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Employees as assets

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Selecting Your Team

Unit 01 - Three critical duties of business owners

Employees are assets

A great deal of recent research has underscored the strategic advantage to be gained from managing employees as if they are assets rather than commodities.

Consider the commodities a business employs (pads of paper, ballpoint pens), things that you purchase, use up, and then discard. Investing in a commodity is never considered (refilling a ballpoint pen, for a simple example), because it simply is not worth the expenditure of time and resources. A return on that investment is not expected.

On the other hand, consider the assets employed in business (the physical plant, the equipment, and the money), things that are maintained and developed.

Making investments in a business’s assets makes a great deal of sense, because these investments will bring a return. A growing number of companies, recognizing that their employees are among their most valuable assets, are backing up that recognition with solid investment.

High-commitment Management System

Professor Jeffrey Pfeffer of Stanford University identified seven management practices that have been associated with producing sustained competitive advantage for the companies that have adopted them.

These practices are:
1. employment security
2. selective hiring
3. self-managed teams with decentralized authority
4. high pay contingent on organizational performance
5. training
6. reduced status differences
7. sharing information

Put together, these practices form the foundation of what is called a “high-commitment” or a “high-performance” management system.

High-commitment Management System

The evidence on the results of implementing a high-commitment management system is striking and strong. Research has been conducted in many industries, from banking to automotive to semiconductors to service.

Overall, the conclusions of these studies are remarkably similar. High-commitment management systems produce higher organizational performance.

Pfeffer summarizes the results into three categories:
1. People work harder because they have more control over their work from the high-commitment management practices.
2. People work smarter because they have stronger skills and greater competence from the investments of high-commitment management practices.
3. Companies save administrative overhead and the costs by reducing the alienation of their workforce and the adversarial relationship with management.