corporate performance'.

* Guest et al's findings were disappointing in that they did not show, as the HR profession would
have liked them to, any cast iron proof of a link between HR activity and subsequent business
performance.

* However, it has to be said that this study is relatively unusual in reaching such cautious
conclusions on this issue. The vast majority of studies, large and small have reached opposite
conclusions. Many more support the broad thrust of Huselid's findings that good HR is associated
with high business performance more often than not.

* Another consequence of all this research has been the development of a consensus around the
idea that a 'bundle of best practices' can be identified for HRM – ie: the practices which, especially
when used in combination, are associated with superior business performance. These are often
described as being 'progressive HR practices' and 'high performance work practices.'

* The consensus is that the 'list' contains the following:

 giving people career development opportunities

 giving people influence over their own area of work

 making jobs challenging and interesting

 providing good training

 appraising people regularly on their individual performance

 teamworking

 involving employees in decision-making

 providing a good work-life balance

 employing line managers 'who are good at leadership and who show respect'.
4) Debates about the link between HRM and business performance

* Two streams of research (quantitative and qualitative) thus can be seen to have produced strong,
if by no means conclusive, evidence to suggest that organisations which adopt appropriate,
sophisticated, 'good-practice' HR practices are more likely to meet their business objectives over
the long-term than those which do not.

* What these business objectives are varies from organisation to organisation and industry to
industry. For major private-sector corporations the aim is to gain and maintain sustained
competitive advantage. For smaller organisations in the private and voluntary sectors growth or
survival are key objectives. In the public sector organisational effectiveness and meeting
government targets are the key objectives defined in terms of meeting a service need as cost-
efficiently as possible and to the highest achievable standard of quality.

* In all these situations good HR management can be shown to correlate with the achievement of
core business objectives, particularly when skills are in relatively short supply or where the
potential contribution made by individual employees to the success of an organisation is
substantial.

* What is less clear is exactly through what processes HR makes this contribution. There are a
number of possibilities, none of which are mutually exclusive:

 Good management and the establishment of a positive employment relations climate means that
an organisation is better able than its competitors to recruit, retain and motivate staff. Superior
performance results because the best performers want to work for the organisation, because
they are motivated to work hard and demonstrate commitment once employed, and because
there is less resistance to change and a greater capacity to seize opportunities when they arise.

 Effective HRM alongside good management of other functions allows an organisation to develop
and maintain a strong and positive corporate reputation. This enables it to raise money with
relative ease when it is needed and also helps to ensure that managers of investment funds and
financial advisors see it or its shares as a desirable place to put their clients' money. The
maintenance of a positive reputation in the media is also an important objective as this helps to
maintain and grow the customer base. A reputation for ethical management is increasingly
important in this context.

 There is a big difference between the rhetoric of HRM, which is positive and people centred, and
the experienced reality in many organisations. In the real world HRM is focused on reducing
labour costs and extracting greater value for organisations from their human resources. This
leads to the intensification of work and more efficient operations, and it is these which account
for the apparent link between HRM and measures of corporate financial performance.

 The relationship between HR and business performance is in fact the other way around. The
presence of a correlation does not mean that there is any causal relationship. Any HR
contribution to the maintenance of superior business performance is limited. Having gained its
competitive advantage, an employer has the resources to develop good HR practices.

* Steve Fleetwood and Anthony Hesketh (2010) are the most prominent recent critics of the
tendency for people to make the assumption that the first of these four possibilities is 'the right'
interpretation to put on the results of the research.

* In their book entitled 'Explaining the performance of Human Resource Management' they warn
against uncritical acceptance of the findings of studies that link HR practices to business
outcomes. Ultimately, they point out, it is the people who work in organisations who are
generally responsible for the achievement of sustained superior business performance.

* Fleetwood and Hesketh do not argue that HR has no impact on an organisation's performance.
They assert that logic tells us that there is a link. What they object to is the idea that studies such
as Huselid's and Guest's can ever prove the existence of a link.

* Their main assertion is that the claims made for this research are questionable, particularly when
attempts are made to quantify the value added by HR interventions in financial terms. The
studies, they argue, are not scientifically robust.

* Their book is long and closely argued, but it is possible to summarise their key points in a few
sentences:

i) It is not possible to predict in financial terms what impact new HR interventions will have
on business performance.

ii) The studies focus too much on the 'HR architecture' and not enough on 'the role of
individuals in shaping the performance of organisations'. It is people who deliver superior
organisational performance, not HR systems, policies or practices. The research tends to
focus on this architecture and not sufficiently on the people.

iii) Too much trust is placed in the conclusions of studies that seek to demonstrate how HR
causes improvements in performance. This is too great a claim. Instead we should think
in terms of HR playing an enabling role.

5) The Black Box Studies

* In 2003 the first results from what have become known as 'the black box' studies were published
by CIPD. Further results were subsequently published by the team that had carried out this
research in scholarly journals and in chapters contributed to books. This research has proved to be
hugely influential in shaping thinking about HRM over the past decade.

* The 'black box' studies get their name from the motivation behind the research which was to look
inside and seek to understand the detail of the relationship between an organisation's approach to
people management and business outcomes. Getting to grips with this relationship is sometimes
seen as being a 'problem' or, perhaps as a 'mystery' needing to be solved.

* Scientists and engineers have long used the metaphor of 'the black box' to describe devices which
translate readily understood 'inputs' into readily understood 'outputs', but which is not itself fully
understood. Getting inside a black box thus means working out how the device works.

* The black box studies into HRM were funded by CIPD and carried out by a team of researchers
based at the Work and Employment Research Centre at the University of Bath. They took over 6
years to complete. The team was led by Professor John Purcell (now Professor of HRM at Warwick
University).

* The methodology the team adopted was similar in some respects that that used by Jeffery Pfeffer
in his research into HRM that we discussed earlier, except in this case the criteria for selecting the
participating organisations was different. Where as Pfeffer looked for companies which had an
outstanding financial performance and then looked at what made them different, Purcell's team
started by identifying organisations that were either already well known for having sophisticated
HR policies and practices in place or had recently embarked on a strategy of doing so. Twelve UK-
based organisations from a mix of industrial sectors finally participated.
* The team then undertook a very extensive series of interviews over two and a half years with
employees and managers in specific areas of these businesses. They revisited several times so as
to be able to record reaction to new initiatives as they were introduced.

There were three major findings:

i) When an organisation has in place a bundle 'progressive' or 'high performance' HR policies


and practices there was a positive response from employees (expressed in terms of job
satisfaction, motivation or organisational commitment' which led them to work harder
and to strive to improve their performance. In such circumstances 'discretionary effort'
resulted, meaning that employees tended to work beyond contract, going the extra mile
without having to be coerced into doing so.

ii) A characteristic shared by the most successful organisations is some form of 'big idea' that
underpins what their mission is and what values that mission is based on. Moreover, this
big idea and these values become embedded in the organisations policies and practices,
helping to glue the organisation together. Employees tend to buy in to the idea and
respond by working with enthusiasm, some pride and effort. Another way of expressing
this is the presence of a 'strong sense of shared purpose' between managers and
employees.

iii) Having the right HR policies and practices in place was not enough. These have to be
'brought to life' by the line managers with whom staff interact on a day to day basis.
Effective line management is thus a crucial component of 'the black box'. Unless employees
respect and are motivated positively by their immediate supervisors, the positive impact
that 'progressive' HR policies have will not be realised. Indeed one finding was that poor
implementation of policies and practices by line managers who have not bought into them
is often worse for the organisation than not having any policies at all.

* The black box studies therefore found good evidence that the right approach to HR, implemented
effectively, will bring about superior organisational performance (ie the output).

* In other words, they found good, robust evidence across several organisations that demonstrated
strong support for a causal link between HRM activity and superior business performance.

* Importantly, however, they concluded that there was no automatic link. Other conditions must
also be satisfied if a bundle of best practices is to underpin high levels of performance.

* The black box studies are also celebrated for their advocacy of the AMO model – one of the
conditions that needs to be in place.

* AMO stands for:

- the ability to perform well

- the motivation to perform well

and

- the opportunity to perform well.

* It is this, along with the other conditions, which permits organisations to benefit fully from good
HR practices.
6) The Gallup Studies

* Another rather different, but equally influential piece of research from the last few years also
sheds a great deal of light on the link between good people management practices and
organisational performance. But this used a quantitative methodology and was much larger in its
scope. It was also international.

* The research was derived from data collected over a number of years by the Gallup organisation,
a consultancy which has long carried out employee satisfaction surveys on behalf of organisations.
This research is thus often referred to as comprising 'the Gallup Studies' (see Harter et al 2002).

* These draw on data collected internationally by the Gallup Organisation using a simple twelve-
question instrument which has been administered to 198,514 people in 7,939 business units
operating in all manner of industries over a thirty year period.

* The studies use the term 'employee engagement' in the findings – a term we will return to explore
again in more detail in future lectures.

The twelve questions simply comprise statements such as:

'I know what is expected of me at work'

and

'In the last seven days, I have received recognition or praise for doing good work'.

* Respondents are then asked to say whether they strongly agree, agree, disagree, strongly
disagree or neither agree nor disagree, and scores then being generated for a unit's employee's
level of engagement. The sheer size of this dataset gives the analysis credibility.

* What is more, it enables statistically significant correlations to be sought between the extent of
employees' emotional and cognitive engagement and other variables such as profitability,
productivity, customer satisfaction and employee turnover rates.

Some of the key findings are as follows:

i) There is greater variation in terms of the level of employee engagement between different
business units within the same organisation than there is between organisations. This is
significant because it implies that the variability in levels is not related to the type of
industry or characteristics of employees - but is in most cases due to the quality of line
management.

ii) Impressive correlations were found to exist between relative levels of employee
engagement in a business unit and the success of business units. Business units with the
highest rates of employee engagement are doubly successful than those with the lowest
when measured against indicators such as productivity, customer responses and
profitability.

iii) A particularly strong relationship was found between levels of employee involvement and
rates of staff turnover. The size of the dataset allows separate analysis of high turnover
industries and low turnover industries.
In high turnover business units (above 60% turnover rate), staff turnover was, on average,
29% lower in units which scored in the upper quartile for employee engagement, than in
the lower one. The variation, however ranged between 14 to 51 percentage points. In low
turnover units the average difference was 10% (ranging from 4 to 19 percentage points)
between upper and lower quartiles.

* The message from the Gallup Studies is thus strikingly similar in many respects from that of the
Black Box studies. HR policies and practices help to generate superior business performance
because they help to motivate employees positively to perform well in their individual roles. The
Black Box studies use the term 'discretionary effort' to describe this. The Gallup Studies use the
term 'employee engagement'.

* The language differs as does the methodology adopted by the two teams of researchers. But their
overall conclusion is broadly the same – If you create a well-motivated and satisfied workforce,
who know what is expected of them and who have the capacity to deliver superior performance.
This will then lead to improved collective performance.

* Importantly, both studies also stress the importance of the role played by line managers in giving
effect to the HR policies and practices. Getting the quality of line management right is thus a pre-
requisite for long-term, sustainable high performance.

7) Where are we now with this research agenda?

* It is now nearly twenty years since Mark Huselid and Jeffrey Pfeffer first published their research
on links between HRM and business performance, and started the debate about whether the
introduction of a 'bundle of HR practices' could reasonably be expected to improve busness
performance in all business environments.

* Since then dozens of further studies have been carried out all over the world which appear, on
the whole, to support their main findings. Others have moved the debate on to focus less on
whether the link exists, and more on how we can explain it.

* We are now at the stage of refining these arguments and theories. There is, for example, a lot of
interest at present in measuring HR contributions and their impact much more accurately so that a
stronger business case can be made for introducing 'best practice HR' in organisations. There is
also a lot of interest in the concept of 'employee well being' and attempts are being made to slot
these into the wider debate about HR and business performance.

* However, at present the major development is an ongoing refinement of the work carried out by
Purcell and his colleagues in their Black Box Studies. The Dutch academics Deanne Den Hartog,
Paul Boeslie and Jaap Paauwe are particularly prominent in this area of work.

* What seems to be emerging is a consensus around the idea of some form of 'process model of
HRM' which can be illustrated simply as follows:

HRM POLICIES HRM BUSINESS


AND PRACTICES ==> OUTCOMES ==> OUTCOMES

* You will note that there are two distinct stages in this model, both of which are the subject of
current research efforts. Some also argue strongly for a reverse link too, the idea that positive
business outcomes impact on HRM outcomes.
* The focus is now mainly on identifying the mediating factors that either support or detract from
the existence of strong links in particular organisations or industries.

* Purcell and his team argued that line management support, the presence of a 'big idea' and AMO
were mediating factors in explaining the relationships in the model. Others are now introducing
new suggestions.

* Interestingly, some of these are institutional and contextual factors. Some, for example, argue
that a supportive regulatory framework is necessary, others that success depends on the size of
organisation, the industry, the extent of union involvement and the business strategy that is being
pursued.

* Some of this is fascinating, because it revives the old best practice v best fit debate in a new
context – perhaps settling the matter once and for all.

* Yes, the argument runs, best practice HRM does lead to superior business outcomes BUT the
extent to which this happens varies from situation to situation. There are many potential and
varied mediating factors that explain the strength of the relationship.

References

Boselie, P (2013): 'Human resource management and performance' in S Bach & M Edwards (eds):
Managing Human Resources. Fifth Edition. Chichester, John Wiley.

Den Hartog, D & Boon C (2013): 'HRM and Leadership' in S Bach & M Edwards (eds): Managing Human
Resources. Fifth Edition. Chichester, John Wiley.

Fleetwood S & Hesketh A (2010): Explaining the Performance of Human Resource management.
Cambridge University Press.

Guest D, Micie J, Conway N & Sheehan M (2003): Human Resource Management and Corporate
Performance in the UK. British Journal of Industrial Relations 41.2, p 291-314.

Guest D & King Z (2001); 'Personnel's Paradox'. People Management, 27th September.

Harter J, Schmidt FL & Hayes TL (2002) 'Business-Unit-Level relationship between employee satisfaction,
employee engagement and business outcomes: A meta-analysis'. Journal of Applied Psychology, 87.2, p
268-279.

Huselid, M (1995): 'The impact of human resource management practices on turnover, productivity and
corporate financial performance'. Academy of Management Journal 38.3, p 635-72.

Paauwe J, Guest D & Wright P (2013): HRM and Performance: Achievements and Challenges. Chichester,
Wiley.

Patterson M, West M, Lawthorn R & Nickell S (1998): The Impact of People Management Practices on
Business Performance. London, IPD.

Pfeffer, J (1994): Competitive Advantage Through People. Harvard Business School Press.

Purcell J, Kinnie N, Hutchinson S, Rayton B & Swart J (2003): Understanding the People and Performance
Link: Unlocking the black box. London, CIPD.

Storey J, Ulrich D & Wright P (2009): 'Introduction' in J Storey, D Ulrich & P Wright (eds): The Routledge
Companion to Strategic Human Resource Management. London, Routledge.
EXERCISE

One of the case study companies that John Purcell and his colleagues looked at when carrying out their
Black Box studies was Tesco. Here they focused on four stores based in similar market towns which they
labelled Stores A, B, C & D. One of their most significant findings was derived, in part, from a detailed
examination of the relative performance of these four stores over the period of their study.

While all four stores had strengths an weaknesses, on all the key measures they used, they found that
Store C performed particularly poorly. The performance indicators used were as follows:

* stock availability on the shelves


* wastage
* shrinkage (ie: theft and stock errors)
* length of queues at the checkouts
* payroll costs as a percentage of sales
* profit
* turnover.

The researchers made the following observation about the poor performance of Store C vis a vis the
others:

'Given the location of the stores in four similar market towns, and the application of common
policies, the most credible explanation for the variation in store performance was the difference
in the way people are managed.'

This conclusion was further strengthened by the findings from the interviews with employees in the
different stores. Store C performed poorly when compared with the others on measures of managerial
behaviour, the amount of employee discretion, employee attitudes, opportunities for staff to participate in
decision-making and staff performance.

After interviewing staff and section managers in the stores, the researchers reached the conclusion that
the main underlying reason for differences between the performance of the four stores was the quality
and effectiveness of the store manager:

'The store manager is particularly influential in setting the tone for the way of managing
employees across the store. He or she provides a role model through his or her own way of
managing the staff and sets the expectations for achieving certain goals and behaviours that are
acceptable when dealing with individual employees'.

Imagine that you have been asked to help Tesco to improve the performance of Store C, the aim being to
bring it up to the standards achieved by the other stores when measured against the criteria listed above.
In particular you have been asked to advise on:

i) How the company should approach the selection of a new store manager

and

ii) What steps can be taken to maximise the chances that the new manager will be successful in
lifting standards of performance.

Set out and briefly justify your ideas.