Table 1. People Management Practices and Financial Results. Figures in cells are based on ten years worth of data, but are annualized averages.

 Activity picked up rapidly after the second pilot. Altogether, we surveyed over 150 of the largest 500 companies between 1985-87. That list today includes over 330 organizations, roughly half of them in the Fortune 500 group. Altogether we have discovered eighty different people management practices that correlate with a composite index of financial success. Though it becomes increasingly difficult to discover new items that correlate with financial success (many new items correlate with existing items), we are constantly searching for more.

Financial Results

 Table 1 shows the long-term financial results of our work. Over 200 organizations are represented in this table. We first calculated an overall score for each company on all people management practices. This is called the "PMP score." The PMP score was calculated by merely summing together the scores on each practice, all of which are measured on a five-point scale.

 Next we split our sample in half based upon the overall PMP score. Those companies that scored in the upper half were called the "High PMP" group and those that scored in the lower half were called the "Low PMP" group. In essence, the higher-scoring companies are better at managing the people-side of the business. This is not our opinion but the actual scores of their employees on the survey items.

 With each group of companies we then calculated the financial numbers reflecting their performance over the past ten years. As can be seen in Table 1, the relationships were very powerful. In all cases the High PMP group had much better financial data than the Low PMP group. These results were statistically significant in all cases. This shows a very powerful association between how a company manages people and financial success.

 It is interesting to play "what-if " with the numbers in Table 1. Say, for example, that the Low PMP group was to change their people management practices to be like the High PNW group. The question might be: how much additional profit would this add for these companies each year? The high PMP companies grow their profits by 18.2% per year. In current dollars, this means they should average an additional $88 million in profits next year. The low PMP companies, by contrast, grow profits by only 4.4% per year. Next year this should translate to $21 million per company in additional profits.

The companies in our database would add $6.7 billion in additional profits if they could improve people management practices.

 That difference of $67 million per company is astounding. It must be remembered that this benefit is incurred each year, not just for one year. Collectively the companies in our database would add $6.7 billion in profits each year if they could improve people management practices. For all companies in the U.S., the difference would be many times this amount.

 The trends shown in Table 1 appear even if we look at just one year's worth of financial data. However, the differences between the two groups are not as strong. This no doubt reflects the vagaries that enter in when looking at any given year of financial data. You see more powerful relationships between PMP scores and financial success as the timeframe becomes longer. When looking at three-year or longer trends, the anomalies tend to wash out. What you find is that the companies who manage the people-side effectively attain better financial results.

Correlation Versus Causality

 For the first few years of our research, critics would say, "You always imply that better people-management practices cause better financial results. It could be the other way around." What they were saying was that causality might be in the opposite direction--companies which make a lot of money might change their people management practices rather than the other way around.

 While I could not prove them wrong I always felt that the direction of causality was that effective management causes better financials. Why? The following reasons apply: