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Producing Sustainable Competitive Advantage through the Effective Management of People[and Executive Commentary]

Author(s): Jeffrey Pfeffer, Toru Hatano and Timo SantalainenSource: The Academy of Management Executive (1993-2005), Vol. 19, No. 4, Classic Articlesfrom AME (Nov., 2005), pp. 95-108Published by: Academy of ManagementStable URL: http://www.jstor.org/stable/4166208.

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Academy of Management Executive, 2005, Vol. 19, No. 4 Reprinted from 1995, Vol. 9, No. I

roducing sustainablecompetitiveadvantage through

t h effective m n gemento people

Jeffrey Pfeffer

Executive OverviewAchieving competitive success through people involves fundamentally altering how wethink about the workforce and the employment relationship. It means achieving successby working with people, not by replacing them or limiting the scope of their activities. Itentails seeing the workforce as a source of strategic advantage, not just as a cost to beminimized or avoided. Firms that take this different perspective are often able tosuccessfully outmaneuver and outperform their rivals.-------------------- ---------------------- ---------------------.. ..... ..... ......------------. ..... ..... ..... ..... ..... ..... ..... ..... .....

Suppose that in 1972, someone asked you to pickthe five companies that would provide the greatestreturn to stockholders over the next 20 years. Andsuppose that you had access to books on compet-itive success that were not even written. Howwould you approach your assignment? In order toearn tremendous economic returns, the companiesyou picked should have some sustainable compet-itive advantage, something that 1) distinguishesthem from their competitors, 2) provides positiveeconomic benefits, and 3) is not readily duplicated.Conventional wisdom then (and even now)would have you begin by selecting the right indus-tries. After all, not all industries offer equal op-portunity for sustained profitability, and the inher-ent profitability of its industry is one essentialingredient in determining the profitability of afirm. ' According to Michael Porter's now famousframework, the five fundamental competitiveforces that determine the ability of firms in anindustry to earn above-normal returns are the en-try of new competitors, the threat of substitutes, thebargaining power of buyers, the bargaining powerof suppliers, and the rivalry among existing com-petitors. 2 You should find industries with barriersto entry, low supplier and buyer bargaining power,

few ready substitutes, and a limited threat of newentrants to compete away economic returns.Within such industries, other conventional analy-ses would urge you to select firms with the largestmarket share, which can realize the cost benefits ofeconomies of scale. In short you would probablylook to industries in which patent protection ofimportant product or service technology could beachieved and select the dominant firms in thoseindustries.You would have been very successful in select-ing the five top performing firms from 1972 to 1992if you took this conventional wisdom and turned iton its head. The top five stocks, and their percent-age returns, were (in reverse order): Plenum Pub-lishing (with a return of 15,689%), Circuit City (avideo and appliance retailer; 16,410%), TysonFoods (a poultry producer; 18,118%), Wal-Mart (adiscount chain; 19,807%), and Southwest Airlines(21,775%).3Yet during this period, these industries(retailing, airlines, publishing, and food process-ing) were characterized by massive competitionand horrendous losses, widespread bankruptcy,virtually no barriers to entry (for airlines after1978), little unique or proprietary technology, andmany substitute products or services. And in 1972,none of these firms was (and some still are not) themarket-share leader, enjoying economies of scaleor moving down the learning curve.*Adapted from Jeffrey Pfeffer, Competitive Advantagethrough People, Harvard Business School Press, Boston, 1994.

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96 Academy of Management Executive November

What these five successful firms tend tohave in common is that for theirsustained advantage, they rely not ontechnology, patents, or strategic position,but on how they manage their workforce.The point here is not to throw out conventionalstrategic analysis based on industrial economicsbut simply to note that the source of competitiveadvantage has always shifted over time. Whatthese five successful firms tend to have in commonis that for their sustained advantage, they rely noton technology, patents, or strategic position, but onhow they manage their workforce.The Importance of the Workforce and HowIt is ManagedAs other sources of competitive success have be-come less important, what remains as a crucial,differentiating factor is the organization, its em-ployees, and how they work. Consider, for in-stance, Southwest Airlines, whose stock had thebest return from 1972 to 1992. It certainly did notachieve that success from economies of scale. In1992, Southwest had revenues of $1.31 billion and amere 2.6% of the U.S. passenger market.4 PeopleExpress, by contrast, achieved $1 billion in reve-nues after only 3 years of operation, not the almost20 it took Southwest. Southwest exists not becauseof regulated or protected markets but in spite ofthem. During the first three years of its history, noSouthwest planes were flown. 5 Southwest wageda battle for its very existence with competitors whosought to keep it from flying at all and, failing that,made sure it did not fly out of the newly con-structed Dallas-Fort Worth international airport.Instead, it was restricted to operating out of theclose-in Love Field, and thus was born its firstadvertising slogan, Make Love, Not War. South-west became the love airline out of necessity, notchoice.In 1978, competitors sought to bar flights fromLove Field to anywhere outside Texas. The com-promise Southwest wrangled permitted it to flyfrom Love to the four states contiguous to Texas.6Its competitive strategy of short-haul, point-to-point flights to close-in airports (it now flies intoChicago's Midway and Houston's Hobby airports)was more a product of its need to adapt to whatit was being permitted to do than a conscious,planned move-although, in retrospect, the strat-egy has succeeded brilliantly. Nor has South-west succeeded because it has hatd more access

to lower-cost capital-indeed, it is one of the leastleveraged airlines in the United States. South-west's planes, Boeing 737s, are obviously availableto all its competitors. It isn't a member of any of thebig computerized reservation systems; it uses nounique process technology and sells essentially acommodity product-low-cost, low-frills airlineservice at prices its competitors have difficultymatching.Much of its cost advantage comes from its veryproductive, very motivated, and by the way, union-ized workforce. Compared to the U.S. airline indus-try, according to 1991 statistics, Southwest hasfewer employees per aircraft (79 versus 131), fliesmore passengers per employee (2,318 versus 848),and has more available seat miles per employee(1,891,082 versus 1,339,995).7 It turns around some80% of its flights in 15 minutes or less, while otherairlines on average need 45 minutes, giving it anenormous productivity advantage in terms ofequipment utilization.8 It also provides an excep-tional level of passenger service. Southwest haswon the airlines' so-called triple crown (best on-time performance, fewest lost bags, and fewestpassenger complaints-in the same month) ninetimes. No competitor has achieved that even once.9What is important to recognize is why success,such as that achieved at Southwest, can be sus-tained and cannot readily be imitated by compet-itors. There are two fundamental reasons. First, thesuccess that comes from managing people effec-tively is often not as visible or transparent as to itssource. We can see a computerized informationsystem, a particular semiconductor, a numericallycontrolled machine tool. The culture and practicesthat enable Southwest to achieve its success areless obvious. Even when they are described, asthey have been in numerous newspaper articlesand even a segment on 60 Minutes, they aredifficult to really understand. Culture, how peopleare managed, and the effects of this on their be-havior and skills are sometimes seen as the softside of business, occasionally dismissed. Evenwhen they are not dismissed, it is often hard tocomprehend the dynamics of a particular companyand how it operates because the way people aremanaged often fits together in a system. It iseasy to copy one thing but much more difficult tocopy numerous things. This is because thechange needs to be more comprehensive and alsobecause the ability to understand the system ofmanagement practices is hindered by its veryextensiveness.Thus, for example, Nordstrom, the departmentstore chain, has enjoyed substantial success bothin customer service and in sales and profitability



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2005 Pfeffer 97growth over the years. Nordstrom compensates itsemployees in part with commissions. Not surpris-ingly, many of its competitors, after finally ac-knowledging Nordstrom's success, and the factthat it was attributable to the behavior of its em-ployees, instituted commission systems. By itself,changing the compensation system did not fullycapture what Nordstrom had done, nor did it pro-vide many benefits to the competition. Indeed, insome cases, changing the compensation systemproduced employee grievances and attempts tounionize when the new system was viewed as un-fair or arbitrary.Thirteen Practices for Managing PeopleContrary to some academic writing and to popularbelief, there is little evidence that effective man-agement practices are 1) particularly faddish (al-though their implementation may well be), 2) diffi-cult to understand or to comprehend why theywork, or 3) necessarily contingent on an organiza-tion's particular competitive strategy. There areinterrelated practices-I enumerate 13, but the ex-act number and how they are defined are some-what arbitrary-that seem to characterize compa-nies that are effective in achieving competitivesuccess through how they manage people.The following policies and practices emergefrom extensive reading of both the popular andacademic literature, talking to numerous people infirms in a variety of industries, and the applicationof some simple common sense. The particular wayof subdividing the terrain is less important thanconsidering the entire landscape, so the readershould realize that the division into categories issomewhat arbitrary. The themes, however, recurrepeatedly in studies of organizations. It is impor-tant to recognize that the practices are interrelat-ed-it is difficult to do one thing by itself withmuch positive result.Employment SecuritySecurity of employment signals a long-standingcommitment by the organization to its workforce.Norms of reciprocity tend to guarantee that thiscommitment is repaid. However, conversely, anemployer that signals through word and deed thatits employees are dispensable is not likely to gen-erate much loyalty, commitment, or willingness toexpend extra effort for the organization's benefit.New United Motor Manufacturing (NUMMI), theToyota-GM joint venture in California, guaranteedworkers' jobs as part of the formal labor contractin return for a reduction in the number of job

classifications and an agreement not to strikeover work standards. This commitment was meteven in the face of temporarily slow demand, andmany observers believe that as a result, trust be-tween employees and the organization increasedsubstantially.Taking on people not readily eliminated exertspressure to be careful and selective in hiring.Moreover, employment security enhances em-ployee involvement because employees are morewilling to contribute to the work process when theyneed not fear losing their own or their coworkers'jobs. Employment security contributes to trainingas both employer and employee have greater in-centives to invest in training, '0 because there issome assurance that the employment relationshipwill be of sufficient duration to earn a return on thetime and resources expended in skill development.

Taking on people not readily eliminatedexerts pressure to be careful andselective in hiring.Selectivity in RecruitingSecurity in employment and reliance on the work-force for competitive success mean that one mustbe careful to choose the right people, in the rightway. Studies covering populations ranging frommachine operators, typists, and welders to assem-bly workers-all in self-paced jobs so that individ-ual differences mattered-indicate that the mostproductive employees were about twice as good asthe least productive. Southwest Airlines worriesa lot about hiring the right people. In fact, it fliessome of its best customers to Dallas and involvesthem in the flight attendant hiring process, believ-ing that those who are in contact with the front-lineemployees probably know best what makes a goodemployee. At Lincoln Electric, hiring is done verycarefully based on the desire to succeed and thecapacity for growth.'2One of the practices of many of the Japaneseautomobile-manufacturing plants opened in theUnited States that proved especially newsworthywas their extensive screening of employees. Someof this was undoubtedly done to weed out thosewho were likely to be pro-union, but much of thescreening was to find those people who could workbest in the new environment, could learn and de-velop, and needed less supervision. There was lit-tle screening for particular skills, under the as-sumption that these could be readily learned.Nordstrom, the very effective specialty retailer



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98 Academy of Management Executive Novemberwhose sales per square foot are about double theindustry average, tends to recruit sales clerks whoare young and college-educated, seeking a careerin retailing.'3Besides getting the right people in the door, re-cruiting has an important symbolic aspect. Ifsomeone goes through a rigorous selection pro-cess, the person feels that he or she is joining anelite organization. High expectations for perfor-mance are created, and the message sent is thatpeople matter.

High WagesIf you want to recruit outstanding people, and wantthem to stay with the organization, paying more ishelpful, although not absolutely necessary. Highwages tend to attract more applicants, permittingthe organization to be more selective in findingpeople who are going to be trainable and who willbe committed to the organization. Perhaps mostimportant, higher wages send a message that theorganization values its people. Particularly if thesewages are higher than required by the market,employees can perceive the extra income as a giftand work more diligently as a result.'4 Nordstromtypically pays its people an hourly wage higherthan the prevailing rate for retail clerks at compa-rable stores. Coupled with incentive pay for out-standing work, Nordstrom salespeople often earntwice the average retail income.

Coupled with incentive pay foroutstanding work, Nordstrom salespeopleoften earn twice the average retailincome.Companies sometimes believe that lowering la-bor costs is essential for competitive success. Thisis not invariably the case, even in cost-competitivebusinesses, because in many organizations, laborcosts are a small fraction of the total costs. Further-more, even if labor costs (let alone labor rates) are

higher, it may be that enhanced service, skill, andinnovation more than compensate by increasingthe level of overall profit. For instance, the CEO ofWendy's, facing declining company profitability,decided that the best way to become the custom-er's restaurant of choice was to become the em-ployer of choice.'5 This entailed improving bothbenefits and base compensation, instituting aquarterly bonus, and creating an employee stockoption plan. The results were dramatic: Our turn-over rate for general managers fell to 20% in 1991

from 39% in 1989, while turnover among co- andassistant managers dropped to 37% from 60%-among the lowest in the business. With a stable-and able-workforce, sales began to pick up aswell. '6Incentive PayThere has been a tendency to overuse money in aneffort to solve myriad organizational problems.People are motivated by more than money-thingslike recognition, security, and fair treatment mattera great deal. Nevertheless, if people are responsi-ble for enhanced levels of performance and profit-ability, they will want to share in the benefits.Consider the alternative-if all the gains fromextra ingenuity and effort go just to top manage-ment or to shareholders (unless these are alsoemployees), people will soon view the situationas unfair, become discouraged, and abandontheir efforts. Thus, many organizations seek to re-ward performance with some form of contingentcompensation.Lincoln Electric is deservedly famous for itspiecework and incentive bonus plan. Contrary tofirst impressions, the plan does much more thanmerely reward individual productivity. Althoughthe factory workforce is paid on a piecework basis,it is paid only for good pieces-workers correctquality problems on their own time. Moreover, de-fects can be traced to the individual who producedthem. Quality is emphasized as well as productiv-ity. Additionally, piecework is only a part of theemployee's compensation. Bonuses, which oftenconstitute 100% of regular salary, are based on thecompany's profitability-encouraging employeesto identify with the whole firm. They are also basedon the individual's merit rating, and that rating is,in turn, based on four equally important aspects ofperformance: dependability, quality, output, andideas and cooperation.'7 This broader evaluationmitigates the pernicious tendencies of simplisticincentive systems to go awry.Employee OwnershipEmployee ownership offers two advantages. Em-ployees who have ownership interests in the orga-nizations for which they work have less conflictbetween capital and labor-to some degree theyare both capital and labor. Employee ownership,effectively implemented, can align the interests ofemployees with those of shareholders by makingemployees shareholders, too. Second, employeeownership puts stock in the hands of people, em-ployees, who are more inclined to take a long-term



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2005 Pfeffer 99view of the organization, its strategy, and its in-vestment policies and less likely to support hostiletakeovers, leveraged buyouts, and other financialmaneuvers. Of course, to the extent that one be-lieves this reduced risk of capital market disciplineinhibits efficiency, significant employee share-holding is a disadvantage. However, the existingevidence largely contradicts this negative view.Employees who have ownership interestsin the organizations for which they workhave less conflict between capital andlabor-to some degree they are bothcapital and labor.

It is probably no coincidence that all five of thecompanies mentioned as providing the best share-holder returns from 1972 to 1992 appear on TheEmployee Ownership 1000, a listing of 1000 com-panies in which employees own more than 4% ofthe stock of a corporation traded on the New Yorkor American stock exchanges or the over-the-counter market.'8 Although employee ownership isno panacea, and its effects depend largely on howit is implemented, the existing evidence is consis-tent with the view that employee ownership haspositive effects on firm performance.'9Information SharingIf people are to be a source of competitive advan-tage, clearly they must have the information nec-essary to do what is required to be successful. Atthe Advanced Micro Devices submicron develop-ment center, there are computer terminals through-out the plant that every employee has been trainedto use in order to obtain information about productyields, development progress, production rates, orany other aspect of the operation. One reasonsometimes given for not disclosing information tolarge numbers of employees is that it may leak tocompetitors. When Robert Beck was head of hu-man resources for the Bank of America, he percep-tively told the management committee, reluctantto disclose the bank's strategy and other infor-mation to its employees, that the competitors al-most certainly knew the information already; typ-ically, the only people in the dark are the firm'sown employees.Participation and EmpowermentSharing information is a necessary precondition toanother important feature found in many success-

ful work systems: encouraging the decentraliza-tion of decision making and broader worker par-ticipation and empowerment in controlling theirown work process. At Nordstrom, the written phi-losophy states:We also encourage you to present your ownideas. Your buyers have a great deal ofautonomy, and are encouraged to seek outand promote new fashion directions at alltimes.... Nordstrom has a strong open-doorpolicy and we encourage you to share yourconcerns, suggestions and ideas...Nordstrom Rules:Rule #1: Use your good judgment in all situa-tions. There will be no additional rules.20The evidence is that participation increases bothsatisfaction and employee productivity.21 Auton-omy is one of the most important dimensions ofjobs and was the focus of many job-redesign effortsundertaken as part of the quality of working lifemovement in the 1960s and 1970s.22The fundamen-tal change involves moving from a system of hier-archical control and coordination of activity to onein which lower-level employees, who may havemore or better information, are permitted to dothings to enhance performance. At a Levi Straussjeans factory, when it was time to purchase newforklift trucks, the drivers themselves got involved.They determined specifications, negotiated with

suppliers, and made the final purchase decision,in the process saving the company money as wellas obtaining equipment more appropriate for thatplant. At Eaton, a unionized manufacturer, workerstired of fixing equipment that broke down and sug-gested that they build two new automated ma-chines themselves. They did it for less than a thirdof what outside vendors would have charged anddoubled the output of the department in the firstyear.23Self-Managed TeamsOrganizations that have tapped the power ofteams have often experienced excellent results.Monsanto, a large chemical company, imple-mented work organization based on self-managedteams at its chemical and nylon complex nearPensacola, Florida. Teams of workers were respon-sible for hiring, purchasing, job assignments, andproduction.24 Management was reduced fromseven levels to four, and the plant experiencedincreases in both profitability and safety. At a 318-person submarine systems plant owned by AT&T,



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100 Academy of Management Executive Novembercosts were reduced more than 30%through the useof teams.25 Federal Express uses teams in its back-office operation with great success-service prob-lems fell 13% in 1989 after the company's 1,000clerical workers were organized in teams andgiven additional training and authority.26 One ofthe more dramatic examples of the benefits of us-ing teams occurred at Johnsonville Sausage. In1986, a manufacturer asked Johnsonville to pro-duce private-label sausage. The president wasabout to decline the new business, because hebelieved that the plant was already at capacityand could not handle the additional workload.However,

before deciding, he assembled his 200 produc-tion workers, who are organized in teams of fiveto 20, and asked them to decide.... After ... tendays, they came back with an answer: 'We cando it. ... The teams decided how much newmachinery they would need and how manynew people; they also made a schedule of howmuch to produce per day. Since Johnsonvilletook on the new project, productivity has risenover 50%in the factory.27

Teams work because of the peer monitoring andexpectations of coworkers that are brought to bearto both coordinate and monitor work. Indeed, evencritics of the team concept often argue that theproblem with teams as a substitute for hierarchy isnot that this approach doesn't work but that itworks too well. Thus, a dissident union leader inthe NUMMI plant noted: [W]hen the team's underpressure, people try to meet the team's expecta-tions and under peer pressure, they end up push-ing themselves too hard.... The team concept is anice idea, but when you put the teams under pres-sure, it becomes a damn effective way to divideworkers. 28... even critics of the team concept oftenargue that the problem with teams as asubstitute for hierarchy is not that thisapproach doesn't work but that it workstoo well.Training and Skill DevelopmentAn integral part of most new work systems is agreater commitment to training and skill develop-ment. Note, however, that this training will pro-duce positive returns only if the trained workersare then permitted to employ their skills. One mis-take many organizations make is to upgrade the

skills of both managers and workers but notchange the structure for work in ways that permitpeople to do anything different. Under such cir-cumstances, it is little wonder that training has noapparent effect.At Advanced Micro Devices' submicron develop-ment facility, some 70% of the technicians camefrom older facilities at AMD. In keeping with AMD'semphasis on employment stability, as old facilitieswere closed, people were evaluated with respect totheir basic skills. If accepted, they were putthrough a seven-month program at Mission Col-lege-at full pay and at company expense-andthen went to work in the new facility. This trainingnot only demonstrated the firm's commitment to itsemployees, which was then reciprocated, but alsoensured that the facility would be staffed withhighly qualified people who had been specificallytrained for their new jobs.At a Collins and Aikman carpet plant in Geor-gia, more than a third of the employees were highschool dropouts, and some could neither read norwrite. When the firm introduced computers to in-crease productive efficiency, however, it chose notto replace its existing workforce but to upgrade itsskills. After spending about $1,200 per employee ontraining, including lost job time, the companyfound that the amount of carpet stitched increased10%.Moreover, quality problems declined by half.The employees, with more skills and better morale,submitted some 1,230 suggestions, and absentee-ism fell by almost half.29

Cross-Utilization and Cross-TrainingHaving people do multiple jobs has a number ofpotential benefits. The most obvious is that doingmore things can make work more interesting-variety is one of the core job dimensions that affecthow people respond to their work. Variety in jobspermits a change in pace, a change in activity, andpotentially even a change in the people with whomone comes in contact, and each of these forms ofvariety can make work life more challenging. Be-yond its motivational effects, having people domultiple jobs has other important benefits. One iskeeping the work process both transparent and assimple as possible. If people are expected to shiftto new tasks readily, the design of those tasks hasto be straightforward enough so they can belearned quickly. A second, somewhat related ben-efit is the potential for newcomers to a job to seethings that can be improved that experienced peo-ple don't see, simply because they have come totake the work process so much for granted.Multiskilling is also a useful adjunct to policies



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2005 Pfeffer 101that promise employment security. After all, it iseasier to keep people at work if they have multipleskills and can do different things. By the sametoken, maintaining employment levels sometimescompels organizations to find new tasks for peo-ple, often with surprising results. When Mazda, theJapanese automobile manufacturer, suffered a de-cline in business in the 1980s, rather than laying offfactory workers, it put them to work selling cars,which, in Japan, are often sold door to door. At theend of the year, when awards were presented tothe best salespeople, the company discovered thatthe top ten were all former factory workers. Theycould explain the product effectively, and ofcourse, when business picked up, the fact that fac-tory workers had experience talking to customersyielded useful ideas about product characteristics.At Lechmere, a retail chain owned by Dayton-Hudson, the company experimented with cross-training and utilization of employees at a newstore in Sarasota, Florida. The store offered theworkers raises based on the number of jobs theylearned to perform, a variant of a pay-for-skillplan. The workforce, composed of 60% full-timeemployees rather than the 30% typical for thechain, was substantially more productive than inother stores. Cashiers are encouraged to sellrecords and tapes. Sporting goods salesmen gettutoring in forklifts. That way Lechmere canquickly adjust to changes in staffing needs simplyby redeploying existing workers. The pay incen-tives, along with the prospect of a more variedand interesting workday, proved valuable lures inrecruiting. 30Symbolic EgalitarianismOne important barrier to decentralizing decisionmaking, using self-managed teams, and elicitingemployee commitment and cooperation is the sym-bols that separate people from each other. Conse-quently, it is not surprising that many of the firmsthat are known for achieving competitive advan-tage through people have various forms of sym-bolic egalitarianism-ways of signaling to bothinsiders and outsiders that there is comparativeequality and it is not the case that some think andothers do. At NUMMI, the executive dining roomwas eliminated, and everyone eats in the samecafeteria. Everyone wears a blue smock. There areno reserved places in the employee parking lot.Everyone wears a blue smock. There areno reserved places in the employeeparking lot.

Communication across levels is greatly en-hanced by the opportunity to interact and meet inless formal settings. This means that senior man-agement is more likely to know what is actuallygoing on and be able to communicate its ideasmore directly to everyone in the facility. The reduc-tion in the number of social categories tends todecrease the salience of various subdivisions inthe organization, diminishes us versus themthinking, and provides more of a sense of everyoneworking toward a common goal. This egalitarian-ism makes cross-movement easier because thereare fewer status distinctions to be overcome. AtNUMMI, there is only one classification for Divi-sion 1 personnel compared to more than 80 previ-ously. The number of skilled trades classificationsshrank from 18 under the old General Motors sys-tems to 2.31Egalitarian symbols come in many forms. Insome organizations, it is dress-few who haveworked in a manufacturing facility have not heardthe phrase the suits are coming when peoplefrom headquarters, typically more formallydressed, arrive. Physical space is another way inwhich common fate can be signaled, or not. TheCEO of Solectron, a contract manufacturer thatwon the Malcolm Baldrige award, does not have aprivate office, and neither does the chairman. Incontrast, John DeLorean's graphic description ofthe fourteenth-floor headquarters for General Mo-tors is one of hushed, quiet offices reached by aprivate elevator that was secured-in other words,executives cut off from the rest of the organiza-tion.32Although symbolic egalitarianism would seemeasy to implement, the elimination of status sym-bols is often one of the most difficult things for acompany to do. A friend bemoaned the fact thatjust as he had reached a managerial level thatentitled him to use a private dining room, havepreferential parking, and occupy a larger office,his employer embarked on a total quality move-ment and eliminated all of these perquisites.Wage CompressionAlthough issues of wage compression are mostoften considered in terms of hierarchical compres-sion, and particularly CEO pay relative to that ofothers, there is a horizontal aspect to wage com-pression as well. It can have a number of efficien-cy-enhancing properties for organizations.It is important to remember that wage compres-sion is distinct from incentive pay. Incentive paysimply means that people are rewarded, eitherindividually or in groups, for their performance.



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102 Academy of Management Executive NovemberThese rewards can be large, producing wide vari-ation in salaries, or small, producing substantiallyless variation. It is also important to recognize thatincentive pay-particularly when applied to largerunits such as work groups, departments, or theentire organization-can either reduce or increasethe wage dispersion that would otherwise exist.Most gain-sharing and profit-sharing programs ac-tually reduce pay dispersion, although they neednot do so.When tasks are somewhat interdependent andcooperation is helpful for accomplishing work, paycompression, by reducing interpersonal competi-tion and enhancing cooperation, can lead to effi-ciency gains.33 Furthermore, large differences inthe allocation of organizational rewards can moti-vate people to achieve these rewards. Althoughincreased motivation can produce greater efforts,large differences in rewards can as readily resultin excessive time and energy spent on ingratiatingoneself with one's supervisor or trying to affect thecriteria for reward allocation.34 By this reasoning, amore compressed distribution of salaries can actu-ally produce higher overall performance, as thereis less incentive for individuals to waste their timeon gaming the system.To the extent that wages are compressed, pay islikely to be deemphasized in the reward systemand in the organization's culture. This has someobvious economic benefits-people are not con-stantly worrying about whether they are compen-sated appropriately and attempting to rebargaintheir salaries. A de-emphasis on pay can also fo-cus attention on the other advantages of organiza-tional membership such as good colleagues andwork that is interesting and meaningful. There is aliterature in psychology that suggests we attemptto figure out why we are doing what we are bylooking at ourselves as an outside observerwould.35 If we see we are very well paid, perhapson a contingent basis, for what we do, we are likelyto attribute our behavior to the economic rewards.If, however, we are not particularly well paid, or ifpay is less salient, and if it is distributed on a lesscontingent basis (which will make it less salient),then we are likely to attribute our behavior toother, more intrinsic factors such as the inherentenjoyment of the work. In other words, being paidin a contingent fashion for what we do can actuallyundermine our intrinsic interest in and satisfactionwith that activity.36 Thus, pay compression, byhelping to de-emphasize pay, can enhance otherbases of satisfaction with work and build a culturethat is less calculative in nature.

Promotion from WithinPromotion from within is a useful adjunct to manyof the practices described. It encourages trainingand skill development because the availability ofpromotion opportunities within the firm bindsworkers to employers and vice versa. It facilitatesdecentralization, participation, and delegation be-cause it helps promote trust across hierarchicallevels; promotion from within means that supervi-sors are responsible for coordinating the efforts ofpeople whom they probably know quite well. Bythe same token, those being coordinated person-ally know managers in higher positions. This con-tact provides social bases of influence so that for-mal position can loom less important. Promotionfrom within also offers an incentive for performingwell, and although tied to monetary rewards, pro-motion is a reward that also has a status-based,nonmonetary component. Perhaps most important,it provides a sense of fairness and justice in theworkplace. If people do an outstanding job butoutsiders are being brought in over them, therewill be a sense of alienation from the organization.One other advantage of promotion from within isthat it tends to ensure that people in managementpositions actually know something about the busi-ness, the technology, and the operations they aremanaging. There are numerous tales of firms man-aged by those with little understanding of the ba-sic operations, often with miserable results. DavidHalberstam's history of Ford Motor tells how fi-nance took control of the company. Not only werethese people not car men, they knew little aboutautomobiles, technology, production processes, orthe market-anything that could not be conveyedvia statistics-and had little interest in learning.37The problem with managing only through statis-tics is that without some understanding of the un-derlying processes that produce the measures, it islikely that managers will either focus on inappro-priate measures or fail to fully comprehend whatthey mean.By contrast, at Lincoln Electric, almost everyonewho joins the company learns to weld-Lincoln'smain product is, after all, arc welding equipment.Graduation from the welding program requirescoming up with some innovation to the product. AtNordstrom, even those with advanced degreesstart on the sales floor. Promotion is strictly fromwithin, and when Nordstrom opens a new store, itskey people are recruited from other stores aroundthe country. This helps perpetuate the Nordstromculture and values but also provides assurancethat those running the store know what they are



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2005 Pfeffer 103doing and have experience doing it the Nordstromway.

Taking the Long ViewThe bad news about achieving some competitiveadvantage through the workforce is that it inevita-bly takes time to accomplish. By contrast, a newpiece of equipment can be quickly installed; a newproduct technology can be acquired through a li-censing agreement in the time it takes to negotiatethe agreement; and acquiring capital only requiresthe successful conclusion of negotiations. Thegood news, however, is that once achieved, com-petitive advantage obtained through employmentpractices is likely to be substantially more endur-ing and more difficult to duplicate. Nevertheless,the time required to implement these practices andstart seeing results means that a long-term per-spective is needed. It also takes a long time hori-zon to execute many of these approaches. In theshort term, laying off people is probably more prof-itable compared to trying to maintain employmentsecurity; cutting training is a quick way to main-tain short-term profits; and cross-training andcross-utilization may provide insights and innova-tion in time, but initially, the organization foregoesthe advantages of more narrow specialization andthe immediate proficiency achieved thereby.What determines an organization's time horizonis an important issue, but one outside the scope ofthis article. In general, however, there is some ev-idence that family ownership, employee owner-ship, or other forms of organization that lessen theimmediate pressures for quick earnings to pleasethe securities market are probably helpful. LincolnElectric is closely held, and the Nordstrom familyretains a substantial fraction of the ownership ofthat retailer. NUMMIhas Toyota as one of the jointventure partners, and Toyota's own plans for thefacility virtually dictate that it take a long-termview, which is consistent with its culture and tra-dition. Again, the Walton family's ownership posi-tion in Wal-Mart helps ensure that the organiza-tion takes a long view of its business processes.It is almost inconceivable that a firm facing im-mediate short-term pressure would embark on ac-tivities that are apparently necessary to achievesome competitive advantage through people. Thisprovides one explanation for the limited diffusionof these practices. If the organization is doing well,it may feel no need to worry about its competitiveposition. By the same token, if the organization isin financial distress, the immediate pressures maybe too severe to embark on activities that provide

productivity and profit advantages, but only after alonger, and unknown period of time.

Measurement of the PracticesMeasurement is a critical component in any man-agement process, and this is true for the process ofmanaging the organization's workforce. Measure-ment serves several functions. First, it providesfeedback as to how well the organization is imple-menting various policies. For example, many orga-nizations espouse a promotion from within policybut don't fulfill this objective. Often, this is be-cause there is no systematic collection and report-ing of information such as what percentage of thepositions at given levels have been filled inter-nally. A commitment to a high-wage policy obvi-ously requires information as to where in the rel-evant labor market the organization's wages fall. Acommitment to training is more likely to be ful-filled if data are collected, not only on the totalamount spent on training but also on what types ofemployees have received training and what sortsof training are being delivered.Second, measurement ensures that what is mea-sured will be noticed. Out of sight, out of mind isa principle that applies to organizational goalsand practices as well as to people. One of the mostconsistent findings in the organizational literatureis that measures affect behavior.38 Most peoplewill try to succeed on the measures even if thereare no direct, immediate consequences. Thingsthat are measured get talked about, and thingsthat are not don't.It is no accident that companies seriously com-mitted to achieving competitive advantagethrough people make measurement of their effortsa critical component of the overall process. Thus,for example, at Advanced Micro Devices' submi-cron development facility, management made howpeople were managed a priority and measuredemployee attitudes regularly to see whether theywere achieving the vision. One survey askedquestions such as: How many teams are you on inyour own department and with members of otherdepartments? How many hours per week do youspend receiving training and training others? Thesurvey also asked the extent to which peopleagreed or disagreed with statements such as: thereis problem solving at all levels in my work group;people in my work group are encouraged to takethe initiative; a spirit of teamwork exists in ourwork group.



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104 Academy of Management Executive November

It is no accident that companies seriouslycommitted to achieving competitiveadvantage through people makemeasurement of their efforts a criticalcomponent of the overall process.In a world in which financial results are mea-sured, a failure to measure human resource pol-icy and practice implementation dooms this tosecond-class status, oversight, neglect, and po-tential failure. The feedback from the measure-ments is essential to refine and further developimplementation ideas as well as to learn howwell the practices are actually achieving theirintended results.

Overarching PhilosophyHaving an overarching philosophy or view of man-agement is essential. It provides a way of connect-ing the various individual practices into a coherentwhole and also enables people in the organizationto persist and experiment when things don't workout immediately. Moreover, such a philosophymakes it easier to explain what the organization isdoing, justify it, and mobilize support from internaland external constituencies. Most simply put, it ishard to get somewhere if you don't know where youare going. In a similar fashion, practices adoptedwithout a deeper understanding of what they rep-resent and why they are important to the organi-zation may not add up to much, may be unable tosurvive internal or external problems, and arelikely to produce less than stellar results.Many companies that seek competitive successthrough their people and practice a number of ap-proaches really began with some underlying prin-ciples or else developed them early in the process.Levi Strauss's quality enhancement process beganwith the understanding that manufacturing for

quality and speed meant breaking the old para-digms, turning the culture upside down and com-pletely reorienting the parameters of the busi-ness.39 The company and its manufacturing seniorvice president explicitly articulated the underlyingassumptions of the old way of thinking and thenew, as illustrated in Table 1.

Some Words of CautionIt would be difficult to find a single company thatdoes all of these things or that does them allequally well. Some successful firms have tended todo a higher percentage, and it is useful to gradeone's own company against the overall list. Never-theless, there are few companies that do every-thing. Which practice is most critical does dependin part on the company's particular technology andmarket strategy.A second important caution is to recognize that itis possible for a company to do all of these thingsand be unprofitable and unsuccessful, or to do fewor none of them and be quite successful. How?These factors are almost certainly related to a com-pany's ability to achieve competitive successthrough its workforce. But although that may be animportant basis of success, and one that is evenincreasing in importance, it is clearly not the onlybasis of success.IBM,for instance, has done many of these thingsand has built a skilled and dedicated workforce.That in and of itself, however, could not overcomea product strategy that overemphasized large,mainframe computers. People Express, now de-funct, also built a strong culture, selectively re-cruited, and used innovative compensation andwork organization strategies to build flexibilityand productivity in its operations. Indeed, it wasone of the lowest-cost providers of airline services.But this cost advantage could not overcome otherproblems, such as the founder's edifice complex,

Table 1New versus Old Paradigms at Levi StraussOld Paradigm New Paradigm

Economy of scale as basis for improvement logic Economy of time as basis for improvement logicQuality involves trade-offs Quality is a religion; no compromiseDoers are separate from thinkers Doers must also be thinkersAssets are things Assets are peopleProfit is the primary business goal Customer satisfaction is the primary business goalHierarchical organization; goal is to please the boss Problem-solving network organization; goal is to please the internalor external customerMeasure to judge operational results Measure to help people make operational improvements

Source: Presentation by Peter Thigpen at the Stanford School of Business, February 26, 1991.



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2005 Pfeffer 105which resulted in too-rapid expansion, acquisitionof Frontier Airlines and becoming seriously finan-cially overleveraged, and a growth rate that wasnot sustainable given the firm's fundamental hu-man resource policies. In focusing on managingthe workforce, I highlight only one dimension ofthe several that determine corporate performance.By the same token, it is possible to be successful,particularly for a while, doing none of these thingsor even their opposite. Frank Lorenzo took overContinental Airlines and put it into bankruptcy in1983 to break its union contracts. To say he playedhardball with his employees was an understate-ment. Lorenzo's strategy was founded on financialand negotiating skills, not on his workforce. For awhile, these strategies worked-although Conti-nental lost $161 million in 1983, by 1985 it earnedabout $60 million, a very rapid turnaround. Simi-larly, Carl Icahn at Trans World Airlines mademoney, for a while, taking strikes and fighting withhis workforce, seeking success through financialstrategies. Neither airline succeeded in the longrun, but in the short run, cutting wages and bene-fits, cutting employment levels, and managingthrough fear can produce temporary results.A third word of caution is that these practiceshave potential downsides as well as benefits andare not necessarily easy to implement, particularlyin a one-at-a-time fashion. One obvious problem isthat they all necessarily entail more involvementand responsibility on the part of the workforce.There are many employees who would rather workonly with their bodies and check their minds at thedoor-particularly if that is what they have be-come accustomed to-and instituting work prac-tices that entail more effort and involvement mayforce turnover. These practices may be resisted byothers in the company as well. The reader is cau-tioned that implementation issues loom large, re-gardless of how sensible the practices may be.

Endnotes1Michael E. Porter, Competitive Advantage (New York,NY:Free Press, 1985),1.2Ibid., 4.3 InvestmentWinners and Losers, Money, October 1992,133.4 BridgetO'Brian, Southwest Airlines IS a RareAirCarrier: tStill Makes Money, The Wall Street Journal, October 26, 1992,Al.'James Campbell Quick, Craftingan Organizational Cul-ture: Herb's Hand at Southwest Airlines, Organizational Dy-namics 21, Autumn 1992,47.6 O'Brian,op. cit., A7.7 Quick, op. cit., 50.8 O'Brian,op. cit., Al.9Ibid., A7.0Clair Brown, Michael Reich, and David Stern, Becominga

High Performance Work Organization: The Role of Security,Employee Involvement, and Training, Working Paper 45,Insti-tute of Industrial Relations (Berkeley,CA:University of Califor-nia, 1992),3.'l Frank L. Schmidt and John E. Hunter, Individual Differ-ences in Productivity:An Empirical Test of Estimates Derived

from Studies of Selection Procedure Utility, Journal of AppliedPsychology 68, 1983,407-414.12 Harry C. Handlin, The Company Built upon the GoldenRule: Lincoln Electric, in Bill L. Hopkins and Thomas C.Mawhinney (eds.), Pay for Performance: History, Controversy,and Evidence (New York,NY:Haworth Press, 1992),157.13 Nordstrom: issension in the Ranks? Case 9-191-002 Bos-ton, MA:Harvard Business School, 1990),7.1 George Akerlof, GiftExchange and Efficiency Wage The-ory, American Economic Review 74, 1984,79-83.`5James W. Near, Wendy's Successful 'Mop Bucket Atti-tude', The Wall Street Journal, April 27, 1992, A16.16 Ibid.7 Handlin, op. cit., 159.1'Joseph R. Blasi and Douglas L. Kruse, The New Owners(New York,NY:HarperBusiness, 1991),257.l Corey M. Rosen, Katherine J. Klein, and Karen M. Young,Employee Ownership in America (Lexington, MA: LexingtonBooks, 1986).20Richard T. Pascale, Nordstrom, nc., unpublished case(San Francisco, CA: 1991),Exhibits 7 and 8.21 David I. Levine and Laura D'AndreaTyson, Participation,Productivity, and the Firm's Environment, n Alan S. Blinder

(ed.), Paying for Productivity: A Look at the Evidence (Washing-ton, DC: The Brookings Institution, 1990),183-243.22J Richard Hackman and Greg R. Oldham, WorkRedesign(Reading, MA:Addison-Wesley, 1980).23Thomas F. O'Boyle, Working Together: A ManufacturerGrows Efficient by Soliciting Ideas fromEmployees, The WallStreet Journal,June 5, 1992,A4.24Barnaby Feder, At Monsanto, Teamwork Works, NewYorkTimes, June 25, 1991,C1.25 BarbaraPresley Noble, AnApproachwith Staying Power,New York Times, March 8, 1992, 23.26 BrianDumaine, WhoNeeds a Boss? Fortune, May 7, 1990,54.27 Ibid., 55.28 Paul S. Adler, The 'Learning Bureaucracy': New UnitedMotorManufacturing, Inc., n BarryM.Staw and LarryL. Cum-mings (eds.), Research in Organizational Behavior (Greenwich,CT:JAIPress, in press), 32.29 Helene Cooper, CarpetFirm Sets Up an In-House Schoolto Stay Competitive, The Wall Street Journal,October 5, 1992,Al, A6.30 Norm Alster, What Flexible Workers Can Do, Fortune,February 13, 1989,62.3 Adler, op. cit., 17.32 J Patrick Wright, On a Clear Day You Can See GeneralMotors (Grosse Pointe, MI:Wright Enterprises, 1979).33Edward P. Lazear, Play Equality and Industrial Politics,Journal of Political Economy 97, 1989, 561-580.34 Paul Milgromand JohnRoberts, AnEconomic Approach toInfluence Activities in Organizations, American Journal of So-ciology 94, 1988,S154-S179.35Daryl J. Bem, Self-PerceptionTheory, n LeonardBerkow-itz (ed.), Advances in Experimental Social Psychology. vol. 6(New York,NY:Academic Press, 1972),1-62.3rMark R. Lepper and David Greene, Turning Play intoWork:Effects of Adult Surveillance and Extrinsic Rewards onChildren's Intrinsic Motivation, Journal of Personality and So-cial Psychology 31, 1975,479-486.



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106 Academy of Management Executive November7 David Halberstam, The Reckoning (New York,NY:WilliamMorrow, 1986).

38 See, for example, Peter M. Blau, The Dynamics of Bureau-cracy (Chicago. IL:University of Chicago Press, 1955); nd V. F.Ridgway, Dysfunctional Consequences of Performance Mea-surement, Administrative Science Quarterly 1, 1956, 240-247.39 Presentation by Peter Thigpen at Stanford GraduateSchool of Business, February26, 1991.

Jeffrey Pfeffer is Thomas D. Dee UIProfessor of OrganizationalBehaviorat the GraduateSchool of Business, StanfordUniversity.He is the author of more than 90 articles and six books, includingManaging with Power (HarvardBusiness School Press, 1992),Or-ganizationsand OrganizationTheory Pitman,1982),s a winner ofthe TerryAward,and is co-authorof The ExternalControlof Or-ganizations (Harper, 978).He has won the IrwinAward for Schol-arly contributions o management, among other honors.

Executive Commentary*............................................

Toru HatanoNomura Research InstituteThe author points to thirteen practices for manag-ing people, some of which are coincidental withJapanese management practices. These includeemployment security, employee ownership, cross-utilization and cross-training, training and skilldevelopment, wage compression, and promotionfrom within. The remaining practices are notwidely accepted by Japanese companies butshould not be considered insignificant. In my opin-ion, we need to consider two questions when ap-plying Pfeffer's framework to Japanese corpora-tions. First, what are the environmental andcultural factors that have enabled Japanese firmsto adopt the six practices I listed above? Second,how are Japanese companies altering their overallhuman resource practices and why?Environmental and Cultural FactorsJapanese corporations have, for some time, be-lieved in growth and maximizing marketshare. Their management strategy has generallyfocused on imitating and improving the productsand services invented in Europe or the UnitedStates, often at lower costs. The competitive ad-vantage most significant to them during this pe-riod has been their efficiency-oriented technolo-gies and the use of the collective wisdom of ahomogeneous and highly-educated work force.The shared mindset of Japanese workers can beattributed to the country's uniformity of race, cul-ture, and national educational system. Organiza-tional cultures shared the sense that decisionscould be made and problems resolved with non-verbal or belly-to-belly communications even be-tween superiors and subordinates. It is not un-usual to find ambiguity in job descriptions,mission statements, definitions of authority andresponsibility, and evaluation criteria of personnelin Japanese organizations. The Japanese manage-ment style has been one which relies on control-ling people through norms based on long-standing

customs. The lines between society, family andwork are not rigidly drawn. In fact, they are quiteblurred. As a result, the traditional managementstyle has been dependent on linking cultural andwork norms and values which has been quite ef-fective in past years of rapid growth and the em-ployment of me-too strategies.

New Directions in Human Resource ManagementNow Japan and its companies are facing manychallenges. Not every company can or will surviveif it adheres to the old paradigms of strategy andmanagement. They must think through how theydevelop and deploy human resources, particularlyif there is little opportunity for favorable growth.The values of the younger generation of workersare also prompting change. Younger workers tendto be reluctant to argue with their superiors inbusiness situations; they prefer to be rewardednow, not at some future point; and they are com-fortable switching jobs or companies if they feeltheir talents are being underutilized.Leading Japanese firms have come to realize thesignificance of these changes and are working ataltering their human resource systems. Some Jap-anese companies have been involved with restruc-turing in recent years. They are trying to improvetheir competitiveness through business processengineering. In these cases, they inevitably findthat such an initiative requires the destruction ofthe company hierarchy and the downsizing of theorganization. They are faced with the challenge ofhelping managers to cope with the unfamiliar en-vironment and develop their skills as leaders. Un-less they are successful in getting managers tochange their traditional management style, em-ploying some of the practices described by Pfeffer(information sharing, empowerment, and self-man-aged teams), they may not succeed. To this end,more companies are considering



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2005 Pfeffer 107* results/performance-based wages and broadbanding systems. This implies the collapse oftraditional seniority systems and wage com-pression* elimination of bad egalitarianism; that is,practices which do not differentiate betweenhigh-performing and low-performing employees* respect for diversity as opposed to uniformity. Ina traditional company, an employee who has anexceptional talent but doesn't easily obey jobrules and directions tends to drop out. Such peo-ple need to be appreciated and retained by com-panies as resources whose talent must be uti-lized* delegation of authority. Decisions must be madewhere the jobs are to be doneToru Hatano is the manager of the Management ConsultingGroup at the Nomura Research Institute, Ltd., Osaka, Japan. Heis a member of the AME's Executive Advisory Panel.

Timo SantalainenSAMIConsidered from a European perspective, Pfeffer'sthirteen practices are similar to those currentlyused or emerging in many places throughout Eu-rope. One group of practices-participation andempowerment, self-managed teams, and em-ployee ownership-which we will label as a trendtoward self-management, can be linked to theScandinavian experiments that began decadesago. The popularity of these practices has in-creased and is spreading. The most powerful driv-ers of the trend toward self-management includethe overall restructuring of industries, privatiza-tion, and the adoption of Western managementand human resource practices in Eastern Europe.Asea Brown Boveri (ABB)is a great example of atranslational manufacturing conglomerate that ismoving toward self-management. It is simulta-neously global, local, big, small, centralized anddecentralized. The global glue unifying the firmcomes through strong, people-oriented leadershipalong with participative human resources man-agement practices. The European telecommunica-tions industry is another example where participa-tive human resources management practices havebeen embraced. Most European national telecomswill be privatized by the end of this decade. Muchhas happened already, even in Eastern Europe;e.g., the privatization of Hungarian Telecom. Theresulting competitive pressure has strengthened

the case for the reduction of bureaucratic struc-tures and decision-making processes; peoplecloser to the customer are being empowered to act.The second group of Pfeffer's practices-thoserelated to human resource development-is alsosignificant for European firms. Promotion fromwithin is a common practice as a developmentaltool when things are going well. However, whencompanies are in crisis, the standard has been togo to the outside for new ideas and executionpower.Many European companies, even industries,have set standards for investing in human re-sources development. As a rough benchmark, mostsuccessful firms invest a sum equivalent to morethan four per cent of payroll in training. This isabout the same level as General Electric (4.6%)andMotorola (4.0%). It is not unusual for Europeanmanagers to spend two or more weeks a year inmanagement development activities based on thebelief that the return on brainpower investmentwill be high.

Changing Human Resource PracticesA third group of Pfeffer's practices can be labeledas administrative. They include job security, re-cruitment, and compensation. There has been con-siderable change in these practices recently. Secu-rity in the traditional sense is not a major topic inEurope any more. The casino era has taught usthat management risk is an important security is-sue that needs to be considered.Attention to recruiting has declined as compa-nies as well as public organizations face restruc-turing and dehiring. The challenges facing mostfirms now include how to be selective in dehiring,how to motivate the survivors, and how to avoidorganizational anorexia; i.e., becoming leaner butweaker. There is a growing realization that down-sizing needs to be down in the context of a vision offuture growth. With this in mind, companies arerelying upon redesigned business processes andoutsourcing backed by increased attention to thedevelopment of its core skills and capabilities.For Europeans, Pfeffer's practices related to com-pensation sound very American. Although moneyis important to Europeans, freedom of choice, qual-ity of life, and other qualitative issues count evenmore. For example, in companies in the feminineNorthern European countries, the term workingwith people is preferred over working throughpeople.



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108 Academy of Management Executive NovemberLinking Human Resources Managementwith StrategyCurrently, there is a growing emphasis on findingways to integrate human resource practices andstrategy. One way of doing this is by strengtheningmanagement development. British Airways is agood example of a successful integration. It hasalmost realized its vision to become the world'sbest airline by conducting four waves of intensivemanagement and human resources development.Skopbank Group of Finland is an example of anorganization that initially capitalized on the inte-gration, but later found itself underestimating theneed for continued emphasis on the evolution ofthe process. It invested five million dollars in afive-year project developing and implementing a

concept called result management during thefirst half of the 1980s. Business flourished. As itsprofits increased, attention to human resources de-velopment declined, particularly in internationalbusiness and investment banking. Shrinking val-ues and worldwide changes in capital markets ledto the takeover by the State in the early 1990s.These examples demonstrate that attention tohuman resources development must be continuousand significant for it to be considered, as Pfeffersuggests, a competitive advantage.Timo Santalainenr Ph.D., is Director for Development at StrategicAnalysis and Management, Inc. (S.A.M.I.)Finland, and an adjunctprofessor at the Helsinki School of Economics. He is currently on aleave of absence working as a professor of intemational manage-ment at Thunderbird-Europe, French Geneva campus. He is also amember of AME's Executive Advisory Panel.

pfeffer (2005) producing sustainable.pdf

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