Seven Practices of Successful Organizations

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Seven Practices of Successful Organizations

Jeffrey Pfeffer

ffectively management of people can produce substantially enhanced economic performance. A plethora of terms have been used to describe such management practices: high commitment, high performance, high involvement, and so forth. I use these terms interchangeably, as they all tap similar ideas about how to obtain profits through people. I extract from the various studies, related literature, and personal observation and experience a set of seven dimensions that seem to characterize most if not all of the systems producing profits through people. • Employment security. • Selective hiring of new personnel. • Self-managed teams and decentralization of decision making as the basic principles of organizational design. • Comparatively high compensation contingent on organizational performance. • Extensive training. • Reduced status distinctions and barriers, including dress, language, office arrangements, and wage differences across levels. • Extensive sharing of financial and performance information throughout the organization.


Reprinted by permission of Harvard Business School Press. Excerpt of THE HUMAN EQUATION: Building Profits by Putting People First by Jeffrey Pfeffer. Copyright © 1998 by the President and Fellows of Harvard College; All Rights Reserved.



VOL. 40, NO. 2


Seven Practices of Successful Organizations

This list is somewhat shorter than my earlier list of sixteen practices describing "what effective firms do with people,"' for two reasons. First, this list focuses on basic dimensions, some of which, such as compensation and reduction of status differences, have multiple components that were previously listed separately. Second, some of the items on the previous list have more to do with the ability to implement high-performance work practices—such as being able to take a long-term view and to realize the benefits of promoting from within— than with describing dimensions of the practices themselves. It is, however, still the case that several of the dimensions of high-performance work arrangements listed, for instance employment security and high pay, appear to fiy in the face of conventional wisdom. This article outlines these practices, provides examples to illustrate both their implementation and their impact, and explains their underlying logic.

Employment Security
In an era of downsizing and rightsizing—or, as Donald Hastings, CEO of Lincoln Electric, called it in a speech to the Academy of Management in 1996, "dumbsizing"—how can I write about employment security as a critical element of high-performance work arrangements? First, because it is simply empirically the case that most research on the effects of high-performance management systems have incorporated employment security as one important dimension in their description of these systems. That is because "one of the most widely accepted propositions . . . is that innovations in work practices or other forms of worker-management cooperation or productivity improvement are not likely to be sustained over time when workers fear that by increasing productivity they will work themselves out of their jobs."^ This was recognized long ago by Lincoln Electric, the successful arc welding and electric motor manufacturer that has dominated its markets for decades. Years ago, it began offering guaranteed employment to workers after two (and now three) years on the job. It has not had a layoff since 1948. Nor is it the case that this is just because the company has never faced hard times. In the early 1980s, a recession and high interest rates caused Lincoln's domestic sales to fall about 40 percent over an eighteen-month period. Nevertheless, it did not resort to layoffs. One thing the company did to avoid laying off people was to redeploy them. Factory workers who had made Lincoln's products were put in the field with the...
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