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Please check pdf and word doc 

2 part homework

Homework part 1- 1-1.5 page answer

please check the pdf which I provided for reference. You can answers use your own word but must related to the textbook lessons. The answer is easy to find under each chapter, just use some of your word and explanations from textbook. When you answer from textbook (pdf I provided) you must write the page number after your answer.

Please keep the questions and number on the answer and answer the questions one by one separate.

CH. 13 Employee Involvement

1. Define the principles of employee involvement and describe its relationship to performance.

2. Compare three employee involvement interventions: parallel structures, total quality management, and high-involvement organizations.

CH.14 Work Design

1. Describe the engineering approach to work design.

2. Explore and evaluate the motivational approach to work design.

3. Discuss and apply the principles of sociotechnical systems work design.

4. Learn how to design work to meet technical and personal needs.

CH. 15 Performance Management

1. Understand the components of a performance management system.

2. Describe and evaluate the effectiveness of goal setting interventions in organizations.

3. Understand the application of performance appraisal interventions.

4. Discuss how reward systems interventions can be applied in organizations.

Part 2- need 1 page answer

Discuss the Merits of Self-Managed Work Teams to an Organization.

Please use textbook information’s (pdf I provided) for reference.











Employee Involvement


Define the principles of employee involvement and describe its
relationship to performance.

Compare three employee involvement interventions: parallel structures,
total quality management, and high-involvement organizations.

Faced with competitive demands for lowercosts, higher performance, and greater flexi-bility, organizations are increasingly turning
to employee involvement (EI) to enhance the par-
ticipation, commitment, and productivity of their
members. This chapter presents organization devel-
opment (OD) interventions aimed at moving deci-
sion making downward in the organization, closer
to where the actual work takes place. This increased
employee involvement can lead to quicker, more
responsive decisions, continuous performance
improvements, and greater employee flexibility,
commitment, and satisfaction.

Employee involvement is a broad term that has
been variously referred to as “empowerment,”
“participative management,” “engagement,” “work
design,” “high involvement,” “industrial democracy,”
and “quality of work life.” It covers diverse
approaches to gaining greater participation in
relevant workplace decisions. Organizations such
as General Mills, The Hartford, and Intel have
enhanced worker involvement through enriched
forms of work; others, such as Verizon, Deutsche
Telekom, Wells Fargo, and Boeing, have increased
participation by forming EI teams that develop
suggestions for improving productivity and
quality; Southwest Airlines, Shell Oil, and Nucor

Steel have sought greater participation through
union–management cooperation on performance
and quality-of-work-life issues; and still others,
such as Texas Instruments, Kimberly-Clark, 3M,
the IRS, and Motorola, have improved employee
involvement by emphasizing participation in
quality-improvement approaches.

As described in Chapter 1, current EI
approaches evolved from earlier quality-of-work-
life efforts in Europe, Scandinavia, and the
United States. The terms “employee involvement”
and “empowerment” gradually have replaced the
designation “quality of work life,” particularly in
the United States. A current definition of EI
includes four elements that can promote
meaningful involvement in workplace decisions:
power, information, knowledge and skills, and
rewards. These components of EI combine to
exert powerful effects on productivity and
employee well-being.

Major EI applications discussed in this chapter are
parallel structures, including cooperative union–
management projects and quality circles; total quality
management; and high-involvement organizations.
Two additional approaches that include elements of
EI, work design and reward-system interventions, are
discussed in Chapters 14 and 15, respectively.


13-1 Employee Involvement: What Is It?
Employee involvement is the current label used to describe a set of practices and
philosophies that started with the quality-of-work-life movement in the late 1950s. The
phrase “quality of work life” (QWL) was used to stress the prevailing poor quality of life
at the workplace.1 As described in Chapter 1, both the term “QWL” and the meaning
attributed to it have undergone considerable change and development. More recently,
the term “engagement” has been popular, and a great deal of effort has been invested in
differentiating the term. “Engagement” refers to organization members’ work experience.
Engaged employees are motivated, committed, and interested in their work.2 Engagement,
then, is the outcome of EI interventions. In this section, we provide a working definition of
EI, document the growth of EI practices in the United States and abroad, and clarify the
important and often misunderstood relationship between EI and productivity.

13-1a A Working Definition of Employee Involvement
Employee involvement seeks to increase members’ input into decisions that affect organi-
zation performance and employee well-being.3 It can be described in terms of four key
elements that promote worker involvement:4

1. Power. This element of EI includes providing people with enough authority to make
work-related decisions covering various issues such as work methods, task assign-
ments, performance outcomes, customer service, and employee selection. The
amount of power afforded employees can vary enormously, from simply asking
them for input into decisions that managers subsequently make, to managers and
workers jointly making decisions, to employees making decisions themselves.

2. Information. Timely access to relevant information is vital to making effective deci-
sions. Organizations can promote EI by ensuring that the necessary information
flows freely to those with decision authority. This can include data about operating
results, business plans, competitive conditions, new technologies and work methods,
and ideas for organizational improvement.

3. Knowledge and skills. Employee involvement contributes to organizational effec-
tiveness only to the extent that employees have the requisite skills and knowledge
to make good decisions. Organizations can facilitate EI by providing training and
development programs for improving members’ knowledge and skills. Such learning
can cover an array of expertise having to do with performing tasks, making deci-
sions, solving problems, and understanding how the business operates.

4. Rewards. Because people generally do those things for which they are recognized,
rewards can have a powerful effect on getting people involved in the organization.
Meaningful opportunities for involvement can provide employees with internal
rewards, such as feelings of self-worth and accomplishment. External rewards, such
as pay and promotions, can reinforce EI when they are linked directly to perfor-
mance outcomes that result from participation in decision making. (Reward systems
are discussed more fully in Chapter 15.)

Those four elements—power, information, knowledge and skills, and rewards—
contribute to EI success by determining how much employee participation in decision
making is possible in organizations. To the extent that all four elements are made avail-
able throughout, and especially in the lower levels of, the organization, the greater the
employee involvement. Furthermore, because the four elements of EI are interdependent,
they must be changed together to obtain positive results. For example, if organization


members are given more power and authority to make decisions but do not have the
information or knowledge and skill to make good decisions, then the value of involve-
ment is likely to be negligible. Similarly, increasing employees’ power, information, and
knowledge and skills but not linking rewards to the performance consequences of these
changes gives members little incentive to improve organizational performance. The EI
methods that will be described in this chapter vary in how much involvement is afforded
employees. Parallel structures, such as union–management cooperative efforts and qual-
ity circles, are limited in the degree that the four elements of EI are moved downward in
the organization. Total quality management and high-involvement organizations provide
far greater opportunities for involvement.

13-1b The Diffusion of Employee Involvement Practices
Employee involvement interventions are being used in organizations throughout the
world. In addition to firms in the United States, organizations are applying EI in West
European countries, including France, Germany, Denmark, Ireland, Sweden, Norway,
Holland, Italy, and Great Britain.5 EI efforts are among the tremendous changes cur-
rently taking place in countries such as Russia, Bulgaria, the Philippines, and the People’s
Republic of China.6 Organizations in Canada, Mexico, India, Australia, New Zealand,
Hong Kong, and Japan also are using EI. Internationally, EI may be considered a set of
processes directed at changing the structure of the work situation within a particular
economic and cultural environment and under the influence of particular values and
philosophies. As a result, in some cases, EI has been promoted by unions; in others, by
management; and in still others, by government. In some cases, it has been part of a
pragmatic approach to increasing productivity; in other cases, it has been driven by
socialist values.7

In a recent long-term study of EI applications, Lawler and his colleagues at the
Center for Effective Organizations at the University of Southern California surveyed the
Fortune 1000 and discovered positive trends in EI use among these firms, including both
a growing number of firms applying EI and a greater percentage of the workforce
included in such programs.8 Despite these positive trends, however, this research
revealed that the scope and depth of EI interventions were relatively modest. EI interven-
tions that involved more than 20% of the workforce fell at the lower end of the EI scale,
with low to moderate shifts in power, information, knowledge and skills, and rewards,
such as might be found in suggestion systems and survey feedback. Interventions that
included significant changes in these EI dimensions had more modest coverage, however,
and were applied to fewer than 20% of the workforce in Fortune 1000 firms. Thus,
although many large organizations are using EI practices, there is considerable room
for their diffusion across organizations and throughout the workforce.

13-1c How Employee Involvement Affects Productivity
An assumption underlying much of the EI literature is that such interventions will lead
to higher productivity. Although this premise was initially based on anecdotal evidence
and a good deal of speculation, there is now a growing body of research findings to sup-
port that linkage.9 Studies have found a consistent relationship between EI practices and
such measures as productivity, financial performance, customer satisfaction, labor hours,
and waste rates.

Attempts to explain this positive linkage traditionally have followed the idea that giving
people more involvement in work decisions raises their job satisfaction and, in turn, their


productivity. There is growing evidence that this satisfaction-causes-productivity premise is
too simplistic and sometimes wrong.

A more realistic explanation for how EI interventions can affect productivity is
shown in Figure 13.1. EI practices, such as participation in workplace decisions, can
improve productivity in at least three ways.10 First, they can improve communication
and coordination among employees and organizational departments, and help integrate
the different jobs or departments that contribute to an overall task.

Second, EI interventions can improve employee motivation, particularly when they sat-
isfy important personal needs. Motivation is translated into improved performance when
people have the necessary skills and knowledge to perform well and when the technology
and work situation allow people to affect productivity. For example, some jobs are so rigidly
controlled and specified that individual motivation can have little impact on productivity.

Third, EI practices can improve the capabilities of employees, thus enabling them to
perform better. For example, attempts to increase employee participation in decision
making generally include skill training in group problem solving and communication.

Figure 13.2 shows the secondary effects of EI. These practices increase employee
well-being and satisfaction by providing a better work environment and a more fulfilling
job. Improved productivity also can increase satisfaction, particularly when it leads to
greater rewards. Increased employee satisfaction, deriving from EI interventions and
increased productivity, ultimately can have a still greater impact on productivity by
attracting talented employees to join and remain with the organization.

Recent research has identified an additional path for the performance effects of EI
interventions—organizational citizenship behavior (OCB).11 OCB involves a broad set
of discretionary work behaviors that sustain and enhance the functioning of the organi-
zation, such as helping coworkers, sharing tacit task knowledge, and going beyond the
call of duty to help customers. These behaviors are not prescribed by the organization
but occur voluntarily at employees’ discretion. There is growing evidence that EI prac-
tices promote OCB, and in turn, OB increases organization performance.

In sum, EI interventions can increase productivity by improving communication
and coordination, employee motivation, and individual capabilities. They also can


How Employee Involvement Affects Productivity

SOURCE: Lawler & Ledford, “Productivity and QWL,” National Productivity Review 1, 1 (Winter
1981–82). © 1982 by Executive Enterprises, Inc. Reprinted by permission of John Wiley & Sons, Inc.


influence productivity by means of the secondary effects of increased employee well-
being and satisfaction, and through employees’ organizational citizenship behavior.
Although a growing body of EI and engagement research supports these relationships,
there is considerable debate over the strength of the association between EI and
productivity.12 Recent data support the conclusion that relatively modest levels of EI
produce moderate improvements in performance and satisfaction, and that higher levels
of EI produce correspondingly higher levels of performance.13

13-2 Employee Involvement Interventions
Described below are three major EI interventions that vary in the amounts of power,
information, knowledge and skills, and rewards that are moved downward through the
organization (from least to most involvement): parallel structures, including cooperative
union–management projects and quality circles; total quality management; and high-
involvement organizations.

13-2a Parallel Structures
Parallel structures involve employees in resolving ill-defined, complex problems and
build adaptability into bureaucratic organizations.14 Also known as “collateral struc-
tures,” “dualistic structures,” or “shadow structures,”15 parallel structures operate in con-
junction with the formal organization. They provide members with an alternative setting
in which to address problems and to propose innovative solutions free from the existing,
formal organization structure and culture. For example, members may attend periodic
off-site meetings to explore new ways to improve quality in their work area or they
may be temporarily assigned to a special project or facility to devise new products or
solutions to organizational problems. Parallel structures facilitate problem solving and
change by providing time and resources for members to think, talk, and act in
completely new ways. Consequently, norms and procedures for working in parallel


Secondary Effects on Productivity

SOURCE: Lawler & Ledford, “Productivity and QWL,” National Productivity Review 1, 1 (Winter
1981–82). © 1982 by Executive Enterprises, Inc. Reprinted by permission of John Wiley & Sons, Inc.


structures tend to be different from those of the formal organization. This section
describes the application steps associated with the two most common parallel structures,
cooperative union–management projects and quality circles, and reviews the research on
their effectiveness.

Application Stages Cooperative union–management projects and quality circle inter-
ventions fall at the lower end of the EI scale. Member participation and influence typically
are restricted to making proposals and to offering suggestions for change because
subsequent decisions about implementing the proposals are reserved for management. Mem-
bership in parallel structures also tends to be limited, primarily to volunteers and to numbers
of employees for which there are adequate resources. Management heavily influences the
conditions under which parallel structures operate. It controls the amount of authority that
members have in making recommendations, the amount of information that is shared with
them, the amount of training they receive to increase their knowledge and skills, and the
amount of monetary rewards for participation. Because parallel structures offer limited
amounts of EI, they are most appropriate for organizations with little or no history of
employee participation, top-down management styles, and bureaucratic cultures.

Cooperative union–management and quality circle programs typically are imple-
mented in the following steps:16

1. Define the purpose and scope. This first step involves defining the purpose for the
parallel structure and initial expectations about how it will function. Organizational
diagnosis can help clarify which specific problems and issues to address, such as
productivity, absenteeism, or service quality. In addition, management training in
the use of parallel structures can include discussions about the commitment and
resources necessary to implement them; the openness needed to examine organiza-
tional practices, operations, and policies; and the willingness to experiment and

2. Form a steering committee. Parallel structures typically use a steering committee
composed of acknowledged leaders of the various functions and constituencies
within the formal organization. For example, in cooperative union–management
projects, the steering committee would include key representatives from manage-
ment, such as a president or chief operating officer, and each of the unions and
employee groups involved in the project, such as local union presidents. This com-
mittee performs the following tasks:

• Refining the scope and purpose of the parallel structure
• Developing a vision for the effort
• Guiding the creation and implementation of the structure
• Establishing the linkage mechanisms between the parallel structure and the for-

mal organization
• Creating problem-solving groups and activities
• Ensuring senior management support.

OD practitioners can play an important role in forming the steering committee.
First, they can help to establish the team and to select appropriate members. Second,
they can assist in developing and maintaining group norms of learning and innovation.
These norms set the tone for problem solving throughout the parallel structure. Third,
they can help the committee create a vision statement that refines the structure’s pur-
pose and promotes ownership of it. Fourth, they can help committee members develop
and specify objectives and strategies, organizational expectations and required
resources, and potential rewards for participation in the parallel structure.


3. Communicate with organization members. The effectiveness of a parallel structure
depends on a high level of participation from organization members. Communicating
the purpose, procedures, and rewards of participation can promote that involvement.
Moreover, employee participation in developing a structure’s vision and purpose can
increase ownership and visibly demonstrate the “new way” of working. Continued com-
munication concerning parallel structure activities can ensure member awareness.

4. Create forums for employee problem solving. These forums are the primary means
of accomplishing the purpose of the parallel learning structure. The most common
forum is the employee problem-solving group. Its formation involves selecting and
training group members, identifying problems for the group to work on, and provid-
ing appropriate facilitation. Selecting group members is important because success
often is a function of group membership.17 Members need to represent the appropri-
ate hierarchical levels, expertise, functions, and constituencies that are relevant to the
problems at hand. This allows the parallel structure to identify and communicate with
the formal structure. It also provides the necessary resources to solve the problems. Ad
hoc committees or task forces may also be formed, as when workers and managers
initiate action to address an issue of interest to the parallel organization. Ad hoc
teams are typically charged with a particular task and have a limited lifetime.

Once formed, members of a problem-solving group need appropriate training. This
may include discussions about the vision of the parallel structure, the specific problems to
be addressed, and the way those problems will be solved. As in the steering committee,
group norms promoting openness, creativity, and coordination need to be established.

Another increasingly common forum is the large group intervention described in
Chapter 11. Search conferences and appreciative inquiry (AI) summits can be used to gen-
erate a variety of ideas for change, innovation, and problem solving. Application 13.1
describes one example of such a process.18 Roadway Express found the AI summit to be
an effective way of engaging union members in solving organizational problems.

Another key resource for parallel structures is facilitation support. Although this
can be expensive, it can yield important benefits in problem-solving efficiency and
quality. Small groups are asked to form quickly and to solve problems by cutting
through traditional hierarchical and functional boundaries. Facilitation support can
help charter and build the team as well as pay special attention to processes that
encourage problem solving. They can help members identify and resolve issues within
groups. Similarly, large group interventions require time, resources, and knowledge.
They must be designed and facilitated well if they are to produce relevant results.

5. Address the problems and issues. Parallel structures solve problems by using an
action research process. They diagnose specific problems, plan appropriate solutions,
and, if empowered to do so, implement and evaluate them. Problem solving can be
facilitated when the groups and the steering committee relate effectively to each
other. This permits the steering committee to direct problem-solving efforts in an
appropriate manner, to acquire the necessary resources and support, and to approve
action plans. It also helps ensure that the solutions and changes are linked appropri-
ately to the formal organization. In this manner, early attempts at change will have a
better chance of succeeding.

6. Implement and evaluate the changes. This step involves implementing appropriate
organizational changes and assessing the results. Change proposals need the support
of the steering committee and the formal authority structure. As changes are imple-
mented, the organization needs information about their effects. This lets members
know how successful the changes have been and if they need to be modified. In
addition, feedback on changes helps the organization learn to adapt and innovate.








oadway Express was the largest subsidiary
of $2.9 billion (2001 revenues) Roadway
Corp., based in Akron, Ohio (Roadway has
since been acquired by Yellow Transit Co.).

In the first three quarters of 2002, Roadway
Express’s operating income fell 14% to $130
million and revenue dropped 7% to $1.8 billion.
In September 2002, Roadway’s biggest com-
petitor, Consolidated Freightways, filed for
bankruptcy and 15,000 Teamsters lost their
jobs. Nonunionized carriers like CNF Freight
Services were gaining market share with
lower costs and a more flexible workforce.

Roadway Express is a “less-than-truckload
carrier,” which means that its trucks deliver a
variety of packages and freight to multiple
locations for more than one customer at a
time. This places tremendous pressure on the
organization, its managers, and employees to
effectively plan the delivery routes and loads in
order to make a profit. Complicating the task,
Roadway Express is heavily unionized: 20,000
of its 27,000 employees belong to the Team-
sters or other unions. They are paid, on average
and including benefits, 5% above nonunionized

To compete in an industry in which net profit
margins are less than 5% in a good year—let alone
in a year when business is contracting—every
one of its 27,000 employees must be a leader.
“Almost two-thirds of every revenue dollar is con-
sumed by wages and benefits,” says Roadway
president and COO James Staley. In comparison,
Conway Transportation, a division of nonunion-
ized CNF, only pays out 53 cents of every dollar
of revenue. “There’s not a lot of new technology
that’s going to make us more efficient. So future
opportunities are going to come from our people
being more involved in the business.”

Persuading the Teamsters and other union
members to be more efficient and breaking
down a long history of hostility between work-
ers and management were no small tasks.
Many of the programs Staley had seen had a
way of producing a short-term glow and not
much lasting change. Union bosses are

naturally wary of such programs and assume
that efficiency is just a fancy way of saying
that some workers will be laid off and the
rest made to work harder. The cooperative
union–management program Staley adopted
paired classroom efforts to educate union
members on how the organization works with
a series of Appreciative Inquiry (AI) summits to
generate ideas and organize change efforts.

Part of the program involved teaching work-
ers about the industry’s economics, competi-
tion, and financial status, including Roadway’s
income statement and operating ratios. The
classes encouraged employees to think and
act like owners and emphasized the importance
of cutting costs. The experience of one 36-
year-old dockworker, a 13-year veteran and
union representative, demonstrated how diffi-
cult change was going to be. The dockworker
had been accused of instigating worker slow-
downs and engaging in screaming matches
with supervisors. At one of the business educa-
tion seminars, a graph illustrating how unionized
trucking companies’ market share had slipped
from 75% to 50% since 1990 made a powerful
argument for change. “Suddenly my ability to
support my wife and two children depended
on the security of the company,” he said. In
response, he wrote a plan to improve service
in his Greenville, South Carolina, facility that
included teaching dockworkers to use compu-
ters to communicate with customer-service
reps and keep them up-to-date on the status
of freight. However, the plan and its implemen-
tation also resulted in many of his coworkers
labeling him as a management “suck up.”

The second part of the union–management
program involved the use of AI summits. The
first AI summit process began at the Akron ter-
minal and then was extended to the Winston-
Salem facility in North Carolina. A steering com-
mittee of workers from across the facility was
created to plan an off-site meeting aimed at set-
ting a course for the future. Its first task was to
decide who among the terminal’s employees
would be invited to attend. The goal was to


create a microcosm of the company, with workers
from all departments and all functions and with vary-
ing degrees of empathy for Roadway’s corporate
objectives. A few weeks later, about 100 employ-
ees gathered at a local Holiday Inn for the three-
day off-site summit. Using a collaborative process,
the trucking firm began to engage its heavily union-
ized workforce in ways that hardly seemed possible
just five years ago.

At the start of the AI summit, representatives
from all parts of the system, workers from all func-
tions who barely knew one another, participated.
Having the whole system in the room allowed every-
one to see each other, face-to-face, and increased
the chances of building trust and of participants see-
ing their collective purpose. On the AI summit’s first
day, participants explored their organization’s “posi-
tive change core.” The opening question in a round
of interviews among all the participants was, “Talk
about a time when you felt the most alive, the
most engaged, in your job at Roadway.” The word-
ing was intentional, a signal that this wasn’t going to
be the usual management–labor gripe session. The
second question fed off the first: “Imagine that
you’ve woken up after being asleep for five years.
What would you want Roadway to look like?”
When participants paired off to discuss their
responses, they made a powerful discovery. “It
didn’t matter what your job was,” said one worker
who had been a Roadway driver for 24 years, “every-
one wanted the same things”—things such as sus-
tained growth, happy customers, and job security. In
short, everyone wanted a successful company.

Over the next two days, the AI summit partici-
pants moved from mission to plan. On day two,
participants broke into small groups and envisioned
their organization’s potential for positive influence
and impact: What will the company look like in
2010? What will be happening in the world outside
it? What is the best outcome we can imagine? The
groups then reported back to the large group, and
participants began to focus on creating an organiza-
tion that incorporated the positive change core into
every strategy, process, and system. The result was
a set of action-oriented statements of how the orga-
nization would function. On the final day, partici-
pants distilled their organizational design into a list
of “inspired actions.” They drew an “opportunity
map” of needs and priorities and voted on which
ones were most urgent. Then they organized into

seven action teams. One group addressed the
trust gap between management and the union.
Another devised strategies to turn drivers—the
Roadway employees who have the most contact
with the company’s customers—into de facto sales
reps. Other teams addressed employee communica-
tions, performance measurement and monitoring,
and education. One team’s efforts resulted in the
distribution center saving $118,000 a year because
the workers determined that trucks carrying more
fuel than necessary were getting lower miles/gallon.
If successful, these groups would sustain them-
selves long after the summit ended.

At another session in North Carolina, workers
were asked to recall ideal work experience, a time
when they were treated with respect, and when
trucks were loaded to capacity or arrived on time.
Assembled into nine groups, they were then encour-
aged to devise money-saving ideas. A team of short-
haul drivers came up with 12 cost-cutting and
revenue-generating ideas. Here is one of the most
ambitious: Have each of the 32 drivers in Winston-
Salem deliver just one more customer order each
hour. Using management data, the drivers calculated
the 288 additional daily shipments, at an average rev-
enue of $212 each and with a 6% margin, would gen-
erate just about $1 million a year of operating profit.

The workers understood that their efforts to
transform Roadway were just the beginning. As
one local Teamsters boss put it, “Times have chan-
ged, if we don’t work together, and smarter, we
won’t survive.” AI summits held at Roadway over
the next three years focused on designing struc-
tures, creating faster throughput, and recasting the
roles of supervisors and leadership at every level.
Each involved from 200 to 400 people, and Road-
way planned five more AI Summits, convening
dockworkers, truck drivers, Teamsters, senior lea-
ders, customers, suppliers, and partners to do stra-
tegic planning at terminals throughout the country.

Roadway Corporation reported increased
revenues for the fourth quarter of 2002, up 25.7%
over that of the same period the year before. More
importantly, operating ratios improved significantly
and the union–management programs designed to
create a more efficient delivery process had
produced an estimated $35 million dollars in
improvements for the quarter. Of the top terminals
leading the bottom-line improvements, all were
sites that had held AI Summits.


Results of Parallel Structure Approaches A large body of literature exists on the
implementation and impact of parallel structure approaches to EI. The business and
popular press generally report about the benefits of union–management cooperative
projects, quality circles, and other parallel structure interventions. For many people,
especially lower-level employees, this opportunity to influence the formal organization
leads to increased work satisfaction and task effectiveness.19 Several classic case studies
support these conclusions: General Motors’ central foundry division; the Harman plant
in Bolivar, Tennessee; the Rockwell International plant in Battle Creek, Michigan (a joint
UAW–GM effort); and the Rushton Mines in Pennsylvania.20

Early large-sample evaluations of parallel structures typically reported mixed
results.21 Over a period of at least three years, the University of Michigan’s Institute
for Social Research (ISR) studied eight major projects implemented during the 1970s.
Although the projects showed some improvements in employee attitudes, only two
projects showed improvements in productivity. The ISR researchers explained the
meager productivity results in terms of the projects’ mistakes. All of the projects
were pioneering efforts and hardly could be expected to avoid mistakes during imple-
mentation.22 Similarly, Ledford, Lawler, and Mohrman concluded that the existing
research showed no clear positive or negative trend in the productivity effects of qual-
ity circles.23 Although the evidence of attitudinal effects was more extensive than that
of productivity effects, the studies reviewed still showed mixed results for attitudinal

Data that are more recent suggest stronger relationships between employee partici-
pation and direct performance outcomes, such as productivity, customer satisfaction,
quality, and speed; profitability; and employee satisfaction.24 A study by the Commission
on the Future of Worker–Management Relations supported that conclusion. It found
that systematically implemented programs often improve productivity and almost always
increase investment in employee skills and knowledge.25 “The newer projects tend to be
much better linked to the management and union hierarchies, receive better assistance
from a widening circle of experienced consultants, have more realistic goals, and use
more sharply focused organizational change strategies.”26

Finally, court rulings in the early 1990s challenged the legality of some EI
approaches under provisions of the National Labor Relations Act (NLRA). This law,
passed by Congress in 1935, gives employees the right to form labor unions and
decrees that employers must bargain in good faith with representatives of those orga-
nizations. In protecting employees’ rights to collective bargaining, the NLRA precludes
certain employer unfair labor practices, one of which is aimed at employer domination
of a labor organization. Under the law, a committee or team of workers that meets to
address issues related to wages, hours, or conditions of work can be considered a
“labor organization.” If management creates the team, provides it with resources, or
influences it in any way, then management may be found to dominate this so-called
labor organization. In two legal cases involving Electromation, Inc. and DuPont, the
court ruled that in setting up employee teams or committees to address such issues
as communication, cost cutting, and safety, the companies had created labor organiza-
tions and had dominated them unfairly. Although the NLRA does not outlaw EI teams
per se, such interventions may be legally questionable in situations where teams
address issues traditionally reserved for bargaining and where management influences
or controls the teams. In response to these rulings, Congress passed legislation in 1996
to amend the NLRA. The Teamwork for Employees and Management Act of 1995 pre-
serves legitimate EI programs without infringing on the rights of employees to bargain


13-2b Total Quality Management
Total quality management (TQM) is a more comprehensive approach to employee
involvement than parallel structures. Also known as “business excellence,” “continuous
process improvement,” “continuous quality,” “lean,” and “Six Sigma,” TQM grew out of
a manufacturing emphasis on quality control and represents a long-term effort to orient
all of an organization’s activities around the concept of quality. Quality is achieved when
organizational processes reliably produce products and services that meet or exceed cus-
tomer expectations. Although it is possible to implement TQM without employee
involvement, member participation in the change process increases the likelihood of sus-
taining the results. Quality-improvement processes were popular in the 1990s, and many
organizations, including Morton Salt, Weyerhaeuser, Xerox, Boeing’s Airlift and Tanker
Programs, Motorola, and Analog Devices, incorporated TQM interventions. Today, a
capability for continuous quality improvement is essential for global competitiveness.

TQM increases workers’ knowledge and skills through extensive training, provides
relevant information to employees, pushes decision-making power downward in the
organization, and ties rewards to performance. When implemented successfully, TQM
also is aligned closely with a firm’s overall strategy and attempts to direct the entire orga-
nization toward continuous quality improvement.27

The principles underlying TQM can be understood by examining the careers of
W. Edwards Deming and Joseph M. Juran, the fathers of the modern quality movement.
They initially applied statistical techniques to improve product quality at defense plants
in the United States during World War II, but in an odd twist of fate, they found their
ideas taking hold more in Japan than in the United States.28 When the war ended, U.S.
businesses turned to mass-production techniques and emphasized quantity over quality
to satisfy postwar demand. Deming, known for his statistical and sampling expertise, was
asked by General Douglas MacArthur to conduct a census of the Japanese population.
During his discussions with Japanese officials and managers, he advocated a disciplined
approach of “plan–do–check–adjust” to identify and improve manufacturing processes
that affected product quality. With such an approach, the Japanese could produce
world-class-quality products and restore their country economically. Deming’s ideas
eventually were codified into the “Fourteen Points” and the “Seven Deadly Sins” of qual-
ity summarized in Table 13.1. In honor of the ideas that helped to rejuvenate the
Japanese economy, the Union of Japanese Scientists and Engineers created the Deming
Prize to distinguish annually the best in quality manufacturing.

At about the same time, Juran’s publication of the Quality Control Handbook in
1951 identified two sources of quality problems: avoidable and unavoidable costs. Avoid-
able costs included hours spent reworking defective products, processing complaints, and
scrapping otherwise useful material. Unavoidable costs included work associated with
inspection and other preventive measures. He suggested that when organizations focused
on unavoidable costs to maintain quality, an important opportunity was being missed,
and he advocated that an organization focus on avoidable costs that could be found in
any process or activity, not just in manufacturing.

The popularity of TQM in the United States can be traced to a 1980 NBC television
documentary titled, “If Japan Can … Why Can’t We?” The documentary chronicled
Deming’s work with the Japanese and his concern that U.S. companies would not listen
to him after the war. The documentary had a powerful impact on firms facing severe
competition, particularly from the Japanese, and many companies, including Ford
Motor Company, General Motors, Dow Chemical, and Hughes Aircraft, quickly sought
Deming’s advice. Another important influence on the TQM movement in the United


States was Philip Crosby’s book Quality Is Free.29 He showed that improved quality can
lower overall costs, dispelling the popular belief that high quality means higher total
costs for the organization. With fewer parts reworked, less material wasted, and less
time spent inspecting finished goods, the organization’s total costs actually can decline.

In 1987, Congress established the Malcolm Baldrige National Quality Award (www
.nist.gov/baldrige). It recognizes large and small organizations in business, education, and
health care for quality achievement along seven dimensions: leadership; strategic plan-
ning; customer and market focus; measurement, analysis, and knowledge management;
human resources focus; process management; and business results. The 2012 award win-
ners were Lockheed Martin Missiles and Fire Control, in manufacturing; MESA
Products, in small business; Northern Mississippi Medical Center, in health care; and
the City of Irving, Texas, in nonprofit. Competition for the award has grown enor-
mously. Some large organizations spend large sums to prepare for the contest; others
apply just to receive the extensive feedback from the board of examiners on how to
improve quality; and still others feel compelled to apply because customers insist that
they show progress in process improvement.

Another quality award is the Shingo Prize (www.shingoprize.org) for business and
government organizations that achieve highly efficient production methods. The 2012
award in operational excellence went to Ethicon, Inc.’s plant in Juarez, Mexico. Numerous
states have initiated their own quality awards. At the national level, the Carey Award is
given to federal agencies and the Hammer Awards are given as part of the National Per-
formance Review for innovation and quality improvement in the federal government.

TABLE 13.1

Deming’s Quality Guidelines

The Fourteen Points The Seven Deadly Sins

1. Create a constancy of purpose
2. Adopt a new philosophy
3. End the practice of purchasing

at lowest prices
4. Institute leadership
5. Eliminate empty slogans
6. Eliminate numerical quotas
7. Institute on-the-job training
8. Drive out fear
9. Break down barriers between

10. Take action to accomplish the

11. Improve constantly and forever the

process of production and service
12. Cease dependence on mass

13. Remove barriers to pride in

14. Retrain vigorously

1. Lack of constancy of purpose
2. Emphasizing short-term profits and

immediate dividends
3. Evaluation of performance, merit

rating, or annual review
4. Mobility of top management
5. Running a company only on visible

6. Excessive medical costs
7. Excessive costs of warranty







TQM is a growing industry itself, with consulting firms, university courses, training
programs, and professional associations related to quality improvement diffusing rapidly
across industrialized nations. The quality approach is supported by at least three major
associations: the American Society for Quality (ASQ; www.asq.org), the American
Productivity and Quality Center (APQC; www.apqc.org), and the International Society
of Six Sigma Professionals (ISSSP; www.isssp.com). These associations actively support
TQM by sponsoring quality training workshops and conferences and serving as clearing-
houses for important information on TQM programs. The International Organization
for Standardization (ISO) also supports TQM. Its ISO 9000 standard applies to quality
systems, and certification requires firms to document key goals and processes, to demon-
strate compliance, and to create processes for improvement.

Application Stages TQM typically is implemented in five major steps. With the
exception of gaining senior management commitment, most of the steps can occur
somewhat concurrently.

1. Gain long-term senior management commitment. This stage involves helping senior
executives understand the importance of long-term commitment to TQM. Without a
solid understanding of TQM and the key success factors for implementation, managers
often believe that workers are solely responsible for quality. Yet only senior executives
have the authority and larger perspective to address the organization-wide, cross-
functional issues that hold the greatest promise for TQM’s success.

Senior managers’ role in TQM implementation includes giving direction and
support throughout the change process. For example, establishing organization-
wide TQM generally takes three or more years, although technical improvements
to the workflow can be as quick as six to eight months. Senior managers need to
clarify and communicate throughout the organization a totally new orientation to
producing and delivering products and services.

The longer-term and more difficult parts of implementation, however, involve
changes in the organization’s support systems, such as customer service, finance,
sales, and human resources. Often these systems are frozen in place by old policies
and norms that can interfere with the new approach. Senior managers have to con-
front those practices and create new ones that support TQM and the organization’s
strategic orientation.

Top executives also must be willing to allocate significant resources to TQM
implementation, particularly to make large investments in training. For example, as
part of its Baldrige Award preparation, Motorola developed Motorola University, a
training organization that teaches in 27 languages. Departments at Motorola allocate
at least 1.5% of their budgets to education, and every employee must take a minimum
of 40 hours of training a year. This effort supports Motorola’s goal of six sigma pro-
cess quality (a statistical measure of product quality that implies 99.9997% perfection)
and of having a workforce that is able to read, write, solve problems, and do math at
the seventh-grade level or above. When several business units within Motorola
achieved the six sigma target, the company demonstrated its commitment to continu-
ously improving quality with a new target of tenfold improvement in key goals.

2. Train members in quality methods. TQM implementation requires extensive train-
ing in the principles and tools of quality improvement. Depending on the organiza-
tion’s size and complexity, such training can be conducted in a few weeks to more
than two years. Members typically learn problem-solving skills and simple statistical
process control (SPC) techniques, usually referred to as the seven tools of quality.


At Cedar-Sinai Hospital in Los Angeles, all employees took a three-day course on
the applicability of brainstorming, histograms, flowcharts, scatter diagrams, Pareto
charts, cause-and-effect diagrams, control charts, and other problem-solving proce-
dures. This training was the beginning of a long-term process in continuous
improvement. The knowledge gained is used to understand variations in organiza-
tional processes, to identify sources of avoidable costs, to select and prioritize quality
improvement projects, and to monitor the effects of changes on product and service
quality. By learning to analyze the sources of variation systematically, members can
improve the reliability of product manufacturing or service delivery. For example,
HCA’s West Paces Ferry Hospital used TQM methods to reduce direct costs attrib-
utable to antibiotic waste.30 It used flowcharts, fishbone diagrams, and Pareto charts
to determine the major causes of unused intravenous preparations. Changes in the
antibiotic delivery process resulted in reduced costs of antibiotics to the hospital of
44.5% and to patients of 45%.

The recent interest in Six Sigma programs has produced an additional training
issue. Many of the quality-improvement projects (described below) require consider-
able facilitation and support. To enable those projects, many organizations have
committed to the development of “green belt” and “black belt” roles. These are
internal consultants with specialized knowledge, skill, and experience in TQM meth-
ods that guide project team members through a specific program of process

3. Start quality-improvement projects. In this phase of TQM implementation, indi-
viduals and work groups apply the quality methods to identify the few projects
that hold promise for the largest improvements in organizational processes.
They identify output variations, intervene to minimize deviations from quality
standards, monitor improvements, and repeat this quality-improvement cycle
indefinitely. Identifying output variations is a key aspect of TQM. Such devia-
tions from quality standards typically are measured by the percentage of defec-
tive products or, in the case of customer satisfaction, by on-time delivery
percentages or customer survey ratings. For example, VF Corporation, a leading
retail apparel firm, found that retailers were out of stock on 30% of their items
100% of the time. In response, VF revamped its systems to fill orders within
24 hours 95% of the time.

TQM is concerned not only with variations in the quality of finished products
and services but also with variations in the steps of a process that produce a prod-
uct or service and the levels of internal customer satisfaction. For example,
Eastman Chemical Company established a patent process improvement team to
enhance the relationship between scientists and lawyers in applying for patent
approvals. The team, made up of inventors, lab managers, and attorneys, doubled
the number of patent attorneys and relocated their offices near the labs. Attorneys
now meet with scientists during the experimental phase of research to discuss ways
to increase the chances of yielding a patentable product or process. Patent submis-
sions have increased by 60%, and the number of patents issued to the company
has doubled.31

Based on the measurement of output variations, each individual or work group
systematically analyzes the cause of variations using SPC techniques. For example,
product yields in a semiconductor manufacturing plant can go down for many rea-
sons, including a high concentration of dust particles, small vibrations in the equip-
ment, poor machine adjustments, and human error. Quality-improvement projects
often must determine which of the possible causes is most responsible, and, using


that information, run experiments and pilot programs to determine which adjust-
ments will cause output variations to drop and quality to improve. Those adjust-
ments that do reduce variations are implemented across the board. Members
continue to monitor the quality process to verify improvement and then begin the
problem-solving process again for continuous improvement.

4. Measure progress. This stage of TQM implementation involves measuring organiza-
tional processes against quality standards. Knowing and analyzing the competition’s
performance are essential for any TQM effort because it sets minimum standards of
quality, cost, and service and ensures the organization’s position in the industry over
the short run. For the longer term, such analytical efforts concentrate on identifying
world-class performance, regardless of industry, and creating stretch targets, also
known as benchmarks. Benchmarks represent the best in organizational achieve-
ments and practices for different processes and generally are accepted as “world
class.” For example, Nordstrom is considered the benchmark of customer service in
the retail industry, while Disney’s customer-service orientation is considered a
world-class benchmark.

The implied goal in most TQM efforts is to meet or exceed a competitor’s
benchmark. Alcoa’s former chairman Paul H. O’Neill charged all of the company’s
business units with closing the gap between Alcoa and its competitor’s benchmarks
by 80% within two years.32 In aluminum sheet for beverage cans, for example,
Japan’s Kobe Steel, Ltd., was the benchmark, and Wall Street estimated that achiev-
ing O’Neill’s goal would increase Alcoa’s earnings by one dollar per share. The
greatest leverage for change often is found in companies from unrelated industries,
however. For example, Alcoa might look to Nordstrom or Disney to get innovative
ideas about customer service. Understanding benchmarks from other industries
challenges an organization’s thinking about what is possible and promotes what is
referred to as “out-of-the-box thinking.”

5. Rewarding accomplishment. In this final stage of TQM implementation, the orga-
nization links rewards to improvements in quality. TQM does not monitor and
reward outcomes that are normally tracked by traditional reward systems, such
as the number of units produced. Such measures do not necessarily reflect prod-
uct quality and can be difficult to replace because they are ingrained in the orga-
nization’s traditional way of doing business. Rather, TQM rewards members for
“process-oriented” improvements, such as increased on-time delivery, gains in
customers’ perceived satisfaction with product performance, and reductions in
cycle time—the time it takes a product or service to be conceived, developed, pro-
duced, and sold. Rewards usually are designed initially to promote finding solu-
tions to the organization’s key problems. The linkage between rewards and
process-oriented improvements reinforces the belief that continuous improve-
ments, even small ones, are an important part of the new organizational culture
associated with TQM. According to a survey of 500 firms in four countries, con-
ducted by Ernst and Young and the American Quality Foundation, more than
half of the U.S. companies studied linked executive pay to improving quality and
achieving benchmarks.33

TQM has continued to evolve in most industrialized countries. It is increasingly
associated with lean manufacturing and Six Sigma programs. Lean manufacturing derives
from the Toyota Production System (TPS) and seeks to identify and eliminate wastes
and inefficiencies from production process. Six Sigma programs, although based on the
principles of TQM, attempt to drive out important sources of variation and achieve near


perfection in the execution of critical processes in such large organizations as Samsung,
SGL Carbon, Motorola, Starwood Hotels, Ford, and Xerox.

Results of Total Quality Management TQM’s emergence globally and the varia-
tions in how it is applied across organizations have made rigorous evaluation of
results difficult. A 1999 survey of the Fortune 1000 companies showed that about
75% have implemented some form of TQM.34 Furthermore, 87% of the companies
rated their TQM experience as either positive or very positive, up from 76% in 1993.
The research also found that TQM is often associated with the implementation of
other EI interventions. Finally, the study revealed that TQM was positively associated
with performance outcomes, such as productivity, customer service, product/service
quality, and profitability, as well as with human outcomes, such as employee satisfac-
tion and quality of work life. Other TQM studies have shown that as organizations
enact process improvements, they may need to make supporting changes in reward
systems and work design.35

The U.S. Commerce Department’s National Institute of Standards and Technology
routinely tracks the stock performance of Baldrige Award winners compared to the
Standard & Poor’s 500 index. On the one hand, the Baldrige winners outperformed
the S&P 500 significantly between 1994 and 1999.36 More recently, however, of the 16
award recipients between 1994 and 2003, only one has outperformed the S&P 500.
Another study of hospitals provided empirical support for the Baldrige framework.37

Significant relationships were identified between hospitals’ adherence to the Baldrige
Criteria and their performance in the areas of patient and customer satisfaction, staff
and work systems, and organization-specific results. However, the relationships
between hospital quality systems and financial/market performance or health care out-
comes were not significant. The authors recommend more longitudinal research
because of the likely time lags between implementation and manifestation of financial
or health outcomes.

One of the most rigorous longitudinal studies of the long-term outcomes of TQM
found that in contrast to a matched control group, the 600 North American firms that
had first won a prominent quality award between 1983 and 1993 scored significantly
higher on operating income measures as well as on long-term stock performance.38 A rep-
lication and extension of this study with over 700 European quality award winners found
similar long-term TQM effects.39 A study of Swedish quality award winners found that
they consistently outperformed their competitors on measures of sales and profitability.40

A balanced picture of TQM effects is provided by a study of 54 firms of different
sizes, both adopters and nonadopters of TQM. It found that TQM firms significantly
outperformed non-TQM firms. The source of the performance advantage was not the
tools and techniques of TQM, however, but the culture, empowerment, and commit-
ment that came from successful implementation. The study concluded that “these
tacit resources, and not TQM tools and techniques, drive TQM success,” and that
“organizations that acquire them can outperform competitors with or without the
accompanying TQM ideology.”41 A good example is Boeing’s Airlift and Tanker pro-
gram, which won the Baldrige Award in 1998. Boeing’s experience with TQM has sug-
gested that the biggest organizational gains have come through the integration of TQM
concepts with other business and strategic initiatives. TQM has helped Boeing be a bet-
ter all-around company.

Application 13.2 describes how TQM is applied at the Ritz-Carlton Hotel Company.42

It shows how the company’s culture, senior leadership, and empowered work practices
contribute to TQM success.








he Ritz-Carlton Hotel Company, the premier
flagship of Marriott International, operates
81 luxury hotels in 27 countries. Employing
about 38,000 staff, the firm has a venerable

record of excellent service that is considered
the benchmark by many in the hospitality
industry. Ritz-Carlton has been involved in
TQM for over 30 years and was the first hotel
chain to win the coveted Malcolm Baldrige
National Quality Award in 1992. Needless to
say, Ritz-Carlton is passionate about quality
guest care, from the president and chief oper-
ating officer, Herve Humler, to the mainte-
nance, front desk, and housekeeping staff.

Ritz-Carlton’s unique approach to TQM is
embedded in its strong corporate culture,
which is spelled out clearly in its “Gold
Standards.” These standards are the backbone
of the company and include the values and phi-
losophy that guide how it operates, including
processes for solving problems and criteria for
grooming, housekeeping, safety, and efficiency.
The Gold Standards include Ritz-Carlton’s credo,
motto, three steps to service, service values,
and other proprietary statements. All employ-
ees know the Gold Standards by heart and are
well-trained in what they mean for daily work
behavior. For example, Ritz-Carlton’s motto,
“We are Ladies and Gentlemen serving Ladies
and Gentlemen,” is closely tied to how guests
are welcomed, with “a warm and sincere greet-
ing,” and depart with a “fond farewell.”

Ritz-Carlton’s TQM program begins at the
top with senior executives who spend about a
quarter of their time on quality issues. Because
the company’s service culture is built on trust,
these leaders hold themselves accountable for be-
having according to the values that they require of
the organization. The senior executives comprise
the corporate steering committee for TQM as well
as the senior quality-management team. Each
week the steering committee reviews various
measures of service quality and performance. It
engages in detailed planning by setting objectives,
devising action plans, and assessing results.

This planning process is essential to Ritz-
Carlton’s TQM program. It extends to each

level of the firm where teams in the individual
work areas set objectives and create action
plans that are reviewed by the corporate steer-
ing committee. This cross-level planning pro-
cess helps to assure that quality goals and
action plans are consistent across organiza-
tional levels and integrated with the firm’s
overall plan. In addition, each hotel has a
designated quality leader, who serves as a
resource and advocate as teams develop and
implement their quality plans.

Teams play a key role in providing quality
service. Each work area in a hotel includes
teams responsible for problem solving, strategic
planning, and setting quality-certification stan-
dards for each position. Employees meet as
teams to spot problem patterns, prioritize
problems, and develop measures to prevent
their recurrence. These cross-functional teams
require sufficient time and resources to learn
how to function effectively. Managers are still
responsible for objectives and solutions but
rely on input and involvement from team mem-
bers. A unique team tradition at Ritz-Carlton is
the “lineup,” drawn from early French restau-
rants where the chef got his whole team, includ-
ing the waiters and waitresses, together at the
same time each evening to communicate what
they are going to be serving. At the Ritz-Carlton,
teams on every shift use the lineup for about
15 minutes every day. This includes sharing
up-to-the-minute information as well as talking
about great things employees have done to
deliver exceptional service.

An integral part of Ritz-Carlton’s TQM
program is empowering employees to solve
guests’ problems as quickly as possible.
Employees are responsible for acting at first
notice, regardless of the type of problem or
guest complaint. They are expected to stop
their normal routine and to take immediate
positive action to discover what went wrong
and resolve it. They are empowered to handle
any customer complaint on the spot and can
demand the immediate assistance of other
employees and spend up to $2,000 if neces-
sary. Employees can apply this rapid response


13-2c High-Involvement Organizations
Over the past two decades, an increasing number of employee involvement projects have
been aimed at using high-involvement work practices to create high-involvement organi-
zations (HIOs). These interventions create organizational conditions that support high
levels of employee participation. What makes HIOs unique is the comprehensive nature
of their design process. Unlike parallel structures that do not alter the formal organiza-
tion or TQM interventions that tend to focus on particular processes, HIOs address

not just to solve problems but to do something that
creates an absolutely wonderful stay for a guest,
such as surprising guests with champagne and
cake in their room on their birthdays. Ritz-Carlton
also works hard to avoid guest problems before
they occur. Employees who detect a potential
problem in service delivery are immediately
expected to bring it to management’s attention
and a solution is found. Eliminating internal
employee complaints can avoid external com-
plaints that might come from guests.

A key to Ritz-Carlton’s TQM success is the con-
tinuous collection and analysis of data on service qual-
ity and its comparison to predetermined customer
expectations. Assisted by the latest information tech-
nology, the company gathers information on such
quality measures as percentage of check-ins with no
queuing, time spent to achieve industry-best clean-
room appearance, time to service an occupied guest
room, and guest room preventive-maintenance
cycles. Data submitted from each of a hotel’s 720
work areas provide daily quality production reports,
which enable rapid identification of problems in
achieving quality and customer-satisfaction goals.

Ritz-Carlton’s human resource practices are tied
closely to TQM. Selection, training, and performance
appraisal are geared to talent acquisition, develop-
ment, and retention. Only about 2% of the people
who apply for jobs are hired. A key criterion is how
well the applicant is likely to fit the company’s culture
including being a team member. Once on board,
new employees are versed on the corporate culture
through a two-day orientation, followed by extensive
on-the-job training, then job certification. To obtain
certification, employees are assessed on their mas-
tery of skills associated with their particular job. They

also are tested on how well they know the com-
pany’s TQM philosophy and credo, which can qualify
them as “quality engineers.” Ritz-Carlton expects
100% compliance with skills testing, so that every-
one is certified to do a particular job and is a quality
engineer as well. The company’s performance
appraisal system is based on the Gold Standards
and employees are held responsible only for those
things under their control.

Ritz-Carlton also has extended TQM to its sup-
pliers. To assure that suppliers can meet the firm’s
quantity and quality needs, it has developed a sup-
plier certification process, which measures how
often suppliers meet specifications on time and
how well they improve their cycle time from
order to delivery. The certification process also
includes an internal audit of suppliers’ capabilities
and a quality survey of those who use their
products and services, including purchasing
agents, accounting personnel, sales persons, and
hotel guests. Ritz-Carlton ranks suppliers based
these data with the objective of getting them certi-
fied to become a fully integrated partner.

The fundamental aim of Ritz-Carlton’s TQM pro-
cess is not simply to meet the expectations of
guests but to provide them with a visit that is unique,
memorable, and personal. According to independent
surveys, 92% to 97% of the guests leave with that
impression. Ritz-Carlton’s experience and success
with TQM has spread worldwide to organizations in
a variety of industries and regions. Started in 2000,
its Leadership Center provides knowledge, informa-
tion and benchmarking to organizations interested in
learning many of the business practices that led to
Ritz-Carlton becoming a two-time recipient of the
Malcolm Baldrige National Quality Award.


almost all features of an organization’s design. Structure, work design, management pro-
cesses, physical layout, personnel policies, and reward systems are designed jointly by
management and workers to promote high levels of involvement and performance.

Features of High-Involvement Organizations High-involvement organizations are
designed with features congruent with one another. For example, in HIOs employees have
considerable influence over decisions. To support such a decentralized philosophy, mem-
bers receive extensive training in problem-solving techniques, plant operation, and organi-
zational policies. In addition, both operational and issue-oriented information is shared
widely and is obtained easily by employees. Finally, rewards are tied closely to unit perfor-
mance, as well as to knowledge and skill levels. These different aspects of the organization
are mutually reinforcing and form a coherent pattern that contributes to employee involve-
ment. Table 13.2 presents a list of compatible design elements characterizing HIOs,43 and
most such organizations include several if not all of the following features:

• Flat, lean organization structures contribute to involvement by pushing the sched-
uling, planning, and controlling functions typically performed by management and
staff groups toward the shop floor. Similarly, mini-enterprise, team-based structures
that are oriented to a common purpose or outcome help focus employee participa-
tion on a shared objective. Participative structures, such as work councils and
union–management committees, create conditions in which workers can influence
the direction and policies of the organization.

• Job designs that provide employees with high levels of discretion, task variety, and
meaningful feedback can enhance involvement. They enable workers to influence
day-to-day workplace decisions and to receive intrinsic satisfaction by performing
work under enriched conditions. Self-managed teams encourage employee responsi-
bility by providing cross-training and job rotation, which give people a chance to
learn about the different functions contributing to organizational performance.

• Open information systems that are tied to jobs or work teams provide the neces-
sary information for employees to participate meaningfully in decision making.
Goals and standards of performance that are set participatively can provide employ-
ees with a sense of commitment and motivation for achieving those objectives.

• Career systems that provide different tracks for advancement and counseling to
help people choose appropriate paths can help employees plan and prepare for
long-term development in the organization. Open job posting, for example, makes
employees aware of jobs that can further their development.

• Selection of employees for HIOs can be improved through a realistic job preview
providing information about what it will be like to work in such situations. Team
member involvement in a selection process oriented to potential and social skills of
recruits can facilitate a participative climate.

• Training employees for the necessary knowledge and skills to participate effectively
in decision making is a heavy commitment in HIOs. This effort includes education
on the economic side of the enterprise, as well as interpersonal skill development.
Peer training is emphasized as a valuable adjunct to formal, expert training.

• Reward systems can contribute to EI when information about them is open and the
rewards are based on acquiring new skills, as well as on sharing gains from
improved performance. Similarly, participation is enhanced when people can choose
among different fringe benefits and when reward distinctions among people from
different hierarchical levels are minimized.

• Personnel policies that are participatively set and encourage stability of employment
provide employees with a strong sense of commitment to the organization. People


feel that the policies are reasonable and that the firm is committed to their long-
term development.

• Physical layouts of organizations also can enhance EI. Physical designs that support
team structures and reduce status differences among employees can reinforce the
egalitarian climate needed for employee participation. Safe and pleasant working
conditions provide a physical environment conducive to participation.

TABLE 13.2

Design Features for a Participation System


1. Flat
2. Lean
3. Mini-enterprise-oriented
4. Team-based
5. Participative council or structure

1. Heavy commitment
2. Peer training
3. Economic education
4. Interpersonal skills


1. Individually enriched
2. Self-managing teams

1. Open
2. Skill-based
3. Gain sharing or ownership
4. Flexible benefits
5. All salaried workforce
6. Egalitarian perquisites


1. Open
2. Inclusive
3. Tied to jobs
4. Decentralized; team-based
5. Participatively set goals and


1. Stability of employment
2. Participatively established through

representative group


1. Tracks and counseling available
2. Open job posting

1. Around organizational structure
2. Egalitarian
3. Safe and pleasant


1. Realistic job preview
2. Team-based
3. Potential and process-skill oriented

SOURCE: Reproduced by permission of the publisher from Edward E. Lawler III, “Increasing
Worker Involvement to Enhance Organizational Effectiveness: Design Features for a Participation
System,” in Change in Organizations, eds. P. S. Goodman and associates (San Francisco: Jossey-
Bass, 1982), pp. 298–99.


These HIO design features are mutually reinforcing. “They all send a message to people
in the organization that says they are important, respected, valued, capable of growing, and
trusted and that their understanding of and involvement in the total organization is desirable
and expected.”44 Moreover, these design components tend to motivate and focus organiza-
tional behavior in a strategic direction, and thus can lead to superior effectiveness and
competitive advantage, particularly in contrast to more traditionally designed

Application Factors At present, there is no universally accepted approach to imple-
menting the high-involvement features described here. The actual implementation
process often is specific to the situation, and little systematic research has been
devoted to understanding the change process itself.46 Nevertheless, at least two dis-
tinct factors seem to characterize how HIOs are implemented. First, implementation
generally is guided by an explicit statement of values that members want the new
organization to support. Typically, such values as teamwork, equity, quality, and
empowerment guide the choice of specific design features. Values that are strongly
held and widely shared by organization members can provide the energy, commit-
ment, and direction needed to create HIOs. A second feature of the implementation
process is its participative nature. Managers and employees take active roles in choos-
ing and implementing the design features. They may be helped by OD practitioners,
but the locus of control for the change process resides clearly within the organization.
This participative change process is congruent with the high-involvement design being
created. In essence, high-involvement design processes promote high-involvement

Results of High-Involvement Organizations Extensive research has been done on
the HIO intervention and the results generally support its positive effects. An early
study surveyed 98 HIOs and showed that about 75% of them perceived their perfor-
mance relative to competitors as better than average on quality of work life, customer
service, productivity, quality, and grievance rates.47 Analyses of company records
revealed that voluntary turnover was 2%, substantially below the national average;
return on investment was almost four times greater than industry averages; and return
on sales was more than five times greater. Recent studies have confirmed a positive
relationship between applications of high-involvement practices and various measures
of organizational effectiveness, including return on investment, turnover, job perfor-
mance, and work stress.48 Research also has identified conditions that can influence
HIO outcomes. For example, in a study of 132 manufacturing firms, the strength of
the relationship between high-involvement practices and labor productivity varied
depending on the industry’s capital intensity, R&D intensity, and growth.49 Improving
high-involvement practices by one standard deviation in a high-capital-intensive
industry increased sales per employee by 1%, a nontrivial amount. In a study involving
17 industries in New Zealand, increased use of high-involvement practices was associ-
ated with enhanced employee well-being, as measured by job satisfaction, fatigue, and
job stress.50 The researchers warned, however, that these positive human effects might
not be realized if HIO interventions lead to work intensification with greater pressures
to work harder and longer.

Application 13.3 describes the implementation of a high-involvement organization
at Air Chemicals and Products.51 The case provides a good example of the broad
approach to EI. Over time, power, information, knowledge and skill, and rewards were
all addressed in an effective organization development process.








hris Loyd, the vice president and general
manager of the Process Systems Group
Operations (OPS) division of Air Products
and Chemicals, Inc. (APCI), a Fortune 200

company, believed there was too much variability
in key performance metrics, such as quality,
safety, and productivity, across the plants in his
division. Despite communication and implemen-
tation of several quality-related initiatives, a subset
of plants consistently outperformed all others. In
response, Chris commissioned a diagnostic
process to uncover the sources of exemplary
performance in those high-performing facilities.

The OPS division was responsible for ensur-
ing the manufacture and delivery of high-volume
industrial gas products directly to customer facili-
ties. The division provided oxygen, nitrogen,
hydrogen, helium, argon, and specialty gas pro-
ducts in various states (e.g., liquid, gaseous) and
purities to large industrial customers represent-
ing a variety of markets, including electronics,
refining, pharmaceutical, steel-making, food,
aerospace and many others.

The diagnosis identified four factors resulting
in exceptional plant performance: employee
involvement, information access, technical capabil-
ity, and incentives. These four factors consistently
differentiated between the high performing and
comparison plants. In particular, the single greatest
source of variance was the level of employee
involvement—or the extent to which organization
members at all levels participated in decision
making—in a facility. With this learning, and work-
ing with Jim Byron, an internal OD consultant, a
high-involvement strategy was established to
broadcast and advance involvement across the
entire division. Loyd was convinced that elevat-
ing his 900-person division’s business effective-
ness required pervasive employee involvement
in plant management and operations.


The high-involvement (HI) strategy was devel-
oped to influence each of the four factors
contributing to exceptional plant performance.
To address the employee involvement factor,
the organization adopted the “working with

others” (WWO) training process (described
below) to model and educate organization
members on how to solve problems in a group
setting. In addition, and in an effort to symbolize
shared decision making across the division, Loyd
created an HI Advisory Team. The team’s
mandate was to carry forward the work of pro-
moting employee involvement. Members of the
advisory team represented all workforce levels,
from hourly employees through top manage-
ment. The WWO training also addressed the
technical capability factor by improving and rein-
forcing the workforce’s skills and knowledge
related to quality-improvement processes.

The information-access factor was addressed
by increasing the organization’s capability to share
information. The existing intranet was enhanced
to provide all workers with access to business and
division information (within any constraints
imposed by legal or financial regulations).

Finally, the incentive factor was addressed
by adjusting the reward system of the division.
A gain-sharing system was designed and
implemented to reward team performance at
the local level and included incentives for
plants that were serving similar customers
and geographies to share information and
best practices with one another.


A central component of the HI strategy inter-
ventions was the WWO training sessions.
Each session addressed the knowledge and
skills needed to elevate involvement in the
organization and used them immediately to
engage employees in making improvements
to the business. The WWO sessions not only
provided information about employee involve-
ment and the skills and knowledge required to
be effective at it, the sessions immediately
applied those competencies by engaging parti-
cipants in an assessment of the current state
of involvement in the workplace, and in identify-
ing and resolving a quality-improvement chal-
lenge in the participants’ respective plants.
Action teams were spawned from these


sessions to follow through on making changes that
were not achievable within the WWO session itself.

Beginning with Loyd’s team, Byron led the
WWO training sessions during the first two years
of the initiative and reached every member of the
organization. Division and plant leadership demon-
strated its commitment to the goal by participating
in WWO sessions. As part of that work, a video
was produced that displayed leaders’ use of the
WWO skills and explored their own personal
insights into the benefits involvement offered
employees and the business.

As the WWO sessions progressed, partici-
pants who had interest in becoming WWO trainers
and coaches were identified. They who would train
their plants in using teamed approaches to solving
local problems and to uncovering and realizing
business opportunities. Within two years, every
member of OPS received training in these core
skills and processes and participated in making
quality improvements to their business. More
than 100 trainer-coaches were developed to sup-
port teaming within local organizations.

These trainer-coaches had responsibility for
implementing the second phase of the HI effort,
which was to conduct a regular assessment of
each plant’s authority and power-sharing levels
against goals, roles, relationships, and procedure
dimensions. The assessments identified areas for
improvement, and the trainer-coaches were
expected to initiate changeover plans with the assis-
tance of a team development tool kit and additional
training that was specifically designed to lead them
and their teams through an improvement process.
The trainer-coaches documented best practices on
a regular basis and broadcast these lessons electron-
ically to all employees through the enhanced intranet
and to the HI Advisory Team, as well as distributing
hard copy to local plants. They also met regionally to
promote best practices and to determine additional
ways to increase the level of involvement and power
sharing as a means of delegating more management
of plant operations lower down the organization.

As the WWO and problem-solving processes
unfolded, Loyd began communicating the results to
the organization. For example, he included feedback
on progress and accomplishment is his weekly tele-
phone conferences with his North American subordi-
nates and in all his other presentations to employees
(e.g., face-to-face, in-house TV). Two other mechan-
isms were used to recycle the measured results:

(1) a yearly planning function in which managers
reviewed the status of employee involvement
within their units and developed personal targets
and plans for achieving them and (2) a similar plan-
ning session focusing on the organization as a
whole completed by the HI Advisory Team. To
stress the importance of HI progress, the results
of measurement helped to determine the perfor-
mance appraisal each leader received. Each man-
ager’s appraisal plan required yearly progress in
increasing employee involvement within his or
her plant. This strengthened the significance of
the yearly management planning session, which
included a half-day session in which managers
worked together to analyze the results from their
plant’s HI assessment, uncover the causes of the
results, target next year’s improvement level, and
generate actions they personally would take to
realize their individual improvement targets.


Subsequent to the rollout phase, the HI Advisory
Team used the results of the HI assessments to
uncover new activities that would further imple-
mentation of HI. One such activity was sponsor-
ship of an HI Idea Book that brought together the
best innovations employee involvement produced
in each area of business function. The book was
distributed in print and electronically. It was
updated and used to transfer expertise and
increase the business benefits each improvement

WWO sessions continued for training new
hires. In addition, WWO sessions were used to
refresh OPS member skills, while involving partici-
pants in solving workplace problems, generating
quality improvements, and uncovering and execut-
ing ways to accomplish yearly business drivers
(e.g., safety improvements, cost reduction,
improved customer satisfaction, reduced service
interruptions). This sustained use of WWO ses-
sions strengthened the commitment to good com-
munications and simultaneously accomplished
ever-broader use of employee involvement.

One highly significant special use of the ses-
sions was to facilitate the integration of an entire
new organization into OPS. This integration occurred
fours years into the HI initiative. It required incorpo-
rating into OPS an organization that was larger (1,100
employees), performed very different work, and had
a culture that was fully top-down in character.



Over the course of its implementation, several evalua-
tions were made of OPS’s HI initiative. In particular,
the organization tracked the movement of HI scores
across plants in the division and performed a study of
the return on the investment in the HI effort. Progress
was calibrated by yearly measurement of involve-
ment using an EI scale shown in the table below.
Measurement was made in each OPS plant.

HI progress was assessed by plotting the year-
to-year changes in the prevalence of employee
involvement throughout the workplace. A chart
depicted the percentage of plants and other oper-
ating groups that achieved HI scores of Level 3 or
higher. For example, during the last four years,
the percentage of units with aggregate HI scores

of 3 or higher increased from 15% to over 85%. In
addition, an evaluation of the benefits and costs of
the program found that for every dollar invested,
the organization received 9.7 dollars of benefit.
Most of the benefits flowed from improved worker
productivity and other workplace improvements
that were generated by the WWO sessions.

When Chris Loyd retired, he commented,
“When I think about the most significant changes
over the last 20 years, I think HI was the most
important change we made. The technology
changes were not as critical and the organizational
restructurings often had little effect, but the HI
changes will stay with us forever. In fact, the HI
training and its acceptance has been a foundation
that has allowed us to make all other changes.”

Levels of High Involvement


I Managers use a top-down approach and emphasize direction of the workforce. They are either
unaware of the HI strategy or doubt its value. The employee’s involvement is limited to doing
assigned work, and workers see themselves as “hired hands.” Employees have limited access to

II Managers use a top-down approach, but employees are asked to provide input concerning business
issues that are outside their immediate assignments. Managers are aware of HI and are willing to
experiment with its use in accomplishing business objectives. Employees see themselves as
having some say over the content of their work and workplace. They have some access to some
organizational information as well as data that are relevant to their work.

III Managers use a participative approach that engages employees in thinking through options,
recommending actions, and assessing accomplishment. Management still makes the final
decisions but is convinced of the importance of involving employees in addressing business
issues. Employees see themselves as advising on the business through their participation in
problem-solving teams and special task forces. The employee’s knowledge about the work-
place is expanded to provide an informed basis for team problem solving.

IV Management delegates decision-making authority to work teams that are empowered to manage
their assigned goals and are involved in every aspect of business management and operations.
Management is convinced of the importance of HI for accomplishing business objectives and has
begun to redefine its role as to enable personnel rather than to direct them. Employees feel they
have a direct stake in the organization’s success. Each employee has access to all information
about the workplace so that they can participate fully in defining and accomplishing its objectives.

V Management defines itself as partners with employees on one team dedicated to defining and
achieving business goals. Managers position themselves to enable the free and collaborative
enterprise of the team. Employees experience ownership for the business and a personal
commitment to ensuring its success. Work unit personnel operate as a self-led team, configur-
ing themselves as needed to define and achieve corporate purposes and to coordinate with
other work teams. Each employee has access to all information about the workplace except
that information restricted by law.



This chapter described employee involvement inter-
ventions. These technostructural change programs
are aimed at moving organization decision making
downward to improve responsiveness and perfor-
mance and to increase member flexibility, commit-
ment, and satisfaction. Different approaches to EI
can be described by the extent to which power, infor-
mation, knowledge and skills, and rewards are shared
with employees.

The relationship between EI and productivity can
be oversimplified. Productivity can be increased through

improved employee communication, motivation, and
skills and abilities. It also can be affected through
increased worker satisfaction, which in turn results in
productive employees joining and remaining with the

Major EI interventions are parallel structures,
including cooperative union–management projects
and quality circles, TQM, and high-involvement orga-
nizations. The results of these approaches generally are
positive, and the quality of research supporting these
interventions is increasing.


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Work Practices, Turnover, and Productivity: Evidence
from New Zealand,” Academy of Management Journal 44
(2001): 180–91; R. Vandenberg, H. Richardson, and
L. Eastman, “The Impact of High Involvement Work Pro-
cesses on Organizational Effectiveness: A Second-Order
Latent Variable Approach,” Group & Organization Man-
agement 24 (1999): 300–39.


49. Datta, Guthrie, and Wright, “Human Resource

50. K. Macky and P. Boxall, “High-Involvement Work
Processes, Work Intensification and Employee Well-
Being: A Study of New Zealand Worker Experiences,”
Asia Pacific Journal of Human Resources 46 (2008):

51. This application was developed and submitted by James
Byron based on the original study by J. S. Byron and R. L.
Vitalo, documented in “Using Working with Others
Training Sessions to Drive Employee Involvement”
(Hope, ME: Vital Enterprises—http://vitalentusa.com
/learn/drive_ei.php, 2003).












Work Design


Describe the engineering approach to work design.

Explore and evaluate the motivational approach to work design.

Discuss and apply the principles of sociotechnical systems work

Learn how to design work to meet technical and personal needs.

This chapter is concerned with work design—creating jobs and work groups that generatehigh levels of employee fulfillment and
productivity. This technostructural intervention
can be part of a larger employee involvement
application, or it can be an independent change
program. Work design has been applied and
researched extensively in organizations. Recently,
organizations have tended to combine work design
with formal structure and supporting changes in
goal setting, reward systems, work environment,
and other performance management practices.
These organizational factors can help structure
and reinforce the kinds of work behaviors associ-
ated with specific work designs. (How performance
management interventions can support work
design is discussed in Chapter 15.)

This chapter examines three approaches to
work design. First, the engineering approach
focuses on efficiency and simplification, and results
in traditional job and work-group designs. Traditional
jobs involve relatively routine and repetitive forms of
work, where little interaction among people is
needed to produce a service or product. Call center
operators, data-entry positions, and product support

representatives are examples of this job design.
Traditional work groups are composed of members
performing routine yet interrelated tasks. Member
interactions are typically controlled by supervisors,
schedules, and rigid workflows, such as might be
found on assembly lines.

A second approach to work design derives
from motivational theories and attempts to enrich
the work experience. Job enrichment involves
designing jobs with high levels of meaning,
discretion, and knowledge of results. A well-
researched model focusing on job attributes has
helped clear up methodological problems with this
important intervention.

The third approach to work design derives from
sociotechnical systems methods, and seeks to
optimize both the social and the technical aspects
of work systems. This method has led to a popular
form of work design called “self-managed teams,”
which are composed of multiskilled members
performing interrelated tasks. Members are given
the knowledge, information, and power necessary
to control their own task behaviors with relatively
little external control. New support systems and
supervisory styles are needed to manage them.


The chapter describes each of these per-
spectives on work design, and then presents a con-
tingency framework for integrating the approaches

based on personal and technical factors in the
workplace. When work is designed to fit these
factors, it is both satisfying and productive.

14-1 The Engineering Approach
The oldest and most prevalent approach to designing work is based on engineering con-
cepts and methods. The engineering approach is less an organization development (OD)
intervention than a benchmark in history. It proposes that the most efficient work
designs can be determined by clearly specifying the tasks to be performed, the work
methods to be used, and the workflow among individuals. The engineering approach is
based on the pioneering work of Frederick Taylor, the father of scientific management,
in the late 1800s. He developed methods for analyzing and designing work and laid the
foundation for the professional field of industrial engineering.1

The engineering approach scientifically analyzes workers’ tasks to discover those
procedures that produce the maximum output with the minimum input of energies and
resources.2 This generally results in work designs with high levels of specialization and
specification. Such designs have several benefits: They allow workers to learn tasks rap-
idly; they permit short work cycles so performance can take place with little or no men-
tal effort; and they reduce costs because lower-skilled people can be hired and trained
easily and paid relatively low wages.

The engineering approach produces two kinds of work design: traditional jobs and
traditional work groups. When the work can be completed by one person, such as with
bank tellers and telephone operators, traditional jobs are created. These jobs tend to be
simplified, with routine and repetitive tasks having clear specifications concerning time
and motion. When the work requires coordination among people, such as on automobile
assembly lines, traditional work groups are developed. They are composed of members
performing relatively routine, yet related, tasks. The overall group task is typically broken
into simpler, discrete parts (often called jobs). The tasks and work methods are specified
for each part, and the parts are assigned to group members. Each member performs a
routine and repetitive part of the group task. Members’ separate task contributions are
coordinated for overall task achievement through such external controls as supervisors,
schedules, and rigid workflows.3 This method of work design, pioneered in the early
1900s by Henry Ford’s assembly line, was popularized in the 1950s and 1960s by the
mass-production methods of American automobile manufacturers and was an important
reason for the growth of American industry following World War II.

Critics of the engineering approach to work design argue that the method ignores
workers’ social and psychological needs. They suggest that the rising educational level
of the workforce and the substitution of automation for menial labor point to the need
for more enriched forms of work in which people have greater discretion and are more
challenged. Moreover, the growth of the service economy and work that involves infor-
mation processing and decision making require work designs that do not readily con-
form to the traditional engineering approach. The current competitive climate requires
a more committed and involved workforce able to make online decisions and to develop
performance innovations. Work designed with the employee in mind is more humanly
fulfilling and productive than that designed in traditional ways. However, it is important
to recognize the strengths of the engineering approach. It remains an important work
design intervention because its cost savings and efficiency can be measured readily, is
well understood, and is easily implemented and managed.


14-2 The Motivational Approach
The motivational approach to work design views the effectiveness of organizational
activities primarily as a function of member needs and satisfaction, and seeks to improve
employee performance and satisfaction by enriching jobs. The motivational method
provides people with opportunities for autonomy, responsibility, closure (that is, doing
a complete job), and performance feedback. Enriched jobs are popular in the United
States at such companies as Wells Fargo, The Hartford, and Hewlett-Packard.

The motivational approach usually is associated with the research of Herzberg and
of Hackman and Oldham. Herzberg’s two-factor theory of motivation proposed that
certain attributes of work, such as meaningfulness, responsibility, and recognition, serve
as “motivators” to increase job performance and satisfaction.4 Other attributes, which
Herzberg called “hygiene factors,” such as company policies, working conditions, pay,
and supervision, do not motivate people but rather prevent them from being dissatisfied
with work. Successful job enrichment experiments at AT&T, Texas Instruments, and
Imperial Chemical Industries helped to popularize job enrichment in the 1960s.5

Herzberg’s motivation and hygiene factors are intuitively appealing. However, the
validity of the two factors has been challenged based on the way that Herzberg measured
them. Furthermore, important worker characteristics that can affect whether people will
respond favorably to job enrichment were not included in his theory. Finally, Herzberg’s
failure to involve employees in the job enrichment process itself does not suit most OD
practitioners today. Consequently, a second, well-researched approach to job enrichment
has been favored. It focuses on the attributes of the work itself and has resulted in a
more scientifically acceptable theory of job enrichment than Herzberg’s model. The
research of Hackman and Oldham represents this more recent trend in job enrichment.6

14-2a The Core Dimensions of Jobs
Considerable research has been devoted to defining and understanding core job dimensions.7

Figure 14.1 summarizes the Hackman and Oldham model of job design. Five core
dimensions of work affect three critical psychological states, which in turn produce
personal and job outcomes. These outcomes include high internal work motivation,
high-quality work performance, satisfaction with the work, and low absenteeism and
turnover. The five core job dimensions—skill variety, task identity, task significance,
autonomy, and feedback from the work itself—are described below and associated
with the critical psychological states that they create.

Skill Variety, Task Identity, and Task Significance These three core job character-
istics influence the extent to which work is perceived as meaningful. Skill variety refers to
the number and types of skills used to perform a particular task. Nurses in an oncology
unit must be able to interact successfully with patients, patient families, and physicians.
They also must juggle a variety of medical procedures, understand and apply the latest
treatment therapies, and perform a variety of charting tasks. The more tasks an individual
performs, the more meaningful the job becomes. When skill variety is increased by moving
a person from one job to another, a form of job enrichment called job rotation is accom-
plished. However, simply rotating a person from one boring job to another is not likely to
produce the outcomes associated with a fully enriched job.

Task identity describes the extent to which an individual performs a whole piece of
work. For example, an employee who completes an entire wheel assembly for an airplane,
including the tire, chassis, brakes, and electrical and hydraulic systems, has more task iden-
tity and will perceive the work as more meaningful than someone who only assembles the


braking subsystem. Job enlargement, another form of job enrichment that combines
increases in skill variety with task identity, blends several narrow jobs into one larger,
expanded job. For example, separate machine setup, machining, and inspection jobs
might be combined into one. This method can increase meaningfulness, job satisfaction,
and motivation when employees comprehend and like the greater task complexity.

Task significance represents the impact that the work has on others. In jobs with
high task significance, such as nursing, consulting, or manufacturing something like
sensitive parts for the space shuttle, the importance of successful task completion creates
meaningfulness for the worker.

Experienced meaningfulness is expressed as an average of these three dimensions.
Thus, although it is advantageous to have high amounts of skill variety, task identity,
and task significance, a strong emphasis on any one of the three dimensions can, at
least partially, make up for deficiencies in the other two.

Autonomy This refers to the amount of independence, freedom, and discretion that
the employee has to schedule and perform tasks. Salespeople, for example, often have


Relationships Among Core Job Dimensions, Critical Psychological States, and Personal
and Work Outcomes

SOURCE: J. Richard Hackman & Greg R. Oldham, Work Redesign, 1st Edition, © 1980. Reprinted by permission of Pearson
Education, Inc., Upper Saddle River, NJ.


considerable autonomy in how they contact, develop, and close new accounts, whereas
assembly-line workers often have to adhere to work specifications clearly detailed in a
policy-and-procedure manual. Employees are more likely to experience responsibility
for their work outcomes when high amounts of autonomy exist.

Feedback from the Work Itself This core dimension represents the information that
workers receive about the effectiveness of their work. It can derive from the work itself,
as when determining whether an assembled part functions properly, or it can come from
such external sources as reports on defects, budget variances, customer satisfaction, and
the like. Because feedback from the work itself is direct and generates intrinsic satisfac-
tion, it is considered preferable to feedback from external sources.

14-2b Individual Differences
Not all people react in similar ways to job enrichment interventions. Individual
differences—among them, a worker’s knowledge and skill levels, growth needs strength,
and satisfaction with contextual factors—moderate the relationships among core dimen-
sions, psychological states, and outcomes. Worker knowledge and skill refers to the educa-
tion and experience levels characterizing the workforce. If employees lack the appropriate
skills, for example, increasing skill variety may not improve a job’s meaningfulness. Simi-
larly, if workers lack the intrinsic motivation to grow and develop personally, attempts to
provide them with increased autonomy may be resisted. (We will discuss growth needs
more fully in the last section of this chapter.) Finally, contextual factors include reward
systems, supervisory style, and coworker satisfaction. When the employee is unhappy
with the work context, attempts to enrich the work itself may be unsuccessful.

14-2c Application Stages
The basic steps for job enrichment, as described by Hackman and Oldham, include mak-
ing a thorough diagnosis of the situation, forming natural work units, combining tasks,
establishing client relationships, vertical loading, and opening feedback channels.8

Making a Thorough Diagnosis The most popular method of diagnosing a job is
using the Job Diagnostic Survey (JDS) or one of its variations.9 An important output of
the JDS is the motivating potential score, which is a function of the three psychological
states—experienced meaningfulness, autonomy, and feedback. The survey can be used to
profile one or more jobs, to determine whether motivation and satisfaction are really
problems or whether the job is low in motivating potential, and to isolate specific job
aspects that are causing difficulties. Figure 14.2 shows two jobs. Job A in engineering
maintenance is high on all of the core dimensions. Its motivating potential score is 260
(motivating potential scores average about 125). Job B, the routine and repetitive task of
answering frequently asked questions in a call center, has a motivating potential score of
30. The score is well below average and would be even lower except for the job’s rela-
tively high task significance. This job could be enriched and improved.

The JDS also indicates how ready employees are to accept change. Employees who
have high growth needs will respond more readily to job enrichment than will those with
low or weak growth needs. A thorough diagnosis of the existing work system should be
completed before implementing actual changes. The JDS measures satisfaction with pay,
coworkers, and supervision. If there is high dissatisfaction with one or more of these
areas, other interventions might be more helpful prior to work redesign.


Forming Natural Work Units As much as possible, natural work units should be formed.
Although there may be a number of technological constraints, interrelated task activities should
be grouped together. The basic question in forming natural work units is “How can one increase
‘ownership’ of the task?” Forming such natural units increases two of the core dimensions—task
identity and task significance—that contribute to the meaningfulness of work.

Combining Tasks Frequently, divided jobs can be put back together to form a new and
larger one. In a Corning Glass Works plant, the task of assembling laboratory hotplates
was redesigned by combining a number of previously separate tasks. After the change,
each hotplate was completely assembled, inspected, and shipped by one operator, resulting
in an increased productivity of 84%. Controllable rejects dropped from 23 to less than 1%,
and absenteeism dropped from 8% to less than 1%.10 A later analysis indicated that the
change in productivity was the result of the intervention.11 Combining tasks increases
task identity and allows a worker to use a greater variety of skills. The hotplate assembler
can identify with a finished product ready for shipment, and self-inspection of his or her
work adds greater task significance, autonomy, and feedback from the job itself.

Establishing Client Relationships When jobs are divided into small units, the typical
worker has little or no contact with, or knowledge of, the ultimate user of the product or


The JDS Diagnostic Profile for a “Good” and a “Bad” Job







service. Improvements often can be realized simultaneously on three of the core dimensions
by encouraging and helping workers to establish direct relationships with the clients of their
work. For example, when an individual from a support pool is assigned to a particular
department, feedback increases because of the additional opportunities for praise or criticism
of his or her work. Because of the need to develop interpersonal skills in maintaining the
client relationship, skill variety may increase. If the worker is given personal responsibility
for deciding how to manage relationships with clients, autonomy is increased.

Three steps are needed to create client relationships: (1) The client must be identi-
fied; (2) the contact between the client and the worker needs to be established as directly
as possible; and (3) criteria and procedures are needed by which the client can judge the
quality of the product or service received and relay those judgments back to the worker.
For example, even customer-service and data-entry operations can be set up so that peo-
ple serve particular clients. In the hotplate department, personal nametags can be
attached to each instrument. The Indiana Bell Telephone Company found substantial
improvements in satisfaction and performance when telephone directory compilers
were given accountability for a specific geographic area.12

Vertical Loading The intent of vertical loading is to decrease the gap between doing
the job and controlling it. A vertically loaded job has responsibilities and controls that
formerly were reserved for management. Vertical loading may well be the most crucial
of the job-design principles. Autonomy is invariably increased. This approach should
lead to greater feelings of personal accountability and responsibility for the work out-
comes. For example, at an IBM plant that manufactures circuit boards for personal com-
puters, assembly workers were trained to measure the accuracy and speed of production
processes and to test the quality of finished products. Their work was more “whole,” they
were more autonomous, and the engineers who measure and test were free to design bet-
ter products and more efficient ways to manufacture them.13

Loss of vertical loading usually occurs when someone has made a mistake. Once a
supervisor steps in, the responsibility may be removed indefinitely. For example, many
skilled machinists have to complete forms to have maintenance people work on a
machine. The supervisor automatically signs the slip rather than allowing the machinist
to either repair the machine or ask directly for maintenance support.

Opening Feedback Channels In almost all jobs, approaches exist to open feedback
channels and help people learn whether their performance is remaining at a constant
level, improving, or deteriorating. The most advantageous and least threatening feedback
occurs when a worker learns about performance as the job is performed. In the hotplate
department at Corning Glass Works, assembling the entire instrument and inspecting it
dramatically increased the quantity and quality of performance information available to
the operators. Data given to a manager or supervisor often can be given directly to the
employee. Computers and other automated operations can be used to provide people
with data not currently accessible to them. Many organizations simply have not realized
the motivating impact of direct, immediate performance feedback.

Application 14.1 presents an example of job enrichment at the Hartford Insurance
Group. The employee relations consulting services (ERCS) group provided a single, one-
stop place for managers to get answers to employee relations questions, such as how to
document employee discipline or how to advise employees on benefit changes, and
allowed the human resource generalists to focus on the more strategic aspects of their
work. The initial implementation of the ERCS produced jobs low in motivating potential
and an internal organization effectiveness consultant helped to redesign the unit.14








ounded in 1810, The Hartford Financial
Services Group, Inc. is one of the largest
U.S.-based providers of investment products
(e.g., annuities, mutual funds, college savings

plans), life insurance, group and employee bene-
fits, automobile and homeowners’ insurance, and
business insurance serving millions of customers
worldwide—including individuals, institutions,
and businesses—through independent agents,
brokers, through financial institutions, and online.
With 30,000 employees and approximately
$26.5 billion in income in 2006, The Hartford
was ranked 78th on the 2006 Fortune 100 list.

Hartford’s corporate human resources
(HR) organization included about 175 HR
Generalists (HRGs) who were deployed
throughout the organization’s business units. It
also included a centralized group known as
“HR Source,” which handled lower-level HR
transactions such as basic policy, protocol, and
benefit questions. The HRGs addressed the
majority of HR-related issues that arose within
their respective units, including workforce
planning, change management, employee rela-
tions, and talent management. The range of
responsibilities meant high levels of skill variety,
the deployment to a business unit meant high
levels of task identity and feedback, and the
relevance of the work meant high levels of
task significance. However, the HRGs also
were in high demand; the number of requests
often exceeded the number of important
responsibilities, and this made autonomy
difficult. HRGs reported a high level of stress
in their work and there was some variation in
their results depending on such factors as lead-
ership expectations, the skill set of the HRG,
geographic location, and so on.

In 2006, and in response to these data, the
Employee Relations Consulting Services (ERCS)
group was created. It centralized some HR
functions so they would be more strategic,
consistent, and efficient. ERCS was staffed with
12 Employee Relations Consultants (ERCs),
who were prior HRGs with knowledge and exper-
tise in employee relations. A business decision

also was made to outsource the work of the
HR Source to an outside vendor. The new
ERCS group would handle all questions and
requests related to HR matters that fell outside
the expertise of the outsource vendor.

ERCS thus handled higher complexity HR
issues. Initially, cases flowed into ERCS elec-
tronically and were assigned to the next avail-
able consultant, similar to a first-in, first-out
method. This approach required each of the
consultants to be well versed in all types of
employee relations issues and maintain a
high level of skill variety. However, since the
initial face to the customer was through an
800 number and handled by a third-party ser-
vice provider, the ERCS had the feel of a call
center despite its higher-level service offering.
As a result, customers expected their requests
to be addressed right away or within a very
short period of time, even though the calls
related to complex HR matters that often
required input from internal legal counsel and
other staff functions. This system added to the
complexity and turnaround time of each case.
Coupled with the high volume of cases
received each day, the ERCS became a very
stressful work environment. While the ERCs
believed they were doing everything possible
to satisfy the customers, the customers
seemed to keep demanding more and pushing
for faster turnaround times.

An internal OD consultant was called in to
help ERCS address these problems. The con-
sultant worked closely with the Assistant Vice
President, Employee Relations, and a small
group of ERCS members to understand the
current situation. To help frame the diagnosis,
an organization design model and various Six
Sigma tools were used to create a survey
that was sent out to the customer base that
consisted of managers (70%), employees
(20%), and HRGs in the business units, recrui-
ters, and other third-party customers (repre-
senting the remaining 10%).

The results suggested that most custo-
mers were satisfied with ERCS’s service with


some opportunities for improvement. Many of the
comments complimented the ERCs for their pro-
fessionalism, expert knowledge, and personal
touches like the follow-up call after a case had
been closed. Respondents also liked the centralized
ERCS model and agreed that it was smoother, more
consistent, and reduced the risk of litigation. How-
ever, customers did want faster case-closure times,
less “phone-tag,” and a single point of contact for
cases like progressive discipline that required
follow-up. Hartford employees wanted someone in
ERCS they could talk with who would listen and
empathize with them; while the HRGs felt discon-
nected from their centralized counterparts in ERCS
and the pertinent information they were receiving
about trends in the HRGs’ business units.

The OD consultant also interviewed the ERCs
and observed their processes while talking with
others in the organization to better understand
what was working and what was not. Although
the ERCs’ jobs could be characterized as “moder-
ately enriched,” the relative levels of skill variety,
task identity, and feedback were declining. Instead
of working on a broad array of HR issues and form-
ing relationships, the ERCs were focused on a
steady stream of individual HR cases. Unlike the
HRGs, the ERCs were not working with a particular
business, but rather the “first-in, first-out” work
assignment process lowered overall task identity
since the ERCs might work with the property and
casualty business on one case and the life insur-
ance business on another. Finally, unless man-
agers or employees got back to the ERCS on the
outcome of the case, there was little feedback
available. The volume of calls was high enough
that it was hard for the ERCs to know what had
happened after they had counseled the customer.
In fact, following up with a customer and determin-
ing the level of satisfaction was not one of the
metrics for which they were held accountable,
and typically only unsatisfied customers would pro-
vide them with feedback. In addition, the ERCs
missed a sense of appreciation from their custo-
mers. Their work had devolved to transaction pro-
cessing and concentrating on how quickly they
could answer/resolve a question.

While the centralized ERCS model made per-
fect sense from a business and risk-mitigation per-
spective, there was something missing from it.
Surprisingly, the HRGs had similar misgivings.

Many of them missed being involved with some
of the now centralized employee relations issues
that formerly helped them understand the pulse of
the organization. As a result, the HRGs also wanted
a consistent point of contact in the ERCS who could
provide data on organizational trends. Thus, the
HRGs wanted a relationship with the ERCs as
much as the ERCs wanted one with them.

Based on this diagnosis, and in collaboration with
the Assistant Vice President and members of ERCS, a
program of redesign and implementation was estab-
lished. With respect to the workflow and organization
design, the following changes were made:

• ERCS was reorganized by line of business and
customer-type. This increased task identity and
significance by associating an ERC with a partic-
ular business unit. As a result, the ERCs could
develop a deeper-level expertise in and aware-
ness of a particular business unit’s operations
while also monitoring trend data and proactively
identifying potential problem areas with recom-
mended solutions This had the benefit of addres-
sing customers’ request to have an ERC more
closely aligned to their business, developing an
intimate link between the ERCs, the unit busi-
ness managers, and the HRGs deployed in the
units, while increasing task significance and pro-
cessing feedback. ERCs working with a particular
business had more opportunity to understand
how their work was affecting the organization
and to hear about how their work was received
while still being able to maintain a consistent
approach and rationale for resolving cases. It is
important to note that although ERCs appeared
to be assigned to a particular line of business, due
to tight capacity constraints, in case of a spike in
volume, any of the ERCs could take on work from
another line of business.

• ERCS also was reorganized by case complex-
ity. This change created new roles (e.g.,
senior- and junior-level ERCs and subject-
matter experts), increased skill variety, and
identified a viable career path. ERCS could
now leverage its consultants’ skill set, knowl-
edge, and capability based on the needs of the
customer and the complexity of the case. For
example, junior and senior ERCs could resolve
a majority of the cases that came to ERCS.
However, certain cases required a deep


14-2d Barriers to Job Enrichment
As the application of job enrichment has spread, a number of obstacles to significant job
restructuring have been identified. Most of these barriers exist in the organizational con-
text within which the job design is executed. Other organizational systems and practices,
whether technical, managerial, or personnel, can affect both the implementation of job
enrichment and the lifespan of whatever changes are made.

At least four organizational systems can constrain the implementation of job

1. The technical system. The technology of an organization can limit job enrichment
by constraining the number of ways jobs can be changed. For example, long-linked
technology like that found on an assembly line can be highly programmed and
standardized, thus limiting the amount of employee discretion that is possible. Tech-
nology also may set an “enrichment ceiling.” Some types of work, such as continuous-
process production systems, may be naturally enriched so there is little more that can
be gained from a job enrichment intervention.

2. The human resource system. Human resources systems can constrain job enrich-
ment by creating formalized job descriptions that are rigidly defined and limit flexi-
bility in changing people’s job duties. For example, many union contracts include
such narrowly defined job descriptions that major renegotiation between manage-
ment and the union must occur before jobs can be significantly enriched.

3. The control system. Control systems, such as budgets, production reports, and
accounting practices, can limit the complexity and challenge of jobs within the sys-
tem. For example, a company working on a government contract may have such
strict quality-control procedures that employee discretion is effectively curtailed.

level of knowledge or information that
existed only in other departments of The
Hartford. In these cases, additional research
was needed. The subject-matter experts
often had the experience to resolve an issue
without having to go outside ERCS and/or the
relationships necessary to acquire the infor-
mation from other departments quickly. By
capitalizing on subject-matter experts, such
cases could be addressed immediately within
ERCS. This deepened the skill variety and
allowed subject-matter experts to have
higher task significance and to add value to
the process.

• The ERCS created and enhanced a series of
lateral linkages through governance and part-
nership councils. These forums were used
to communicate the trends and other events
transpiring within the business and/or within
ERCS that were beneficial to the customer.

Such sessions helped to close some of
the communication gaps and allowed for
a strengthened partnership between the
ERCs and the HRGs, and provided another
avenue to enhance skill variety and task

In combination with other changes in struc-
ture, hiring, and metrics, the work of the ERCS
was greatly enriched. In particular, the new organi-
zational design aligned the internal workflow with
the needs of the customer. It created appropriate
lateral relationships and management practices to
satisfy the task identity and task significance needs
of the ERCs, the lines of business, and the HRGs.
Overall, the changes improved the ERCs’ job satis-
faction and the quality and closure time of HR
cases. Further monitoring of the effectiveness
and efficiency of the new design continued to
ensure its success or need for change.


4. The supervisory system. Supervisors determine to a large extent the amount of
autonomy and feedback that subordinates can experience. To the extent that super-
visors use autocratic methods and control work-related feedback, jobs will be diffi-
cult, if not impossible, to enrich.

Once these implementation constraints have been overcome, other factors determine
whether the effects of job enrichment are strong and lasting.16 Consistent with the con-
tingency approach to OD, the staying power of job enrichment depends largely on how
well it fits and is supported by other organizational practices, such as training, compen-
sation, and supervision. These practices need to be congruent with jobs having high
amounts of discretion, skill variety, and meaningful feedback.

14-2e Results of Job Enrichment
Hackman and Oldham reported data from the JDS on more than a thousand people in
about a hundred different jobs in more than a dozen organizations.17 In general, they
found that employees whose jobs were high on the core dimensions were more satisfied
and motivated than were those whose jobs were low on the dimensions. The core dimen-
sions also were related to such behaviors as absenteeism and performance, although
the relationship was not strong for performance. In addition, they found that responses
were more positive for people with high growth needs than for those with weaker ones.
Similarly, research has shown that enriched jobs are strongly related to mental ability.18

Enriching the jobs of workers with low growth needs or with low knowledge and skills is
more likely to produce frustration than satisfaction.

An impressive amount of research has been done on Hackman and Oldham’s
approach to job enrichment. In addition, a number of studies have extended and
refined their approach, including a modification of the original JDS instrument to
produce more reliable data19 and the incorporation of other moderators such as the
need for achievement and job longevity.20 In general, research has supported
the proposed relationships between job characteristics and outcomes, including the
moderating effects of growth needs, knowledge and skills, and context satisfaction.21

In regard to context satisfaction, for example, research indicates that employee turn-
over, dissatisfaction, and withdrawal are associated with dark offices, a lack of privacy,
and high worker densities.22

Reviews of the job enrichment research also report positive effects. An analysis of 28
studies concluded that the job characteristics are positively related to job satisfaction,
particularly for people with high growth needs.23 Another review concluded that job
enrichment is effective at reducing employee turnover.24 A different examination of
28 job enrichment studies reported overwhelmingly positive results.25 Improvements in
quality and cost measures were reported slightly more frequently than improvements
in employee attitudes and quantity of production. However, the studies suffered from
methodological weaknesses that suggest that the positive findings should be viewed
with some caution. Another review of 16 job enrichment studies showed mixed results;
13 of the programs were developed and implemented solely by management.26 These
16 studies showed significant reduction in absenteeism, turnover, and grievances, and
improvements in production quality in only about half of the cases where these variables
were measured. The three studies with high levels of employee participation in the
change program showed improvements in these variables in all cases where they were
measured. Although it is difficult to generalize from such a small number of studies,
employee participation in the job enrichment program appears to enhance the success
of such interventions.


Finally, a comprehensive meta-analysis of more than 75 empirical studies of the
Hackman and Oldham model found modest support for the overall model.27 Although
some modifications to the model appear warranted, the studies suggested that many of
the more substantive criticisms were unfounded. For example, research supported the
conclusion that the relationships between core job characteristics and psychological
outcomes were stronger and more consistent than the relationships between core
job dimensions and work performance, although these latter relationships did exist and
were meaningful. The researchers also found support for the proposed linkages among
core job dimensions, critical psychological states, and psychological outcomes. It is interest-
ing that the job feedback dimension emerged as the strongest and most consistent predictor
of both psychological and behavioral work outcomes. The researchers suggested that of
all job characteristics, increasing feedback had the most potential for improving work
productivity and satisfaction. The role of growth needs strength as a moderator was also
supported, especially between core dimensions and work performance. Clearly, research
supporting the job enrichment model is plentiful. Although the evidence suggests that the
model is not perfect, it does appear to be a reasonable guide to improving the motivational
outcomes of work.

14-3 The Sociotechnical Systems Approach
The sociotechnical systems (STS) approach is currently the most extensive body of scien-
tific and applied work underlying employee involvement and innovative work designs.
Its techniques and design principles derive from extensive action research in both public
and private organizations across diverse national cultures. This section reviews the con-
ceptual foundations of the STS approach and then describes its most popular application:
self-managed work teams.

14-3a Conceptual Background
Sociotechnical systems theory was developed originally at the Tavistock Institute of
Human Relations in London and has spread to most industrialized nations in a little
more than 60 years.28 In Europe and particularly Scandinavia, STS interventions are
almost synonymous with work design and employee involvement. In Canada and the
United States, STS concepts and methods underlie many of the innovative work designs
and team-based structures that are so prevalent in contemporary organizations. Intel,
United Technologies, General Mills, and Procter & Gamble are among the many organiza-
tions applying the STS approach to transforming how work is designed and performed.

STS theory is based on two fundamental premises: that an organization or work unit
is a combined, social-plus-technical system (sociotechnical), and that this system is open
in relation to its environment.29

Sociotechnical System The first assumption suggests that whenever human beings
are organized to perform tasks, a joint system is operating—a sociotechnical system. This
system consists of two independent but related parts: a social part, including the people
performing the tasks and the relationships among them; and a technical part, including
the tools, techniques, and methods for task performance. These two parts are independent
of each other because each follows a different set of behavioral laws. The social part oper-
ates according to biological and psychosocial laws, whereas the technical part functions
according to mechanical and physical laws. Nevertheless, the two parts are related because
they must act together to accomplish tasks. Hence, the term “sociotechnical” signifies the


joint relationship that must occur between the social and the technical parts, and the word
“system” communicates that this connection results in a unified whole.

Because a sociotechnical system is composed of social and technical parts, it follows
that it will produce two kinds of outcomes: products, such as goods and services; and social
and psychological consequences, such as job satisfaction and commitment. The key issue is
how to design the relationship between the two parts so that both outcomes are positive
(referred to as “joint optimization”). Sociotechnical practitioners design work and organiza-
tions so that the social and technical parts work well together, producing high levels of
product and human satisfaction. This effort contrasts with the engineering approach to
designing work, which focuses on the technical component, worries about fitting in people
later, and often leads to mediocre performance at high social costs. The STS approach
also contrasts with the motivational approach, which views work design in terms of
human fulfillment and that can lead to satisfied employees but inefficient work processes.

Environmental Relationship The second major premise underlying STS theory is that
such systems are open to their environments. As discussed in Chapter 5, open systems
must interact with their environments to survive and develop. The environment provides
the STS with necessary inputs of energy, raw materials, and information, and the STS
provides the environment with products and services. The key issue here is how to design
the interface between the STS and its environment so that the system has sufficient
freedom to function while exchanging effectively with the environment. In what is typically
called “boundary management,” STS practitioners structure environmental relationships
both to protect the system from external disruptions and to facilitate the exchange of
necessary resources and information. This enables the STS to adapt to changing conditions
and to influence the environment in favorable directions.

In summary, STS theory suggests that effective work systems jointly optimize the
relationship between their social and technical parts. Moreover, such systems effectively
manage the boundary separating and relating them to the environment. This allows
them to exchange with the environment while protecting themselves from external

14-3b Self-Managed Work Teams
The most prevalent application of the STS approach is self-managed work teams. Alter-
natively referred to as self-directed, self-regulating, or high-performance work teams,
these work designs consist of members performing interrelated tasks.30 Self-managed
teams typically are responsible for a complete product or service, or a major part of a
larger production process. They control members’ task behaviors and make decisions
about task assignments and work methods. In many cases, the team sets its own produc-
tion goals within broader organizational guides and may be responsible for support ser-
vices, such as maintenance, purchasing, and quality control. Team members generally are
expected to learn many if not all of the jobs within the team’s control and frequently are
paid on the basis of knowledge and skills rather than seniority. When pay is based on
performance, team, rather than individual performance, is the standard.

Self-managed work teams are being implemented at a rapid rate across a range of
industries and organizations, such as Intel, Boeing, General Mills, General Electric, and
Motorola. A 2006 survey of Fortune 1000 companies found that 65% of these firms were
using self-managed work teams, a small decrease compared to the 2001 data, but a 40%
increase from 1987.31 Although this work design typically does not cover a majority of
the workforce, this represents an impressive increase in the use of self-managed teams.


Figure 14.3 is a model explaining how self-managed work teams perform.32 It sum-
marizes current STS research and shows how teams can be designed for high performance.
Although the model is based mainly on experience with teams that perform the daily work
of the organization (work teams), it also has relevance to other team designs, such as
problem-solving teams, management teams, cross-functional integrating teams, and
employee involvement teams. The model shows that team performance and member satis-
faction follow directly from how well the team functions: how well members communicate
and coordinate with each other, resolve conflicts and problems, and make and implement
task-relevant decisions. Team functioning, in turn, is influenced by three major inputs:
team task design, team process interventions, and organization support systems. Because
these inputs affect how well teams function and subsequently perform, they are key inter-
vention targets for designing and implementing self-managed work teams.

Team Task Design Self-managed work teams are responsible for performing particu-
lar tasks; consequently, how the team is designed for task performance can have a pow-
erful influence on how well it functions. Task design generally follows from the team’s
mission and goals that define the major purpose of the team and provide direction for
task achievement. When a team’s mission and goals are closely aligned with business
strategy and objectives, members can see how team performance contributes to organiza-
tion success. This can increase member commitment to team goals.

Team task design links members’ behaviors to task requirements and to each other.
It structures member interactions and performances. Three task-design elements are nec-
essary for creating self-managed work teams: task differentiation, boundary control, and
task control.33 Task differentiation involves the extent to which the team’s task is auton-
omous and forms a relatively self-completing whole. High levels of task differentiation
provide an identifiable team boundary and a clearly defined area of team responsibility.
At Johnsonville Sausage, for example, self-managed teams comprise 7–14 members each.
Each team is large enough to accomplish a set of interrelated tasks but small enough to
allow face-to-face meetings for coordination and decision making. In many hospitals,
self-managed nursing teams are formed around interrelated tasks that together produce
a relatively whole piece of work. Thus, nursing teams may be responsible for particular


Model of Self-Managed Work Teams








groups of patients, such as those in intensive care or undergoing cancer treatments, or
they may be accountable for specific work processes, such as those in the laboratory,
pharmacy, or admissions office.

Boundary control involves the extent to which team members can influence transac-
tions with their task environment—the types and rates of inputs and outputs. Adequate
boundary control includes a well-defined work area; group responsibility for boundary-
control decisions, such as quality assurance (which reduces dependence on external
boundary regulators, such as inspectors); and members sufficiently trained to perform
tasks without relying heavily on external resources. Boundary control often requires
deliberate cross-training of team members to take on a variety of tasks. This makes
members highly flexible and adaptable to changing conditions. It also reduces the need
for costly overhead because members can perform many of the tasks typically assigned to
staff experts, such as those in quality control, planning, and maintenance.

Task control involves the degree to which team members can regulate their own
behavior to provide services or to produce finished products. It includes the freedom to
choose work methods, to schedule activities, and to influence production goals to match
both environmental and task demands. Task control relies heavily on team members
having the power and authority to manage equipment, materials, and other resources
needed for task performance. This “work authority” is essential if members are to take
responsibility for getting the work accomplished. Task control also requires that team
members have accurate and timely information about team performance to enable
them to detect performance problems and to make necessary adjustments.

Task control enables self-managed work teams to observe and control technical var-
iances as quickly and as close to their source as possible. Technical variances arise from the
production process and represent significant deviations from specific goals or standards. In
manufacturing, for example, abnormalities in raw material, machine operation, and work-
flow are sources of variance that can adversely affect the quality and quantity of the finished
product. In service work, out-of-the-ordinary requests, special favors or treatment, or unique
demands create variances that can place stress on the work process. Technical variances tra-
ditionally are controlled by support staff and managers, but this can take time and add
greatly to costs. Self-managed work teams, on the other hand, have the freedom, skills, and
information needed to control technical variances online when they occur. This affords
timely responses to production problems and reduces the amount of staff overhead needed.

Team Process Interventions A second key input to team functioning involves team
process interventions. As described in Chapter 10, teams may develop ineffective social
processes that impede functioning and performance, such as poor communication
among members, dysfunctional roles and norms, and faulty problem solving and deci-
sion making. Team process interventions, such as process consultation and team build-
ing, can resolve such problems by helping members address process problems and
moving the team to a more mature stage of development. Because self-managed work
teams need to be self-reliant, members generally acquire their own team process skills.
They may attend appropriate training programs and workshops or they may learn on
the job by working with OD practitioners to conduct process interventions on their
own teams. Although members’ process skills generally are sufficient to resolve most of
the team’s process problems, OD experts occasionally may need to supplement the
team’s skills and help members address problems that they are unable to resolve.

Organization Support Systems The final input to team functioning is the extent
to which the larger organization is designed to support self-managed work teams.


The success of such teams clearly depends on support systems that are quite different from
traditional methods of managing.34 For example, a bureaucratic, mechanistic organization
is not highly conducive to self-managed teams. An organic structure, with flexibility
among units, relatively few formal rules and procedures, and decentralized authority, is
much more likely to support and enhance the development of self-managed work teams.
This explains why such teams are so prevalent in high-involvement organizations
(described in Chapter 13). Their different features, such as flat, lean structures, open
information systems, and team-based selection and reward practices, all reinforce team-
work and responsible self-management.

A particularly important support system for self-managed work teams is the external
leadership. Self-managed teams exist along a spectrum ranging from having only mild influ-
ence over their work to near-autonomy. In many circumstances, such teams take on a vari-
ety of functions traditionally handled by management. These can include assigning members
to individual tasks, determining the methods of work, scheduling, setting production goals,
and selecting and rewarding members. These activities do not make external supervision
obsolete, however. That leadership role usually is changed to two major functions: working
with and developing team members, and assisting the team in managing its boundaries.35

Working with and developing team members is a difficult process and requires a dif-
ferent style of managing than do traditional systems. The team leader (often called a team
facilitator) helps team members organize themselves in a way that enables them to become
more independent and responsible. He or she must be familiar with team-building
approaches and must assist members in learning the skills to perform their jobs. Recent
research suggests that the leader needs to provide expertise in self-management.36 This
may include encouraging team members to be self-reinforcing about high performance,
to be self-critical of low performance, to set explicit performance goals, to evaluate goal
achievement, and to rehearse different performance strategies before trying them.

If team members are to maintain sufficient autonomy to control variance from goal
attainment, the leader may need to help them manage team boundaries. Where teams
have limited control over their task environment, the leader may act as a buffer to reduce
environmental uncertainty. This can include mediating and negotiating with other orga-
nizational units, such as higher management, staff experts, and related work teams.
Research suggests that better managers spend more time in these lateral interfaces.37

These new leadership roles require new and different skills, including knowledge of
sociotechnical principles and group dynamics, understanding of both the task environ-
ment and the team’s technology, and ability to intervene in the team to help members
increase their knowledge and skills. Leaders of self-managed teams also should have the
ability to counsel members and to facilitate communication among them.

Many managers have experienced problems trying to fulfill the complex demands of
leading self-managed work teams. The most typical complaints mention ambiguity about
responsibilities and authority, lack of personal and technical skills and organizational sup-
port, insufficient attention from higher management, and feelings of frustration in the super-
visory job.38 Attempts to overcome these problems have been made in the following areas:39

1. Recruitment and selection. Recruitment has been directed at selecting team leaders
with a balanced mixture of technical and social skills. Those with extensive technical
experience have been paired with more socially adept leaders so that both can share
skills and support each other.

2. Training. Extensive formal and on-the-job training in human relations, group
dynamics, and leadership styles has been instituted for leaders of self-managed
work teams. Such training is aimed at giving leaders concepts for understanding


their roles, as well as hands-on experience in team building, process consultation,
and third-party intervention (see Chapter 10).

3. Evaluation and reward systems. Attempts have been made to tie team leader
rewards to achievements in team development. Leaders prepare developmental plans
for individual workers and the team as a whole, and set measurable benchmarks for
progress. Performance appraisals of leaders are conducted within a group format, with
feedback supplied by team members, peers, and higher-level management.

4. Leadership support systems. Leaders of self-managed work teams have been
encouraged to develop peer support groups. Team leaders can meet off-site to
share experiences and to address issues of personal and general concern.

5. Use of freed-up time. Team leaders have been provided with a mixture of strategies
to apply their talents beyond the immediate work team. A team leader has more
time when the team has matured and taken on many managerial functions. In
those cases, team leaders have been encouraged to become involved in such areas as
higher-level planning and budgeting, companywide training and development, and
individual career development.

14-3c Application Stages
STS work designs have been implemented in a variety of settings, including manufacturing
firms, hospitals, schools, and government agencies. Although the specific implementation
strategy is tailored to the situation, a common method of change underlies many of these
applications. It generally involves high employee participation in work design and imple-
mentation. Such participative work design enables employees to translate their special
knowledge of the work situation into relevant designs, and employees with ownership
over the design process are likely to be highly committed to implementing the outcomes.40

STS applications generally proceed in six steps:41

1. Sanctioning the design effort. At this step, workers receive the necessary sanction
and support to diagnose their work system and to create an appropriate work
design. In many unionized situations, top management and union officials jointly
agree to suspend temporarily the existing work rules and job classifications so that
employees have the freedom to explore new ways of working. Management also may
provide workers with sufficient time and external help to diagnose their work system
and to devise alternative work structures. In cases of redesigning existing work sys-
tems, normal production demands may be reduced during the redesign process.
Also, workers may be given some job and wage security so that they feel free to try
new designs without fear of losing their jobs or money.

2. Diagnosing the work system. This step includes analyzing the work system to discover
how it is operating. Knowledge of existing operations (or of intended operations, in the
case of a new work system) is the basis for creating an appropriate work design. STS prac-
titioners have devised diagnostic models applicable to work systems that make products
or deliver services. The models analyze a system’s technical and social parts and assess
how well the two fit each other. The task environment facing the system also is analyzed
to see how well it is meeting external demands, such as customer quality requirements.

3. Generating appropriate designs. Based on the diagnosis, the work system is rede-
signed to fit the situation. Although this typically results in self-managed work
teams, it is important to emphasize that the diagnosis may reveal that tasks are not
very interdependent and that an individual-job work design, such as an enriched job,
might be more appropriate. Two important STS principles guide the design process.


The first principle, compatibility, suggests that the process of designing work
should fit the values and objectives underlying the approach. For example, the major
goals of STS design are joint optimization and boundary management. A work-design
process compatible with those objectives would be highly participative, involving those
having a stake in the work design, such as employees, managers, engineers, and staff
experts. They would jointly decide how to create the social and technical components
of work, as well as the environmental exchanges. This participative process increases
the likelihood that design choices will be based simultaneously on technical, social,
and environmental criteria. How well the compatibility guideline is adhered to can
determine how well the work design subsequently is implemented.42

The second design principle is called minimal critical specification. It suggests
that STS designers should specify only those critical features needed to implement
the work design. All other features of the design should be left free to vary with
the circumstances. In most cases, minimal critical specification identifies what is to
be done, not how it will be accomplished. This allows employees considerable
freedom to choose work methods, task allocations, and job assignments to match
changing conditions.

The output of this design step specifies the new work design. In the case of self-
managed teams, this includes the team’s mission and goals, an ideal work flow, the skills
and knowledge required of team members, a plan for training members to meet those
requirements, and a list of the decisions the team will make now as well as the ones it
should make over time as members develop greater skills and knowledge.

4. Specifying support systems. As suggested above, organizational support systems may
have to be changed to support new work designs. When self-managed teams are designed,
for example, the basis for pay and measurement systems may need to change from
individual to team performance to facilitate necessary task interaction among workers.

5. Implementing and evaluating the work designs. This stage involves making neces-
sary changes to implement the work design and evaluating the results. For self-
managing teams, implementation generally requires a great amount of training so
that workers gain the necessary technical and social skills to perform multiple tasks
and to control task behaviors. It also may entail developing the team through vari-
ous team-building and process-consultation activities. OD practitioners often help
team members carry out these tasks with a major emphasis on helping them gain
competence in this area. Evaluation of the work design is necessary both to guide
the implementation process and to assess the overall effectiveness of the design. In
some cases, the evaluation information suggests the need for further diagnosis and
redesign efforts.

6. Continual change and improvement. This last step points out that STS designing
never is complete but rather continues as new things are learned and new conditions
are encountered. Thus, the ability to design and redesign work continually needs to
be built into existing work designs. Members must have the skills and knowledge to
assess their work unit continually and to make necessary changes and improve-
ments. From this view, STS designing rarely results in a stable work design but
instead provides a process for modifying work continually to fit changing conditions
and to make performance improvements.

Application 14.2 describes how WI, Inc. implemented self-managed teams.43 It shows
that a medium-sized company, with strong leadership and a progressive human resource
function, can significantly improve its competitive position through workplace change. It
clearly demonstrates the importance of aligning organizational systems to support self-
management as well as the wisdom of including employees in the change process.








I, Inc. is a privately owned, medium-sized
manufacturer of audible, visual, and voice-
action message products. It employs
about 350 people called “associates,”

with about 220 working in manufacturing and
the rest in sales, customer service, and adminis-
trative functions. WI is a global supplier of mes-
sage products, which must meet high standards
of performance, reliability, and quality. The com-
pany enjoyed a strong market niche in leading-
edge products but faced stiff competition from
much larger, more capitalized firms. To increase
market share, improve performance, and lower
costs, WI set out to redesign work and to create
an organizational culture that promoted team-
work, participative decision making, and contin-
uous improvement.

Spearheaded by a progressive People
Services or human resources department, this
team-based initiative, called “Partners in Perfec-
tion” (PIP), took about three years to complete.
From the start, it had strong support and commit-
ment from WI’s CEO and major stockholder, the
grandson of the firm’s founder. Educated in busi-
ness, engineering, and psychology, he saw the
human resources function as a strategic partner
and essential to achieving his vision of a “partici-
patory, team-centered climate” at WI.

PIP started with a series of small-group
sessions spread over several weeks. Led by
the CEO and People Services, these sessions
brought together manufacturing associates and
asked them two questions: “What’s happen-
ing?” and “How can we collectively continu-
ously improve?” Associates expressed their
answers in an open forum, and their feedback
was summarized on flipcharts that were posted
on the company cafeteria walls for several
weeks. This enabled manufacturing associates
to see the responses from all of the sessions
and to add to them if they desired. People
Services then summarized the feedback into
common themes, which revealed associates’
willingness to become involved in WI’s
growth and “become a part of the solution.”
Specifically, they wanted to be involved in deci-
sion making, to continuously improve products,
processes, and customer service, to develop

themselves, to better balance work and home
life, and to decrease costs, especially the rising
price of health care benefits.

Next, the PIP initiative turned to designing
self-managed work teams. They were organized
around natural work units, either assembly line or
functional department, such as paint shop, main-
tenance, and warehouse. In total, 16 teams of
between 5 and 16 associates were created
across two shifts of operation. Each team created
an operating charter spelling out its major tasks,
responsibilities, and objectives. Teams met for-
mally at least every two weeks to discuss PIP
progress and emergent issues and to devise
action plans with specific deliverables. Over
time, teams took on more and more tasks,
decisions, and responsibilities, as members
gained skills and expertise and teams showed
through their performance that they could func-
tion effectively. For example, manufacturing
teams did their own work scheduling, job assign-
ments, quality and product inspection, inventory
and material control, and certain preventive-
maintenance functions. All teams worked
with management on manpower planning, re-
commended their own budgets, checked re-
sults, and made necessary adjustments. They
identified training needs, monitored their own
attendance, vacation time, illness-injury, and con-
tinuously improved work processes and methods
in line with industry standards and codes.

To facilitate PIP implementation, People Ser-
vices created a corporate Enrichment Center to
train associates in the skills and knowledge
needed to develop self-managed teams and to
continually improve products and processes.
Based on a preliminary skills assessment, it
was determined that members had the expertise
for task performance but lacked team facilitation
skills. Thus, initial training involved a four-day
team-building course that all associates were
required to attend. Those who passed the
course and showed interest in becoming a
team facilitator could take an advanced, two-
day team-building course. Eventually both
courses were required for all new associates.
The Enrichment Center gradually developed a
variety of courses and associates were required


to spend a minimum of 40 hours per year gaining
new skills and knowledge. These courses ranged
from technical skills, such as forklift operations and
blueprint reading, to team skills related to goal setting
and conflict resolution, to improvement skills, such
as Six Sigma and quality improvement, to basic skills,
such as math and English as a second language.
Given the extensive training need for PIP, WI applied
for and received over $2 million in training funds from
State Department of Labor.

A major goal of PIP was to become an
employer of choice and attract talented people
who would fit into the participative, team-based cul-
ture. Teams had to be comfortable with new hires
because they would be working closely with them.
Thus, People Services developed a recruitment and
selection process that involved team members.
Associates attended job fairs, helped to create and
hold open-house recruitment days, and learned job-
interviewing skills. A team with an open job would
review applications, choose those to interview, and
with the help of People Services, prescreen appli-
cants by telephone and interview in person those
who matched certain criteria. Then, the team
would send the paperwork for its recommended
hire to its department coach or advisor and People
Services. Final job offers were made by People Ser-
vices and a team member who had been involved in
the interview process.

WI’s existing reward system was geared to
contractual wage scales of individual jobs. Because
it was not performance-driven and worked at cross-
purposes to PIP’s team orientation, People Services
worked with associates to create a system that
rewarded team performance as well as member
contributions. One component of the system tied
rewards to measures of team productivity, quality,
customer satisfaction, and attendance. Teams were
rated on these measures and the top three teams
were financially rewarded monthly. A second part of
the system involved a gain-sharing program in
which associates’ were rewarded bi-weekly for
measurable gains above standards of productivity
and quality. A third part of the incentive system rec-
ognized individual associates for outstanding contri-
butions to performance, helpfulness, development,
and coaching. Peers nominated associates, a cross-
functional committee assessed nominees, and win-
ners received small but meaningful gifts at a
monthly recognition event.

Finally, People Services worked with associates
to address problems that had plagued the company
for years. One area concerned safety and the need
to reduce workers’ compensation costs. Associates
attended training sessions on worker safety and a
safety committee was formed to assess current
safety practices, to recommend improvements,
and to recognize teams that made significant prog-
ress. Another area involved work-life balance and
the need to help associates better manage this
interface. This led to a variety of programs, such
as parenting and financial planning workshops,
employee assistance activities, holiday events for
families, a service award dinner, and flextime work
hours. Still another area involved health and well-
ness with the need to reduce escalating health
insurance premiums. A company survey revealed
that associates’ attention to their health and well-
ness was abysmal and an aggressive initiative was
implemented to turn things around. It included a
lunch and learn program, periodic health and well-
ness fairs, and regular screening for blood pressure,
cholesterol, and the like, and assessment of work
habits and conditions by health professional and
recommendations for improvement.

In a little over three years, the PIP intervention
produced significant results. Associates’ productiv-
ity increased from 85% to 114%, based on com-
pany standards and excluding increases due to
new equipment and machinery. Voluntary turnover
went from 33% to less than 5%, while daily absen-
teeism dropped from 18% to 1%. On-time delivery
rose from 78% to 93%, while quality prior to final
inspection increased from approximately 86% to
99%. Health care premiums stayed steady in year
3 and decreased in year 4 saving the company
more than $1 million. The incurred cost of worker’s
compensation was reduced by 4.68% and the loss
ratio by 9.93%. The product development cycle
decreased time from 76 process activities to 26.
Global sales increased more than 35%.

Deservedly, WI, Inc. has received numerous
national and statewide awards. Professional asso-
ciations, such as the Society for Human Resource
Management, the John J. Heldrich Center for
Workforce Development, and the New Jersey
Business and Industry Association, have publically
recognized the company for innovative human
resource practices, economic development, and
workplace education.


14-3d Results of Self-Managed Teams
Research on STS design efforts is extensive. Over 20 years ago, a bibliography by
researchers at Eindhoven University of Technology in The Netherlands found 3,082
English-language studies.44 Today, we estimate the number of publications to be signifi-
cantly higher. As with reports on job enrichment, most of the published reports on self-
managed teams show favorable results.45

A series of famous case studies at General Foods’ Gaines Pet Food/Topeka plant, the
Saab-Scania engine assembly plant, and Volvo’s Kalmar and Uddevalla plants provide one
set of positive findings.46 In each case, productivity and other technical measures of efficiency
and quality improved significantly. In addition, measures of job satisfaction and other attitudes
also improved. Perhaps most importantly, these improvements were sustained over time.

A second set of studies supporting the positive impact of sociotechnical design teams
comes from research comparing self-managed teams with other interventions. For exam-
ple, a longitudinal study of self-managed teams conducted in a Midwestern U.S. food-
processing plant found that one year after start-up, production was 133% higher than
originally planned, start-up costs were 7.7% lower than expected, and employee attitudes
were extremely positive about the change.47 This study also permitted a comparison of
self-managed teams with job enrichment, which occurred in another department of the
company. Both interventions included survey feedback. The self-managing project involved
technological changes, whereas the job enrichment program did not. The results showed
that the interventions had similar positive effects in terms of employee attitudes, but only
the self-managing intervention had significant improvements in productivity and costs.
Thus, the productivity improvements may not be attributed solely to the self-managed
teams but might also be the result of the technological changes.

A third set of positive results comes from reviews, or meta-analyses, of self-managed
team studies. One review examined 16 studies and showed that when productivity, costs,
and quality were measured, improvements occurred in more than 85% of the cases.48

Significant reductions in employee turnover and absenteeism rates and improvements
in employee attitudes were reported in about 70% of the cases where these variables
were measured. Certain methodological weaknesses in the studies suggest, however, that
the positive results should be viewed carefully. Another review of 12 studies of self-
managed teams showed improvements in hard performance measures in about 67% of
the cases where such measures were taken.49 Both of these reviews also included job
enrichment studies, as reported earlier in this chapter. The relative impact of self-
managing groups seems about equal to that of job enrichment, especially when the latter
includes worker participation in the design process.

Three more recent meta-analyses also provide general support for self-managed
teams. In a review of all STS work-design studies conducted in the 1970s, researchers
found a strong positive relationship between the installation of self-managed teams and
attitudinal and economic gains.50 These work designs were found to increase employee
satisfaction, to reduce production costs through group member innovations, and to
decrease absenteeism, turnover, and accident rates. The researchers reported little evidence
for claims of increased productivity primarily because of the lack of sufficient reported
data. In a comprehensive meta-analysis, researchers concluded that self-managed teams
do produce increases in productivity and reductions in escape behavior, such as absentee-
ism, but that these effects varied widely. Higher results were associated with high levels of
work-group autonomy, supporting changes in the reward system, interventions that did
not include technological changes, and applications outside of the United States.51 Finally,
a detailed and comprehensive meta-analysis of 131 North American field experiments


reported that self-managed teams (called autonomous and semiautonomous work groups
in the study) were more likely to have a positive impact on financial-performance
measures, including costs, productivity, and quality, than on behavioral or attitudinal
variables.52 Considerable variation in the size of the positive effect, however, led the
researchers to suggest that changes in other organization components may be needed to
support the teams. Only when other organizational features, such as reward systems,
information systems, and performance appraisal systems changed simultaneously, was
the probability of positive results increased.

Although the majority of studies report positive effects of self-managing groups,
some research suggests a more mixed assessment. A field experiment studying the long-
term effects of self-managed teams showed improvements in job satisfaction but no
effects on job motivation, work performance, organizational commitment, mental health,
or voluntary turnover.53 The company did lower indirect overhead costs, however, by
reducing the number of supervisors. This study, which received an award from the
Academy of Management for quality research, concluded that the major benefits of
self-managed teams are economic, deriving from the need for less supervision. Another
study found that the introduction of self-managed teams into an independent insurance
agency threatened the personal control and autonomy of individual employees.54

The teams, which were implemented without employee participation, exerted strong
pressures on insurance agents to follow rigid procedures. Group leaders focused on the
concerns of younger, inexperienced employees and ignored older workers’ requests for
less red tape and more freedom. The older employees felt that the groups undermined
their individual discretion, autonomy, and initiative. The study concluded that unless
self-managed teams are implemented and managed properly, individual members’
autonomy and motivation can be constrained inadvertently.

A rigorous field experiment in a telecommunications company compared self-managed
teams with traditionally designed work groups performing the same types of tasks.55 The
study found that self-managed teams scored significantly higher than traditional work
groups in job satisfaction, growth-needs satisfaction, social-needs satisfaction, and group
satisfaction. Self-managing group members and higher-level managers perceived group per-
formance as superior to traditionally managed groups. In contrast to these attitudinal and
perceptual findings, however, objective measures of service quality and customer satisfaction
did not differ between the two types of groups. A similar study of 952 British firms across
12 industries found that team-based work designs, in contrast to nonteam forms of work,
were associated with higher financial performance; however, there was no difference in
financial performance between teams that were self-managed and those that were not.56

This finding suggests that the team or coordination aspect of self-managed teams may con-
tribute more to performance than the self-control part.

Finally, a growing number of studies are examining the mechanisms through
which self-managed teams achieve positive outcomes. For example, one study showed
how turnover among self-managed team members led to decreases in team learning
behavior and task flexibility, which, in turn, led to decreases in team effectiveness.57

Another study found that in self-managed teams performing stable tasks, greater team
structure was related to more information sharing, less conflict, and more psychologi-
cal safety among members, which, in turn, promoted team learning and improve-
ment.58 Another study of self-managed teams showed that peer-based rational
control, in which members perceive the distribution of economic rewards as dependent
on teammates’ behavior, was related to higher performance of both individuals and of
the collective team.59 This effect was particularly strong when normative control or
cohesion among team members was low, suggesting that peer-based rational control
may substitute for low normative control.


14-4 Designing Work for Technical
and Personal Needs
This chapter has described three approaches to work design: engineering, motivational, and
sociotechnical. Trade-offs and conflicts among the approaches must be recognized. The engi-
neering approach produces traditional jobs and work groups and focuses on efficient perfor-
mance. It downplays employee needs and emphasizes economic outcomes. The motivational
approach designs jobs that are stimulating and demanding and highlights the importance of
employee need satisfaction. Research suggests, however, that increased satisfaction may not
generate improvements in productivity. Finally, the STS approach integrates social and tech-
nical aspects, but it may not be practical or appropriate in all situations.

In this final section, we attempt to integrate the three perspectives by providing a
contingency framework that suggests that any of the three approaches can be effective
when applied in the appropriate situations. Work design involves creating jobs and
work groups for high levels of employee satisfaction and productivity. A large body of
research shows that achieving such results depends on designing work to match specific
factors operating in the work setting, factors that involve the technology for producing
goods and services and the personal needs of employees. When work is designed to fit
or match these factors, it is most likely to be both productive and humanly satisfying.

The technical and personal factors affecting work-design success provide a contingency
framework for choosing among the four different kinds of work designs discussed in the
chapter: traditional jobs, traditional work groups, enriched jobs, and self-managed teams.

14-4a Technical Factors
Two key dimensions can affect change on the shop floor: technical interdependence, or the
extent to which cooperation among workers is required to produce a product or service;
and technical uncertainty, or the amount of information processing and decision-making
employees must do to complete a task.60 In general, the degree of technical interdepen-
dence determines whether work should be designed for individual jobs or for work groups.
When interdependence is low and there is little need for worker coordination—as, for
example, in field sales and call centers—work can be designed for individual jobs. Con-
versely, when interdependence is high and employees must coordinate their task
activities—as in technical processes like oil refining, assembly lines, and major surgery—
work should be designed for groups composed of people performing interacting tasks.

The second dimension, technical uncertainty, determines whether work should be
designed for external forms of control, such as supervision, scheduling, and standardization,
or for worker self-control. When technical uncertainty is low and little information has to be
processed by employees during task performance, work can be designed for external control,
such as might be found on assembly lines and in other forms of repetitive work. On the
other hand, when technical uncertainty is high and people must process more information
and make decisions, work should be designed for high levels of employee self-control, such
as might be found in professional work and hospital emergency rooms.

Figure 14.4 shows the different types of work designs that are most effective, from a
purely technical perspective, for different combinations of interdependence and uncer-
tainty. In quadrant 1, where technical interdependence and uncertainty are both low,
such as might be found in call centers, jobs should be designed traditionally with limited
amounts of employee interaction and self-control. When task interdependence is high
but uncertainty is low (quadrant 2), such as work occurring on assembly lines, work
should be designed for traditional work groups in which employee interaction is sched-
uled and self-control is limited. When technical interdependence is low but uncertainty


is high (quadrant 3), such as in field sales, work should be structured for individual jobs
with internal forms of control, such as in enriched jobs. Finally, when both technical
interdependence and uncertainty are high (quadrant 4), such as might be found in a
continuous-process chemical plant, work should be designed for self-managed teams in
which members have the multiple skills, discretion, and information necessary to control
their interactions around the shared tasks.

These prescriptions for designing work to fit different technological conditions are
rudimentary and more research is needed to refine them, especially since the nature of
interdependence and uncertainty is likely to change, as work becomes more and more
knowledge intense, information driven, and service oriented. A recent review and integra-
tion of work-design research identified two emergent perspectives that can help to extend
work design to account for these changes in technology.61 The relational perspective
embeds work design in a social context and expands technical interdependence to include
interactions across organizations, different forms of interdependence, and different meth-
ods for managing it. The proactive perspective grounds work design in opportunities for
personal autonomy and initiative in changing work design. It expands uncertainty to
include conditions that stimulate employees to proactively alter work design to meet
changing conditions. We expect both streams of research gradually to inform how work-
design interventions can be tailored to fit the organization’s technology.

14-4b Personal-Need Factors
Most of the research identifying individual differences in work design has focused on
selected personal traits. Two types of personal needs can influence the kinds of work
designs that are most effective: social needs, or the desire for significant social relation-
ships; and growth needs, or the desire for personal accomplishment, learning, and devel-
opment.62 In general, the degree of social needs determines whether work should be


Work Designs That Optimize Technology

SOURCE: Reproduced by permission from T. Cummings, “Designing Work for Productivity and Quality
of Work Life,” Outlook 6 (1982): 39.


designed for individual jobs or work groups. People with low needs for social relation-
ships are more likely to be satisfied working on individualized jobs than in interacting
groups. Conversely, people with high social needs are more likely to be attracted to
group forms of work than to individualized forms.

The second individual difference, growth needs, determines whether work designs
should be routine and repetitive or complex and challenging. People with low growth
needs generally are not attracted to jobs offering complexity and challenge (that is, enriched
jobs) but are more satisfied performing routine forms of work that do not require high levels
of decision making. On the other hand, people with high growth needs are satisfied with
work offering high levels of discretion, skill variety, and meaningful feedback. Performing
enriched jobs allows them to experience personal accomplishment and development.

It is often difficult for OD practitioners to accept that some people have low social and
growth needs, particularly in light of the social and growth values underlying traditional OD
practice. It is important to recognize, however, that individual differences do exist. Assuming
that all people have high growth needs or want high levels of social interaction can lead to
recommendations for enriched work or self-managed teams when they are not warranted.

It is important to emphasize that people who have low growth or social needs are
not inferior to those placing a higher value on those factors; they simply are different.
It is necessary also to recognize that people can change their needs through personal
growth and experience. OD practitioners must be sensitive to individual differences in
work design and careful not to force their own values on others. Many consultants,
eager to be seen on the cutting edge of practice, recommend self-managed teams in all
situations, without careful attention to technological and personal considerations.

Figure 14.5 shows the different types of work designs that are most effective for the
various combinations of social and growth needs. When employees have relatively low
social and growth needs (quadrant 1), traditional jobs are most effective. When employees


Work Designs That Optimize Personal Needs

SOURCE: Reproduced by permission from T. Cummings, “Designing Work for Productivity and Quality
of Work Life,” Outlook 6 (1982): 40.


have high social needs but low growth (quadrant 2), traditional work groups, such as
might be found on an assembly line, are most appropriate. These allow for some social
interaction but limited amounts of challenge and discretion. When employees have low
social needs but high growth needs (quadrant 3), enriched jobs are most satisfying. Here,
work is designed for individual jobs that have high levels of task variety, discretion, and
feedback about results. A research scientist’s job is likely to be enriched, as is that of a
skilled craftsperson. Finally, when employees have high social and growth needs (quadrant
4), work should be designed for self-managed teams that offer significant social interaction
around complex and challenging tasks. A team of astronauts in a space shuttle resembles a
self-managed work group, as does a group managing the control room of an oil refinery or
a surgical team in a hospital unit.

14-4c Meeting Both Technical and Personal Needs
Jointly satisfying technical and human needs to achieve work-design success is likely to
occur only in limited circumstances. When the technical conditions of a company’s pro-
duction processes (as shown in Figure 14.4) are compatible with the personal needs of its
employees (as shown in Figure 14.5), the respective work designs combine readily and
can satisfy both. On General Motors’ assembly lines, for example, the technology is
highly interdependent but low in uncertainty (quadrant 2 in Figure 14.4). Much of the
production is designed around traditional work groups in which task behaviors are stan-
dardized and interactions among workers are scheduled. Such work is likely to be pro-
ductive and fulfilling to the extent that General Motors’ production workers have high
social needs and low growth needs (quadrant 2 in Figure 14.5).

When technology and people are incompatible—for example, when an organization
has quadrant 1 technology and quadrant 4 worker needs—at least two kinds of changes
can be made to design work that satisfies both requirements.63 One strategy is to change
technology or people to bring them more into line with each other. This is a key point
underlying STS approaches. For example, technical interdependence can be reduced by
breaking long assembly lines into more discrete groups. In Sweden, Volvo redesigned the
physical layout and technology for assembling automobiles and trucks to promote self-
managed teams. Modifying people’s needs is more complex and begins by matching new
or existing workers to available work designs. For example, companies can assess workers’
needs through standardized tests and use the information gleaned from them to select new
employees or to counsel existing employees and help them locate jobs compatible with
their needs. Similarly, employees can be allowed to volunteer for specific work designs—a
common practice in STS projects. This matching process is likely to require high levels of
trust and cooperation between management and workers, as well as a shared commitment
to designing work for high performance and employee satisfaction.

A second strategy for accommodating both technical and human requirements is to
leave the two components unchanged and create compromise work designs that only
partially fulfill the demands of either component. The key issue is to decide to what
extent one contingency will be satisfied at the expense of the other. For example, when
capital costs are high relative to labor costs, such as in highly automated plants, work
design is likely to favor the technology. Conversely, in many knowledge work jobs
where labor is expensive relative to capital, organizations may design work for employee
motivation and satisfaction at the risk of shortchanging the technology. These examples
suggest a range of possible compromises based on different weightings of technical
and human demands. Careful assessment of both types of contingencies and of the
cost–benefit trade-offs is necessary to design an appropriate compromise work design.


Clearly, the strategy of designing work to bring technology and people more into
line with each other is preferable to the compromise work-design strategy. Although
the latter approach seems necessary when there are heavy constraints on changing the
contingencies, in many cases those constraints are more imagined than real. The impor-
tant thing is to understand the technical and personal factors existing in a particular sit-
uation and to design work accordingly. Traditional jobs and traditional work groups will
be successful in certain situations (as shown in Figures 14.4 and 14.5); in other settings,
enriched jobs and self-managed teams will be more effective.


In this chapter, we discussed three different approaches
to work design and described a contingency framework
to determine the approach most likely to result in high
productivity and worker satisfaction. The contingency
framework reconciles the strengths and weaknesses
of each approach. The engineering approach
produces traditional jobs and traditional work groups.
Traditional jobs are highly simplified and involve
routine and repetitive forms of work with little coordi-
nation among people to produce a product or service.
Traditional jobs achieve high productivity and worker
satisfaction in situations characterized by low technical
uncertainty and interdependence and low growth and
social needs.

Traditional work groups are composed of mem-
bers who perform routine yet interrelated tasks. Mem-
ber interactions are controlled externally, usually
supervisors, schedules, and rigid workflows. Traditional
work groups are best suited to conditions of low tech-
nical uncertainty but high technical interdependence.

They fit people with low growth needs but high social

The motivational approach produces enriched jobs
involving high levels of skill variety, task identity, task
significance, autonomy, and feedback from the work
itself. Enriched jobs achieve good results when the
technology is uncertain but does not require high levels
of coordination and when employees have high growth
needs and low social needs.

Finally, the STS approach is associated with
self-managed teams. These groups are composed of
members performing interrelated tasks. Members are
given the multiple skills, autonomy, and information
necessary to control their own task behaviors with rel-
atively little external control. Many OD practitioners
argue that self-managed teams represent the work
design of the 2000s because high levels of technical
uncertainty and interdependence are prevalent in
today’s workplaces and because today’s workers often
have high growth and social needs.


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2. Ibid.
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14. This application was developed and submitted by Darlene
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35. Ibid.
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In 1995, the City of Carlsbad, California, an ocean-
front community of about 75,000 people, was
emerging from the worst recession in its history.
In response to a call from the City Council and
nationwide efforts to operate governments in a
more businesslike manner, the City Manager led
the organization through a comprehensive strate-
gic planning process. Through highly participative
methods, including focus groups and a large-
group community visioning process, a new city
mission and vision (Figure 1) and a set of values
to guide decision making (Figure 2) were devel-
oped. In addition, several important strategic
initiatives, including a new information system
and a revised performance appraisal and incentive
compensation process were started.

These strategic initiatives and the City
Manager’s assessment of the organization’s
design pointed to misalignments in the city’s
structure. He convened a small representative
task force of managers to design a new struc-
ture. The result was a reorganization of the city
into five major service areas (MSAs), such as
community development, safety services (e.g.,
fire, police), and public works.

An evaluation of the entire strategic
change effort suggested that a large majority
of the internal and external stakeholders
viewed the changes positively and believed
that they had improved customer focus and
employee commitment. The results also prom-
ised to reduce operating costs and to create an
organization that could absorb the expected
growth in demand for new and better services.

The Public Works Department

The largest of the new MSAs, Public Works, con-
sisted of six previously independent departments
responsible for engineering services; parks,
streets, facilities, and fleet maintenance; and a
legally separate water district owned by the city
(Figure 3). The new organization was expected
to design, construct, and maintain the infra-
structure for the growing city. The new Public


City of Carlsbad Values

We believe these values are important to achieve our desired future as employees for the
City of Carlsbad. They are chosen freely, prized publicly, and acted upon again and again.
Integrity—An organization and workforce distinguished by sound moral and ethical character
Trust—A workplace characterized by widespread belief in the integrity, reliability, and ability of
Competence—A workplace characterized by employees who have the skills and training to
do their jobs
Accountability—An environment characterized by employees who are willing to be responsible
Teamwork—A workplace that encourages the use of teams to accomplish organizational goals
and objectives
Quality—An environment characterized by employees with passion for excellence
Empowerment—Employees who have the authority, responsibility and accountability to
decide and act


City of Carlsbad Mission and
Vision Statement

Our mission is to provide top-quality
services to our citizens and customers in
a manner that enhances the quality of life
for all who live, work, and play in Carlsbad.













Works Director was excited about the prospect of
designing his new MSA according to the vision
and values created by the city during its strategic
change efforts. In line with those values, he saw
the opportunity to implement the new design in
participative and empowering ways, and he
wanted to take advantage of the city’s general
plan that called for new buildings to house the
engineering staff and the public works yard.

In consultation with an OD consultant, diagnos-
tic interviews and focus groups with a variety of
employees and other stakeholders were commis-
sioned. The data can be summarized as follows:

• Each of the previously independent depart-
ments had their own way of doing things.
They were suspicious of the reasons for the
structural change. The water district employ-
ees were particularly cohesive.

• Many of the work processes in each department
were similar. For example, the buildings, parks,
and street departments each had equipment
and work assignments involving the mainte-
nance of restrooms, painting, landscaping, and
light construction. The engineering department
for the water district was largely redundant with
the engineering department in the City, and both
the City and the water district owned several
pieces of large and expensive equipment.

• Each department had members with both long
and short tenures.

• Most of the departments lacked formal goals
and planning processes.

• The current Public Works Director was also
acting as the City Engineer.

• The engineering department was anticipating
an increased workload over the next ten
years as the City continued growing. Con-
versely, workloads in the maintenance groups
were expected to grow over time but lag the
growth rates in engineering.

• Almost all of the employees enjoyed working
for the City of Carlsbad and intended to stay.

• Based on these data, the Public Works Direc-
tor and the OD consultants worked together to
understand the implications of the data and to
design an action plan to describe and refine
the new structure.


1. What is your diagnosis of the situation in the
Public Works Department?

2. How would you proceed from this point?
3. What interventions would you recommend

and why?
4. For your preferred intervention, develop an

action plan for implementation.


Proposed Public Works Structure Immediately Following City Reorganization













At the Sullivan Hospital System (SHS), CEO
Ken Bonnet expressed concern over market
share losses to other local hospitals over the
past six to nine months and declines in patient
satisfaction measures. To him and his senior
administrators, the need to revise the SHS
organization was clear. It was also clear that
such a change would require the enthusiastic
participation of all organizational members,
including nurses, physicians, and managers.

At SHS, the senior team consisted of the
top administrative teams from the two hospitals
in the system. Bonnet, CEO of the system and
president of the larger of the two hospitals, was
joined by Sue Strasburg, president of the smal-
ler hospital. Their two styles were considerably
different. Whereas Bonnet was calm, confident,
and mild-mannered, Strasburg was assertive,
enthusiastic, and energetic. Despite these dif-
ferences, both administrators demonstrated a
willingness to lead the change effort. In addition,
each of their direct reports was clearly excited
about initiating a change process and was
clearly taking whatever initiative Bonnet and
Strasburg would allow or empower them to do.

You were contacted by Bonnet to conduct
a three-day retreat with the combined manage-
ment teams and kick off the change process.
Based on conversations with administrators
from other hospitals and industry conferences,
the team believed that the system needed a
major overhaul of its Total Quality Management
(TQM) process for two primary reasons. First,
they believed that an improved patient care
process would give physicians a good reason
to use the hospital, thus improving market
share. Second, although the Joint Commission
on Accreditation of Healthcare Organizations
(JCAHO) had enacted policies some time ago
encouraging hospitals to adopt continuous
improvement principles, SHS’s system was
sorely behind the times. The team readily
agreed that they lacked the adequate skills
and knowledge associated with implementing
a more sophisticated TQM process. This first
meeting was to gather together to hear about

how TQM, engagement, and other strategic
change processes had advanced and the
issues that would need to be addressed if
more sophisticated processes were to be
implemented. During the meeting, you guided
them through several exercises to get the
team to examine methods of decision making,
how team-based problem solving had advanced,
and explored their understanding of the hospi-
tal’s current mission, goals, and strategies.

Although you were concerned about start-
ing the process with a workshop that explored a
solution rather than understanding the problem,
you remembered Roger Harrison’s consulting
rule, “Start where your client is at,” and agreed
to conduct the workshop. You were assured by
Bonnet that the hospital system was committed
to making substantive changes and that this
was only the first step. In addition, and in sup-
port of this commitment, Bonnet told you that
he had already agreed in principle to begin a
work redesign process in a few of the nursing
units at each hospital and had begun to finalize a
contract with a large consulting firm to do the
work. The workshop was highly praised and you
convinced the team to hold off on the work
design implementation long enough to conduct
a diagnosis of the system.

Following the retreat, your diagnosis of the
SHS organization employed a variety of data col-
lection activities including interviews with senior
managers from both hospitals as well as a sam-
pling of middle managers and staff (for example,
nurses, ancillary professionals, and environmen-
tal services providers). Questions about the hos-
pital’s mission garnered the most consensus and
passion. There was almost unanimous commit-
ment to the breadth of services provided and the
values that played a prominent role in the delivery
of those services by a Catholic-sponsored health
care organization, such as SHS. A mission and
values statement was clearly posted throughout
the hospital and many of the items in that state-
ment were repeated almost verbatim in the

From there, however, answers about the
organization’s purpose and objectives became


more diverse. With respect to goals and objectives,
different stakeholder groups saw them differently.
Senior administrators were fairly clear about the
goals listed in the strategic plan. These goals
included increasing measurements of patient satis-
faction, decreasing the amount of overtime, and
increasing market share. However, among middle
managers and supervisors, there was little aware-
ness of hospital goals or how people influenced
their accomplishment. A question about the hospi-
tal’s overall direction or how the goals were being
achieved yielded a clear split in people’s percep-
tions. Some believed the hospital achieved its
objectives through its designation as the area’s pri-
mary trauma center. They noted that if someone’s
life were in danger, the best chance of survival was
to go to SHS. The problem, respondents joked,
was that “after we save their life, we tend to forget
about them.” Many, however, held beliefs that
could be labeled “low cost.” That is, objectives
were achieved by squeezing out every penny of
cost no matter how that impacted patient care.

Opinions about the policies governing the hos-
pital’s operation supported a general belief that the
organization was too centralized. People felt little
empowerment to make decisions. There also
were a number of financial policies that were seen
as dictated from the corporate office, where “shared
services” existed, including finance, marketing,
information systems, and purchasing. Further, sev-
eral policies limited a manager’s ability to spend
money, especially if it wasn’t allocated in budgets.

In addition to the managerial sample, a variety
of individual contributors and supervisors were inter-
viewed either individually or in small groups to
determine the status and characteristics of different
organization design factors. The organization’s pol-
icy and procedure manuals, annual reports, organi-
zation charts, and other archival information were
also reviewed. This data collection effort revealed
the following organization design features:

• The hospitals’ structures were more bureau-
cratic than organic. Each hospital had a
functional structure with a chief executive officer
and from two to five direct reports. Both hospitals
had directors of nursing services and professional
services. The larger hospital had additional direc-
tors in special projects, pastoral care, and other
staff functions that worked with both hospitals.

Traditional staff functions, such as finance, pro-
curement, human resources, and information
services, were centralized at the corporate office.
There were a number of formal policies regarding
spending, patient care, and so on.

• The basic work design of the hospitals
could be characterized as traditional. Tasks
were narrowly defined (janitor, CCU nurse,
admissions clerk, and so on). Further, despite
the high levels of required interdependency
and complexity involved in patient care, most
jobs were individually based. That is, job
descriptions detailed the skills, knowledge,
and activities required of a particular position.
Whenever any two departments needed to
coordinate their activities, the work was con-
trolled by standard operating procedures, for-
mal paperwork, and tradition.

• Information and control systems were old
and inflexible. From the staff’s perspective,
and to some extent even middle management’s,
little, if any, operational information (that is, about
costs, productivity, or levels of patient satisfac-
tion) was shared. Cost information in terms of
budgeted versus actual spending was available
to middle managers and their annual performance
reviews were keyed to meeting budgeted tar-
gets. Unfortunately, managers knew the informa-
tion in the system was grossly inaccurate. They
felt helpless in affecting change, since the system
was centralized in the corporate office. As a
result, they devised elaborate methods for getting
the “right” numbers from the system or dupli-
cated the system by keeping their own records.

• Human resource systems, also centralized
in the corporate office, were relatively
generic. Internal job postings were updated
weekly (there was a shortage of nurses at
the time). There was little in the way of formal
training opportunities beyond the required,
technical educational requirements to maintain
currency and certification. Reward systems
consisted mainly of a merit-based pay system
that awarded raises according to annual perfor-
mance appraisal results. Raises over the previ-
ous few years, however, had barely kept pace
with the cost of living. There also were various
informal recognition systems administered by
individual managers.



1. Assemble the diagnostic data into a frame-
work and prepare feedback to the senior
administrators of the hospitals. What’s your
sense of the organization’s current structure
and employee involvement issues?

2. What changes would you recommend? Is a total
quality management intervention appropriate
here? What alternatives would you propose?

3. Design an implementation plan for your
preferred intervention.


This diagnostic data was discussed and debated
among the senior team. A steering committee
composed of physicians, managers, nurses, and
other leaders from both hospitals was convened,
and creating a vision for the system and the
change effort became one of their first tasks.

The steering committee spent hours poring
over vision statements from other organizations,
discussing words and phrases that described
what they thought would be an exciting outcome
from interacting with the hospital, and trying to sat-
isfy their own needs for something unique and cre-
ative. When the first draft of a statement emerged,
they spent several months sharing and discussing
it with a variety of stakeholders. To their dismay,

the initial version was roundly rejected by almost
everyone as boring, unimaginative, or unreal. The
group discussed the input gathered during these
discussions and set about the task of revising the
vision. After several additional iterations and a lot
of wordsmithing, a new and more powerful vision
statement began to emerge. The centerpiece of
the vision was the belief that the organization
should work in such a way that the patient felt
like they were the “center of attention.” Such an
orientation to the vision became a powerful rallying
point since many of the hospitals’ management
teams readily understood that there was an exist-
ing perception of poor service that needed to be
turned around.

The three months spent working and adapting
the vision statement was well worth it. As it was
presented to people in small meetings and work-
shops, each word and phrase took on special
meaning to organizational members and generated
commitment to change.


1. Critique SHS’s visioning process.
2. What implications does the visioning process

have for the intervention you want to imple-
ment? How can you take advantage of the
process in your action plan?



© Pixmann/Imagezoo/Getty Images


15 Performance Management

16 Talent Management

17 Workforce Diversity and Wellness

Employee Benefits at HealthCo

Designing and Implementing a Reward System at Disk
Drives, Inc.












Performance Management


Understand the components of a performance management system.

Describe and evaluate the effectiveness of goal setting interventions
in organizations.

Understand the application of performance appraisal interventions.

Discuss how reward systems interventions can be applied in

his is the first of three chapters devoted to
human resources management interven-
tions, including performance management,

talent management, and diversity and wellness.
It specifically addresses performance manage-
ment, or how goal setting, performance appraisal,
training and development, and reward systems
can be used to manage individual and group per-
formance. (How training and development can
support performance management is discussed
in Chapter 16.) This chapter also describes how
to align performance management systems with
business strategy, employee involvement, and
workplace technology.

Goal setting describes the interaction between
managers and employees in jointly defining mem-
ber work behaviors and outcomes. Orienting
employees to the appropriate kinds of work out-
comes can reinforce the work designs described
in Chapter 14 and support the organization’s strate-
gic objectives. Goal setting can clarify the duties
and responsibilities associated with a particular job
or work group. When applied to jobs, goal setting
can focus on individual goals and can reinforce indi-
vidual contributions and work outcomes. When

applied to work groups, it can be directed at
group objectives and can reinforce members’ joint
actions and overall group outcomes. One popular
and classic approach to goal setting is called
management by objectives.

The performance appraisal process involves
collecting and feeding back data about individual
or group performance and the way results were
achieved. It is a systematic process that jointly
assesses work-related achievements, strengths,
and weaknesses. The purpose of this process is
to improve work outcomes in the near term and
over time. It also can facilitate career counseling,
provide information about the strength and diversity
of human resources in the company, and link
employee performance with rewards. In worldwide
organizations, the appraisal process must be
sensitive to different cultural assumptions regard-
ing openness, transparency, and relationships to

Reward systems are concerned with eliciting
and reinforcing desired behaviors and work out-
comes through compensation and other forms of
recognition. They can support goal setting and
appraisal systems by acknowledging the kinds of


behaviors required to implement a particular work
design or support a business strategy. Like goal
setting, rewards systems can be oriented to individ-
ual jobs and goals or to group functions and
objectives. Moreover, they can be tailored to sup-
port traditional work designs as well as enriched,
self-regulating designs. Developing innovative
reward systems is an active area of change in
many organizations today.

Performance management interventions tradi-
tionally are implemented by the human resources
department within organizations, whose managers
have special training in these areas. Because of the
breadth and depth of knowledge required to carry
out these kinds of change programs successfully,
practitioners tend to specialize in one part of the
human resources function, such as performance
appraisal or compensation. Increasingly, however,
the effectiveness of these interventions and
processes rely on strong collaboration with line

The interest in integrating human resources
management with organization development (OD)
continues unabated. OD practitioners involved in
organization design and employee involvement
interventions have realized the need to bring

human resources practices more in line with the
new designs and processes. Consequently, human
resource specialists now frequently help initiate OD
projects. For example, a large electronics firm
expanded the role of compensation specialists to
include initiation of work design projects. The com-
pensation people at this firm, who traditionally were
consulted by OD practitioners after the work design
had taken place, were dissatisfied with this second-
ary role and wanted to be more proactive. In most
cases, human resource practitioners continue
to specialize in their respective areas, but they
become more sensitive to and competent in organi-
zation development. Similarly, OD prac-titioners con-
tinue to focus on planned change while becoming
more knowledgeable about human resources

We begin by describing a performance man-
agement model. It shows how goal setting, perfor-
mance appraisal, training and development, and
rewards are closely linked and difficult to separate
in practice, but how each element is distinct and
has its own dynamics. Following the model, goal
setting, performance appraisal, and reward system
interventions are discussed and their impact on
organization effectiveness evaluated.

15-1 A Model of Performance Management
Performance management is an integrated process of defining, assessing, developing,
and reinforcing employee work behaviors and outcomes.1 Organizations with a well-
developed performance management process often outperform those without this ele-
ment of organization design.2 As shown in Figure 15.1, performance management
includes practices and methods for goal setting, performance appraisal, training and
development, and reward systems. These practices jointly influence the performance of
individuals and work groups. Goal setting specifies the kinds of performances that are
desired; performance appraisal assesses those outcomes; training and development sys-
tems build individual competences; and reward systems provide the reinforcement to
ensure that desired outcomes are repeated. Because performance management occurs in
a larger organizational context, at least three contextual factors determine how these
practices affect work performance: business strategy, workplace technology, and employee
involvement.3 High levels of work performance tend to occur when goal setting, perfor-
mance appraisal, training and development, and reward systems are aligned jointly with
these contextual factors.

Business strategy defines the goals and objectives, policies, and intended relation-
ships between the organization and its environment to achieve effectiveness. Whether
the organization is for-profit, nonprofit, or operates on a worldwide basis, the business
strategy must account for the extent to which its activities have to be tailored to a local
situation. Performance management focuses, assesses, develops, and reinforces member


work behaviors toward those objectives and intentions. This ensures that work behaviors,
both locally and globally, are strategically driven.

Workplace technology affects whether performance management practices should be
based on the individual or the group. When the work processes are low in interdepen-
dence and work is designed for individual jobs, goal setting, performance appraisal,
development, and reward systems should be aimed at individual work behaviors. Con-
versely, when work is highly interdependent and work is designed for groups, perfor-
mance management should be aimed at group behaviors.4

Finally, the level of employee involvement in an organization should determine the
nature of performance management practices. When organizations are highly bureau-
cratic, with low levels of participation, then goal setting, performance appraisal, devel-
opment, and reward systems should be formalized and administered by management
and staff personnel. In high-involvement situations, on the other hand, performance
management should be heavily participative, with both managers and employees setting
goals, determining appropriate development programs, and appraising and rewarding


A Performance Management Model







performance. In high-involvement organizations, for example, employees participate in
all stages of performance management, and are heavily involved in both designing and
administering its practices.

15-2 Goal Setting
Goal setting involves managers and subordinates in jointly establishing and clarifying
employee goals. In some cases, such as management by objectives, it also can facilitate
employee counseling and support. In other cases, such as the balanced scorecard, it gener-
ates goals in several defined categories, at different organizational levels, to establish clear
linkages with business strategy.5 The process of establishing challenging goals involves
managing the level of participation and goal difficulty. Once goals have been established,
the way they are measured is an important determinant of member performance.6

Goal setting can affect performance in several ways. It influences what people think
and do by focusing their behavior in the direction of the goals, rather than elsewhere.
Goals can energize behavior, motivating people to put forth the effort to reach difficult
goals that are accepted, and when goals are difficult but achievable, goal setting prompts
persistence over time. Goal-setting processes and interventions to improve them are
common and have been implemented in most organizations.

15-2a Characteristics of Goal Setting
An impressive amount of research underlies goal-setting interventions and practices;7 it
has revealed that goal setting works equally well in both individual and group settings.8

This research has identified two major processes that affect positive outcomes: establish-
ment of challenging goals and clarification of goal measurement.

Establishing Challenging Goals The first element of goal setting concerns establish-
ing goals that are perceived as challenging but realistic and to which there is a high level of
commitment. This can be accomplished by varying the goal difficulty and the level of
employee participation in the goal-setting process. Increasing the difficulty of employee
goals, also known as “stretch goals,” can increase their perceived challenge and enhance
the amount of effort expended to achieve them.9 Thus, more difficult goals tend to lead
to increased effort and performance, as long as they are seen as feasible. If goals are set
too high, however, they can lose their motivating potential and could even lead to unethi-
cal behavior.10 One frequent method for increasing the acceptance of a challenging goal is
to collect benchmarks or best-practice referents. When employees see that other people,
groups, or organizations have achieved a specified level of performance, they are more
motivated to achieve that level themselves.

Another aspect of establishing challenging goals is to vary the amount of participa-
tion in the goal-setting process. Having employees participate can increase motivation
and performance, but only to the extent that members set higher goals than those typi-
cally assigned to them. Participation also can convince employees that the goals are
achievable and can increase their commitment to achieving them.

All three contextual factors play an important role in establishing challenging goals.
First, there must be a clear “line of sight” between the business strategy goals and the goals
established for individuals or groups. This is a key strength of the balanced scorecard
approach to goal setting. When the group is trying to achieve goals that are not aligned
with the business strategy, performance can suffer and organization members can become


frustrated. Second, employee participation in goal setting is more likely to be effective if
employee involvement policies in the organization support it. Under such conditions, partic-
ipation in goal setting is likely to be seen as legitimate, resulting in the desired commitment
to challenging goals. Third, when tasks are highly interdependent and work is designed
for groups, group-oriented participative goal setting tends to increase commitment.11

Clarifying Goal Measurement The second element in the goal-setting process
involves specifying and clarifying the goals. When given specific goals, workers perform
higher than when they are simply told to “do their best” or when they receive no guid-
ance at all. Specific goals reduce ambiguity about expectations and focus the search for
appropriate behaviors.

To clarify goal measurement, objectives should be operationally defined. For exam-
ple, a group of employees may agree to increase productivity by 5%—a challenging and
specific goal. But there are a variety of ways to measure productivity, and it is important
to define the goal operationally to be sure that the measure can be influenced by
employee or group behaviors. For example, a productivity goal defined by sales per
employee may be inappropriate for a manufacturing group.

Clarifying goal measurement also requires that employees and supervisors negotiate
the resources necessary to achieve the goals—for example, time, equipment, raw materi-
als, and access to information. If employees cannot have appropriate resources, the tar-
geted goal may have to be revised.

Contextual factors also play an important role in the clarifying process. Goal specifica-
tion and clarity can be difficult in high-technology settings where the work often is uncer-
tain and highly interdependent or in developing countries where the competitive situation
is changing rapidly. Increasing employee participation in clarifying goal measurement can
give employees ownership of a nonspecific but challenging goal. Employee involvement
policies also can impact the way goals are clarified. The entire goal-setting process can be
managed by employees and work teams when employee involvement policies and work
designs favor it. Finally, the process of specifying and clarifying goals is extremely difficult
if the business strategy is unclear. Under such conditions, attempting to gain consensus on
the measurement and importance of goals can lead to frustration and resistance to change.

15-2b Application Stages
Based on these features of the goal-setting process, OD practitioners have developed spe-
cific approaches to goal setting. The following steps characterize those applications:

1. Diagnosis. The first step is a thorough diagnosis of the job or work group, of
employee needs, and of the three context factors, business strategy, workplace tech-
nology, and level of employee involvement. This provides information about the
nature and difficulty of specific goals, the appropriate types and levels of participa-
tion, and the necessary support systems.

2. Preparation for goal setting. This step prepares managers and employees to engage
in goal setting, typically by increasing interaction and communication between man-
agers and employees, and offering formal training in goal-setting methods. Specific
action plans for implementing the program also are made at this time.

3. Setting of goals. In this step, challenging goals are established and methods for goal
measurement are clarified. Employees participate in the process to the extent that
contextual factors support such involvement and to the extent that they are likely
to set higher goals than those assigned by management.


4. Review. At this final step, the goal-setting process is assessed so that modifications
can be made, if necessary. The goal attributes are evaluated to see whether the goals
are energizing and challenging and whether they support the business strategy and
can be influenced by the employees.

15-2c Management by Objectives
A common form of goal setting used in organizations is management by objectives
(MBO). This method is chiefly an attempt to align personal goals with business
strategy by increasing communications and shared perceptions between the manager
and subordinates, either individually or as a group, and by reconciling conflict where
it exists.

All organizations have goals and objectives; all managers have goals and objec-
tives. In many instances, however, the organizational goals are not stated clearly, and
managers and subordinates have misunderstandings about what those objectives are.
MBO is an approach to resolving these differences in perceptions and goals. It is char-
acterized by systematic and periodic manager–subordinate meetings designed to
accomplish organizational goals by joint planning of the work, periodic reviewing of
accomplishments, and mutual solving of problems that arise in the course of getting
the job done.

MBO has its origin in two different backgrounds: organizational and developmental.
The organizational root of MBO was developed by Drucker, who emphasized that orga-
nizations need to establish objectives in eight key areas: “market standing; innovation;
productivity; physical and financial resources; profitability; manager performance and
development; worker performance and attitude; and public responsibility.”12 Drucker’s
work was expanded by Odiorne, whose first book on MBO stressed the need for quanti-
tative measurement.13

According to Levinson,14 MBO’s second root is found in the work of McGregor,
who stressed the qualitative nature of MBO and its use for development and growth on
the job.15 With respect to improving performance, McGregor attempted to shift the
emphasis from identifying weaknesses to defining strengths and potentials. He believed
that this shift could be accomplished by having subordinates reach agreement with
their bosses on major job responsibilities. Then, individuals could develop short-term
performance goals and action plans for achieving those goals, thus allowing them to
appraise their own performance. Subordinates then would discuss the results of this
self-appraisal with their supervisors and develop a new set of performance goals and
plans. The emphasis on mutual understanding and performance rather than personality
would shift the supervisor’s role from judge to helper, thereby reducing both role conflict
and ambiguity. The second root of MBO reduces role ambiguity by making goal setting
more participative and transactional, by increasing communication between role incum-
bents, and by ensuring that both individual and organizational goals are identified and

An MBO program often goes beyond the one-on-one, manager–subordinate
relationship to focus on problem-solving discussions involving work teams as well. Setting
goals and reviewing individual performance are considered within the larger context of
the job. In addition to organizational goals, the MBO process gives attention to indivi-
duals’ personal and career goals and tries to make those and the organizational goals
more complementary. The target-setting procedure allows real (rather than simulated)
subordinate participation in goal setting, with open, problem-centered discussions among
team members, supervisors, and subordinates.


There are five basic steps in implementing an MBO process.16

1. Work group involvement. In the first step of MBO, the members of the primary
work group define overall group and individual goals and establish action plans for
achieving them. If this step is omitted or if organizational goals and strategies are
unclear, the effectiveness of an MBO approach may be greatly reduced over time.

2. Joint manager–subordinate goal setting. Once the work group’s overall goals and
responsibilities have been determined, attention is given to the job duties and
responsibilities of individuals. Roles are carefully examined in light of their interde-
pendence with the roles of others outside the work group.

3. Establishment of action plans for goals. The subordinate develops action plans for
goal accomplishment, either in a group meeting or in a meeting with the immediate
manager. The action plans reflect the individual style of the subordinate, not that of
the supervisor.

4. Establishment of criteria, or yardsticks, of success. At this point, the manager and
subordinate agree on the success criteria for the goals that have been established—
criteria that are not limited to easily measurable or quantifiable data. A more impor-
tant reason for jointly developing the success criteria is to ensure that the manager
and subordinate have a common understanding of the task and what is expected of
the subordinate. Frequently, the parties involved discover that they have not reached
a mutual understanding. The subordinate and the manager may have agreed on a
certain task, but in discussing how to measure its success, they find that they have
not been communicating clearly. Arriving at a joint understanding and agreement
on success criteria is the most important step in the entire MBO process.

5. Review and recycle. Periodically, the manager reviews work progress, either in the
larger group or with the subordinate. There are three stages in this review process.
First, the subordinate takes the lead, reviewing progress and discussing achievements
and the obstacles faced. Next, the manager discusses work plans and objectives for
the future. Last, after the action plans have been made, a more general discussion
covers the subordinate’s future ambitions and other factors of concern. In this final
phase, a great deal of coaching and counseling usually takes place.

Application 15.1 describes how the Cambia Health Solutions organization changed
their goal setting and broader performance management process. It shows how goal-
setting processes are part of the larger performance management system and can be
linked with business strategies.

15-2d Effects of Goal Setting and MBO
The impact of goal setting has been researched extensively and shown to be a particu-
larly effective OD intervention and a key part of an overall performance management
process. For example, a study by the Center for Effective Organizations at USC showed
a strong correlation between perceptions of performance management effectiveness and
goals that are jointly set by managers and workers and when those goals are tied to strat-
egy.17 The research results on MBO generally are positive but less consistent than are the
findings on goal setting.

Goal setting appears to produce positive results over a wide range of jobs and orga-
nizations.18 It has been tested on data-entry operators, logging crews, clerical workers,
engineers, and truck drivers, and it has produced performance improvements of between
11% and 27%. Moreover, four meta-analyses of the extensive empirical evidence support-
ing goal setting concluded that the proposed effects of goal difficulty, goal specificity, and








ambia Health Solutions (www.cambiahealth.
com) is a nonprofit health care and insur-
ance company dedicated to transforming
the way people experience the health care

system. Located in the Pacific Northwest of the
United States, Cambia’s portfolio of companies
spans health care information technology and
software development; retail health care; health
insurance plans; pharmacy benefit manage-
ment; life, disability, dental, vision and other
lines of protection; alternative solutions to
health care access; and free-standing health
and wellness solutions. The largest business
in the portfolio is Regence Health, a health insur-
ance plan associated with the Blue Cross and
Blue Shield brands. Regence Health is over 90
years old and operates in Washington, Oregon,
Idaho, and Utah.

In 2010, Cambia convened a cross-
functional design team to increase the organiza-
tion’s overall agility. As part of that effort, the
design team initiated a change to its perfor-
mance management system for leadership
staff (approximately 750 people). The perfor-
mance management system changes were
based on diagnostic data that the organization
was not focused on the critical areas required
for success as well as feedback from organiza-
tion members. The feedback suggested that
(1) there were inconsistencies with respect to
disciplined human capital management prac-
tices, (2) leaders were unclear about their individ-
ual objectives and how their objectives related to
the organization’s strategies, and (3) objectives
were not clearly connected to professional
development and career advancement.

The design team chartered a cross-
functional task force to develop a new perfor-
mance management process aimed at all
leadership roles (supervisors and above), and
supported the team with an external organiza-
tion development and performance manage-
ment consultant. At the highest level, the
task force recommended a process that
began with a requirement that all leaders
establish annual objectives, conduct quarterly

performance conversations, and enable a
focused talent review twice a year. On an
annual basis, the performance conversations
would be linked to a revised compensation
and reward process. At the center of the new
process was a series of quarterly “perfor-
mance conversations.” Performance conversa-
tions established a dialogue where the leader
and his/her direct reports could review past
quarter performance on agreed upon objec-
tives and prepare for the next quarter. The con-
versation was oriented around four questions:

• Did the employee accomplish what was
committed to in the prior performance

• How could the employee have performed
more effectively?

• What objectives should be continued into
the next quarter, what should be stopped,
and what new objectives should be estab-
lished for the next quarter?

• How should the employee go about doing
what needs to be done?

The cycle of quarterly performance conver-
sations and semiannual talent reviews was ini-
tiated by an objective-setting process. The task
force and design team were influenced by the
timely processes established by some internal
departments who had success with similar
processes around quarterly conversations and
regular talent reviews (this process was also
validated to be a “best practice” by the exter-
nal consultant). This entire process significantly
simplified the existing performance appraisal
process in which leaders were evaluated
across seven categories. This new process
focused on only two things: (1) the “what”
(the established objectives) and (2) the “how”
(the extent to which the company’s values
were carried out in achieving the objectives).
The “what” conversation was intended to
develop and establish a total of three to six
objectives with at least one in each of three
categories: (1) human capital management or
how the leader was going to develop his/her


people, (2) operational goals linked to the organiza-
tion’s strategic objectives, operational improve-
ments, and/or regulatory/legislative mandates, and
(3) the leader’s own professional development. In
addition, the “how” conversation was to focus on
the way the leader achieved the “what” objectives
(by demonstrating the company’s values). Leaders
were encouraged to—and their ultimate annual
performance review was dependent on—getting
work done through others, holding people account-
able, and encouraging cross-functional, innovative,
and problem-solving behaviors. These latter two
issues—accountability and cross-functional prob-
lem solving—had been identified as important
areas in the diagnosis.

To support the program, an on-line, on-
demand training module was developed. In the
module, leaders were helped to understand the
importance of employing sound human capital
management practices (with a particular focus on
the quarterly conversations) as well as the impor-
tance of developing “SMART” objectives that
were specific, measurable, achievable, relevant,
and timely. This online training module was pro-
vided as a prerequisite to a series of more detailed
webinars which were facilitated by senior leaders
(not HR staff).

The new objective setting and performance
conversation process was approved by the design
team and supported by Cambia’s leadership team.
As part of that support, the leadership team
accepted the recommendation of the task force
and design team to have “coaches” oversee the
early implementation of the new process—which
included the CEO taking on the role of coach for
his direct reports. He committed to monitoring
and reviewing the development and establishment
of objectives and to holding quarterly performance
conversations. The members of the task force
served as coaches to the other levels of manage-
ment in the organization. The coaches were a visi-
ble means of championing the new system,
holding leaders accountable for implementation,
and raising the bar and expectations for human
capital management at Cambia.

To reinforce the expected changes in behavior,
the task force also included two reward-
system-related recommendations. The first was
to increase differentiation in the appraisal process

by changing the performance categories from four
to two. In the old system, leaders rated their direct
reports according to a “top-key-core-low” scheme
and then engaged in a calibration process that
helped ensure the validity of those ratings. The
task force recommended moving to a two-tier
system of “performing and exceeding.” They
acknowledged that there may be situations where
leaders were in a “performance improvement”
scenario that was associated with correcting poor
performance. In most cases, however, leaders
were expected to be “performing” but the highest
performers would be recognized for “exceeding”
expectations. The existing calibration process was
retained as many leaders indicated that it was a
beneficial process for maintaining consistency in
the system. The performing and exceeding perfor-
mance categories were tied to recommendations
for base-pay increases. The system was set up to
reward “exceeders” at a rate 2.5 times that of
“performers” to provide the differentiation.

The second reward system recommendation
was to establish a unique “spot” awards program
for all leadership staff. The spot awards program,
entitled the “Excellence in Leadership Award,”
was designed to recognize leaders for exemplary
performance in either human capital management
or agile behaviors. The cash portion of the award
was set at $1,000 and the awards were to be deliv-
ered personally by a member of Cambia’s leader-
ship team. Recipients of the award are highlighted
in the company’s newsletter—the goal being to
reinforce among all leaders the kind of leadership
behavior that is required for moving forward.

Although the new process had been devel-
oped with a broad range of inputs, it was kicked
off with a presentation to senior leaders at
Cambia’s annual senior leadership summit. There,
these senior leaders were able to ask questions,
hear about the way the process worked, and
understand the assumptions underlying its design.
Following the presentation, these leaders were
given a schedule to develop the initial quarterly
“what” objectives for themselves and all other
leadership staff across the company.

As the objectives were submitted, the task
force members and performance coaches
reviewed the objectives and provided feedback as
appropriate. By the deadline, over 90% of all


participation in goal setting generally are substantiated across studies and with both
groups and individuals.19 Longitudinal analyses support the conclusion that the gains in
performance are not short-lived.20 A field study of the goal-setting process, however,
failed to replicate the typical positive linear relationship between goal difficulty and per-
formance, raising some concern about the generalizability of the method from the labo-
ratory to practice.21 Additional research has attempted to identify potential factors
moderating the results of goal setting, including task uncertainty, amount and quality
of planning, personal need for achievement, education, past goal successes, and super-
visory style.22 Some support for the moderators has been found. For example, when the
technical context is uncertain, goals tend to be less specific and people need to engage in
more search behavior to establish meaningful goals.

The existing research on MBO effectiveness is large but mixed.23 However, it suggests
that a properly designed MBO program can have positive organizational results. Carroll
and Tosi conducted a long-term study of an MBO program at Black & Decker,24 first
evaluating the program and then using those data to help the company revise and
improve it. This resulted in greater use of and satisfaction with the program. The
researchers concluded that top-management support of MBO is the most important
factor in implementing such programs. Many programs are short-lived, however, and
wither on the vine because they have been installed without adequate diagnosis of the
context factors. In particular, MBO can focus too much on vertical alignment of individ-
ual and organizational goals and not enough on the horizontal issues that exist when tasks
or groups are interdependent.

15-3 Performance Appraisal
Performance appraisal is a feedback system that involves the direct evaluation of individ-
ual or work group performance by a supervisor, manager, or peers. Most organizations
have some kind of evaluation system that is used for performance feedback, pay admin-
istration, and, in some cases, counseling and developing employees.25 Thus, performance
appraisal represents an important link between goal-setting processes and reward sys-
tems. A 2001 survey of over 300 North American companies, for example, found that
65% reported a link between performance ratings and rewards, 46% used the system
equally for performance development and decision making, and 53% of the organizations
believed the system was aligned with organizational values and priorities.26 Abundant
evidence, however, indicates that organizations do a poor job appraising employees.27

As one study put it, “The appraisal of performance appraisals is not good…. In fact,

leadership staff (of the 750 supervisors and above)
had submitted quarterly objectives and participated
in the online training program and webinar. The
organization has been through two cycles of quar-
terly conversations, had their initial talent reviews,
and is anticipating the first cycle of the new reward
system. To date, leadership staff have supported

the objective setting process, the quarterly perfor-
mance conversations, and the semiannual talent
reviews. The importance of setting aligned objec-
tives and using the performance management pro-
cess to manage human capital in the organization
has received increased emphasis and visibility in
the organization.


our review indicates that, regardless of a program’s stated purpose, few studies show pos-
itive effects.”28 Another study found that only 55% believed the appraisal process ade-
quately distinguished between poor, average, and good performers.29 Frustrated with
the performance appraisal process, there have been calls for discontinuing it altogether,30

however, a growing number of firms have sought ways to improve performance appraisal.
Some innovations have been made in enhancing employee involvement, balancing
organizational and employee needs, and increasing the number of raters.31 These
newer forms of appraisal are being used in such organizations as DaVita, Cambia Health
Solutions, Alliant Energy, Microsoft, Intel, and Monsanto.

As demonstrated in Application 15.1, an important trend in goal setting and apprai-
sal processes is the use and feedback of both the results achieved as well as the way those
results were accomplished. Reflecting an increased interest in the economic and social
value of ethics and integrity, many organizations are implementing performance man-
agement processes that establish, appraise, and reward what was achieved and how the
objectives were achieved. Organization members that operate under these conditions
are encouraged to think about achievement of relevant goals in ways that support the
organization’s values and beliefs.

15-3a The Performance Appraisal Process
Table 15.1 summarizes several common elements of performance appraisal systems.32 For
each element, two contrasting features are presented, representing traditional bureaucratic
approaches and newer, high-involvement approaches. Performance appraisals are con-
ducted for a variety of purposes, including affirmative action, pay and promotion deci-
sions, and human resources planning and development. Because each purpose defines
what performances are relevant and how they should be measured, separate appraisal sys-
tems are often used. For example, appraisal methods for pay purposes are often different
from systems that assess employee development or promotability. Employees also have a
variety of reasons for wanting appraisal, such as receiving feedback for career decisions,
getting a raise, and being promoted. Rather than trying to meet these multiple purposes
with a few standard appraisal systems, the new appraisal approaches are more tailored to
balance the multiple organizational and employee needs. This is accomplished by actively
involving the appraisee, coworkers, and managers in assessing the purposes of the apprai-
sal at the time it takes place and adjusting the process to fit that purpose. Thus, at one

TABLE 15.1

Performance Appraisal Elements

Elements Traditional Approaches High-Involvement Approaches

Purpose Organizational, legal


Appraiser Supervisor, managers Appraisee, co-workers, and others

Role of appraisee Passive recipient Active participant

Measurement Subjective
Concerned with validity

Objective and subjective

Timing Periodic, fixed, administratively driven Dynamic, timely, employee- or work-driven







time the appraisal process might focus on pay decisions, another time on employee devel-
opment, and still another time on employee promotability. Actively involving all relevant
participants can increase the chances that the purpose of the appraisal will be correctly
identified and understood and that the appropriate appraisal methods will be applied.

The new methods tend to expand the appraiser role beyond managers to include
multiple raters, such as the appraisee, peers or coworkers, and direct reports and others
having direct exposure to the manager’s or employee’s performance. Also known as
360-degree feedback, this broader approach is used more for member development than
for compensation purposes.33 This wider involvement provides a number of different views
of the appraisee’s performance. It can lead to a more comprehensive assessment of the
employee’s performance and can increase the likelihood that both organizational and
personal needs will be taken into account. The key task is to form an overarching view
of the employee’s performance that incorporates all of the different appraisals. Thus, the
process of working out differences and arriving at an overall assessment is an important
aspect of the appraisal process. This improves the appraisal’s acceptance, the accuracy of
the information, and its focus on activities that are critical to the business strategy.

The newer methods also expand the role of the appraisee. Traditionally, the
employee is simply a receiver of feedback. The supervisor unilaterally completes a form
concerning performance on predetermined dimensions, usually personality traits, such as
initiative or concern for quality, and presents its contents to the appraisee. The newer
approaches actively involve appraisees in all phases of the appraisal process. The apprai-
see joins with superiors and staff personnel in gathering data on performance and iden-
tifying training needs. This active involvement increases the likelihood that the content
of the performance appraisal will include the employee’s views, needs, and criteria, along
with those of the organization. This newer role for employees increases their acceptance
and understanding of the feedback process.

Performance measurement is typically the source of many problems in appraisal
because it is seen as subjective. Traditionally, performance evaluation focused on the consis-
tent use of prespecified traits or behaviors. To improve consistency and validity of measure-
ment, considerable training is used to help raters (supervisors) make valid assessments. This
concern for validity stems largely from legal tests of performance appraisal systems and
leads organizations to develop measurement approaches, such as the behaviorally anchored
rating scale (BARS) and its variants. In newer approaches, validity is not only a legal or
methodological issue but a social issue as well; all appropriate participants are involved in
negotiating acceptable ways of measuring and assessing performance. Increased participa-
tion in goal setting is a part of this new approach. All participants are trained in methods
of measuring and assessing performance. Because it focuses on both objective and subjective
measures of performance, the appraisal process is more understood, accepted, and accurate.

The timing of performance appraisals traditionally is fixed by managers or staff
personnel and is based on administrative criteria, such as yearly pay decisions. Newer
approaches increase the frequency of feedback. In 1997, 78% of appraisals were per-
formed annually; in 2003, over 40% of companies surveyed conducted appraisals two
times per year.34 Another study found that 63% of high growth companies reviewed
performance more than once per year versus 22% of the low-growth companies.35

Although it may not be practical to increase the number of formal appraisals, the
frequency of informal feedback can increase, especially when strategic objectives change
or when the technology is highly uncertain. In those situations, frequent performance
feedback is necessary for appropriate adaptations in work behavior. The newer approaches
to appraisal increase the timeliness of feedback and give employees more control over
their work.


15-3b Application Stages
The process of designing and implementing a performance appraisal system has received
increasing attention. OD practitioners have recommended the following six steps:36

1. Select the right people. For political and legal reasons, the design process needs to
include human resources staff, legal representatives, senior management, and system
users. Failure to recognize performance appraisal as part of a complex performance
management system is the single most important reason for design problems. Mem-
bers representing a variety of functions need to be involved in the design process so
that the essential strategic and organizational issues are addressed.

2. Diagnose the current situation. A clear picture of the current appraisal process is
essential to designing a new one. Diagnosis involves assessing the contextual factors
(business strategy, workplace technology, and employee involvement), current
appraisal practices and satisfaction with them, work design, and the current goal-
setting and reward system practices. This information is used to define the current
system’s strengths and weaknesses.

3. Establish the system’s purposes and objectives. The ultimate purpose of an apprai-
sal system is to help the organization achieve better performance. Managers, staff,
and employees can have more specific views about how the appraisal process can
be used. Potential purposes can include serving as a basis for rewards, career plan-
ning, human resources planning, and performance improvement or simply giving
performance feedback.

4. Design the performance appraisal system. Given the agreed-upon purposes of the
system and the contextual factors, the appropriate elements of an appraisal system
can be established. These should include choices about who performs the appraisal,
who is involved in determining performance, how performance is measured, and
how often feedback is given. Criteria for designing an effective performance apprai-
sal system include timeliness, accuracy, acceptance, understanding, focus on critical
control points, and economic feasibility.

First, the timeliness criterion recognizes the time value of information. Individuals
and work groups need to get performance information before evaluation or review.
When the information precedes performance evaluation, it can be used to engage in
problem-solving behavior that improves performance and satisfaction. Second, the
information contained in performance feedback needs to be accurate. Inaccurate data
prevent employees from determining whether their performance is above or below the
goal targets and discourage problem-solving behavior. Third, the performance feed-
back must be accepted and owned by the people who use it. Participation in the
goal-setting process can help to ensure this commitment to the performance appraisal
system. Fourth, information contained in the appraisal system needs to be understood
if it is to have problem-solving value. Many organizations use training to help employ-
ees understand the operating, financial, and human resources data that will be fed
back to them. Fifth, appraisal information should focus on critical control points.
The information received by employees must be aligned with important elements of
the business strategy, employee performance, and reward system. For example, if the
business strategy requires cost reduction but workers are measured and rewarded on
the basis of quality, the performance management system may produce the wrong
kinds of behavior. Finally, the economic feasibility criterion suggests that an appraisal
system should meet a simple cost–benefit test. If the costs associated with collecting
and feeding back performance information exceed the benefits derived from using
the information, then a simpler system should be installed.


5. Experiment with implementation. The complexity and potential problems associ-
ated with performance appraisal processes strongly suggest using a pilot test of the
new process to spot, gauge, and correct any flaws in the design before it is imple-
mented systemwide.

6. Evaluate and monitor the system. Although the experimentation step may have
uncovered many initial design flaws, ongoing evaluation of the system once it is
implemented is important. User satisfaction from human resources staff, manager,
and employee viewpoints is an essential input. In addition, the legal defensibility of
the system should be tracked by noting the distribution of appraisal scores against
age, sex, and ethnic categories.

Application 15.2 describes evolution of the performance management system at
Capital One. It demonstrates the importance of involvement and learning in the process,
the importance of being responsive to the business situation, and how systems can be
designed for flexibility.

15-3c Effects of Performance Appraisal
Despite the poor track record organizations have in implementing appraisal processes
well, the research supports the linkage between feedback and performance.37 Early stud-
ies concluded that objective feedback as a means for improving individual and group
performance has been “impressively effective” and has been supported by a large number
of literature reviews over the years.38 Another researcher concluded that “objective
feedback does not usually work, it virtually always works.”39 In field studies where per-
formance feedback contained behavior-specific information, median performance
improvements were over 47%; when the feedback concerned less-specific information,
median performance improvements were over 33%. In a meta-analysis of performance
appraisal interventions, feedback was found to have a consistently positive effect across
studies.40 In addition, although most appraisal research has focused on the relationship
between performance and individuals, several studies have demonstrated a positive
relationship between group performance and feedback.41

15-4 Reward Systems
Organizational rewards are powerful incentives for improving employee and work group
performance. As pointed out in Chapter 13, rewards also can produce high levels of
employee satisfaction. OD traditionally has relied on intrinsic rewards, such as enriched
jobs and opportunities for decision making, to motivate employee performance. Early
quality-of-work-life interventions were based mainly on the intrinsic satisfaction derived
from performing challenging, meaningful types of work. More recently, OD practitioners
have expanded their focus to include extrinsic rewards: base pay, stock options, bonuses,
gain sharing, promotions, and benefits. They have discovered that both intrinsic and
extrinsic rewards can enhance performance and satisfaction.42

OD practitioners increasingly are attending to the design and implementation of
reward systems. This recent attention to rewards has derived partly from research in
organization design and employee involvement. These perspectives treat rewards as an
integral part of an organization.43 They hold that rewards should be congruent with
other organizational systems and practices, such as the organization’s structure, top man-
agement’s human relations philosophy, and work designs. Many reward system features
contribute to both employee fulfillment and organizational effectiveness. In this section,








apital One is one of the largest financial
services organizations in the United States.
Its original credit card business began in
1993 when they were part of Signet

Bank, and their success led to a spin-off and
subsequent public offering in 1994. Since then,
Capital One has expanded the credit card busi-
ness, entered the auto loan and home mort-
gage businesses, grown internationally, and
most recently acquired two traditional banks.

Capital One has always had a strong
human resource management function and
the organization has done a great job adapting
a robust human resource strategy to shifting
business conditions. Carol Anderson, who
leads the performance management process,
notes, “One overlay to the whole performance
management strategy, and one of the reasons
we’ve had some success in this area, is that
the actual philosophy and core infrastructure of
the program has not changed. For example,
we’ve always had a system that included
360-degree feedback and well-grounded com-
pensation models.” Driven by the business sit-
uation and feedback about the performance
management process, the organization has
modified the appraisal process, the mix of
reward components, and the specific issues
that are appraised. In addition, they have
learned from their experiences.

One of the early changes in the perfor-
mance management system came in 2000.
On the business front, Capital One was diver-
sifying away from credit cards and into other
financial services and needed to identify and
develop talent for the future. The organization
set up a performance management design
team who initiated a benchmarking program
as part of their review and revision process.
To their surprise, most benchmark companies
said, “we benchmark you.” That is, most of
the organizations they talked to noted that their
appraisal system was based on the Capital
One model. The notion of a full and detailed
performance review, including 360-degree
feedback, was the best in class. But the

system wasn’t delivering the results the orga-
nization wanted.

In particular, a relatively young and inexpe-
rienced group of managers and an ill-defined
7-point rating scale resulted in little differentia-
tion in performance (e.g., there were a lot of 4,
5, and 6 ratings and very few 1, 2, or 3s), poor
participation, and the largest proportion of
complaints in the all-employee surveys. Initial
attempts to address the lack of differentiation
resulted in the announcement that a forced dis-
tribution system—where a percentage of
employees had to be in high, medium, and low
ratings—would be used. It wasn’t a full GE-
type model where the bottom 10% of the
employees were let go, but it tried to impress
upon managers the need to differentiate.
Given the relative maturity of managers at the
time and the lack of participation in the pro-
cess, the change got little traction; it was
poorly executed and had little effect on the
number or type of complaints. In the context
of the growth and diversification in the busi-
ness and the need for talent, this was not the
right process.

As the design team regrouped, it commit-
ted to preserving the high feedback culture,
competencies model, and detailed written
performance aspect of the model. The organi-
zation had always viewed performance man-
agement as an evaluation opportunity, and
with that as a core, the design team set
about looking at what could be changed.

One of the shifts they proposed was to
lighten the administrative load. The team
noted that the detailed evaluations, ratings,
and feedback processes were forcing man-
agers to spend about half the year in the
performance management process. They
recommended creating a system that would
provide managers with the tools to manage
associate performance without forcing the
distribution. That principle led to the decision
to automate the process, with the automation
of the 360-degree feedback process leading
the way.


The design team also recommended shifting
the rating scale. Based on employee ratings of
competencies and performance, managers com-
puted a nonintuitive overall score that was more
confusing than helpful. For example, although a -4
score was interpreted as “meeting expectations,”
that’s not the way employees felt after receiving it.
The design team recommended shifting from
7-point to a 5-point rating scale and adopting a
simple interpretation scheme where low scores
meant that action and development were required
and moderate scores reflected strong (but not
exceptional) performance. Learning from their
prior implementation experiences, these revisions
were supported by local champions in each busi-
ness unit. Rather than announcing the changes,
these local champions helped managers put the
process in place with some consistency but not
at the expense of driving business results.

In the 2003, a new set of business conditions
resulted in additional adaptations to the system.
First, changes in the regulations governing stock
option recognition and expensing led the organiza-
tion to shift its eligibility qualifications. In prior
years, nearly all employees were eligible for salary
increases, bonuses, and some equity compensa-
tion. With the regulation change, the organization
tightened the pool of managers who were eligible
for equity awards as well as the basis for awarding
stock compensation.

Second, although Capital One maintained
everyone’s eligibility for bonus compensation, a
corporate initiative to clarify the organization’s
values led the performance management design
team to clarify what had always been an assump-
tion in the system—that rewards were based on
results as well as on competence. The list of
values and behaviors reflecting the corporate
values needed to be integrated with and aligned
to the existing competency models. Moreover,
the forecasted business growth and diversification
suggested that the organization was going to need
many new competencies. As a result, the team
recommended specifying and rewarding compe-
tency development as 50% of the appraisal pro-
cess, or that bonus compensation was tied to
equal parts current results and the learning of
new competencies. Managers’ and associates’
bonuses depended on achieving results set during
goal setting meetings as well as learning and

development activities. Such a system supported
the development of a flexible workforce.

The organization’s recognition that it needed to
be more flexible and agile drove the first shift in
organizational-level competencies. The effort to
build a change capability (see Application 19.4) sug-
gested that the competencies models reflect an
emphasis on learning about and being capable of
managing change. Based on the success of prior
changes in the performance management system,
formal, local champions in the form of senior VPs
who represented their line of business, were made
a part of the design team. This expanded design
team increased the number of change-related
behaviors in the competency models and asked
Capital One University to highlight them in
change-related training. This sent a clear message
about the importance of these behaviors for the
future. As a result, between 2003 and 2005, man-
agers and associates were appraised not only on
their current business results, but on the develop-
ment of change management skills and knowl-
edge. The champions were able to reinforce the
importance of the new behaviors in the local imple-
mentation of the performance management pro-
cess and provided important synergies for the
change capability implementation.

As a result of these changes, Capital One man-
agers came to believe that meeting aggressive but
achievable goals required them to lead change and
build new operational capabilities. Achieving
results—50% of their appraisal score—was
unlikely unless the manager actively drove change
in their organizations. The other 50% of the apprai-
sal score depended on the extent to which associ-
ates and managers were demonstrating the values
and competencies of the corporation related to
change. As one manager remarked, “if I lead
change in the group but leave my people behind,
I’m not doing my job and my bonus is at risk.”

A new strategic imperative around “customer
experience” has driven the most recent shift in the
performance appraisal system. Senior managers
asked Anderson’s design team to ensure that the
competency models, recruitment, selection, and
performance management systems support the
values and behaviors leading to outstanding cus-
tomer experiences. “There’s been a lot of interest
in how the competencies are structured to reflect
our increasing interest in customer experience.


we describe the structural features of a reward system and how rewards affect individual
and group performance; discuss four specific rewards, including skill-based pay,
performance-based pay, gain sharing, and promotions; and review the process issues
involved in establishing and administrating reward systems.

15-4a Structural and Motivational Features of Reward Systems
A reward system is an important part of an organization’s design and must be aligned
with the strategy, structure, employee involvement, and work. The design features of a
reward system are summarized in Table 15.2.44

• Person/job based versus performance based. One of the first and most important
design choices is the focus or basis of the reward system. The most prevalent system
is the job-based system. Here, job descriptions are created for each position in the
organization and a value is attached to the work performed. Pay is based on that
valuation process. More recently, organizations challenged to be more agile and
adaptable, such as Netflix and Nike, have crafted their reward systems around the
person in the job and the value brought by their skills and knowledge. Skill-based
pay and knowledge-based pay are important examples of this system. The other
major alternative is to base rewards on the performance achieved by a job or person.
In this system, pay is contingent on the outcomes produced.

• Individual versus group rewards. The interdependency among work tasks is
another important reward system contingency. When work is complex and the per-
formance of one task depends on prior tasks, the appropriate work design is team
based because successfully adding value requires tight coordination. This tight coor-
dination is reinforced by reward systems that recognize group level outputs. When
work tasks are independent, individual reward systems incent individual behavior.

• Internal and external equity. Member satisfaction and motivation can be influ-
enced by design features that ensure that the organization’s pay policies are

One camp is advocating for adding a whole new
and separate competency in customer experience
that is populated with a set of behaviors. Another
group is arguing that customer experience compe-
tencies should be integrated into the existing com-
petencies, that customer experience should be as
natural to everyone as the change-related compe-
tencies. As the competencies are decided, and in
keeping with Capital One’s overall performance
management philosophy, achieving these compe-
tencies will continue to be 50% of the appraisal

For the other 50% focused on results, execu-
tives were clear about how to orchestrate the rein-
forcement process. “We expect that customer
experience metrics will be presented to associates
during the 2007 round of appraisals. In the

following year, objectives around customer experi-
ence will be a part of associate goal setting activi-
ties, but there will not be any rewards attached to
achievement. Then in the third cycle, we expect
that all associates will be held accountable for
achievement of customer experience results.”
That is, compensation will be tied to the achieve-
ment of great customer experiences.

The Capital One performance management
system has adapted with the times and has
addressed a variety of issues, including process
concerns, business needs, and human capital
development. Its ongoing balance of rewarding
results and the development of competencies
allows Capital One to adjust the criteria for current
performance but also encourage associates and
managers to learn new skills for future success.


equitable or fair. Internal equity concerns comparison of individual rewards to those
holding similar jobs or performing similarly in the organization. Internal inequities
typically occur when employees are paid a similar salary or hourly wage regardless
of their position or level of performance. Many organizations work hard to establish
practices to ensure that people who are doing similar kinds of activities have similar
levels of compensation. Internal equity is often a challenge in worldwide organiza-
tions where cost-of-living and a country’s level of economic development can
imply different pay levels for the same work.

External equity involves comparing the organization’s rewards with those of
other organizations in the same labor market. Most human resources policies com-
mit to a rewards and compensation system relative to the market. Organizations can
decide to pay below, at, or above market rates. In their quest for attracting and
retaining scarce human resource talent, many organizations have had to commit to
above-market pay schemes. When an organization’s reward level does not compare
favorably with the level of other organizations, employees are likely to feel inequita-
bly rewarded and may leave.

• Hierarchy. Although not often a formal policy, many organizations offer different
types of rewards based on a position’s level in the organization structure. The recent
concerns over CEO pay reflect the increasing prevalence of hierarchical reward
systems.45 In hierarchical systems, senior managers have access to a variety of

TABLE 15.2

Reward System Design Features

Design Feature Definition

Person/Job based vs.
performance based

The extent to which rewards and incentives are based on
the person in a job, the job itself, or the outcomes of the

Market position
(external equity)

The relationship between what an organization pays and
what other organizations pay

Internal equity The extent to which people doing similar work in an
organization are rewarded the same

Hierarchy The extent to which people in higher positions get more
and varied types of rewards than people lower in the

Centralization The extent to which reward system design features,
decisions, and administration are standardized across
an organization

Rewards mix The extent to which different types of rewards are avail-
able and offered to people

Security The extent to which work is guaranteed

Seniority The extent to which rewards are based on length of







perquisites, such as corporate transportation, expense accounts, financial aid, or
health benefits that others do not.

• Rewards mix. This design feature involves specifying the extent to which different
types of rewards are included in the overall reward strategy. These rewards can
include pay in various forms, including base salary, bonuses, commissions, and
stock; benefits, such as health care, insurance, child care, leaves, and education; and
perquisites, including preferred office space, cell phones, cars, or health club mem-
berships. Recent changes in the laws governing the expensing of stock options are
changing the way stock is viewed as part of the rewards mix. In addition, although
pay receives most of the attention in reward systems, the contribution of other
rewards, such as benefit programs and status incentives, should not be underesti-
mated. For example, rising health care costs and increasing interest in retaining
important skills and competencies have resulted in a variety of benefit innovations
to increase the value of this reward.46

• Security. Organizations, such as IBM and AT&T, were once associated with the ben-
efits of lifetime employment for organization members. Today, the rapid expansion
and contraction of markets and the realities of downsizing have dramatically altered
the psychological employment contract. Instead of job security, a more instrumental
relationship has emerged. However, organizations can and do make commitments to
people and job security and this remains an important feature of reward systems.

• Seniority. Many reward systems include an implicit or explicit policy concerning the
value of longevity. Organizations, especially unionized companies covered by a col-
lective bargaining agreement, often have built-in rewards for increasing lengths of

15-4b Reward System Design Features
The structural features of a reward system represent important design choices available to
human resources and other senior managers. These features interact with work design and
employee involvement practices to produce goal-directed behavior and task performance.
Considerable research has been done on how different rewards and reward system features
affect individual and group performance. The most popular model describing this relation-
ship is value expectancy theory. In addition to explaining how performance and rewards
are related, it suggests requirements for designing and evaluating reward systems.

The value expectancy model47 posits that employees will expend effort to achieve
performance goals that they believe will lead to outcomes that they value. This effort
will result in the desired performance goals if the goals are realistic, if employees fully
understand what is expected of them, and if they have the necessary skills and resources.
Ongoing motivation depends on the extent to which attaining the desired performance
goals actually results in valued outcomes. Consequently, key objectives of reward systems
interventions are to identify the intrinsic and extrinsic outcomes (rewards) that are
highly valued and to link them to the achievement of desired performance goals.

Based on value expectancy theory, the ability of rewards to motivate desired behav-
ior depends on these five factors:48

1. Availability. For rewards to reinforce desired performance, they must be not only
desired but also available. Too little of a desired reward is no reward at all. For
example, pay increases are often highly desired but unavailable. Moreover,
pay increases that are below minimally accepted standards may actually produce
negative consequences.49


2. Timeliness. Like effective performance feedback, rewards should be given in a
timely manner. A reward’s motivating potential is reduced to the extent that it is
separated in time from the performance it is intended to reinforce.

3. Performance contingency. Rewards should be closely linked with particular perfor-
mances. If the goal is met, the reward is given; if the target is missed, the reward is
reduced or not given. The clearer the linkage between performance and rewards, the
better able rewards are to motivate desired behavior. Unfortunately, this criterion
often is neglected in practice. Many, if not most, employees nationwide believe that
there is no linkage between pay and performance.50 If salary increases are concen-
trated at certain levels, almost everyone, regardless of performance level, is getting
about the same raise.

4. Durability. Some rewards last longer than others. Intrinsic rewards, such as increased
autonomy and pride in workmanship, tend to last longer than extrinsic rewards. Most
people who have received a salary increase realize that it gets spent rather quickly.

5. Visibility. To leverage a reward system, it must be visible. Organization members
must be able to see who is getting the rewards. Visible rewards, such as placement
on a high-status project, promotion to a new job, and increased authority, send sig-
nals to employees that rewards are available, timely, and performance contingent.

Reward systems interventions are used to elicit and maintain desired levels of per-
formance. To the extent that rewards are available, durable, timely, visible, and perfor-
mance contingent, they can support and reinforce organizational goals, work designs,
and employee involvement. The next sections describe four types of rewards. Skill-
based pay, pay for performance, gain sharing, and promotions can be used to reward
individual, team, or organization performance. Each system represents a flexible inter-
vention that is effective in improving employee performance and satisfaction.

15-4c Skill- and Knowledge-Based Pay Systems
The most traditional reward system is individual and job based. The characteristics of a
particular job are determined, and pay is made comparable to what other organizations
pay for jobs with similar characteristics. Pay increases are primarily a function of cost-
of-living adjustments (COLA) or small merit pools that are awarded with little relation-
ship to performance. This job evaluation and reward method tends to result in pay sys-
tems with high external and internal equity. However, it fails to reward employees for all
of the skills that they have, discourages people from learning new skills, and results in a
view of pay as an entitlement.51

Some organizations, such as General Mills, United Technologies, Frito-Lay, Procter
and Gamble, and General Foods, have worked to resolve these problems by designing
pay systems according to people’s skills and abilities. A 2006 survey found that almost
24% of the Fortune 1000 use skill or knowledge-based pay to at least some extent.52 By
focusing on the individual, rather than the job, skill-based pay systems reward learning
and growth.

Skill-based pay systems must first establish the skills needed for effective operations,
identify the optimal skill profile and number of employees needed with each skill, price
each skill and skill set, develop rules to sequence and acquire skills, and develop methods
to measure member skill acquisition.53 Typically, employees are paid according to
the number of different jobs that they can perform. For example, in the classic case of
General Mill’s Squeeze-It plant new employees were paid a starting wage at the low end
of the skilled worker wage rate for premium employers in the community. They were


then assigned to one of four skill blocks corresponding to a particular set of activities in
the production process. For each skill block, there were three levels of skill. Pay was
based on the level of skill in each of the skill blocks; the more proficient the skill in
each block and the more blocks one was proficient at, the higher the pay. After all skill
blocks were learned at the highest level, the top rate was given.54 This progression in
skills typically took two years to complete, and employees were given support and train-
ing to learn the new jobs.

Skill-based pay systems have a number of benefits. They contribute to organizational
effectiveness by providing a more flexible workforce and by giving employees a broad
perspective on how the entire plant operates. This flexibility can result in leaner staffing
and fewer problems with absenteeism, turnover, and work disruptions. Skill-based pay
can lead to durable employee satisfaction by reinforcing individual development and by
producing an equitable wage rate.55

The three major drawbacks of skill-based pay schemes are the tendency to “top out,”
the expense, and the lack of performance contingency. Top-out occurs when employees
learn all the skills there are to learn and then run up against the top end of the pay scale,
with no higher levels to attain. Some organizations have resolved this topping-out effect
by installing a gain-sharing plan after most employees have learned all relevant jobs.
Gain sharing, discussed later in this section, ties pay to organizational effectiveness,
allowing employees to push beyond previous pay ceilings. Other organizations have
resolved this effect by making base skills obsolete and adding new ones, thus raising
the standards of employee competence. Skill-based pay systems also require a heavy
investment in training, as well as a measurement system capable of telling when employ-
ees have learned the new jobs. These systems typically increase direct labor costs, as
employees are paid highly for learning multiple tasks. In addition, because pay is based
on skill and not performance, the workforce could be highly paid and flexible but not

Unfortunately, and despite their wide use, limited evaluative research exists on the
effectiveness of these interventions. Long-term assessment of the Gaines Pet Food plant
revealed that the skill-based pay plan contributed to both organizational effectiveness
and employee satisfaction. Several years after the plant opened, workers’ attitudes toward
pay were significantly more positive than those of people working in other similar plants
that did not have skill-based pay. Gaines workers reported much higher levels of pay
satisfaction, as well as feelings that their pay system was fairly administered.56 Similarly,
a longitudinal study of skill-based pay focused on the design characteristics, supervisor
and employee support, and facility characteristics to determine overall success as mea-
sured by workforce productivity and flexibility, cost-effectiveness, and survival. They
found that skill-based pay plans were more successful and sustainable in manufacturing
facilities than in service organizations, and that support among supervisors and employ-
ees for the innovative plans consistently predicted productivity and cost-effectiveness.57

A national survey of skill-based pay plans sponsored by the U.S. Department of Labor
concluded that such systems increase workforce flexibility, employee growth and develop-
ment, and product quality and quantity while reducing staffing needs, absenteeism, and
turnover.58 These results appear contingent on management commitment to the plan and
having the right kind of people, particularly those with interpersonal skills, motivation,
and a desire for growth and development. This study also showed that skill-based pay is
applicable across a variety of situations, including both manufacturing and service indus-
tries, production and staff employees, new and old sites, and unionized and nonunionized
settings. Finally, in a 1996 survey of Fortune 1000 companies, 42% indicated that skill-
based pay systems were successful or very successful, down from 52% in 1993.59


15-4d Performance-Based Pay Systems
In addition to person- or job-based reward systems, organizations have devised many
ways of linking pay to performance,60 making it the fastest-growing and most popular
segment of pay-based reward systems. Studies suggest that 60% to 70% of businesses
have some form of performance-based or variable pay system.61 They are used in such
organizations as American Express, DaVita, Frito-Lay, and DOW. Pay-for-performance
plans tend to vary along three dimensions: (1) the organizational unit by which perfor-
mance is measured for reward purposes—an individual, group, or organization basis;
(2) the way performance is measured—the subjective measures used in supervisors’
ratings or objective measures of productivity, costs, or profits; and (3) what rewards are
given for good performance—salary increases, stock, or cash bonuses. Table 15.3 lists
different types of performance-based pay systems varying along these dimensions and
rates them in terms of other relevant criteria.

In terms of linking pay to performance, individual pay plans are rated highest,
followed by group plans and then organization plans. The last two plans score lower on
this factor because pay is not a direct function of individual behavior. At the group and
organization levels, an individual’s pay is influenced by the behavior of others and by
external market conditions. Generally, stock and bonus plans tie pay to performance
better than do salary plans. The amount of awarded stock may vary sharply from year
to year, whereas salary increases tend to be more stable because organizations seldom
cut employees’ salaries. Finally, objective measures of performance score higher than
subjective measures. Objective measures, such as profit or costs, are more credible, and
people are more likely to see the link between pay and objective measures.

Most of the pay plans in Table 15.3 do not produce negative side effects, such as
workers falsifying data and restricting performance. The major exceptions are individual
bonus plans. These plans, such as piece-rate systems, tend to result in negative effects,
particularly when trust in the plan is low. For example, if people feel that piece-rate
quotas are unfair, they may hide work improvements for fear that quotas may be
adjusted higher.

As might be expected, group- and organization-based pay plans encourage coopera-
tion among workers more than do individual plans. Under the former, it is generally to
everyone’s advantage to work well together because all share in the financial rewards of
higher performance. The organization plans also tend to promote cooperation among
functional departments. Because members from different departments feel that they can
benefit from each others’ performance, they encourage and help each other make posi-
tive contributions.

From an employee’s perspective, Table 15.3 suggests that the least acceptable pay
plans are individual bonus programs. Employees tend to dislike such plans because they
encourage competition among individuals and because they are difficult to administer
fairly. Such plans may be inappropriate in some technical contexts. For example, techni-
cal innovations typically lead engineers to adjust piece-rate quotas upward because
employees should be able to produce more with the same effort. Workers, on the other
hand, often feel that the performance worth of such innovations does not equal the
incremental change in quotas, thus resulting in feelings of pay inequity. Table 15.3 sug-
gests that employees tend to favor salary increases to bonuses. This follows from the sim-
ple fact that a salary increase becomes a permanent part of a person’s pay, but a bonus
does not.

The overall ratings in Table 15.3 suggest that no one pay-for-performance plan
scores highest on all criteria. Rather, each plan has certain strengths and weaknesses


that depend on a variety of contingencies. As business strategies, organization perfor-
mance, and other contingencies change, the pay-for-performance system also must
change. At Lincoln Electric, a longtime proponent and model for incentive pay, growth
into international markets, poor managerial decisions, and other factors have put pres-
sure on the bonus plan. In one instance, a poor acquisition decision hurt earnings and
left the organization short of cash for the bonus payout. The organization borrowed
money rather than risk losing employees’ trust. Financially weakened by the acquisition,
and in combination with the other changes, Lincoln Electric has initiated a planned
change effort to examine its pay-for-performance process and recommend a new

When all criteria are taken into account, however, the best performance-based pay
systems seem to be group and organization bonus plans that are based on objective
measures of performance and individual salary-increase plans. These plans are

TABLE 15.3

Ratings of Various Pay-for-Performance Plans*

Tie Pay to


Side Effects



Salary Reward

Individual plan Productivity
Superiors’ rating





Group Productivity
Superiors’ rating





Organization-wide Productivity





Stock/Bonus Reward

Individual plan Productivity
Superiors’ rating





Group Productivity
Superiors’ rating





Organization-wide Productivity





*Ratings: 1 lowest rating, 5 highest rating.

SOURCE: Reproduced by permission of the publisher from E. Lawler III, “Reward Systems,” in Improving Life at Work, eds.
J. Hackman and J. Suttle (Santa Monica, Calif.: Goodyear, 1977), p. 195.


relatively good at linking pay to performance. They have few negative side effects and
at least modest employee acceptance. The group and organization plans promote coop-
eration and should be used where there is high task interdependence among workers,
such as might be found on assembly lines. The individual plan promotes competition
and should be used where there is little required cooperation among employees, such
as in field sales jobs.

15-4e Gain-Sharing Systems
As the name implies, gain sharing involves paying employees a bonus based on improve-
ments in the operating results of an organization. Although not traditionally associated
with employee involvement, gain sharing increasingly has been included in comprehen-
sive employee involvement projects. Many organizations, such as Harley Davidson,
General Dynamics, Gould Electronics, and Mondragon (Spain) are discovering that
when designed correctly, gain-sharing plans can contribute to employee motivation,
involvement, and performance.

Developing a gain-sharing plan requires making choices about the following design

• Process of design. The success of a gain-sharing system depends on employee
acceptance and cooperation. Recommended is a participative approach that involves
a cross section of employees to design the plan and be trained in gain-sharing
concepts and practice. The task force should include people who are credible
and represent both management and nonmanagement interests.

• Organizational unit covered. The size of the unit included in the plan can vary
widely, from departments or plants with less than 50 employees to companies
with several thousand people. A plan covering the entire plant would be ideal in
situations where there is a freestanding plant with good performance measures
and an employee size of less than 500. When the number of employees exceeds
500, multiple plans may be installed, each covering a relatively discrete part of the

• Bonus formula. Gain-sharing plans are based on a formula that generates a bonus
pool, which is divided among those covered by the plan. Although most plans are
custom-designed, there are two general considerations about the nature of the
bonus formula. First, a standard of performance must be developed that can be
used as a baseline for calculating improvements or losses. Some plans use past per-
formance to form a historical standard, whereas others use engineered or esti-
mated standards. When available, historical data provide a relatively fair standard
of performance; engineer-determined data can work, however, if there is a high
level of trust in the standard and how it is set. Second, the costs included in arriv-
ing at the bonus must be chosen. The key is to focus on those costs that are most
controllable by employees. Some plans use labor costs as a proportion of total
sales; others include a wider range of controllable costs, such as those for materials
and utilities.

• Sharing process. Once the bonus formula is determined, it is necessary to decide
how to share gains when they are obtained. This decision includes choices about
what percentage of the bonus pool should go to the company and what percentage
to employees. In general, the company should take a percentage low enough to
ensure that the plan generates a realistic bonus for employees. Other decisions


about dividing the bonus pool include who will share in the bonus and how the
money will be divided among employees. Typically, all employees included in the
organizational unit covered by the plan share in the bonus. Most plans divide
the money on the basis of a straight percentage of total salary payments.

• Frequency of bonus. Most plans calculate a bonus monthly. This typically fits with
organizational recording needs and is frequent enough to spur employee motivation.
Longer payout periods generally are used in seasonal businesses or where there is a
long production or billing cycle for a product or service.

• Change management. Organizational changes, such as new technology and product
mixes, can disrupt the bonus formula. Many plans include a steering committee to
review the plan and to make necessary adjustments, especially in light of significant
organizational changes.

• The participative system. Many gain-sharing plans include a participative system
that helps to gather, assess, and implement employee suggestions and improve-
ments. These systems generally include a procedure for formalizing suggestions and
different levels of committees for assessing and implementing them.

Although gain-sharing plans are tailored to each situation, three major plans are
used most often: the Scanlon plan, the Rucker plan, and Improshare. The most popular
program is the Scanlon plan, and such organizations as Donnelly Corporation, De Soto,
Midland-Ross, and Dana Corporation pioneered it. The incentive part of the Scanlon
plan generally includes a bonus formula based on a ratio measure comparing total sales
volume to total payroll expenses. This measure of labor cost efficiency is relatively
responsive to employee behaviors and is used to construct a historical base rate at the
beginning of the plan. Savings resulting from improvements over this base make up the
bonus pool. The bonus is often split equally between the company and employees, with
all members of the organization receiving bonuses of a percentage of their salaries. The
Rucker plan and Improshare use different bonus formulas and place less emphasis on
worker participation than does the Scanlon plan.64

Gain-sharing plans tie the goals of workers to the organization’s goals. It is to the
financial advantage of employees to work harder, to cooperate with each other, to make
suggestions, and to implement improvements. Reviews of the empirical literature and
individual studies suggest that when such plans are implemented properly, organizations
can expect specific improvements.65 A study sponsored by the General Accounting
Office found that plans in place more than five years averaged annual savings of 29%
in labor costs;66 there also is evidence to suggest that they work in 50% to 80% of the
reported cases.67 A report on four case studies in manufacturing and service settings
noted significant increases in productivity (32% in manufacturing and 11% in services),
as well as in several other measures.68 A longitudinal field study employing experimental
and control groups supports gain sharing’s positive effect over time and even after the
group’s bonus was discontinued.69 Other reported results include enhanced coordination
and teamwork; cost savings; acceptance of technical, market, and methods changes;
demands for better planning and more efficient management; new ideas as well as effort;
reductions in overtime; more flexible union–management relations; and greater employee

Gain-sharing plans are better suited to certain situations than to others.71 In general,
gain sharing seems suited to small organizations with favorable market conditions, sim-
ple measures of historical performance, and production costs controllable by employees.
Product and market demand should be relatively stable, and employee–management


relations should be open and based on trust. Top management should support the plan,
and support services should be willing and able to respond to increased demands. The
workforce should be interested in and knowledgeable about gain sharing and should be
technically proficient in its tasks.

Application 15.3 describes the reward system at Lands’ End Direct Merchants.72 It
describes a variety of reward system design features as well as how a number of different
types of rewards can be mixed together to produce an overall reward system.

15-4f Promotion Systems
Like decisions about pay increases, many decisions about promotions and job move-
ments in organizations are made in a top-down, closed manner: Higher-level managers
decide whether lower-level employees will be promoted. This process can be secretive,
with people often not knowing that a position is open, that they are being considered
for promotion, or the reasons why some people are promoted but others are not. With-
out such information, capable people who might be interested in a new job may be over-
looked. Furthermore, because employees may fail to see the connection between good
performance and promotions, the motivational potential of promotions is reduced.
Finally, emphasizing promotions as a reward focuses attention on advancement instead
of developing new skills and knowledge and can lead to reduced flexibility in the

Fortunately, this is changing. Most organizations today have tried to reduce the
secrecy surrounding promotions and job changes by openly posting the availability of
new jobs and inviting people to nominate themselves.74 Although open job posting
entails extra administrative costs, it can lead to better promotion decisions. Open posting
increases the pool of available personnel by ensuring that interested people will be con-
sidered for new jobs and that capable people will be identified. Open posting also can
increase employee motivation by showing that a valued reward is available and contin-
gent on performance.

Some organizations have increased the accuracy and equity of job-change decisions
by including peers and subordinates in the decision-making process. Peer and subordi-
nate judgments about a person’s performance and promotability help bring all relevant
data to bear on promotion decisions. Such participation can increase the accuracy of
these decisions and can make people feel that the basis for promotions is equitable. In
many self-regulating work teams, for example, the group interviews and helps select
new members and supervisors. This helps ensure that new people will fit in and that
the group is committed to making that happen. Evidence from high-involvement plants
suggests that participation in selecting new members can lead to greater group cohesive-
ness and task effectiveness.75

15-4g Reward-System Process Issues
Thus far, we have discussed the different structural features of reward systems and
assessed their strengths and weaknesses. Considerable research has been conducted on
the process aspect of reward systems. Process refers to how pay and other rewards typi-
cally are administered in the organization. At least two process issues affect employees’
perceptions of the reward system: who should be involved in designing and administer-
ing the reward system, and what kind of communication should exist with respect to








ands’ End Direct Merchants is an interna-
tional catalog retailer employing a seasonal
workforce that varies between 5,500 and
8,500 full- and part-time staff. It is widely

recognized as one of the best companies to
work for as a result of its participative culture,
employment practices, and rewards. The com-
pany operates through a simple belief in
employees “doing the right thing.” This philos-
ophy has helped to make the company an
employer of choice.

The organization has been proactively
rethinking and implementing specific aspects
of its reward system over a four-year period
to help Lands’ End stay ahead of other compa-
nies. The reward system is composed of a mix
of competitive pay, innovative benefits, work-
life initiatives, and a variety of internal opportu-
nities that encourage organization members to

The firm’s reward strategy is guided by
principles such as maintaining direct and
clear communication channels regarding any
aspect of employment practice; encouraging
the free exchange of information, ideas, and
suggestions; and where possible, eliminating
any causes and conditions that lead to inequi-
ties, complaints, or employee dissatisfaction.
For example, an employee job-evaluation
committee annually reviews and analyzes
pay rates in different organizations and indus-
tries. This task force, composed of a variety
of employees, then assigns specific wage
levels to work positions. As a result, rates
are perceived as fair by individuals while
Lands’ End itself learns more about how to
value jobs and work based on predefined fac-
tors such as knowledge, skills, environment,
and responsibility.

In the area of pay, one of the key changes
has been a shift from rewarding a job popula-
tion to rewarding the person. For example,
under the old reward system, all salaried
people used to receive a cash bonus based
on sales volume and profits for the entire
company. Now, each job is assigned an
annual-incentive-plan target expressed as a

percentage of base salary. Payouts on the
plan are dependent on actual pretax profit
performance for the whole company and
the business-units-against-performance goals
established each year by the board. Individual
bonuses are based 50% on business-unit per-
formance and 50% by corporate performance,
thus linking individual effort to both local and
organizational results.

In addition to the above changes in the pay
system, the organization is piloting a gain-
sharing-style bonus plan designed by a
departmental task force for a small 20-person
unit. It is being progressively deployed across
the operations organization. Five operations
departments have so far designed plans to
link people’s effort and knowledge to
business-unit results—in both cost and quality
terms. Each operations department has its
own performance measures. For example,
employees in the order-filling department are
measured on a cost-per-piece and quality
basis. These changes are being made to intro-
duce group- or departmental-level performance
rewards in addition to individual pay and
annual-incentive-plan bonuses.

An individual reward system for the large
hourly workforce supplements the bonus
system. The inputs to the system are the
employee job-evaluation committee’s assign-
ment of wage grades to jobs. Each grade has
a minimum and maximum hourly rate, with
six steps in between. Full- and part-time
employees can progress through these six
steps and increase their pay by completing a
required number of hours in the job and satis-
factorily meeting four generic performance
standards that are specifically interpreted for
each job and function. The four performance
standards are:

• Service: helpfulness and support for cus-
tomers and colleagues

• Quality: how well the job is done
• Quantity: a measure of individual

• Reliability: a measure of dependability


Traditionally, reward systems are designed by top managers and compensation spe-
cialists and are simply imposed on employees. Although this top-down process may
result in a consistent system, it cannot ensure that employees will understand and trust
it, and more often than not, it results in a system that does not improve performance. In
the absence of trust, workers are more likely to develop negative perceptions of the
reward system. There is growing evidence that employee participation in the design and
administration of a reward system can increase employee understanding and can con-
tribute to feelings of control over and commitment to the plan. In fact, research supports
that when managers “own” the performance management process and see it as a way to
manage workforce performance, there are more positive attitudes toward the overall

These four performance standards are reviewed
during performance reviews with immediate
supervisors throughout the year.

An individual’s ratings are based on achieving
jointly set personal goals that are tied to:

• The four performance standards
• Job responsibilities and competencies
• Personal aspirations
• Business-unit objectives
• The spirit of Lands’ End principles of doing


Pay increases within a grade are given auto-
matically until the maximum within grade rate is
achieved. Then annual company increases only
are received until the employee enters a new
grade. The system is based on giving credit for
hours worked in each grade, although individuals
can be promoted to a higher grade and begin the
process again. Hourly employees can also receive
an annual performance bonus based on annual-
incentive-plan computations that is typically
between 2% and 4% of earnings.

Lands’ End is also attempting to repackage
work-life benefits to suit individual preferences,
and so get greater value from its significant invest-
ments in this area. The main elements of the work-
life benefits are:

• Plans for health care and additional retirement
health care

• Child-care leave, summer camps, and provi-
sion of an on-site day-care center

• Health promotion and sports facilities

• A range of time-off-with-pay schemes, for
matters ranging from family member illness
to child adoption

• Employee-assistance programs to support life
changes or crises

• Flexible working hours
• Education opportunities with financial support
• Job share and a six-week “try a job” work-

experience scheme
• An emergency fund to help employees who

suffer loss because of fire, tornado, or flood

Lands’ End also offers between $35 and
$1,000 to employees who recommend people
who subsequently come to work for the company.
More than half of job applicants from outside the
company are usually referrals.

The guiding principle in Lands’ End’s thinking
to pay the person rather than a given job popula-
tion, repackage incentives and not reinvent them,
and manage individuals rather than the compensa-
tion plan or system itself for best results has been
simplicity. Through the reward system revision pro-
cess, the organization has learned the importance
of (1) involving and educating leaders and top man-
agers to gain the confidence of business partners;
(2) clearly stating the business case; (3) listening to
others and inviting feedback on the basis of
engagement and respect; (4) continually challeng-
ing yourself to stay abreast of new developments
or options that are emerging in the areas of com-
pensation and benefits; and (5) achieving a level of
change with which people feel comfortable to
encourage participation in ongoing dialogue.


system as well as improved performance. In contrast, there is no relationship between
attitudes about the system and the extent to which human resources “owns” the

Lawler and Jenkins described a small manufacturing plant where a committee of
workers and managers designed a pay system, after studying alternative plans and col-
lecting salary survey data.78 This resulted in a plan that gave control over salaries to
members of work groups. Team members behaved responsibly in setting wage rates.
They gave themselves 8% raises, which fell at the 50th percentile in the local labor mar-
ket. Moreover, the results of a survey administered six months after the start of the new
pay plan showed significant improvements in turnover, job satisfaction, and satisfaction
with pay and its administration. Lawler attributed these improvements to employees hav-
ing greater information about the pay system. Participation led to employee ownership
of the plan and feelings that it was fair and trustworthy.

Communication about reward systems also can have a powerful impact on employee
perceptions of pay equity and on motivation. Most organizations maintain secrecy about
pay rates, especially in the managerial ranks. Managers typically argue that secrecy is
preferred by employees. It also gives managers freedom in administering pay because
they do not have to defend their judgments. There is evidence to suggest, however, that
pay secrecy can lead to dissatisfaction with pay and to reduced motivation. Dissatisfac-
tion derives mainly from people’s misperceptions about their pay relative to the pay of
others. Research shows that managers tend to overestimate the pay of peers and of peo-
ple below them in the organization and that they tend to underestimate the pay of super-
iors. These misperceptions contribute to dissatisfaction with pay because regardless of a
manager’s pay level, it will seem small in comparison to the perceived pay level of sub-
ordinates and peers. Perhaps worse, potential promotions will appear less valuable than
they actually are.

Secrecy can reduce motivation by obscuring the relationship between pay and per-
formance. For organizations having a performance-based pay plan, secrecy prevents
employees from testing whether the organization is actually paying for performance;
employees come to mistrust the pay system, fearing that the company has something to
hide. Secrecy can also reduce the beneficial impact of accurate performance feedback.
Pay provides people with feedback about how they are performing in relation to some
standard. Because managers overestimate the pay of peers and subordinates, they will
consider their own pay low and thus perceive performance feedback more negatively
than it really is. Such misperceptions about performance discourage those managers
who are actually performing effectively.

Fortunately, more organizations are opening up their pay information. A recent
study of Fortune 1000 companies found that 61% had some form of open pay policy
covering at least a quarter of the workforce.79 For organizations having a history of
secrecy, initial steps toward an open reward system should be modest. For example, an
organization could release information on pay ranges and median salaries for different
jobs. Organizations with unions generally publish such data for lower-level jobs, and
extending that information to all jobs would not be difficult. Once organizations have
established higher levels of trust about pay, they might publicize information about the
size of raises and who receives them. Finally, as organizations become more democratic,
with high levels of trust among managers and workers, they can push toward complete
openness about all forms of rewards.

It is important to emphasize that both the amount of participation in designing
reward systems and the amount of frankness in communicating about rewards should


fit the rest of the organization design and managerial philosophy. Clearly, high levels of
participation and openness are congruent with democratic organizations. It is question-
able whether authoritarian organizations would tolerate either one.


This chapter presented three types of performance man-
agement interventions: goal setting, performance apprai-
sal, and rewards systems. These three change programs
offer powerful methods for managing employee and
work group performance. They also help enhance
worker satisfaction and support work design, business
strategy, and employee involvement practices.

Principles contributing to the success of goal setting
include establishing challenging goals and clarifying mea-
surement. These are accomplished by setting difficult but
feasible goals, managing participation in the goal-setting
process, and being sure that the goals can be measured
and influenced by the employee or work group. The
most common form of goal setting—management by
objectives—depends on top-management support and
participative planning to be effective.

Performance appraisals represent an important link
between goal setting and reward systems. As part of an
organization’s feedback and control system, they provide
employees and work groups with information they can

use to improve work outcomes. Appraisals are becoming
more participative and developmental. An increasing
number of people are involved in collecting performance
data, evaluating an employee’s performance, and deter-
mining how the appraisee can improve.

Reward systems interventions elicit, reinforce, and
maintain desired performance. They can be oriented to
individual jobs, work groups, or organizations and
affect both performance and employee well-being. In
addition to traditional job-based compensation sys-
tems, the major reward systems interventions in use
today are skill-based pay, pay for performance, gain
sharing, and promotions. Each of the plans has
strengths and weaknesses when measured against crite-
ria of performance contingency, equity, availability,
timeliness, durability, and visibility. The critical process
of implementing a reward system involves decisions
about who should be involved in designing and admin-
istering it and how much information about pay should
be communicated.


1. E. Lawler and J. Boudreau, Effective Human Resource
Management: A Global Analysis (Palo Alto: Stanford
University Press, 2012); A. Mohrman, S. Mohrman, and
C. Worley, “High-Technology Performance Manage-
ment,” in Managing Complexity in High-Technology
Organizations, ed. M. Von Glinow and S. Mohrman
(New York: Oxford University Press, 1990), 216–36;
E. Lawler, Talent: Making People Your Competitive
Advantage (San Francisco: Jossey-Bass, 2008).

2. E. Lawler and J. Boudreau, Achieving Excellence in
Human Resources Management: An Assessment of
Human Resource Functions (Palo Alto: Stanford Univer-
sity Press, 2009); D. McDonald and A. Smith, “A Proven
Connection: Performance Management and Business
Results,” Compensation and Benefits Review 27 (1995):
59–64; P. Bernthal, R. Sumlin, P. Davis, and R. Rogers,

Performance Management Practices Survey Report (New
York: Development Dimensions International, 1997).

3. J. Riedel, D. Nebeker, and B. Cooper, “The Influence of Mon-
etary Incentives on Goal Choice, Goal Commitment, and
Task Performance,” Organizational Behavior and Human
Decision Processes 42 (1988): 155–80; P. Earley, T. Connolly,
and G. Ekegren, “Goals, Strategy Development, and Task
Performance: Some Limits on the Efficacy of Goal Setting,”
Journal of Applied Psychology 74 (1989): 24–33; N. Perry,
“Here Come Richer, Riskier Pay Plans,” Fortune, December
19, 1988, 50–58; E. Lawler III, High-Involvement Manage-
ment (San Francisco: Jossey-Bass, 1986); A. Mohrman, S.
Resnick-West, and E. Lawler III, Designing Performance
Appraisal Systems (San Francisco: Jossey-Bass, 1990).

4. Mohrman, Mohrman, and Worley, “High-Technology
Performance Management.”


    • 13 Employee Involvement
    • 14 Work Design
    • 15 Performance Management

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