' Academy of Management Execufive, 1999, Vol 13, No. 2

Putting people first for organizational success''
Jeffrey Pfeffer and lohn F. Veiga
Executive Overview

There's a disturbing disconnect in organizational management. Research, experience, and common sense all increasingly point to a direct relationship between a company's financial success and its commitment to management practices that treat people as assets. Yet trends in management practice are actually moving away from these very principles. Why is common sense so remarkably uncommon when it comes to managing people? Why do organizations habitually overlook readily available opportunities to boost their financial performance?
Drawing on extensive empirical research an irrefutable business case can be made that the culture and capabilities of an organization—derived from (he way it manages its people—are the real and enduring sources of competitive advantage. Managers today must begin to take seriously the often heard, yet frequently ignored, adage that "people are our most important asset.

Over the past decade or so, numerous rigorous studies conducted both within specific industries and in samples of organizations that cross industries have demonstrated the enormous economic returns obtained through the implementation of what are variously called high involvement, high performance, or high commitment management practices. Furthermore, much of this research serves to validate earlier writing on participative management and employee involvement. But even as these research results pile up, trends in actual management practice are, in many instances, moving in a direction exactly opposite to what this growing body of evidence prescribes. Moreover, this disjuncture between knowledge and management practice is occurring at the same time that organizations, confronted with a very competitive environment, are frantically looking for some magic elixir that will provide sustained success, at least over some reasonable period of time.
Rather than putting their people first, numerous firms have sought solutions to competitive challenges in places and means that have not been very productive—treating their businesses as portfolios of assets to be bought and sold in an effort to find the right competitive niche, downsizing and

outsourcing in a futile attempt to shrink or transact their way to profit, and doing a myriad other things that weaken or destroy their organizational culture in efforts to minimize labor costs.

Show Me the Evidence
Though we could go on at length about a company like Apple as a case in point {see "The Apple Story"), executives frequently say, "don't just give me anecdotes specifically selected to make some point. Show me the evidence!" Fortunately, there is a substantial and rapidly expanding body of evidence, some of it quite methodologically sophisticated, that speaks to the strong connection between how firms manage their people and the economic results achieved. This evidence is drawn from studies of the five-year survival rates of initial public offerings; studies of profitability and stock price in large samples of companies from multiple industries; and detailed research on the automobile, apparel, semiconductor, steel manufacturing, oil refining, and service industries. It shows that substantial gains, on the order of 40 percent, can be obtained by implementing high performance management practices.^
According to an award-winning study of the high performance work practices of 968 firms representing all major industries, "a one standard deviation increase in use of such practices is associated with

'Adapted with permission from The Human Equation: Building Profits by Putting People First, by Jeffrey Pfeffer. Harvard
Business School Press, Boston, 1998. To obtain a copy of this book call 1-888-500-1016.
37

38

Academy ol Management Executive

May

The Apple Story
Most accounts of Apple Computer's history have stressed either strategic