It's official: a happy staff means more productivity

COMMON SENSE tells us that people who find satisfaction in their work are more productive than those who do not. The trouble has been in proving it. For at least 40 years occupational psychologists have told employers what motivates people at work and that motivated people work harder and more productively.

Unfortunately, as researchers could offer no strong evidence that job satisfaction affects productivity, many employers stuck to their belief in "rational-economic" man. This view assumes that people work hard only if their performance is linked to rewards and penalties.

To some extent this was excusable. Knowing that their workers are satisfied may make managers feel good, but in today's intensely competitive climate the priority is getting the last gasp of effort out of one's team.

However, the hard evidence that employers needed is now available. A new study shows decisively that the way people are managed has a powerful impact on both productivity and profitability. Indeed, people management has a greater effect on performance than any other management practices usually associated with performance - including R&D strategy, technology, competitive strategy, market share, and Total Quality Management.

The findings come from the Sheffield Effectiveness Programme, jointly based at the Centre for Economic Performance at the LSE and the Institute for Work Psychology at Sheffield University. Begun in 1991, this 10-year study aims to identify the main factors which influence company effectiveness. This involves examining the market environment, organisational characteristics and managerial practices in more than 100 UK manufacturing companies and relating these to company financial performance.

Part of the study involved measuring the levels of job satisfaction and organisational commitment among workers in 67 firms. By excluding the effects of previous productivity and profitability it was found that 5 per cent of the variation between companies in their profitability and 16 per cent in their productivity could be explained by variations in the level of job satisfaction of their employees.

Describing the findings in an Institute of Personnel and Development report, the team says: "Companies with high levels of job satisfaction and commitment show increased performance in terms of profitability and productivity." It suggests that firms should pay attention to the attitudes of their employees and how they can be influenced to be more positive. The results suggest that the more satisfied workers are with their jobs, the better is the company likely to perform in terms of profitability and particularly productivity."

The study also found that differences in corporate culture account for 10 per cent of the variation in profitability between firms, and 29 per cent in productivity. It says: "This is clear confirmation of the importance of organisational culture in relation to company performance. Concern for employee welfare was by far and away the most significant factor."

After allowing for prior profitability, the results reveal that human resource management practices explain 19 per cent of the variation between companies in changes in profitability and 18 per cent of the changes in productivity. It concludes: "Overall, the results of this study very clearly indicate the importance of people management practices in influencing company performance." The results are unique, since no similar study has been conducted, comparing the influence of different management practices upon performance.