How do you think organizational dynamics impacts overall employee productivity?

The importance of good managers has a huge effect on people’s productivity and employee turnover. Various studies show that the impact of having a good or a bad supervisor is very high. However, many managers don’t realize this. The relationship between an employer and employees is mostly very unpredictable and complex. It is subject to change over time and as the relationship evolves, it will put the employee at risk as expectations from them will not be the same as when they were hired for the job. This will in turn affect the employee’s engagement to do the job properly or come up with new ideas.

Good managers develop trust between the employee and the company and with that level of trust you are more likely to get positive results, have employees going extra miles to do their best, sharing ideas and insights about ways to improve processes/services and so forth. Many managers are very hierarchical in the way they deal with people. My Asian students often say that a concern in the Asian economy, including India, is that many managers are very hierarchical and I think if that’s true it can reduce productivity and there is a strong need to change the practices in India.

What was the key outcome of your study ‘If implementing a reward program would actually boost company performance or not’ and what can organizations learn from the same?

We studied an employee suggestion program in a large IT services company in one of the Asian countries. The policies at this company were quite similar to most other technology companies, including in India. The idea was to encourage employees at all levels to make suggestions for improving the business, be it internal operations or the client’s business. The idea was to try and create a culture where all employees are involved in innovation. So the organization set up an experimental incentive plan to see if they could motivate the employees through rewards to share more and better ideas.

This study showed that the incentive plan did in fact encourage more employees to get involved in suggesting ideas and secondly the ideas were of better quality, higher value and more likely to be implemented. Our finding was quite surprising because many psychologists have argued that pay for performance would have an opposite effect, but our study showed the opposite. This company recently shared some statistics revealing that the propensity for employees sharing ideas has continued to increase and they are creating more value for customers, resulting in substantially improved profit margins. As a result of the innovation, the customers are extending the amount of business they have been doing with the company. These are real and measurable economic effects of employee innovation.

What would be a key learning for organizations?

All of your employees are potential sources of innovation and you may be able to tap into this pool with something even as simple as an employee suggestion system and it is possible to increase the effects through a well-designed reward program too. You will then be able to see real economic effects like profitability, customer retention etc.

What does an employee suggestion system look like?

It’s a very simple online system where employees can login, provide the description of their new idea, a brief description or an estimate of the cost for implementing the idea and the estimated potential benefits, specifying how the idea would be implemented, who all in the organization would be involved in the same. The supervisor reviews the idea within three days of the submission and then helps the employee refine the idea. Then it is submitted to a panel of high-level executives who meet every 20 days to evaluate all the new ideas and decide which ones to accept. The accepted ideas are either passed on to the client in case their approval is needed or are just implemented. These ideas are available to all other employees for knowing what their colleagues or peers are suggesting and further feel motivated to do the same. The implementation of these ideas is tracked over time and the company estimates the profitability of the ideas and in many cases they even ask the clients to rate the ideas on a 1-5 scale.

What keeps employees motivated to come up with new innovative ideas?

Most employees are intrinsically motivated to do a good job. For instance, in case of this technology company, people are highly interested in learning and reflecting on their work so the intrinsic motivation is significantly high in such a situation. Secondly, the CEO in this company has been trying to encourage a culture of innovation for years. There are some other programs designed to embed this as a culture and then there is the reward program for motivation.

It rewards employees for the acceptable ideas they suggest. Initially, there were reward points that could be used to buy consumer goods, but now they even get cash rewards. This is a model that organizations of any industry or scale can implement easily.

What are the key challenges organizations nowadays face in engaging and retaining talent?

The biggest challenge is that many of the supervisors or managers are not very skilled or sophisticated at dealing with their people. They may be heavy handed, hierarchical or may lack the capability of fostering trust. The second challenge is finding better ways to recognize and reward people each year for their contribution.

Moreover, it takes the top management or the leadership of an organization to convince that better management is important and valuable. If they do not pay attention to it, giving it its due importance, it leaves no reason for the middle management to worry about it and they will only focus on their day-to-day operations. It is generally believed that ‘people don’t leave organizations but they leave managers’. In such cases HR always tends to see what makes people quit, but if they try to bring about a change in managerial behavior they are most likely to be ignored by other managers as well. This is why it is solely the responsibility of the top management to ensure better managerial and people skills at all levels.

As an economist, how do you foresee the future of HR in the coming few years?

I think it will continue to be strategically important as it has been for the last decade-and-a-half, but at the same time I feel that it will struggle to get as much attention from the top management as is necessary. The field is becoming more analytical and quantitative and I would advise those in the field to start thinking about what kind of data analytics tools can be used as it is becoming a very big trend in Human Resources.

A word of advice to emerging HR professionals.

My advice to upcoming HR professionals is – learn statistics so that you can be comfortable with data to get ahead of the curve. You can add a lot of value like that as companies have huge amounts of data waiting to be decoded. In addition, analytics is one thing that managers in all other functions also tend to respect.