A new study by the independent Policy Studies Institute has found that small firms perform better when they involve employees in the business through direct communication and consultation. This is good news for small firms since they can adopt these practices at relatively low cost. But large firms must resort to more formal methods of employee involvement to benefit financially.
The study investigates the relationship between employee involvement (EI) and firms financial performance using a nationally representative sample of workplaces in Britain. It finds that:
- The EI practices and EI combinations which work for small-firm establishments are very different from those that work for large-firm establishments.
- The least bureaucratic and least costly EI methods have the potential to benefit small firms most.
- But whether they actually do so depends on the array of other EI and non-EI practices in operation: an inappropriate mix can have a negative effect on performance.
Small firms benefit from systematic use of one-way downward communication from management to employees. They also benefit from the regular use of direct communication methods such as team briefings, which have the potential for two-way communication between management and employees. These are the least bureaucratic EI practices, and are the least costly to maintain. The findings challenge the conventional wisdom that low intensity forms of EI have little effect on performance. In small firms, regular communication with decision-takers results in meaningful participation in decision-making and trust-based employee relations.
The positive impact of direct communication methods is enhanced when combined with upward problem-solving techniques, such as quality circles. Managers can use regular direct comm- unications to explain their plans for problem-solving, while workers can use them to convey concerns and alternative approaches. This can foster mutual trust which, through organisational commitment and job satisfaction, can have positive effects on a firm s performance. However, upward problem-solving alone is associated with poorer performance, suggesting that attempts to tap into worker knowledge, and to elicit greater worker effort through problem-solving EI, can prove counterproductive if they are not combined with regular two-way communication between management and workers.
Whereas one-way downward communication from management to employees improves small firm performance, it has a negative effect in combination with upward problem-solving. So, although one-way downward communication of management instructions can bring financial rewards for small firms, this authoritarian approach conflicts with the more collaborative approach required to make upward problem-solving work.
Although group-based financial participation schemes such as profit-related payments and share ownership schemes enhance large firm performance, they have no effect on small firms performance, suggesting that the costs in implementing and maintaining such schemes counter any incentive effects they may have in small firms. Individual performance-related payments do improve small firms performance, while having no effect on large firms performance. They may be more suited to the small firm environment, where monitoring individual effort is less costly and wages are more responsive to individual productivity. However, individual performance-related payments do not combine with EI practices to improve performance, suggesting that they are not used as a financial pay-off to workers to participate constructively in EI schemes.
Alex Bryson, a member of the Employment Group at PSI and one of the study s authors said:
There is no easy blueprint for success. Whether employee involvement works depends on the array of other policies and practices in operation at the workplace. The adoption of inappropriate methods, or an inappropriate combination, can actually damage small firms performance. The most intensive combination of employee involvement methods tested by us has the largest detrimental impact on small firms performance, questioning the assertion that all employee involvement is good, and that more is better. The finding that any practice may have positive or negative effects, depending on the employee involvement practices with which it combines, raises serious questions about the applicability of a best practice approach which underlies much of the current thinking about what benefits firms. Instead individual firms need to appraise carefully what employee involvement practice(s) best suit their competitive circumstances and other internal practices.Contact: Michelle McNally, PSI publications and press department, on 0171 468 2201
Alex Bryson on 0171 468 2225 or 01844 218058
Notes to Editors:
- The Impact of Employee Involvement on Small Firms Economic Performance by Alex Bryson and Neil Millward, is a paper presented at the 11th International Industrial Relations Association World Congress in Bologna. A downloadable version of the paper plus a technical summary are available from the PSI website
- Alex Bryson is a Senior Research Fellow at the Policy Studies Institute. Co-author Neil Millward has recently joined the National Institute of Economic and Social Research.
- The research was funded by the Economic and Social Research Council (grant reference R000222294)..
- PSI is a registered charity (No. 313819) and has no association with any political party, pressure group or commercial interest.
- Table 1 shows the incidence of EI practices among small and large firms. Table 2 summarises the results referred to in the text. Columns 2 and 3 show the impact of various employee involvement regimes on the financial performance of small and large firms respectively. Results are based on statistical models: for details see
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