Many long-term research investigations begin innocently enough. And that was the case with my work on the link between people management practices and company financial success.

 In the early 1980s I served on the advisory board of directors for Commerce Clearing House. The board was comprised entirely of human resources executives and company legal executives. At each board meeting we would go around the room and update each other on what was going on at our respective companies. Through this group, you got a good capsule summary of the latest trends in human resources and people management.

 I noticed a simple trend. Those companies on our board that were doing progressive innovative work with people management also had good financial results. Those on our board who were doing only basic administration work had mediocre financial results. I speculated that this trend might be true for companies in general and not just an artifact of our board.

 Research in this area was non existent. While it "made sense" that the effective management of people would correlate with company financial success, there were no facts or data to back this up. You could offer up only anecdotal evidence to support the idea. Given the lack of research, I decided to conduct a study.

The First Studies

 At this time I headed up the Research Committee of the Society for Human Resource Management. It was under this group that the first study linking people management practices and financial success was undertaken. That was back in 1984.

 I brainstormed a list of thirty people management practices that I thought might correlate with company financial success. For example, I thought that companies with participative management styles would be more financially successful than those with autocratic management styles. This was due to the fact that quality and customer service initiatives seemed to depend on at least a moderately participative management style.

While it made sense that the effective management of people would correlate with financial success, no data existed to back this up.

 I turned this idea into a survey item that could be answered by employees. Not a job satisfaction question, but one that asks employees to describe, on a predetermined scale, how participative the company's management style was. In this way I could quantify the results and correlate them with financial success. A similar process was used for the other survey questions.

 Next I lined up thirty companies and their employees to fill out the surveys. In this way each company received a score on each of the people management practices being surveyed. The score on each item was the average survey response for all employees at that company. Unknown to the companies, I gathered financial data on each of them through public sources. This data included growth in sales, growth in profits, profit margins, and other hard financial results.

 The first pilot was surprisingly successful. Twenty-two of the experimental items correlated with financial success. The composite of all items had a very strong correlation with the financial criteria. Some of the items washed out. For example, I thought that a rich employee benefits package might retain employees and in this way correlate with company financial success. In reality there was no correlation at all.

 Given the success of the first pilot I quickly did a second with another set of companies. The items which predicted company financial success were retained for this next pilot. Results of the second pilot re-validated the original set of items. We also discovered several new items that correlated with company financial success.