The impact of Investors In People and people management practices on firm performance

The impact of Investors In People and people management practices on firm performance
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    © Cranfield University 2008 Investors in People The Impact of Investors in People on People Management Practices and Firm Performance Prof. Mike Bourne Dr. Monica Franco-Santos Andrey Pavlov Dr. Lorenzo Lucianetti Dr. Verónica Martinez Dr. Matteo Mura 2008 Centre for Business Performance Cranfield School of Management  The Impact of Investors in People Page 2 Executive Summary    Introduction This document reports on an extensive study into the impact of the Investors in People Standard on business performance. We started by reviewing what is already known about the Standard’s impact on business performance, before  building a framework of the expected benefits of IIP from the Strategic Human Resource Management literature. This framework was tested using case studies, a survey and financial analysis to create a body of knowledge that improves our understanding of  how  the Investors in People Standard improves business  performance.    Background The Investors in People (IIP) Standard is a UK quality standard introduced in 1991. Currently about 31% of the workforce are employed either by organisations that are recognised as Investors in People employers or organisations working towards achieving recognition status. IIPUK’s Delivery Partners currently work with almost 40,000 organisations employing over 7.5 million people and engage with new organisations on a daily basis, which highlights its potential impact on the UK economy. The Standard’s main objective is to improve organisational  performance through the management and development of people. The Standard has been the subject of research since its inception. Much of the  previous research found that the IIP Standard has a positive impact on business  performance although the conclusions were not unanimous. In addition, the Standard is reviewed and revised every three to five years, so past findings cannot always be related to the current Standard.    Objective of the Research The purpose of this study was two fold: - (1)   to investigate whether the IIP Standard affects organisational performance  positively or not; (2)   to examine the key factors that explain how the IIP Standard affects organisational performance.  The Impact of Investors in People Page 3    Methodology The research involved reviewing the existing literature, building a framework, undertaking case studies, conducting a survey, matching survey results with  published accounting information and detailed statistical analysis of the data. The study framework Although the previous literature on the impact of IIP on performance was broadly  positive, the mechanisms by which the Standard affected performance were not always clear. Our approach was to build a framework based on the Strategic Human Resources Management literature that demonstrated the expected relationship between the IIP Standard and business performance. The framework is shown in figure A with the expected relationships shown with a solid line and the possible relationships shown with a dotted line. Figure A. The impact of IIP on organisational performance The srcinal framework, detailed in Chapter 3, was built on an emerging body of research that finds that companies implementing commitment based HR practices  perform better than companies implementing transaction based HR practices. The former emphasise the long-term relationships between employer and employee with people development practices that encourage team working and the development of firm specific knowledge. The latter emphasise the short-term economic exchange of work for money. As commitment based practices are those which collectively demonstrate a long-term investment in employees - a  philosophy which is at the heart of the IIP Standard - this approach integrates well into the study framework. Reported Non-financial PerformanceCONTROL VARIABLES    Firm size  Industry HR policiesIIP   Reported Financial PerformanceFinancial Performance (FAME)   Human capital flexibilityOrg. social climate  The Impact of Investors in People Page 4 The case studies In order to understand these types of policies and how these were used in practice, we conducted ten in depth case studies in small, medium and large companies. We investigated companies who were not recognised, companies that had just achieved recognition, had been recognised for over two years and a group of IIP champions (recognised as exemplars by IIP). The case studies involved interviewing both HR and line management. The research team interviewed over 60 individuals and the data collected was subjected to qualitative data analysis. The survey An on-line survey was built on the study framework, asking companies to report on their IIP status, IIP implementation philosophy, their HR policies, organisational social climate, human capital flexibility, non-financial and financial  performance. 233 organisations responded in total, 196 of which were profit making companies. As our research was focused on the impact on business  performance, our subsequent analysis focused on these 196 profit making companies. The financial analysis In order to further validate our findings, we linked the individual survey responses with published financial reports from Companies House held in the FAME database. The analysis The data analysis used descriptive statistics, basic statistical tests, correlation and regression analysis. The final analysis of the framework was undertaken using structural equation modelling, an approach that allows us to understand the causal links between the variables and create a final model linking the IIP Standard with  business performance.    The findings This study has found a body of evidence that clearly shows the link between the adoption of the IIP Standard and business performance together with the mechanisms of how the Standard creates a better return on investment. Figure B overleaf represents how the IIP Standard affects performance.  The Impact of Investors in People Page 5 Figure B: How the IIP Standard affects business performance Our research finds that adopting IIP sets up a chain of impact ending in better financial performance. Organisations that adopt the practices embedded in the IIP Standard adapt their HR policies. These changes in policy have an impact on two important aspects of the company. Firstly, the HR policies create a positive Organisational Social Climate, creating higher levels of trust, cooperation and  people engagement. Secondly, the HR policies increase Human Capital Flexibility - the skills and behaviours needed for the organisation to change. The changes in human capital flexibility and organisational social climate have an impact on non-financial performance. Companies that have better non-financial performance also reported in the survey better financial performance and delivered higher returns on their assets as shown in their published annual reports. The case study research demonstrated how IIP was delivered in practice across a range of organisations. In the case study companies, we identified a prevalence of direction setting practices specifically designed to cascade strategic goals right down to individual targets and objectives. We also identified a number of HR  practices that developed employee engagement and commitment. Our conclusion is that organisations perform better when employees have clear goals and supportive HR practices. IIP HR policies Non-Financial Performance Human Capital FlexibilitFinancial Performance Organisational Social Climate
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