The impact of employee involvement and participation on organizational effectiveness

Abstract

The following research paper seeks to explore the correlation between employee involvement in decision-making processes within the organization and organization’s performance. The main focus remains to evaluate the existing academic literature to demonstrate evidence that employee involvement and participation initiatives produce tangible advantages for organizations. Hence, the research considers theoretical approaches towards the impact of employee participation on organization’s performance and examines empirical studies conducted on the subject stated above. The results of the following study are mixed. While chosen empirical cases show that direct forms of employee participation contribute to improved organization’s performance, such evidences have not been observed in reference to representative form of employee involvement.

Introduction

Over the past decades work reforms were implemented in order to guarantee humanistic patterns of work and to improve the quality of working life. As the global business environment started to become more competitive in the 1980s, major focus shifted towards the productivity and economic performance of the organizations. The organizations sought new avenues to gain competitive advantages over rival companies. According to the studies conducted in the 1980s by Gallup Organization, employees engaged in the company’s decision-making were more productive, customer-focused, profitable and more willing to stay and develop within the organization (Dicke, 2006). Hence, human capital started to be perceived as the company’s most important asset (Belanger, 2000). Currently a range of organizations including corporations, government agencies, schools and other non-profit organizations believe that employee involvement and participation are crucial to the good economic performance (Boxal & Purcell 2011). Employee participation contributes to the organization’s efficiency in two ways. First, it increases employee’s productivity. Second, it increases the company’s capacity to react quickly to changing business environment. Therefore, employee involvement as a part of Human Resources Management (HRM) practices became a subject of numerous academic researches over the last decades.  The scholars from various fields in industrial relations developed various approaches and models in order to provide new evidences on the linkage between HRM and business performance (Gonzales, 2009).

The following research project examines the impact of employee involvement and participation on organization’s performance. First, the project defines a term ‘employment involvement and participation’ and demonstrates two concepts of measuring employee involvement. Further, the project discusses theoretical developments on the linkage between employee participation and organization’s performance. Finally, the project analyses empirical evidences of such relationships. The empirical study include the cases of direct and representative forms of employee participation.

Employee involvement – definition

Employee involvement, called also worker’s participation can be perceived as “a variety of processes and structures which enable, and at times encourage employees to directly and indirectly contribute to and influence decision-making in the firm and in the wider society” (Gonzales, 2009, p.8).  The following definition indicates that there are various activities through which the employees can influence decision-making processes within the company. Generally, employee involvement can have a direct or indirect form. Direct involvement means that employees have an immediate influence on the decision-making processes within the company. Typical forms of direct involvement are employee surveys, team briefings, autonomous working groups or suggestion schemes (rewards for meeting company’s goals). Indirect involvement (representative involvement) means that a specific group which represents all employees is involved in the decision-making processes within the company.  Common forms of indirect involvement are board representations, work councils or task forces (Eurofund, 2009). In turn, Gonzales (2009) classified employee involvement into three groups. These are informative, consultative and delegative participation. Informative participation refers to downwards communication within the organization. Employees have been given information top-down about the organization and its competitors, their own department or their individual performance. Information sharing includes open communication processes as well as information disclosure. Consultative participation regards various schemes developed by the management team to gain opinion of its employees and can have a form of individual meetings, team briefings and employees’ surveys. Delegative participation concerns various programmes which give employees capacity to make decisions on a particular set of issues and includes the forms such as problem-solving groups and semi-autonomous groups. Finally, Forth and Millward (2001) demonstrated three types of practices in reference to employee participation. These forms are individual supports (i.e. extensive information disclosure or specific training); task practices (i.e. quality circles or team work) and organizational supports (i.e. job security or employee share ownership).

A number of models measuring employee involvement and participation have been developed over the past decades. One of the most important seems to be a model presented by Marchington (2005). He identified four core aspects of employee participation within the company:

  1. The degree of involvement: – this indicates the extent of involvement to which employees, either directly or through their representatives, may exert some form of influence on management decisions.
  2. Scope: – the scope of management decisions that are open to influence by subordinate employees may differ depending on the subject matter and may range from trivial to strategic decisions.
  3. The level: – the level at which the subordinates may be involved in management decisions varies substantially and can range from departmental level, through to division and headquarter level.
  4. Forms of participation: – participation may be direct or indirect. Direct participation refers to the face-to-face involvement while, indirect participation occurs when workers are represented by trade unions in workers’ council or high-level consultation committees and through collective bargaining.

Another interesting model has been developed by Cox et.al. (2006). This model identified two dimensions of employee involvement, breadth and depth. Breadth regards a number of various employee involvement’s practices and programmes implemented in a work place. Using diversified but complementary schemes of employee participation leads to stronger impact on the company through mutual reinforcement. It also indicates that the management team aims to maximise the profits of employee participation. In turn, depth concerns the quality of employee involvement’s practices within the company. This measure indicates how embedded the employee participation’s practices are within the company. Both breadth and depth are important as they are strongly linked with organizational commitment and job satisfaction (Hayman & Mason 1995). That is, if employees’ views are taken into consideration and acted upon by the management, then they are more likely to demonstrate their commitment to the organization and indicate their satisfaction with their work. A major weakness of this measure is that the embeddedness of employee participation within the organization has often been assessed through management eyes rather than by analysing employee views on employee participation.

Employee participation and company’s performance – theoretical approach

The idea of employee participation as a part of Human Resources Management practices has been researched by a number of scholars who underlined significant benefits of employee involvement schemes on the company’s performance.

Kanter (1982) postulated that participatory character of the decision-making processes within the organization brings more positive outcomes than bureaucratic structure, as it involves knowledge sharing between workers and managers. Workers seem to be better informed than their managers with regard to the products and services, processes and work tasks, as they are directly involved in these activities. Hence, their views and suggestions might be very valuable in developing company’s strategy and achieving enhanced performance.

In turn, Lawler (1990) listed a number of various benefits of employee involvement within the company. He pointed out that employee participation leads to more efficient and innovative methods and procedures in a workplace and improves communication within the organization (between managers and workers as well as across work departments). Greater employee involvement results in higher job satisfaction and lower staff turnovers. Further, as employee participation concerns training and team work, it also leads to greater staff flexibility and higher job motivation. Additionally, high work motivation and better work methods determine increased rate of outputs and hence, contribute to the better quality of the products and services offered by the company. Finally, better communication and improved worker-management relations reduce a number of disputes and conflicts within the organization and help to resolve existing conflicts in the most effective way. All these factors contribute to improved performance of the organization. It is also important to add that Lawler identified various negative consequences associated with employee involvement. One of them are expectations created amongst the employees. These expectations usually concern organizational changes, personal self-development and career advancement opportunities. If the organization fails to meet these expectations, it will lead to dissatisfaction amongst workers. Employee participation causes also additional costs. Developing new skills is associated with additional costly trainings. In turn, accepting new responsibilities by the employee automatically requires an increased in salary of such an employee. Participatory character of decision-making is also slower than traditional style of leadership as it involves a significant number of people that have to accept the decision (Lawler, 1990).

Markowitz (1996) underlines higher morale of the employees and their greater commitment to performed job as a consequence of increased participation in the decision-making processes. As employees have a decision-making power, they fulfill their duties more accurately. Higher productivity of the employees contributes to higher profits of the organization and greater stability within the industry (Jones, 2006).

More recently, the effects of employee involvement were analysed by Appelbaum et.al (2000). Similarly like Lawler, the researchers emphasized the importance of information on the production (service) processes possessed by employees. The organization should aim to gain such knowledge from its employees in order to stay profitable. However, three conditions have to be met by the company to gain such knowledge. Employees need to be involved in substantive decisions. They are required to have specific skills and they need to be given appropriate work incentives. This approach indicated that employees cannot provide valuable information to the organization’s management if these conditions are not met. Additionally, employees are not willing to provide such information if they are not given appropriate incentives. Hence, this approach underlines the important of coherent and accurate HRM practices within the company (Jones, et.al., 2006).

Grimsrud and Kvinge (2010) postulate that employee participation is associated with the features such as responsibility, control rights, rights on revenue and risk taking. The companies are characterized by the areas of joint interests of employers and employees as well as by the areas where the conflicting interests appear. In particular, the author focuses on two conflict areas. These are principle-agent problem and free-rider problem. Principle-agent issue concerns different approach of the organization (owners and management team) and employees towards the inputs of work and distribution of created outputs. While the organization aims to achieve higher labour productivity and higher value added and keep fixed salaries at the same time, employees intend to share higher profits. Free rider issue refers to the situation when the organization cannot monitor individual contribution of its employees to the organization’s development and hence, individual rewards of employees depend on joint efforts. Hence, the organization tends to implement practices that will improve the productivity of employees, while employees seek to take advantage of such situation and gain additional benefits (i.e. higher return rights) in exchange of improved productivity.

Employee participation and company’s performance – empirical evidences

A number of scholars sought empirical evidences of the positive correlation between employee participation and organization’s performance. Some scholars based their analysis on the examples of a single organization (i.e. Jones, 2006) or selected industry (i.e. Sesil, 1999), while others examined the various businesses across the country (i.e. Guerrero and Barraud-Didier). Some researchers decided on a wider cross-country study (i.e. Gonzales, 2009; Grimsrud and Kvinge, 2010). Due to the scope of the following project, only key findings of selected empirical researches will be presented.

At the individual company level, Bartel (2004) conducted research on HRM practices amongst the branches of large bank. He proved that recognition system and performance feedback were of key significance for employees of this bank. Implementing these particular HRM practices contributed to the increasd sales of loans (Gonzales, 2009). In turn, Jones et.al. (2006) examined the influence of innovative HRM practices on performance of a Finnish company in the retail services sector. They proved that employees who have been given opportunities to participate in decision-making process within the company, to receive solid information and to gain rewards were willing to increase their productivity. It is crucial to note that these HRM practices were implemented in settings where employee were characterized by low skills and were assigned relatively simple tasks.

At the industry level, Sesil (1999) analysed the impact of employee participation and group incentives on the company’s performance in high technology industry in the UK. The research included 118 companies, primarily in electronics and engineering and concerned various aspects of employee participation such as quality involvement, presence of union, multi-skilling of employees, communication between employees and management, strategic planning and establishment plan. Additionally, the researcher examined the bonuses for employee as a form of group incentives. The research revealed that bonuses, quality involvement and multi-skilling had large positive effects on company’s outcomes, while other variables showed no impact on performance. Hence, these results indicated that there is strong correlation employee participation and the company’s performance. This effect is even stronger if the employee involvement is combined with group incentives.

At the country level, Guerrero and Barraud-Didier (2004) focused on high-involvement practices and their impact on French firms. The research was based on the questionnaire conducted amongst 180 large companies in France. 57% of these companies originated in the industrial sector, while remaining 43% – in the services sector. The study concerned four major HRM practices, namely empowerment, compensation, communication as well as training and skills development. The following study revealed that empowerment was a key determinant of improved company’s performance, while communication and training had a minor effect on organizational results. In turn, compensation showed no influence on company’s outputs.  The following study underlined that the company should ensure enriched and challenging activities in order to manage employee participation. Further, the study postulated that the companies should promote open communication and power sharing amongst management and employees in order to develop participatory style of leadership as this style contributes to better HRM within the company and improved company’s performance.

In the cross-country context, Grimsrud and Kvinge (2010) conducted research on the economic impact of representative participation in eight countries[1]. The research took form of perception studies which means that “the respondents are asked to indicate whether different participation initiatives are believed to have an impact on different output measure” (Grimsrud and Kvinge, 2010, p. 149) and investigated various forms of representative participation such as work councils, trade unions or joint management – union committees. The following study showed very mixed results. Most of the analysis demonstrated that there was no correlation between employee participation and company’s productivity or such correlation was negative, while only several studies reported small positive productivity gains of employee participation. For instance, the study conducted on work councils amongst the German companies revealed that these councils had a positive impact on labour productivity while they influenced negatively company’s profitability. Similarly, the analysis of the Japanese companies showed a positive correlation between trade unions and labour productivity and negative correlation between trade unions and company’s benefits. Finally, the research amongst the British companies demonstrated that trade unions had a negative impact on productivity growth as well as on climate of relations between managers and employees at the workplace.

Conclusions

To sum up employee participation became a subject of theoretical debate and empirical analysis amongst the scholars. A number of researchers underlined positive correlation between employee involvement and organization’s performance. Precisely, employee participation (either direct or indirect) brings a valuable knowledge of products and services delivered by the organization and hence, contribute to the organization’s performance. Additionally, employee participation leads to higher job satisfaction and increased labour productivity as well as to lower staff rotation. These factors also determine organization’s success. On the other hand, some scholars stress various conflict areas within an organization (principle-agent issue; free rider problem) that might have a negative influence on the organization’s outputs.

Three empirical cases presented in the following paper revealed that direct employee involvement in decision-making processes within an organization contributed to its better performance. Employee empowerment and information sharing as well as financial rewards seemed to be mainly responsible for this improved performance. Employees must thus be sought for ideas on how organizational performance and quality of product or service can be improved. There is the need for management to ensure existence of employment participation programmes and initiatives that contribute to employee involvement in decision-making processes. Not only should the emphasis be placed on the existence of such initiatives but also on the embeddedness of such initiatives within the organization.

The evidence on strong correlation between employee participation and organization’s performance has not been found in reference to indirect forms of employee involvement. Although the following paper examined only one case of representative participation, this case included analysis across various countries and industries. This study revealed that employee participation had only minor positive impact on labour productivity while no effects (or negative effects) on overall company’s performance have been observed.

Reference

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