Category Archives: Organizational Performance

Improve service climate to retain customers and increase profitability

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Topic: Organizational Performance, Strategic HR
Publication: Human Resource Management (MAY/JUNE 2011)
Article: The service climate-firm performance chain: The role of customer retention
Authors: Towler, A., Lezotte, D. V., & Burke, M. J.
Reviewed by: Alexandra Rechlin

When an organization wants to improve customer retention and therefore its profitability, it will often turn to marketing. But could HR provide another option? In this study, Towler, Lezotte, and Burke (2011) tested a model of the way in which service climate (conceptualized and measured by concern for employees and concern for customers) affects profitability.

The authors hypothesized that showing concern for employees would lead to employees showing concern for customers, which in turn would lead to customer satisfaction. Satisfied customers are more likely to return, so customer satisfaction was predicted to lead to customer retention, which in turn was predicted to lead to store profitability. This model was tested using a huge sample of over 12,000 employees in 1,500 tire retail/vehicle service stores. The authors found full support for the model.

The results of this study indicate that if you want your employees to show concern for customers, you must first show concern for your employees. Their subsequent showing of concern for customers leads to more satisfied customers, who in turn become repeat customers, and that means profitability. Marketing therefore is not the only group that the organization should turn to for advice on customer retention – they should look to HR as well!

Towler, A., Lezotte, D. V., & Burke, M. J. (2011). The service climate-firm performance chain: The role of customer retention. Human Resource Management, 50, 391-406. Doi: 10.1002/hrm.20422

Increase generic human capital to increase unit-specific human capital

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Topic: Organizational Performance, Talent Management, Strategic HR
Publication: Academy of Management Journal (APR 2011)
Article: Acquiring and developing human capital in service contexts: The interconnectedness of human capital resources
Authors: Ployhart, R. E., Van Iddekinge, C. H., & MacKenzie, W. I.
Reviewed by: Alexandra Rechlin

It is widely acknowledged that human capital is important, but does it matter whether the capital is generic (transferable to other organizations) or unit-specific (valuable to that particular work unit and not to others)? In this article, Ployhart, Van Iddekinge, and MacKenzie (2011) assessed both generic and unit-specific human capital in a large fast-food organization. They created and tested a model for how the two kinds of human capital relate to each other and to performance and effectiveness outcomes.

The level of generic human capital was based on the cognitive ability and personality of hired applicants, while unit-specific human capital was based on employees’ additional training.  The authors found that changes in generic and unit-specific human capital were positively related over time; that is, as generic human capital increased, so did unit-specific human capital. In addition, changes in unit-specific human capital were positively related to changes in unit service performance behavior (efficiency, service, quality), and changes in unit service performance behavior were positively related to changes in unit service effectiveness (unit financial success).

In other words, hire employees who are smart and whose personalities fit with their jobs.  This will establish strong bench strength and will set the organization up for success as employees are trained to build the skills necessary to excel in specific roles. 

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What are the performance implications of your organization’s culture?

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Topic: Culture, Human Resources, Organizational Performance
Publication: Journal of Applied Psychology (JULY 2011)
Article: Organizational Culture and Organizational Effectiveness: A Meta-Analytic Investigation of the Competing Values Framework’s Theoretical Suppositions
Authors: Hartnell, C.A., Ou, A.Y., & Kinicki, A.
Reviewer: Neil Morelli

Try to define your organization’s culture in one word… The word you came up with may be a predictor of how your organization is performing. Although organizational culture is assumed to be a key component of organizational effectiveness, the theoretical connection between these two important concepts remains fuzzy. Hartnell, Ou, and Kinicki conducted a meta-analysis to explore how a prolific taxonomy of organizational cultures, called the competing values framework (CVF), may help connect our understanding of organizational culture to organizational effectiveness.

Briefly, the CVF arranges organizational cultures into four categories: clan (internal focus on human capital and membership), adhocracy (external focus on adapting through creativity, innovation, and gathering of resources), market (external focus on competitiveness and aggressiveness to meet customer demands), and hierarchy (internal focus on maintain predictability and performance through precise control and clearly defined roles).

After examining 84 studies across three dimensions of organizational effectiveness (employee attitudes, operational effectiveness, and financial effectiveness), the authors found that clan cultures were more positively associated with job satisfaction than were adhocracy cultures, subjective innovation was more strongly related to market cultures than adhocracy cultures, and market cultures had stronger positive relationships with financial effectiveness criteria than were clan or adhocracy cultures.

All that to say, each of the CVF culture types were related to organizational effectiveness criteria in varying ways; this highlights the importance of organizational culture’s role in predicting firm performance. However, the authors concluded that more work is needed regarding the CVF’s nomological validity—as researchers and practitioners look to “tried and true” methods of defining organizational culture, they must also be careful to not ignore both the role of culture in organizational functioning or the theoretical foundations of their taxonomies.

Hartnell, C.A., Ou, A.Y., & Kinicki, A. (2011). Organizational culture and organizational
effectiveness: A meta-analytic investigation of the competing values framework’s
theoretical suppositions. Journal of Applied Psychology, 96(4), 677-694.

human resource management,organizational industrial psychology, organizational management

Put a Frame on It! Goal Framing to Improve Performance

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Topic: Motivation, Organizational Performance, Human Resources
Publication: Journal of Applied Psychology
Article: Managing joint production motivation: The role of goal framing and governance mechanisms.
Authors: S. Lindenberg, N. J. Foss
Reviewer: Rachel Marsh

Organizations often have many goals. The organization has a goal, the department has goals and each individual has their own goals. But how often to those goals align? Lindenberg and Foss argue that to get the most out of your employees you need to align all these goals, and set up governance mechanisms that support the alignment of goals. They suggest you can do this by utilizing goal framing theory.

There are three main elements of goal-framing theory, the normative, hedonic and gain. When framing goals through the normative view, one thinks of the ‘we’ first, and what is better for the group (this person is focused on benefitting the organization). The hedonic goal applies when a person is trying to improve their current situation. The focus is on the ‘now’ (in the workplace this person wants to have fun avoid difficult tasks). The gain goal is when someone tries to improve the resources they have (in the workplace this person is looking to increase their status or income).

By understanding that people have these three types of goals and utilizing that understanding to the company’s advantage, an organization can improve the performance of its employees. Organizations need to ensure that the normative goal is the supraorbital goal, or the goal in the forefront of their employees’ minds.

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Do you care about human capital? You should!

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Topic: Organizational Performance, Talent Management, Strategic HR
Publication: Journal of Applied Psychology (MAY 2011)
Article: Does human capital matter? A meta-analysis of the relationship between human capital and firm performance
Authors: Crook, T. R., Todd, S. Y., Combs, J. G., Woehr, D. J., & Ketchen, D. J.
Reviewed by: Alexandra Rechlin

It is often assumed that human capital is related to organizational performance, but the research literature provides mixed support for that assumption. In this article, the authors conducted a meta-analysis of 66 studies to clarify the seemingly contradictory research on the relationship between human capital and firm performance.

The authors found that human capital was positively related to firm performance, but that the relationship was moderated by the type of measure used and the type of human capital. The relationship was stronger when performance was measured with operational performance measures (e.g., customer service satisfaction or innovation), as opposed to global performance measures (e.g., returns on assets or returns on sales). The relationship between human capital and performance was also stronger when the human capital was firm-specific as opposed to being general human capital.

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Want CEO Success? Then Focus on Task and Performance

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Topic: Leadership, Organizational Performance
Publication: The Leadership Quarterly (FEB 2011)
Article: CEO leadership behaviors, organizational performance, and employee’s attitudes
Authors: Hui Wang, Anne S. Tsui, & Katherine R. Xin
Reviewed by: Chelsea Rowe

In a study of top and middle managers (CEOs, VPs, and senior managers) in 125 Chinese firms, Wang, Tsui, and Xin (2011) investigated the degree to which CEO leadership behavior influenced the performance of the firm.  They took this a step further, also looking at the degree to which employee perceptions of the CEO impacted firm performance.  Firm performance was measured in terms of profitability, asset & sales growth, market share, and competitive status within the industry.

Leadership behavior can be broken down into two categories: task- and relationship-oriented.  Task-related behaviors include goal-setting & articulation and monitoring of progress.  Relationship-oriented behaviors focus on developing employee-leader relationships that include trust, understanding of and concern for employee problems, and supporting employees. 

Wang, Tsui, and Xin (2011) showed that CEO leadership behaviors can impact a firm’s performance both directly and indirectly.  Task-focused behaviors have a direct relationship with the firm’s performance.  This finding is pretty straight forward—when leaders set goals and communicate those goals clearly to employees while monitoring progress, the goals are more likely to be met, ergo the firm performs well. 

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Increasing manager discretion? Better make sure they have some experience!

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Topic: Organizational Performance
Publication: Human Resource Management (JAN 2011)
Article: Testing alternative predictions for the performance consequences of middle manager discretion
Authors: A. Caza
Reviewed By: Rebecca Eckart

Today’s organizations are simplifying their hierarchical structures in order to increase efficiency, responsiveness, innovation, and knowledge sharing. In fact, flatter organizations are thought to be associated with a number of advantageous outcomes, one of which includes increased manager discretion. Discretion is defined as the manager’s authority to act, manage, and make decisions in ways that he/she deems most appropriate for the organization.

A core element of flat organizations is the shifting of responsibility and accountability down the hierarchy to lower levels of management. This shift is meant to empower managers to use their own judgment to make decisions that they deem most beneficial to the organization. However, until recently, little research has examined the actual tangible benefits that organizations should receive from increased manager discretion. In a recent study, Caza (2011) examined the effects of perceived managerial discretion on organizational performance. The results suggest that perceived managerial discretion is associated with increased unit performance, but only when managers have the experience to effectively use the increased discretion.

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How Important is The Store Manager?

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Topic: Organizational Performance
Publication: Journal of Applied Psychology (MAY 2010)
Article: Store manager performance and satisfaction: Effects on store employee performance and satisfaction, store customer satisfaction, and store customer spending growth
Authors: R.G. Netemeyer, J.G. Maxham III, D.R. Lichtenstein
Reviewed By: Allison Gabriel

How many times do you frequently interact with a store manager when picking up your morning coffee? How about when you run to the store to grab some last minute groceries for dinner? The fact is, most of us are used to interacting with service employees, with the assumption that the store manager is in the background informing them of how to interact with customers. Research typically supports this view, believing that store manager’s actions impact their employees, and that these employees subsequently impact customer outcomes (e.g., customer satisfaction) and, ultimately the store’s performance. However, is it possible that store managers have their own impact on customers beyond that of their employees?

Netemeyer and colleagues examined this research question in a sample from a women’s clothing and accessories retail chain. The impressive sample contained information from 306 retail store managers, 1,615 retail store floor employees (i.e., the people we typically interact with), and 57,656 stores. Talk about an impressive sample!

The central question was this: will manager performance and satisfaction impact customers more than employee performance and satisfaction? Additionally, the researchers looked at whether or not manager performance and satisfaction impacted the performance and satisfaction of employees. Overall, it was found that managers’ job performance and satisfaction not only influence their employees’ performance, but also impact customer satisfaction in conjunction with bottom-line store financial performance. This finding has huge potential for organizations – not only should they be monitoring the performance of their front-line service employees, but this shows that managers can really set the tone for employee performance and impact customers positively in the long run. After all, who said manager should stay behind the scenes anyway?

Lichtenstein, D. R., Maxham III, J. G., & Netemeyer, R. G. (2010). Store manager
performance and satisfaction: effects on store employee performance and
satisfaction, store customer satisfaction, and store customer spending growth .
Journal of Applied Psychology, 95(3), 530-545.

The Employee Network: to Keep or Not to Keep Under the Radar

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Topic: Organizational Performance, Change Management
Publication: Harvard Business Review (MAR 2010)
Article: Harnessing your staff’s informal networks
Authors: R. McDermott, D. Archibald
Reviewed by: Liz Brashier


Communities of practice are voluntary, informal employee networks where experts
can share knowledge and information, and it’s in these groups that employees form innovative solutions to real organizational problems. While in the past, these informal networks have succeeded on their own, this is no longer the case; these networks function best when they have management on board. McDermott and Archibald (2010) examine the status of communities of practice at companies including Pfizer, Fluor, and Conoco Phillips, and have concrete directions for guiding the once under-the-radar employee network.

The authors provide principles to lead management in designing effective communities, though these sound like no-brainers: 1) focus on important issues for the organization, 2) establish goals, 3) provide governance, and 4) set high management expectations. Maybe harnessing these communities isn’t too challenging after all! A differentiation that is a bit more interesting is one that the authors make between communities and teams. As managers, it is easy to view these groups as one in the same, even though they’re not.

Communities focus on long-term issues, peer collaboration, and knowledge
management, while teams focus on short-term deliverables and problems. The authors also offer suggestions for maximizing community impact. So, while communities of practice – and the solutions that come with them – used to be free and self-governing, they now need structure and guidance to maintain expert contributions to their organizations. Just as the business world has become more complex, so has the (informal) employee network.

McDermott, R. & Archibald, D. (2010). Harnessing your staff’s informal networks. Harvard Business Review, 88(2), 82-89.

Diversity in the Board Room

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Topic: Diversity, Organizational Performance
Publication: Journal of Management Studies (JUL 2009)
Article: Demographic Diversity in the Boardroom: Mediators of the Board Diversity–Firm Performance Relationship.
Authors: Miller, T. and Triana, M.
Reviewed By: Samantha Paustian-Underdahl

As more women and racial minorities are making strides in the boardroom, many businesses are beginning to consider the outcomes of board diversity on the financial performance of firms. Most academic research on board diversity has resulted in complex findings – with some researchers seeing a positive relationship between demographic board diversity and firm performance, while other researchers have seen a negative relationship or no relationship at all. Miller and Triana suggest that there are intervening or mediating factors – such as firm innovation and reputation – that need to be examined in order to gain a better understanding of these complex relationships.

Board directors act as boundary spanners in the environment, securing resources for the organization and providing strategic advice to improve firm performance (Hillman & Dalziel, 2003). Heterogeneous groups typically bring unique ideas and decision-making processes to an organization due to their varying backgrounds, education, and experiences. Thus, demographically diverse boards should result in increased innovation and unique decision-making. Innovation has become a key strategy for firms to gain a competitive advantage and to increase firm performance (Morbey, 1988). The authors believe that innovation will be one related to board diversity and firm performance.

A diverse board signals that the firm is well positioned to meet the needs of a diverse market—thus improving the firm’s reputation. As firms increasingly operate within a global economy, having a diverse board of directors may signal that the board will be able to understand the business environment and advise the firm executives effectively. Thus, the authors propose that firm reputation will also be related to board diversity and firm performance.

Using a sample of Fortune 500 firms, the authors conclude that board demographic diversity drives firm performance through innovation and reputation. So, what does this mean for your organization? Firms may benefit from the diverse human and social capital associated with diverse boards, which, in turn, supports an innovation strategy. Further, diverse boards will increase firm reputation by signaling that the organization is well prepared to understand the diverse environment in which the firm operates. In order to utilize directors’ diverse skills and abilities, organizations should promote a culture that recognizes the benefits of diversity and encourages differences in experiences, information, and perspectives that emerge from gender and racially diverse boards.

Miller, T. and Triana, M. (2009). Demographic diversity in the boardroom: Mediators of the board diversity–firm performance relationship. Journal of Management Studies, 46 (5): 755-786.

Hillman, A. and Dalziel, T. (2003). Board of directors and firm performance: integrating agency and resource dependence perspectives. Academy of Management Review, 28, 383–96.

Morbey, G. K. (1988). ‘R&D: its relationship to company performance’. Journal of Product Innovation Management,5, 191–200.