UK: SME/Columnists - Invest in people and improve profitability and productivity.

UK: SME/Columnists - Invest in people and improve profitability and productivity. - People management: boost the bottom line with happy staff

Last Updated: 31 Aug 2010

People management: boost the bottom line with happy staff

Is people management central to your business? Or are people issues viewed as a luxury, only relevant to larger firms, or something to be considered when the business issues have been effectively dealt with?

If so, it's time to reconsider your priorities. Recent research conducted for the Institute of Personnel and Development (IPD) finally proves that people really are a firm's most important asset and the primary source of organisational success.

A seven-year study of more than 100 medium-sized UK manufacturing firms reveals that the way employees are managed and developed far outstrips investment in technology, research and development (R&D), or an emphasis on strategy or quality and its influence on the bottom line. It also accounts for 19% of the variation in profitability between companies and 18% of the variation in productivity - more than double that of R&D. Emphasis on quality, new technology and competitive strategy barely creep above 1% in terms of their contribution to the bottom line. This study also proves that the more satisfied workers are with their jobs, the better the company is likely to perform in terms of profitability and particularly productivity.

Despite these findings, researchers believe that most managers are still more committed to updating their production technology than to the development of their workforce. Many companies fail to see the link between good people management practices and business success, claim the report authors, Michael West and Malcolm Patterson of the Institute of Work Psychology at the University of Sheffield. More than two-thirds of the companies studied have no written personnel strategy and only 6% have highly planned and organised training strategies.

There are many instances where enlightened people management pays off.

Of the 100 firms studied, Zotefoams, a Croydon-based foam manufacturer, enjoyed the highest profitability and labour productivity. It has invested heavily in producing a skilled and motivated workforce. All shopfloor employees, supervisors and managers undergo training to NVQ standards and 75% of the workforce have received training in team problem-solving.

The company has also adopted skill-based pay, employee share options and profit sharing to reward and motivate staff.

West and Patterson's suggestions for unlocking employee potential include the periodic monitoring of employee satisfaction and commitment and the regular review of people management objectives, strategies and processes.

The most important areas to get right, they say, are recruitment and selection, appraisal, training, reward systems, job design and communication.

Many firms continue to pay lip service to the idea, while neglecting to invest the resources, time and creativity in people development issues.

But with figures that prove people matter, that investment is clearly justified.

Judith Oliver is a contributing editor for Management Today.

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