Effective Employee Management Linked to Business Performance

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A four-phase landmark study reveals that effective human resource practices directly affect business results, including revenue growth, profit growth and employee turnover reduction.

“The results are definitive,” David Sikora, director of the Gevity Institute, said in a prepared statement announcing the results. “Through this unique and first-of-its-kind study, we have been able to quantify the impact that human resource practices have on small businesses. Rather than simply being an additional cost, investments in effective employee management strategies can help a small business grow sales and profits.”

The study, sponsored by the Gevity Institute and conducted by Christopher Collins, Ph.D., an associate professor at Cornell University, shows that small businesses that implement Effective Employee Management Strategies experience a 22.1 percent higher revenue growth, 23.3 percent higher profit growth and a 68.8 percent reduction in employee turnover, compared to those companies who did not. Further, the study found that those small businesses in highly competitive markets, with high-growth goals and having more than 50 employees, experienced significantly higher business impact from the use of effective employee management strategies.

The most effective strategies were identified as they relate to employee selection, employee management and employee motivation and retention strategies. The strategies identified as most effective for small businesses are:

  1. Hiring based on person-organizational fit, as opposed to only person-job fit. The study proved that hiring candidates who fit the culture of the company is more effective than hiring solely based on skills that fit a specific job.
  2. Managing employees using a self-management strategy, as opposed to a controlling management strategy. The study shows companies that give employees greater discretion, trust and empowerment perform better than those that have tight controls and closely monitor their employees.
  3. Motivating and retaining employees by implementing a family-like environment/community, as opposed to using individual monetary incentives. Companies that create a family-like environment in the workplace using employee socials, company-wide meetings and challenging employees, see increased business outcomes than those who just use money as an incentive.

“The study is groundbreaking because we've proven that specific human resources strategies have a meaningful, and statistically significant impact to small business financial performance,” Collins said. “So much of existing research concerns large companies. However the relative impact of a single person leaving a small business can be an even greater setback. Our research clearly supports the importance of having a formal employee management strategy as part of any small business plan – either in-house or outsourced to a professional like Gevity.”

The research also demonstrated that implementing even a single strategy has a significant effect on business performance outcomes. For instance:

  • Implementing all effective strategies led to 22.1 percent improvement in revenue growth, 23.3 percent improvement in profit growth, and 66.8 percent reduction in employee turnover.
  • Implementing only the employee selection strategy yielded a 7.5 percent improvement in revenue growth, 6.1 percent improvement in profit growth and a reduction of 17.1 percent in employee turnover.
  • Implementing only the employee management strategy delivered an 11.5 percent improvement on revenue growth, a 3.9 percent improvement on profit growth and a 15.1 percent reduction in employee turnover.
  • Implementing employee motivation and retention strategy only, led to improvements of 3.8 percent in revenue growth and 13.3 percent in profit growth, as well as a 19.1 reduction in employee turnover.

The research also looked into how different business environments affected the results and demonstrated which business environments the human resource practices worked best. The study looked at factors including the competitive environment, a company's growth strategy and the size of the company.

Specific highlights related to the business environment include:

  • The person-organizational fit strategy resulted in one-year revenue growth of 7.1 percent in companies with no growth goal and 14.7 percent in companies with high growth goals.
  • The self-management strategy resulted in one-year profit growth of 8.4 percent among firms having fewer than 50 employees and 15.8 percent among firms with more than 50 employees.
  • Among businesses in competitive markets, one-year employee turnover was 27.8 in companies offering individual monetary incentives and 7.9 percent in those offering a more family-like community.

These results in the fourth phase of the Cornell study are the culmination of more than two years of research performed not only to discover a link between human resources and small business performance, but also to identify the most effective strategies independently and as part of an overall employee management program. The fourth phase of the research studied data from 323 business with between eight and 600 employees, across diverse industries. The average number of employees was 53. The data was acquired using both manager/owner surveys and employee surveys to minimize bias.

Results from the previous three phases proved the following:

  • First Phase – Research proved that employers understand that employee management practices have a direct impact on business results but was unclear on which practices work best.
  • Second Phase – Research proved that human resource practices helped employers improve workforce alignment – defined as having the right people with the right skills in the right jobs – and that workforce alignment improves sales growth, profits and customer satisfaction.
  • Third Phase – Research verified how employee management practices affect employee behaviors; including effort, cooperation and trust, and that these employee outcomes positively impact business performance.

Full results and executive summaries of Gevity Institute research is available at www.gevityinstitute.com.

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