Journal Of Organizational Change Management

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This abstract tell journal of organizational change management.

Journal of Organizational Change Management
Emerald Article: High performance work systems in corporate turnaround: a
German case study
Dimitrios M. Mihail, Myra Mac Links, Sofoklis Sarvanidis
Article information:
To cite this document: Dimitrios M. Mihail, Myra Mac Links, Sofoklis Sarvanidis, (2013),"High performance work systems in
corporate turnaround: a German case study", Journal of Organizational Change Management, Vol. 26 Iss: 1 pp. 190 - 216
Permanent link to this document:http://dx.doi.org/10.1108/09534811311307978
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High performance work systems
in corporate turnaround:
a German case study
Dimitrios M. Mihail
Department of Business Administration, University of Macedonia,
Thessaloniki, Greece
Myra Mac Links
Sapient GmbH, Munich, Germany, and
Sofoklis Sarvanidis
Department of Business Administration, City College,
International Faculty of the University of Shef?eld, Thessaloniki, Greece
Abstract
Purpose – This study aims to investigate the nexus of high-performance work systems (HPWS) with
corporate change that leads to enhanced performance.
Design/methodology/approach – The paper uses a case study method and analyzes the impact of
a HPWS, adopted at a German medical technology company, on corporate turnaround and
performance outcomes. In the present study, conducting in-depth interviews with the social partners of
corporate change, the authors investigate how leadership, competition forces and employee relations
interacted with a bundle of high-performance work practices led the company to massive changes in
production with noticeable performance outcomes.
Findings – The analysis lends support to the HPWS approach that links certain high-commitment
work practices to corporate changes and enhanced performance outcomes such as rising employee
productivity and sales over the last decade.
Practical implications – The study pinpoints key factors that could optimally be used as a best
practice framework for change management leading to corporate turnaround in a highly volatile world
economy.
Social implications – The HPWS approach, facilitating corporate turnaround, underlines the
importance of social partnership for modern corporations to handle groundbreaking changes and
survive the ?erce competition in global markets.
Originality/value – Using a case study method, the analysis lends some support to the HPWS
perspective that links high-commitment work practices to enhanced corporate performance.
Keywords Change management, Corporate turnaround, Highperformance workplace, Flexible working,
Germany
Paper type Case study
Introduction
Since the 1990s, we have observed a signi?cant increase in academic research focused
on human resource management (HRM) practices as “bundles” or the use of
“high-performance work systems” (HPWS) and their impact on organizational
performance (e.g., Lewis and Thomas, 1990; Wright and Snell, 1991; Ketchen et al.,
1993; Becker and Huselid, 1998; Osterman, 2000; Way, 2002; Mart? ´n-Alca´zar et al., 2005;
Macky and Boxall, 2007; Purcell et al., 2009; Kaufman, 2010; Jones et al., 2010). This
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0953-4814.htm
JOCM
26,1
190
Journal of Organizational Change
Management
Vol. 26 No. 1, 2013
pp. 190-216
qEmerald Group Publishing Limited
0953-4814
DOI 10.1108/09534811311307978
trend is so profound that some authors consider it to be a new paradigm in the
pertinent literature seeking to replace the predominant Taylorist principles in
managing working people (Godard and Delaney, 2000; Godard, 2004).
Equally important, the new paradigm has attracted the interest of the business
community across the globe, and they have been systematically committing resources
and efforts in promoting the HPWS model in modern workplaces (CIPD/EEF, 2003;
Williams et al., 2003). The notion of HPWS is identi?ed “as a speci?c combination of
HR practices, work structures and processes”, which are integrated into “an overall
system” in order to “enhance employee involvement and performance” (Snell and
Bohlander, 2010, p. 710). The origin of this model stems from the new challenges of
market liberalization and the adoption of ?exible production systems since the 1980s.
Indeed, modern companies face new challenges, such as increasing worldwide
competition, managing change and new technology, and developing intellectual capital
and containing costs at the same time.
Some globally active organizations seek to bene?t from ?exible and open economies
moving to low-wage countries. Yet, for some companies in highly advanced and
high-cost locations, improving productivity is the one critical success factor in order to
keep up with global competition, the latter being the primary concern of researchers in
articulating the HPWS approach. This, in turn, explains the increased application of
this approach in analyzing the struggling US manufacturing industries over the
previous two decades (e.g., Appelbaum et al., 2000; Evans and Davis, 2005). Empirical
?ndings show that the HPWS model is adopted by “high-road” organizations investing
in employee involvement and participation instead of intense supervision, stable
employment instead of job insecurity and fear, and high compensation based on
superior performance instead of wage reduction.
There is still some uncertainty surrounding the exact nature of the “HR and
performance link” (Mueller, 1996; Danford et al., 2008). In particular, Guest (2011, p. 3)
concludes that even after “two decades of extensive research” it is not yet possible to
fully understand this linkage, with many basic questions still remaining unanswered,
while this is largely attributed to the relatively limited number of longitudinal studies.
Moreover, there is a need for more empirical research on services in comparison with
the manufacturing sector (Liao et al., 2009, p. 371), whereas Atkinson (2005) argues that
it is harder to measure productivity and performance in the former setting. Several
academics also criticize the lack of research on individuals and especially on workers’
values and motivation (e.g., Wright and Boswell, 2002). However, several empirical
studies have recently evaluated:
.
the impact of HR practices on “employee turnover” in the service sector (Batt and
Colvin, 2011);
.
“job engagement” as a consequence of job performance (Rich et al., 2010);
.
the impact of HPWS on the “quality of working life” (Danford et al., 2008); and
.
the in?uence of “family-friendly” management practices on organizational
performance and “social legitimacy” (Wood and de Menezes, 2010).
This paper tries to shed light on the HPWS-performance nexus. It centers on the
underlying factors linked to the HPWS model, as suggested by Appelbaum et al. (2000)
that are hypothesized to lead to positive performance outcomes and adaptability to
High
performance
work systems
191
change. Through a case study approach, a highly successful medical technology
company will be analyzed. Aesculap, a German ?rm, is an internationally active player
in medical technology that proved its adaptability to change through a major
turnaround process that led to a Benchmark Factory in 2001. At the core of this
corporate turnaround lies the systematic application of a bundle of new work practices
aiming at employment security, performance-based pay, employee involvement,
teamwork, open communication between management and employees, and training
schemes. The aim is to contribute to the HPWS literature, but even more importantly to
come up with some signi?cant key factors that could optimally be used as a best
practice framework for organizational turnaround in a highly volatile world economy
(see Mart? ´nez-Sa´nchez et al., 2008; Parish et al., 2008).
Literature review
Prior studies of corporate turnaround have reported on strategies of declining companies
following alternative paths of performance enhancement and rejuvenation including
retrenchment, repositioning and reorganization (Boyne, 2006). Organizational
turnaround literature has not, however, comprehensively discussed the impact of
human resources on corporate recovery (Boyne and Meier, 2009). It is limited to
investigating the impact of personnel downsizing on cost-cutting strategy (Barker et al.,
1998) and of top executive succession schemes on turnaround plans (Arogyaswamy et al.,
1995; Barker et al., 2001; Lohrke et al., 2004), but not that of radical work reorganization
(Boyne and Meier, 2009). In another strand of corporate performance literature,
numerous empirical studies sought to assess the effect of workplace reorganization,
adopting a HPWS, on performance. In this section of the study we build upon this work
to provide a framework for the analysis of the Aesculap case.
Turnaround process
An organization is perceived to be in “decline” when it suffers deteriorating economic
performance for an extended period of time, such that the performance level is so low
that it tends to compromise its viability (Cameron et al., 1987). Conversely, a
turnaround situation is one where a company addressing the causes of its decline
adopts strategies that reverse its course beyond survival and ultimately lead to
sustained pro?tability (Barker and Duhaime, 1997). Lohrkre et al. (2004, p. 65)
discussing the turnaround process depicts three relevant phases. In Phase I, a troubled
organization needs to pinpoint the main causes of decline, which are usually related to
“environmental changes, internal de?ciencies, or combination of both”. In Phase II, the
company’s management formulates and implements the appropriate strategies for
addressing the sources of decline. Finally, in Phase III, the company’s turnaround
outcome leading to performance improvement or failure is assessed (Pearce and
Robbins, 1993; Morrow et al., 2004, 2007; Van Wittelstuijn, 1998).Regarding the ?rst
phase, main environmental or external causes of relative decline are usually associated
to decreasing market demand, increasing competitive pressures in open markets and
increase in input costs, mostly raw materials. Moreover, among the major internal
weaknesses that have been singled out are the high cost structure, inadequate ?nancial
control and poor management (Gopal, 1991; Grinyer et al., 1990; Balgobin and Pandit,
2001).
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192
In the second phase, company management is expected to react to an alarming
situation indicating falling pro?ts, revenues or/and shrinking market shares
(Zimmerman, 1991, pp. 26-7). Hambrick and Schecter (1983), in one of the most
widely-cited studies of the literature, present three clusters of the most common
strategic moves that companies implement to turn performance around. The ?rst
cluster or “strategic Gestalt” is comprised of new product and market initiatives.
The second is termed “ef?ciency”, involving adjustment of employee productivity
and direct costs, and the last set of strategic moves seeks to affect the level and use
of ?xed assets by improving inventory and capacity-utilization management or
employing new plant and equipment. Indeed, empirical studies have shown that a
combination of such strategic moves tend to lead to successful turnarounds,
emphasizing market refocusing and a combination of employee productivity and
plant modernization (Hambrick and Schecter, 1983; Thietart, 1988; Barker and
Duhaime, 1997). Yet the engineering of the turnaround process, involving
management-labor relationships during the implementation and recovery phases,
remains a relatively unexplored area of the relevant literature. Boyne and Meier
(2009) rightly point out the absence of any analysis of the interaction between
management and employees during the recovery effort. The present study aims to
shed light on that issue of the turnaround process by utilizing another line of the
performance literature, that of the HPWS.
Retaining informed and committed to company employees is a “key element” to a
successful turnaround (Zimmerman, 1991, p. 273). And it is company leaders’
“overarching task for restoring con?dence through empowerment – replacing denial
with dialogue, blame with respect, isolation with collaboration, and helplessness
with opportunities for initiative” (Kanter, 2003, p. 67). Yet con?dence and trust
relationships to transform an ailing organization into a high-performance one need
to be built on a coherent system of human resource practices: skilled employee
selection (Skaggs and Youndt, 2004; Boyne and Meier, 2009), employee participation
(Kanter, 2003; Mohrman and Mohrman, 1983; Goldstein, 1988), open communication
(Weitzel and Jonsson, 1989; Clausen, 1990), teamwork (O’Shaughnessy, 1995;
Zimmerman, 1991; Goldstein, 1988), heavy training (Mirvis et al., 2003),
performance-based pay schemes (Kramer, 1987) and public recognition incentives
(Armenakis et al., 1995). Now we turn to the next section to discuss in some detail
the HPWS-performance nexus.
Linking HPWS to organizational performance
Numerous review articles and empirical studies have been undertaken with regard to
the contested arena of HRM and organizational performance, with a particular focus on
the HPWS model (e.g., Snell and Dean, 1992; Youndt et al., 1996; Ketchen et al., 1997;
Purcell, 1999; Ramsay et al., 2000; Williams et al., 2003; Godard, 2004; Paauwe and
Boselie, 2005; Stavrou and Brewster, 2005; Becker and Huselid, 2006; Combs et al.,
2006; Boxall and Macky, 2007; Birdi et al., 2008; Paauwe, 2009). These publications
evaluated the implementation of “sophisticated HRM” (Purcell and Kinnie, 2007, p. 535),
which is considered to lead to enhanced performance outcomes, while various
theoretical approaches have also been developed in relation to this theme (Boxall and
Macky, 2009; Boxall and Purcell, 2011).
High
performance
work systems
193
In one of the most notable studies in this empirical ?eldwork (Huselid, 1995, p. 645),
the author adapted ten practices from another research project (i.e. Delaney et al., 1989)
and three other items were additionally evaluated (i.e. the intensity of recruitment or
selection ratio, hours of training per employee, and promotion criteria). In a similar
vein, Guest et al. (2004, p. 85) adapted a “bundle” of 14 HR practices in their study, by
using the ?ndings of MacDuf?e (1995) and dividing these practices into four broad
categories. Table I shortly summarizes a list of these practices (see Macky and Boxall,
2007, pp. 547-8; Golding, 2010, p. 59) and illustrates that the adapted practices are
strongly interrelated across the two studies. In general, it is argued that there is no
“magic list” of best “high-performance” practices, but the HPWS model appears to
work better if a “bundle” of practices is consistently applied (Armstrong, 2009, p. 246).
Overall, extensive empirical research has been undertaken in the UK, the USA and
other Anglo-Saxon countries, with regard to the adoption of “high-performance”
practices and their potential outcomes (e.g., Cappelli and Neumark, 2001; Batt, 2002;
Wright et al., 2003; Sung and Ashton, 2005; Purcell and Hutchinson, 2007; Guthrie et al.,
2009; Messersmith and Guthrie, 2010; Batt and Colvin, 2011), combined with a broad
range of studies across several European countries (e.g., Den Hartog and Verburg,
2004; Sels et al., 2006; Apospori et al., 2008; Panayotopoulou et al., 2010; Stavrou et al.,
2010). In conclusion, several academics reviewed the principal ?ndings of empirical
studies in this ?eld of research (e.g., Wall and Wood, 2005, pp. 436-40; Macky and
Boxall, 2007; Armstrong, 2009, pp. 231-7; Golding, 2010, pp. 65-6; Wilton, 2011,
pp. 80-81), while Table II provides an indicative list of these studies from 1993 to 2011.
Critique of the HPWS approach
Critics have described the HPWS perspectives as static and rigid (e.g., Marchington
and Wilkinson, 2012) because they fail to evaluate the institutional forces that have a
real impact on the implementation of HR policies and practices, while it is questionable
whether the “high-commitment bundles” of HR are universally applicable in practice
(Marchington and Grugulis, 2000). Other researchers are also skeptical about the use of
HPWS, arguing that management may instigate such practices in order to enhance
employees’ commitment and involvement but simultaneously undermine the role of
trade unions so that employees are less attached with the union-based forms of
representation (Edwards et al., 2002; Harley, 2005; Danford et al., 2008). There are also
some reservations with regard to the direct linkage of employee participation and
“high-involvement” management with organizational performance, because other
contingencies may also affect this relationship negatively or positively (Wood, 2010). In
addition, recent empirical ?ndings indicate that the relationship between indirect and
direct involvement with performance outcomes is rather ambiguous ( Jaewon et al.,
2010). In fact, this skepticism centers on the pitfalls and fragility of employment
relationship, such as lack of trust and low levels of commitment.
Thus, critics maintain that, in the “deregulated market economies”, alignment of
interests among all parties can hardly be sustained, which may subsequently result in
con?ictual or adversarial relations with negative repercussions on individual
employees and trade union representatives (Godard, 2002, 2004). On the other hand,
the issue of trust and the aforementioned concerns are normally considered to be less
problematic in “social market economies”, such as Germany and the Netherlands, and
thus the limitations of the “high-performance paradigm” are much less prominent in
JOCM
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r
g
a
n
i
z
a
t
i
o
n
a
l
o
b
j
e
c
t
i
v
e
s
5
)
P
e
r
f
o
r
m
a
n
c
e
a
p
p
r
a
i
s
a
l
s
t
o
d
e
t
e
r
m
i
n
e
p
a
y
4
)
R
e
g
u
l
a
r
u
s
e
o
f
p
e
r
f
o
r
m
a
n
c
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a
p
p
r
a
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s
a
l
F
o
r
m
a
l
a
n
d
p
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o
d
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c
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v
a
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a
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p
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a
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b
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a
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t
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a
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a
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d
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c
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a
g
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b
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t
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a
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s
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a
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d
a
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d
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a
n
d
d
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t
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m
i
n
e
s
d
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o
p
m
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n
t
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e
d
s
6
)
I
n
c
e
n
t
i
v
e
c
o
m
p
e
n
s
a
t
i
o
n
(
e
.
g
.
,
p
r
o
?
t
-
s
h
a
r
i
n
g
)
5
)
P
a
r
t
o
f
p
a
y
i
s
r
e
l
a
t
e
d
t
o
i
n
d
i
v
i
d
u
a
l
p
e
r
f
o
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m
a
n
c
e
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e
o
p
l
e
a
r
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v
a
l
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e
d
a
n
d
r
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a
r
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d
a
c
c
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h
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b
y
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p
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g
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s
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i
.
e
.
p
r
o
?
t
-
s
h
a
r
i
n
g
)
,
i
n
o
r
d
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r
t
o
i
m
p
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o
v
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m
p
l
o
y
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a
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y
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t
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o
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a
n
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z
a
t
i
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n
a
l
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b
j
e
c
t
i
v
e
s
7
)
E
m
p
l
o
y
e
e
p
e
r
f
o
r
m
a
n
c
e
d
e
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s
p
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m
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i
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n
A
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e
x
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b
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t
h
o
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p
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o
y
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r
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m
u
n
e
r
a
t
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o
n
,
b
y
w
h
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h
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p
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m
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n
o
f
e
m
p
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i
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p
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:
s
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r
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t
y
v
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r
s
u
s
m
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r
i
t
)
(
c
o
n
t
i
n
u
e
d
)
Table I.
Main human resource
practices comprising the
HPWS model
High
performance
work systems
195
H
u
s
e
l
i
d
(
1
9
9
5
)
G
u
e
s
t
e
t
a
l
.
(
2
0
0
4
)
D
e
s
c
r
i
p
t
i
o
n
O
p
p
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t
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n
i
t
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f
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r
t
h
e
e
m
p
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s
t
o
p
a
r
t
i
c
i
p
a
t
e
a
n
d
p
e
r
f
o
r
m
8
)
I
n
f
o
r
m
a
t
i
o
n
-
s
h
a
r
i
n
g
6
)
K
e
e
p
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m
p
l
o
y
e
e
s
w
e
l
l
-
i
n
f
o
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m
e
d
T
h
e
t
r
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n
s
m
i
s
s
i
o
n
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y
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h
e
e
m
p
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o
y
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t
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m
p
l
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y
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s
(
o
r
t
h
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r
r
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p
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t
a
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)
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f
d
a
t
a
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h
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a
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p
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o
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s
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i
n
o
r
d
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r
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n
a
b
l
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h
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m
t
o
a
c
q
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a
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n
t
t
h
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m
s
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v
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s
w
i
t
h
t
h
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s
u
b
j
e
c
t
m
a
t
t
e
r
a
n
d
t
o
e
x
a
m
i
n
e
i
t
9
)
F
o
r
m
a
l
j
o
b
a
n
a
l
y
s
i
s
a
n
d
d
e
s
i
g
n
7
)
A
c
t
i
v
e
l
y
t
r
y
t
o
m
a
k
e
j
o
b
s
a
s
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n
t
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r
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s
t
i
n
g
a
n
d
v
a
r
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e
d
a
s
p
o
s
s
i
b
l
e
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h
e
s
y
s
t
e
m
a
t
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c
p
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o
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e
s
s
o
f
a
)
c
o
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t
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n
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a
n
d
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d
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)
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l
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.
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l
t
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r
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p
r
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p
l
e
m
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t
e
d
(
s
u
c
h
a
s
w
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t
e
a
m
s
,
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o
b
e
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l
a
r
g
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t
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e
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r
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t
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r
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r
r
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l
a
t
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e
f
o
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m
s
)
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)
A
c
t
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t
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m
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m
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a
p
p
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p
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d
u
a
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s
.
1
0
)
A
t
t
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m
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n
t
(
r
e
g
u
l
a
r
s
u
r
v
e
y
s
)
9
)
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d
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p
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JOCM
26,1
196
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Table I.
High
performance
work systems
197
Author(s) Empirical ?ndings
US Department of Labor
(1993)
In a survey of 700 organizations, the implementation of innovative HR
practices indicated a signi?cantly higher level of shareholder and gross
return on capital.
Arthur (1994) In a sample of 30 US mini steel mills, the adoption of “high-commitment”
related strategies led to higher productivity, lower wastage rates and lower
employee turnover, in comparison with the “control” related strategies.
Huselid (1995) In 968 US organizations (with 100 or more employees), the implementation
of 13 HR practices (see Table I) had a notable impact on both employee
outcomes (such as lower turnover and higher productivity) and long-term
?nancial measures
MacDuf?e (1995) In 62 worldwide car-assembly plants, the implementation of team-based
work systems, in conjunction with “high-commitment” practices (including
main HR practices, such as performance-related pay and training) within a
context of ?exible production practices, was correlated with increased
productivity
Delaney and Huselid
(1996)
In 590 (for-pro?t and non-pro?t) US heterogeneous organizations, the
implementation of particular HRM practices (such as employee
participation in decision-making process, incentive-based remuneration
systems and highly selective hiring) was positively correlated with
improved productivity.
Ichniowski et al. (1997) In a longitudinal study, with a sample of 36 homogeneous US steel
production lines (owned by 17 companies), the implementation of a
“bundle” of “innovative” work practices (such as incentive-based
remuneration policies, team-working, ?exible job assignments,
employment security and training) was correlated with higher levels of
productivity in comparison with the more “traditional” work practices
Wood and de Menezes
(1998)
In a representative sample of 1,693 UK workplaces (based on: “the 1990 UK
Workplace Industrial Relations Survey” and “the Employers’ Manpower
and Skills Practices Survey”), four progressive styles of “high-commitment
management” (HCM) were identi?ed across four types of workplace
(ranging from the high to low adoption of HCM). Empirical ?ndings
showed that there were no signi?cant differences across the four types of
workplace on productivity (with the exception of some changes in ?nancial
performance)
Hoque (1999) In a sample of 209 UK hotels, 21 HR practices were evaluated (e.g.,
harmonization, job design, training and merit pay). Empirical ?ndings
showed that the relationship between HRM and performance was
dependent upon the applied business strategy. In addition, organizations
that had a particular focus on the quality of services within their strategy
performed better, while HRM would appear more likely to lead to
competitive success if it was introduced as an integrated, coherent or
“bundle” of different practices.
Appelbaum et al. (2000) A sample of 44 US manufacturing plants/facilities was used, where
approximately 4,400 employees were surveyed. Empirical ?ndings showed
that “high-performance” practices (e.g., opportunities for the employees to
participate, high-skills policies, employee motivation and increased
employee discretion) were positively correlated through the mediation of
other factors (e.g., mutual trust and intrinsic rewards) with employee
commitment, job satisfaction, low stress and improved performance
(continued)
Table II.
Selected empirical studies
from the HPWS literature
JOCM
26,1
198
Author(s) Empirical ?ndings
Cappelli and Neumark
(2001)
In a sample of a) 433 US manufacturing plants (1977-1993 panel data), and
b) 660 US manufacturing plants (1977-1996 panel data), various HR
practices were evaluated (e.g., job rotation, self-managed teams, teamwork
training, cross-training, pay for skills/knowledge, pro?t/gain sharing,
meetings and total quality management). The empirical ?ndings indicated
that the introduction of these practices was not correlated with any notable
change in productivity and ef?ciency
Batt (2002) In a random sample of 260 US call centers, which was based on “the Dun
and Bradstreet” listings of establishments, empirical ?ndings showed that
where HR practices focused on a) high skills, b) employee participation in
decision-making and team-working, c) incentive-based remuneration
schemes and d) employment security, quit rates were lower and sales
growth was higher
Wright et al. (2003) In a sample of 50 business units of a US food services company, empirical
?ndings showed that the implementation of HR practices and the resultant
organizational commitment were not signi?cantly correlated with
operational measures of performance (such as quality and productivity),
but they were positively related to lower operating costs and increased
pro?tability
Den Hartog and Verburg
(2004)
In a sample of 175 organizations, from various sectors in the Netherlands,
the HPWS model was adopted as a combination of different practices (e.g.,
employee skills and direction, autonomy, pay-for-performance, pro?t-
sharing, performance evaluation, team performance, information-sharing
meetings and job evaluation). Empirical ?ndings showed that the adoption
of the HPWS model had a signi?cant impact on several performance
outcomes (e.g., perceived economic outcomes and absenteeism etc.) and a
positive correlation with three organizational culture orientations
Sung and Ashton (2005) In a sample of 294 UK organizations, empirical ?ndings showed that the
level of adoption of the HPWS model, as measured by the number of
practices in use, was correlated with organizational performance. Those
organizations that more consistently adopted the practices as “bundles”,
rather than in isolation, had greater levels of employee involvement and
were more effective in delivering adequate training provision, managing
staff and providing career opportunities.
Sels et al. (2006) A sample of 416 units of small enterprises in Belgium (with ten to 100
employees) was used and derived from “the BELFIRST” data ?le.
Empirical ?ndings showed that the implementation of the HPWS model
was associated with increased productivity and an overall positive effect on
pro?tability, in spite of the increased labor costs
Purcell and Hutchinson
(2007)
A sample of 12 UK “excellent” companies was used in order to evaluate the
mediating role of front-line managers on the link between HRM and
organizational performance. An employee survey assessed the extent to
which employees’ commitment towards their employer and their job could
be in?uenced by the quality of leadership behavior and by satisfaction with
HR practices. Five items were used to measure leadership behavior
covering the dimensions of involvement, support, communication and
fairness. Both factors (i.e. leadership behavior and satisfaction) appeared to
have a strong effect on employee attitudes
(continued)
Table II.
High
performance
work systems
199
this type of economies (Godard, 2004; Hall and Soskice, 2001). In addition, some
researchers have identi?ed notable inconsistencies between the espoused or intended
HR policies and the policies that are actually implemented (Purcell et al., 2009; Kinnie
and Swart, 2009).
Overall, in the academic literature, there are numerous proponents of the
“high-performance paradigm” (e.g., Boxall and Macky, 2009). It is evident, though,
that some theorists insist that precise conclusions about the linkage of HRM with
performance outcomes are yet pending (e.g., Dany et al., 2008). Along this line,
further research is necessary with regard to “the nature of any intermediary
processes” that affect this linkage (Purcell et al., 2009, p. 8) and thus the pertinent
concern of unlocking the “HR black box” is still open for debate (Boxall and Purcell,
2011; Guest, 2011).
Author(s) Empirical ?ndings
Gooderham et al. (2008) A sample of 3,281 EU ?rms was derived from “the Cranet” data set in order
to evaluate the impact of HRM practices on organizational performance. A
factor analysis of 80 different HRM practices was adopted and resulted in
15 “bundles” of practices, which were then further categorized as being
either a) “calculative”, b) “collaborative”, or c) “intermediary”. The
empirical ?ndings showed that primarily the “calculative” and
“intermediary” practices had a positive correlation with organizational
performance rather the “collaborative” ones. Overall, it was further noted
that the overall effect of HRM on performance was relatively modest.
Guthrie et al. (2009) A sample of 1,338 ?rms was used (derived from “the Irish Times Top 1000
Companies” and “Ireland’s Top 1000 Companies”) in order to evaluate the
effectiveness of the HPWS model. The empirical ?ndings showed that
greater use of the HPWS model was related with positive HR and
organizational outcomes. In particular, those ?rms that were utilizing
higher levels of this model appeared to have lower rates of employee
absenteeism and voluntary turnover along with higher labor productivity
and lower labor costs.
Messersmith and
Guthrie (2010)
A sample of 2,018 US ?rms was used (derived from “the National
Establishment Time-Series (NETS)” database) in order to address the
factors that contribute to the success or failure of developing organizations
by examining the role that the HPWS model could play in the performance
of high-tech new ventures. Through the resource-based view and dynamic
capability perspective, empirical ?ndings indicated that the use of HPWS
was positively associated with sales growth and innovation, but the
hypothesized mediating role of voluntary employee turnover was not
?nally supported.
Batt and Colvin (2011) A longitudinal sample of 93 US call centers was used, in conjunction with a
cross sectional sample of 339 establishments (based on “the Dun and
Bradstreet” listing of establishments and a 2003 nationally random survey
of call centers in all industries). Empirical ?ndings showed that the
implementation of “high-involvement” work practices and the use of long-
term investments and inducements were associated with signi?cantly
lower quit and dismissal rates, but on the other hand, short-term
performance-enhancing expectations were related to signi?cantly higher
quit and dismissal rates. Finally, establishments with higher quit and
dismissal rates appeared to have signi?cantly lower customer service Table II.
JOCM
26,1
200
Methodology
The aforementioned discussion pinpointed that that the mechanisms on how HPWSs
affect organizational outcomes are still seen as a “black box”. The present research
attempts to shed some light on that “box” by investigating the Aesculup case study.
Gennard and Judge (2006) point out that the introduction of HPWS is not enough.
Many other factors, such as good leadership, a clear vision, commitment to continuous
improvement, a culture that encourages innovation and capital investment are vital
factors to accomplish the adoption of HPWS. For that reason, the discussion of how
such factors or contingencies conditioned the adoption of a HPWS in the case of a
German company calls for qualitative research. In the case study method, the fact that
data collection is not limited by predetermined categories of analysis contributes to the
depth of qualitative data (Patton, 1987). Indeed, it is a highly valuable research method
when “how” or “why” questions are the focus of interest, and when the boundaries
between phenomenon and context are not clearly evident (Yin, 2009).
In the case of Aesculap, conducting in-depth interviews with the protagonists was
extremely enlightening regarding how leadership, competition forces and employee
relations interacted with a bundle of HPWS and led the company to a turnaround with
impressive performance outcomes. Two interviews were conducted in October and
November 2009 and later evaluated. The employer’s side is presented by Norbert
Braun, senior manager and director of the production plant. He was personally
interviewed in Tuttlingen, Germany. Ekkehard Rist, chairman of the works council,
presents the employees’ point of view; a long telephone interview was carried out in
November 2009. During the interview, closed questions were asked in order to test the
adoption of HPWS and their impact; open questions were used to examine other
relevant factors that contributed to the success of the turnaround process. The
interviews were audio taped and then transcribed. By direct comparison of the
different points of view, the consistency was tested. Since Aesculap’s Benchmark
Factory was opened in 2001, the interviews focused on both the negotiation phase and
the period of operation.
The case study of Aesculap AG
Company background
Aesculap AG is a division of the B. Braun Melsungen AG. With a workforce of around
2,800 people in Tuttlingen (9,000 worldwide), it is a globally active company and the
largest employer in the region of Tuttlingen/Lake Constance in Germany. The
company initially produced surgical instruments and expanded into the ?eld of
arti?cial joints in the 1960s. In 1996 it became clear that the existing premises had
become inadequate for maintaining production over the long-term, and thus plans were
made to build a new factory. By the end of the 1990s Aesculap faced threatening
international competition. Some major acquisitions in this industry meant increasing
competition for market share: Hoffman La Roche bought Boehringer Mannheim and
Johnson & Johnson invested in a new plant in Ireland with a production capacity of
60,000 arti?cial joints per year (Ungethu¨m, 2009).
Due to growing market pressure (Zimmerman, 1991), the company was forced to
either increase performance or shut down the German site and relocate production.
High wage rates in Germany meant consideration had to be given to ?nding a site
outside Germany and to moving the entire production to a country that permitted
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production at lower costs. Despite the fact that the solution of a relocated factory would
have been much more positive in terms of cost, the company, nevertheless, decided to
build the new factory in Germany (Hambrick and Schecter, 1983; Barker and Duhaime,
1997). However, this solution was only made possible by exemplary negotiations and
cooperation between the board, the management, the employees, the works council, the
state politicians, and the town council (Kanter, 2003; Mohrman and Mohrman, 1983).
The negotiation process culminated in a corporate agreement between the
management, the works council and the labor union (Weitzel and Jonsson, 1989;
Clausen, 1990). An HPWS has been instituted in the turnaround corporate agreement.
Turnaround process
Because of major developments in the health sector, the international competition for
market share was reinforced and the market showed a consolidation tendency. By the
mid 1990s Aesculap held a small market share of only 2 percent. At that time the sector
was dominated by a few international ?rms, most of them subsidiaries of large
pharmaceutical companies. The six major competitors exceeded Aesculap’s revenue by
?ve to seven times. The German manufacturer sold 40,000 arti?cial joints, whereas the
competitors achieved sales numbers of 100,000-70,000 units (Ungethu¨m, 2009). Because
of the economic and demographic shift, Aesculap opted for an internationalization
strategy and started its worldwide business. This step drastically increased the price
pressure, since products have to be sold at a low price despite high market entry costs,
such as sales and marketing expenditures (Gopal, 1991; Grinyer et al., 1990). At that
time a Charnley Hip (a standardized arti?cial joint) in India was sold at the price of 350
Deutsche marks (approximately 175 Euro), whilst the same product would be sold at
double the price in Europe (Ungethu¨m, 2009).
Compared with its competitors’ position, Aesculap’s market position was highly
doubtful and therefore the senior management began to contemplate a turnaround plan
(Balgobin and Pandit, 2001). For a relatively small and specialized company like
Aesculap, increasing productivity and sales volume seemed vital factors to staying in
the business (Barker and Duhaime, 1997). Part of the turnaround was a state-of-the-art
technology plant combined with a high-performance work system (Hambrick and
Schecter, 1983; Thietart, 1988) Additionally the factory was arranged as a total quality
management workplace satisfying high environmental standards (Ungethu¨m, 2009).
The senior management, in cooperation with the works council, conducted a study to
compare different location options in terms of costs, employee skills and quality. Quite
expectedly, the German site turned out to be the leader in terms of its highly-skilled
employees and high productivity; yet high wages and an unfavorable tax system
appeared to override these positive aspects. Since tax circumstances could clearly not
be changed, the only option to lower the production cost turned out to be labor costs.
The direct comparison of the total wage bill necessary to run the factory indicated that
the German site would cost approximately 8 million Deutsche Marks (approximately 4
million Euros) more than the alternative sites. A corporate agreement securing a
reduction in unit labor costs by increasing productivity faster than wages led senior
management to invest ?nally in Germany (Thietart, 1988). Michael Ungethu¨m,
chairman of the management board until his retirement in April 2009, opened the
Benchmark Factory in Tuttlingen, Germany in 2001 and managed to increase the
company’s performance signi?cantly in the following period.
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According to the turnaround plan, the employees agreed to extend their working
time by 24 minutes per day, without remuneration in return for receiving a bonus for
achieving performance targets (Kramer, 1987). The new plant would remain within the
trade union “Arbeitgeberverband Su¨dwestmetall”, and there would not be any layoffs
or relocations without the acceptance of the works council. The management agreed to
transform part of the additional working hours into training (“quali?cation time”). The
works council’s argument was that state-of the-art technology should be accompanied
by a higher quali?ed workforce in order to achieve the expected results. Thus training
was the vehicle for raising employees’ value for the company and making them
relatively irreplaceable (Mirvis et al., 2003). The works council also required that the
funds that would be saved through increased productivity achieved by additional
unpaid working time should be invested in future markets. The terms of Aesculap’s
corporate agreement are summarized in Table III.
The turnaround led to impressive corporate performance: the Benchmark Factory
has been running successfully and revenues have increased remarkably throughout
the period under consideration (2002-2008). Figure 1 illustrates an increasing trend in
employee productivity from early on (2003), followed by a remarkable boost in the
factory’s revenues, as is shown in Figure 2.
Employer’s commitment Employees’ commitment
Investment More working time
A new state-of-the-art production plant
“Benchmark Factory” in Tuttlingen/Germany
(28m euros)
Unpaid extension of working time by 90 hours per
year ( ¼ 24 minutes per day)
Additional investment of 15 million euros in the
following period
60 hours unpaid additional work time per year for
apprentices
By March 10, 2004: smoking breaks are allowed
only during of?cial breaks
Employee participation Cost-cutting working time
Team-based work organization Time ?exibility
Aesculap’s commitment to work and negotiate
with the trade union “Arbeitgeberverband
Su¨dwestmetall
No nightshift bonus
Effective team-based production in a state-of-the-
art production plant
Of?cial working hours: 6 a.m. until 8 p.m. (?exible
working hours)
Job security
No layoffs without the acceptance of the works
council
Commitment to keep minimum number of
employees (1,930) and a certain number of
apprentices (9.5 percent quota)
Training/skills enhancement Training time arrangement
43 hours of training per year according to a skills-
build-up catalog
Partly unpaid 43 hours of training
Performance-based pay
Wages are linked to productivity targets (ideally
to balance the unpaid extra working time)
Table III.
Adopting a HPWS
through a corporate
agreement
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203
The adopted high performance work practices did lead to signi?cant positive
outcomes, such as growth in revenues and increased productivity. In addition, the
prospected target of 10 percent savings in personnel costs was achieved. Nonetheless,
the employees earned even more money than they did before the changes: the
performance-linked bonus exceeded the wage loss (Ungethu¨m, 2009). Aesculap
invested part of the saved money in strengthening its international market position.
Since the opening of the new production plant in 2001, around 400 new employees were
recruited and the apprentice quota was increased. In February 2007, the German
government awarded Aesculap a prize for outstanding innovation (Armenakis et al.,
1995). In the following year the Benchmark Factory received an award for being one of
the most modern and environmentally friendly plants in producing arti?cial joints in
Europe. The solid foundations of Aesculap’s turnaround process were truly proven
during the current world economic crisis. In a period where economic activity was
rapidly shrinking in advanced economies, the company kept increasing its revenues
and workforce at a remarkable pace, averaging 7.3 percent and 13.4 percent
respectively between 2009 and 2011 (B. Braun, 2011). Indeed, through a rejuvenation
plan Aesculap’s stakeholders managed to create a “win-win” situation for both the
company and the employees by implementing a high performance work system. The
main practices of the latter are discussed below in some detail.
High performance work practices at Aesculap: production based on teamwork
The implementation of HPWS usually begins with the redesign of work ?ows towards
customer-value driven work teams (Belcourt et al., 2008). Aesculap emphasizes
teamwork, that is, group-based production. The Benchmark Factory is organized on a
team structure. There is a plant manager, who is fully responsible for overall operation
and the plant’s workforce of up to 500 people. The plant itself is divided into segments
Figure 1.
Employee productivity in
the new factory
Figure 2.
Revenues at Aesculap/B.
Braunt, Germany
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with a segment leader for each; the segment leader supervises up to 100 employees and
reports directly to the plant manager. The next hierarchical level would be the teams
with one or two team leaders, who supervise ten to 40 employees. The team leaders are
responsible for compliance with processes, operation procedures and quality
standards. The teams are organized in an optimal structure to support the most
effective work ?ow (O’Shaughnessy, 1995).
According to Pfeffer (1998) team-based, organized work is one of the key factors
when adopting HPWS. Norbert Braun, representing management, explains the
importance of team and work ?ow design for Aesculup:
Due to the fact that technical and operational processes are increasingly complex, it is
impossible for one employee to know all the correct handling procedures. You need several
persons to combine their knowledge and achieve the best results.
However, Mr Rist, representing employees, stresses the dif?culties when adopting
team-based production processes:
We also changed the whole production cycle and implemented new processes that challenged
the employees even more. We introduced team-based production. It was a dif?cult process to
support the employees and to make sure that the company does not ask too much of them.
This typically happens in such cases.
Mr Rist points out that team-based production practices, not commands, improve the
employees’ working conditions. If the management only strives for increasing
performance results without caring about the employees’ interests, these practices can
easily lead to negative outcomes for the staff, such as excessive demands.
High performance work practices at Aesculap: worker participation and communication
Aesculap relies on worker participation to a great extent, especially when it comes to
the restructuring of basic work processes (Kanter, 2003; Mohrman and Mohrman, 1983;
Goldstein, 1988). The company does not fully support autonomous group work; it
stresses “guided team work”, but there are formal participation processes such as
meetings on a regular basis, group activities, suggestion schemes and feedback groups.
Mr Braun points out the importance of the concept:
Basically employee participation is very important to us; it’s an important component.
Especially due to high complexities of practices we do emphasize employee participation [. . .]
Without the employees’ involvement we can’t be successful. Knowledge comes with people.
In addition to the formal processes, there are special cases when management asks for
employees’ consultation on process improvement. Off-Line teams are assigned to work
on analyses and come up with suggestions. Hence, employees directly contribute to
organizational design, and, again, this factor supports the idea of bottom-up
communication. As Mr Braun explains:
For restructuring projects though, we do ask for the staff’s feedback in the sense of “how do
you rate the process, how can we constantly optimize the operation?” By the help of our
employees’ experience we come to an optimal solution – that’s how it works.
This process counts for communication as well (Kanter, 2003; Weitzel and Jonsson,
1989). As Mr Braun points out:
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Through the help of our group discussions, we try to advance communication and
information among the employees. Many companies have to face that: there can’t be only
top-down management; today’s employees actively get involved [. . .] Open communication
means sharing good and negative feedback. Through that we prove our trust-based
relationship.
Along the same line, Mr Rist, maintains:
I think the more you involve the employees the more commitment you will gain. If you openly
discuss issues, it is likely that employees will contribute to change processes [. . .] the majority
of employees constantly ask “what can I do for the company?”
It is noteworthy that open communication played a crucial role in the employee
familiarization with the turnaround process. Mr Braun explains:
We totally restructured the production and organization. It was a huge change process. It was
made possible by constant effort; it’s an ongoing process. . . We published a lot of information
for the employees about the Benchmark Factory: the timetable, what happens, what we
expect of our employees, what kind of changes we have to face.
This practice was also acknowledged by employees’ representative Mr Rist:
If you openly discuss issues, it is likely that employees will contribute to change processes. It
was very important to us to involve the employees at an early stage.
High performance work practices at Aesculap: training, career development and job
security
Enhanced training is a key principle in adopting HPWS, since it assures that
employees have the skills needed to assume greater responsibility in a high
performance workplace (see Guest et al., 2004). Aesculup is such a workplace. It
promotes training: the majority of the employees constantly receive training (Mirvis
et al., 2003). Every year the company publishes a training and development agenda.
The program offers further training, such as product and process training,
communication training and language courses. The (standardized or individual)
training is done by professional external trainers. Attendance is basically open to every
employee on agreement. Employees in production are evaluated by their managers and
may receive training according to their needs. Individual training is offered if
employees have to develop certain skills in order to be promoted. The company invests
heavily in employee development. On-the-job training is used for the induction of new
team members and apprentices.
Understandably, training in “high road” companies such as Aesculup is viewed by
employees as “more quali?cations”, an important element further securing their job
positions. As Mr Rist admits:
From the employees’ perspective, quali?cation means a chance to adapt to challenges of a
modern production site; thanks to these quali?cations, the employees are irreplaceable in the
company.
Through training, the company offers good conditions for employees to develop and
get promoted. Heavy training and secured jobs are practices ingrained in the company
and quite expectedly lead to a low employee turnover. Some of the employees have
been with the company for more than thirty years.
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High performance work practices at Aesculap: competency-based employee selection
Aesculap recruits highly skilled employees. Due to the fact that working processes
have become more and more complex, an increasing number of high caliber engineers
are needed. In addition to high skills, however, the company emphasizes social skills.
According to Mr Braun:
First of all, he or she [the employee] has to be quali?ed in terms of skills and education. But at
the same time the employee has to be equipped with social competencies. If an employee is
highly quali?ed but does not satisfy our social requirements, such as willingness to
communicate effectively within the team, we would not hire this person.
This practice indicates the signi?cant importance of effective team work and
communication in the new workplace. High performance workplaces crucially depend
on selecting the right candidates (Skaggs and Youndt, 2004; Boyne and Meier, 2009).
Companies not only strive for highly skilled individuals, but also look for employees
with the ability to learn continuously and work cooperatively towards the company’s
goals (Belcourt et al., 2008; Boxall and Macky, 2009).
High performance work practices at Aesculap: performance-based compensation and
bene?ts
Aesculap established a comprehensive performance-based pay system (Kramer, 1987).
Employees receive a ?xed income and an additional bonus if the performance targets
are achieved. Bonus-relevant are the criteria of order cycle and production time and
number of delayed orders, since these criteria are directly linked to customer
satisfaction. The performance targets are set once a year. Throughout the year
employees constantly receive relevant company data in order to know how they are
doing in terms of performance and quality. Aesculap strives for information
transparency and publishes the data on their notice boards at the plant entrances
(Kanter, 2003). Contingent compensation leads to increased effort since it provides the
employees an economic incentive (see Stavrou et al., 2010).
According to Mr Braun, the company pays satisfactory wages:
I would say we pay in line with the market or above. In many areas, such as production, we
pay above the market price. We appreciate good employees and are willing to pay the price.
In addition to the performance-based pay system, Aesculap offers a range of bene?ts.
There is a company pension and health insurance scheme. According to Mr Rist, the
management in cooperation with the works council keeps on working towards the
employees’ bene?ts; just recently they introduced a renewed pension scheme.
High performance work practices at Aesculap: employee relations based on trust
One key element of Aesculap case is the company’s approach to employee relations.
According to Mr Braun, open communication, the willingness for self-critique and trust
between managers and employees characterize the company’s state of employee
relations (Kanter, 2003; Zimmerman, 1991). Mr Rist attaches great importance to the
trust factor:
I do think that trust was an important factor. The responsible persons proved integrity in the
past. The management at Aesculap and the employees are on a par with each other. There is
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no “an eye for an eye, a tooth for a tooth” atmosphere; we have a fair relationship [. . .] both
sides stick to their promises; this is part of the company culture.
Apparently, this trust-based corporate culture forged by job security conditions made
Aesculap a high-commitment workplace and contributed to the company’s successful
turnaround with impressive performance outcomes.
Conclusions
The aim of this case study was to shed light on the particular processes (“black box”)
through which a German multinational company uses a comprehensive HPWS to
turnaround its production base and survive in global markets. The study found
evidence that the implemented HPWS has a positive impact on main organizational
outcomes, such as productivity and revenue growth. Both interviewees, Mr Braun
representing senior management and Mr Rist, representing employees, agree that the
high performance work practices adopted at Aesculap’s Benchmark Factory did lead to
a positive organizational outcome and a “win-win” situation for both the company and
its employees.
The study pinpoints the speci?c contingencies that condition HPWS effectiveness.
At the core one can single out a corporate culture nurtured by a stakeholder approach.
Indeed, a culture of institutionalised open dialogue between the two social partners
based on trust led to a crucial development: a corporate agreement that cemented high
performance work practices in the new workplace. Thus, management’s open
communication, pay and training incentives and job security were balanced by
employees’ drive to higher quality and greater output.
Among many limitations, two are quite distinct and serious in the present study.
First, the study focuses only on one single company operating in manufacturing.
Thus its ?ndings can hardly be generalized. Second, Aesculup, the study’s case
study is a German company, and as such it is a genuine example of a stakeholder’s
corporate culture. So it provides “fertile soil” for a HPWS to ?ourish. It would be
more reassuring for the HPWS perspective if our case study of turnaround had
taken place in a typical Anglo-Saxon environment, for instance in New Zealand, or
in a rapidly developing democratic country, such as Brazil or India. Hence, even
though the results of the present study are encouraging, they are far from decisive
for the HPWS paradigm. Rather they call for further investigation of multiple
corporate case studies of HPWS adoption across different industries, sectors and
countries.
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About the authors
Dimitrios M. Mihail is Professor of the Business Administration Department at the University of
Macedonia, Greece. He holds a PhD in Economics from The Graduate Faculty, New School for
Social Research, New York, USA. His current research focuses on labour market ?exibility,
career development and student and women employment issues. His recent research has been
published in International Journal of Manpower, European Management Journal, Personnel
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Review and The International Journal of Human Resource Management. Dimitrios M. Mihail is
the corresponding author and can be contacted at: [email protected]
Myra Mac Links holds a Diploma in Media Studies from J.W. Goethe University Frankfurt
and a Master’s in Management (HR focus) from International Hellenic University Thessaloniki.
She brings along almost ten years of international recruiting and HR experience. Currently she is
leading the Continental Europe Hiring Team with SapientNitro in Munich.
Dr Sofoklis Sarvanidis was a doctoral researcher in Work and Employment Research
Centre (WERC) at the University of Bath (2004-2008). His research focused on “The
implementation of information and consultation of employees regulations in Great Britain”.
He was awarded a full CASE studentship (ESRC, þ3) and collaborative research scholarship
by the: Economic and Social Research Council (ESRC); Advisory, Conciliation and
Arbitration Service (ACAS); and University of Bath. He was also a collaborative research
fellow of ACAS during the conduct of his empirical ?eldwork. In the academic year
2009-2010, he joined City College as an adjunct lecturer in the Business Administration and
Economics Department.
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