HELPING RECs TO COMPETE: THE COMPREHENSIVE APPLICATION OF HIGH PERFORMANCE WORK PRACTICES.

In the Winter, 1999 issue of Management Quarterly, an article reported the results of a large sample of over 1,400 cooperative employees trying to answer: "The Future: How Does the Cooperative Employee See It?"

One question asked the participants to name their major concerns or fears about the future. In reaction to this question, about 20% of the survey respondents indicated that they didn't know where their organization was heading while 14% noted that they felt as if they couldn't keep up with the rate of change occurring within the industry.

Another question asked the respondents to name the attitudes and behaviors that needed to change in order to allow their organization to be successful in the future. To this, 33% said that an increased focus on teamwork was needed, 14% noted that better customer service was required, 14% said that more employee recognition was in order, 14% highlighted the importance of better communication, and 11% said that more employee involvement would be necessary.

As these survey findings indicate, the effective management of human resources may play an important, but overlooked, role in the future competitive environment facing today's RECs. As regulatory and political change, market forces, and technological advances continue to reshape this once stable industry into a deregulated, highly competitive environment, the employees themselves recognize that the effective management of human resources becomes critical. They note that more attention needs to be given to human resource issues such as increased information sharing, extensive training, creative reward systems (both financial and nonfinancial), and extensive feedback in order to be more adaptive and increasingly competitive. In short, success in this now competitive industry will depend on continually improving performance by reducing costs, improving processes, increasing productivity, and enhancing the quality of service provided. The effective management of human resources seems to be a major way to impact these key performance variables.

The message that managing human resources can be a source of sustained competitive advantage of course is not new. In fact, one of the authors wrote an article for the Winter 1998 edition of Management Quarterly which stressed the importance of "Using HRM to Compete in the 21st Century." In this previous article, it was noted that a strong empirically based connection exists between HRM and organizational performance.

Highlighted in this article was a summary of research findings indicating that HRM can be a source of sustained competitive advantage by helping to lower costs, increase productivity, and generate organization specific knowledge and processes. It was brought out that this relationship has been consistently demonstrated in a variety of contexts and settings including the rural electric utility industry.

The previously written article also suggested some specific types of research-driven "High Performance" HRM policies and practices that rural electric utilities might want to consider implementing as they face the competitive challenges that lie ahead. Some of these recommended practices included "not losing sight of the basics" (i.e., information sharing and communication), "evaluating performance" (identifying performance enhancing behaviors and evaluate performance based upon those criteria using a 360-degree feedback approach), and "using innovative reward systems" (i.e., using pay-for-performance types of incentive pay).

In this article, we extend these general HRM recommendations by reporting the specific types of HRM "High Performance Work Practices" stated as currently used by the 110 RECs surveyed across the country. This empirical data gives a starting point to identity what is meant by the term "High Performance Work Practices" in the rural electric utility industry. In particular, the article will first review some basic research which has shown a strong linkage between "High Performance" human resource management practices and organizational performance. Next, the results of the survey will be summarized to highlight exactly what types of HPWP's are currently being utilized. Finally, implications from the survey data for helping RECs compete through high performance work practices will be discussed and recommendations made.

The Importance of High Performance Work Practices

Conceptually, the idea that effective human resources practices can have a value-added impact makes sense. The best way to ensure a motivated workforce and to create a culture of organizational learning and performance is through effective people management. Rural electric industry leaders have consistently supported this notion. For example, the Winter 1998 issue of Management Quarterly asked industry leaders what their formula for success was. The following are some sample quotes taken from what these leaders had to say:

"If you can build a team of talented, motivated individuals that shares your vision for the organization, your success as a manager is assured."

- Dan Brewer, President & CEO, Blue Grass RECC 

"Our corporate strength is in our staff and the level of support we receive from our members. Along the way, I've seen many of our staff earn promotions, take on new responsibilities, and gain recognition from other organizations and from our members. As CEO, it is my privilege to share in their successes, and I am proud of each of them."

- Earl Struck, President & CEO, Association of Illinois Electric Cooperatives

"Corporate success is an organization that is constantly learning and being challenged. It is a culture where each employee is empowered and feels that he or she is part of a larger community doing something that really matters."

-Mike Williams, President & CEO, Texas Electric Cooperatives, Inc.

As defined by these industry leaders, success starts with effective people management. There is a considerable body of empirical research which further supports this notion. One study of particular significance is Huselid's examination of the impact HRM practices (i.e., high performance work practices or HPWPs) have on performance measures such as turnover, productivity, and overall financial performance [1]. In this comprehensive study of over 1,000 firms, the strategic impact of HPWP's - those that improve employees' knowledge, skills and abilities (e.g., comprehensive recruitment and selection procedures, job design, training and participation programs) and those that address employee motivation (e.g., performance appraisal systems closely linked to compensation) - were found to positively impact the bottom line. Specifically, Huselid found that one standard deviation increase in the development of HPWPs reduced turnover by 7 percent and increased sales per employee by more than $27,000 per year. In addit ion, the study revealed that the impact of a one standard deviation improvement in the use of High Performance Work Practices enhanced profitability by more than $4,000 per employee and increased market value by more than $18,000 per employee.

Additional research reported by the U.S. Department of Labor noted performance differences between automobile manufacturers that use high performance HR work practices and those that don't [2]. Results of the study indicated that in 'mass production plants' (those not using progressive systems of HRM), automobiles took 30 hours to assemble and had 0.8 defects per vehicle. In 'flexible production plants' with progressive systems of human resource management, it took 22 hours to assemble a vehicle with an average of 0.5 defects.

Delery and Doty tested the hypothesis that a positive relationship between firm financial performance and a system of HRM practices (internal promotion, formal training, results-oriented appraisal, performance-based compensation, employment security, employee participation, and broadly defined jobs) would exist [3]. Their findings provided relatively strong support for this hypothesis. The system of HRM practices was able to explain an additional 12.55 percent of the variance in ROA (return on average assets) and 9 percent of the variance in ROE (return on equity) over what the controls explained.

It seems clear a strong linkage between HPWPs and organizational performance exists. This relationship has been demonstrated in a variety of contexts and settings including the banking, automobile, steel, apparel manufacturing, semiconductor manufacturing, and oil refining industries. More importantly, research that we have done has also demonstrated this relationship in rural electric distribution cooperatives. Specifically, results from our research have shown a significant linkage between the application of HPWPs and industry specific measures of performance (distribution adder per consumer and distribution adder per kilowatts per hour) [4]. Given these findings, it seems a logical extension to explore exactly what types of HPWPs are currently being utilized by rural electric cooperatives. The next section outlines what specific types of High Performance Work Practices are being employed in RECs and provides some implications for managers as they try to meet the competitive challenges that lie ahead.

The Utilization of HPWPs in RECs

In order to determine what types of HPWPs were being utilized, 178 questionnaires were sent to rural electric distribution cooperatives across the country. Of the 178 surveys sent out, 119 were returned with 110 being useable for analysis (a 67% response rate with a 62% useable response rate). This sample represents approximately 10 percent of the total REC's in the country. This sample was systematicaily selected in order to represent a wide distribution of size (number of employees and consumers/members), location, and active participation in the NRECA. Survey's were filled out by an on-site focal employee (familiar with the HRM function) and mailed back to the researchers. The focal employees selected as respondents had completed the NRECA Management Internship Program (MIP) within the past 5 years, and thus were familiar with the HRM functions as well as the terminology and questions asked by the survey regarding the specific HPWPs utilized in their respective organizations. Furthermore, each participant had, as part of the MIP program, completed an action plan to improve HR practices in their organization.

The questionnaire was designed to determine what specific types of HPWPs were currently being used within individual rural electric distribution utilities. An expert panel was used to enhance the reliability and face validity of the survey instrument. Four survey's were sent out to representative utilities and the respondents were asked to make detailed comments and suggestions for clarification. In addition, one of the author's personally made an on-site visit to a separate rural electric utility installation to discuss the questionnaire with a panel of practicing mangers. The comments and suggestions from the five pilot organizations were quite helpful and changes to the original questionnaire were made.

TABLE 1 shows the responses citing which types of general HRM practices were being utilized by the cooperatives surveyed in this study. As depicted in the table, a wide variation in the number and range of practices was found across organizations. In particular, the results indicated that there are some HRM practices which are universally used and others that are more variable. For instance, almost all cited the existence of information sharing and employee training activities. A large majority utilized internal promotion and formal selection systems with only moderate differences from co-op to co-op. A slight majority employed performance appraisal, job design/analysis and grievance procedures; half used incentive compensation; and a third used participation programs.

As shown in TABLE 2, there are further differences across co-ops in terms of what specific programs are being implemented in the pursuit of effective human resource management. For example, a large number of respondents have formal classroom and on the job training but few utilize mentoring or rotation/variety practices. In other words, while many cooperatives report the utilization of training, the actual practices vary considerably.

Implications From the Survey

As reviewed in the HRM research literature, there is considerable empirical support that HRM can provide competitive advantage for today's organizations. As previously noted, this linkage has been demonstrated in a variety of industries - including the rural electric utility industry. However, the time has come to further define this work by finding out what is meant by High Performance Work Practices as applied in REC's. Or, as one survey respondent noted, "despite where we are and where I want us to be, I will be interested to see if (utility name) is any different from many utilities." The purpose of this survey was to help determine this very question by outlining which specific types of HRM practices are being implemented by today's electric cooperatives as they face heavy competition in an uncertain and dynamic environment. Our results yield some interesting implications for practicing electric co-op managers.

The survey data indicated quite a bit of variation concerning what types of HRM practices are being utilized. Some HPWP's are common, and maybe even universal, activities implemented by almost all organizations within this industry. For example, 105 of the 110 cooperatives surveyed here used 'information sharing' activities and 106 of the 110 reported the implementation of various forms of training. Many respondents cited their organizations used classroom and on-the-job training programs, that specific job descriptions existed for most promotions, that newsletters were used to publicize special events, and that staff meetings were used to discuss critical information. However, it is also interesting to note that other widely recognized HPWP's - participation programs, job design programs, incentive pay, and grievance procedures - were not found to be generally used. Only a few respondents cited the use of semiautonomous teams, of holding periodic one-on-one career coaching sessions, of having managers devel op an annual 'promotability list' describing each employee's potential and readiness for advancement, and of using pay-for-performance techniques such as merit pay, bonuses, and group gainsharing.

The survey results indicate that some HR activities may not be HPWP's per se as much as they are standard or even minimal HR expectations. For example, effective human resource management requires at a minimum such practices as staff meetings, basic types of training, and interviewing. However, it is important to note that the depth and extent to which these practices are being utilized needs to also be considered. To illustrate, almost every utility reported the use of information sharing and training. However, survey data reported in the Winter 1999 edition of Management Quarterly cited in the introductory comments would suggest in some cases these basic HRM requirements were not being effectively delivered.

In particular, a significant amount of rural electric employees in that survey indicated that they didn't know where their organization was headed (information sharing), that they couldn't keep up with the rate of change (training), that more communication was necessary (feedback), and that they needed more recognition for a job well done (innovative rewards). Therefore, it would seem that more attention needs to be given to the way these basic HRM practices are implemented to ensure that co-op employee HR needs and expectations are being met. In addition, it might also be possible that other HR activities that are less commonly utilized, such as participation programs and incentive pay, may represent the type of variations that separate the true high performers from the average.

This value of the human side of organizations is supported by Jeffery Pfeffer, the famous Stanford professor of management. In his best-selling book, The Human Equation, he explains that only about one-eighth of today's organizations are successful because they are able to attain a competitive advantage through their people management policies and practices. That is

because despite the existence of anecdotal and empirical evidence, about half of today's organizations don't really believe or buy into in the connection between human resource management and the positive results that can occur. Of the one-half that do see the connection, about one-half of these organizations believe that they already do a good job of HRM (i.e., minimum HRM practices), not realizing that the effective management of human resources requires a more comprehensive and systemic approach. Finally, of the half of organizations that utilize a comprehensive HPWP approach, probably only about one-half of these persist with these practices long enough to actually derive economic benefits. Thus, the 1/8 remaining (.5 x .5 x .5) are the best organizations in the world.

A Final Word of Advice

Everyone now realizes that the rural electric utility industry is in the midst of a dramatic transformation. The organizations that will survive and prosper will be those who are able to meet competitive challenges such as delivering world-class customer service and responding to change on a continual basis. Therefore, the primary recommendation here is for REC managers to keep the one-eighth principle in mind when deciding on whether or not they should implement a comprehensive system of High Performance Work Practices.

As the survey data revealed, a wide range of variation currently exists among rural electric cooperatives concerning the actual practice of HPWP's. However, as this report has also highlighted, there is a strong linkage with performance between those organizations that set themselves apart with their HR practices and those who don't. As such, the clear mandate here is for practicing REC managers to realize what types of HPWP's are currently being employed, assess areas in which their individual organization could improve, and to implement the comprehensive changes needed to make their human resources the primary competitive edge. Or, as one respondent concluded, "It is my goal to be able to answer future surveys much differently than what you see on today's..." The will is out there, now HPWP implementation must become a reality for RECs to compete.

Dr. Kyle W. Luthans is Assistant Professor of Management at the University of Nebraska at Kearney. His current research interests includ examining the positive impact that high performance human resource management practices can have on organizational performance in the rural electric utility industry. He is also actively involved in other areas of management research and recently published an article in the Journal of Leadership Studies titled, "Recognition: A Powerful, but often Overlooked Leadership Tool to Improve Employee Performance." Dr. Luthans received his Ph. D. from the University of Nebraska-Lincoln in 1997.

Dr. Steven M. Sommer (Ph.D., University of California, Irvine) is an Associate Professor of Management at the University of Nebraska. His primary research interest is how informal competition among individuals affects performance and how to manage such processes without damaging interpersonal relations. Related areas include how people seek and process information; how organizational design and reward practices affect workplace climate including trust, social support, and conflict; and the application of organizational behavior theories across cultures. His work has appeared in several outlets including the Academy of Management Journal, Human Relations, Journal of Applied Social Psychology, International Journal of Conflict Management, Educational and Psychological Measurement, and Journal of Organizational Change Management.

(1.) Huselid, M. "The Impact of Human Resource Management Practices On Turnover, Productivity, and Corporate Financial Performance." Academy of Management Journal, June, 1925, p. 635-672.

(2.) United States Department of Labor. "High Performance Work Practices and Firm Performance." Washington, D.C. : U.S. Government Printing Office, 1993.

(3.) Delery, J. & Doty, H. "Modes of Theorizing In Strategic Human Resource Management: Tests of Universalistic, Contingency, and Configurational Performance Predictions." Academy of Management Journal, August 1996, p.802-835.

(4.) Luthans, K. & Sommer, S. "Value-Added Human Resource Management: An Examination of the Impact of High Performance Work Practices In the Rural Electric Utility Industry." Proceedings: National Academy of Management, San Diego, 1998.