Managing People - How Employees' Social Preferences Shape the Returns to Management Practices

Project Information

MANAGING PEOPLE

Grant agreement ID: 101040134

DOI

10.3030/101040134

EC signature date 3 February 2022

Start date 1 August 2022

End date 31 July 2027

Funded under

• European Research Council (ERC)

Total cost

€ 1 445 535,00

EU contribution

€ 1 445 535,00

Coordinated by

UNIVERSITAT ZU KOLN
Germany

Periodic Reporting for period 1 - MANAGING PEOPLE (Managing People - How Employees' Social Preferences Shape the Returns to Management Practices)

Reporting period: 2022-08-01 to 2025-01-31

Summary of the context and overall objectives of the project

Work plays a central role in peoples’ lives, with most people spending a large portion of their life working – together with other people – in firms. The fact that workers do not only care about their own material payoff, but also for the well-being of others (e.g. because of fairness concerns, reciprocity), could be important for the way in which firms manage their workers. In particular, it could play a major role in management practices in firms: Many management practices incur important consequences for the distribution of resources as well as monetary and non-monetary benefits among employees. Therefore, it is likely that workers’ social preferences matter for the effectiveness of management practices and plays a major role in the productivity and design of firms. To illustrate this, consider the following questions.

First, should employees be trusted or tightly controlled? If workers are selfish, they may exploit loopholes whenever there is a lack of control. Tight control may be necessary for firms to avoid such costly misbehaviors. However, tight control may also be perceived as a signal of distrust by the workers, and they may reduce their performance or quit the firm.

Second, should high performers be rewarded and low performers be penalized? Rewarding high-performance and penalizing low-performance (e.g. by using incentives) may be crucial to foster higher workplace performance. However, it also creates inequality between workers. If workers care about equity and fairness, some types of rewards and penalties could also lower workplace performance and collaboration or increase personnel turnover.

The goal of Managing People is to analyze how social preferences shape the returns to management practices. In my projects, I closely collaborate with a bakery chain, a grocery chain and a kitchen manufacturer and conduct RCTs in the respective firms. Through the RCTs, I randomize the implementation of employee control, performance rewards, and knowledge sharing in working groups of the same firm. This allows me to measure the impact of these management practices on firm performance and employee turnover and analyse how social preferences shape the returns of the considered management practices.

Work performed from the beginning of the project to the end of the period covered by the report and main results achieved so far

In Project A of Managing People, I analyze the effect of reduced employee control on workplace performance. The setting is a family-owned bakery chain that employs around 1,300 people in 150 stores. Quality standards are very high in this firm, but so are documentation duties that put a lot of strain on workers. The documentation duties and the control-oriented organizational culture is perceived by store managers and employees as a signal of distrust. In an RCT, I dropped in 75 randomly selected stores two documentation duties for a period of nearly 12 months. Sales in the treatment group increased by 2-3%.

Project B of Managing People considers the question, how rewards should be provided when employees’ performance can only be evaluated subjectively. I use the data from an RCT that I conducted in a large grocery store chain that employs 5,500 people in 234 stores. In the RCT, I varied store managers’ discretion over the allocation of a certain bonus pool. In randomly selected stores, bonuses were allocated equally among workers; in the remaining stores the managers had full discretion regarding the allocation of a bonus pool. At the moment, my team and myself are still in the process of analysing the data.

Project C of Managing People concerns knowledge sharing between employees. To study how knowledge sharing in the company can be improved and how knowledge sharing affects trust between workers, I cooperate with one of the largest European kitchen manufacturers. Survey evidence collected in preparation for Managing People suggests that 300 workers employed in various organizational units whose task it is to identify planning errors in kitchens do not interact and share their knowledge. In an RCT, I varied an important component of the organizational structure by introducing regular meetings (“quality circles”) of employees from different units in which randomly selected workers discuss kitchen planning errors. The quality circles improved quality performance by 21%. Additional analyses and survey evidence – concerning quality circles’ discussion content and duration as well as the type of knowledge acquired by workers, and from comparisons to within-unit quality circles implemented as a “warm-up” before our RCT – consistently and coherently indicate that knowledge sharing operates as the overarching mechanism that drives individual quality performance.

Progress beyond the state of the art and expected potential impact (including the socio-economic impact and the wider societal implications of the project so far)

I expect that my research has a major impact. The full impact will be realized as soon as I have finalized all of my Managing People projects.

First, I consider it to be a great achievement to convince three large firms to implement new management practices in randomly selected working groups in collaboration with a research team. From my projects, other scholars can better understand how to convince firms to run joint projects.

Second, my research shows how to implement management practices in firms, including all the operational challenges, such as dealing with politics in firms, coaching of middle managers or communicating the management practices to workers. This knowledge can be valuable for other researchers who are planning to conduct collaborative projects with firms.

Third, my projects are showing the causal effects of common and important management practices on firm performance and personnel turnover and under which conditions the effects are shaped by employees’ social preferences. This clarifies to what extent peoples’ social preferences matter for the organizational structure and the design of firms and to what extent the effectiveness of employee control, performance rewards, and knowledge exchange are subject to various dimensions of social preferences.

Forth, for researchers my results inform about the role of social preferences when theoretically predicting, as well as empirically measuring and analyzing the effect of management practices on performance in firms.
Fifth, in the projects, I directly transferred knowledge to the firms that cooperated with me. The firm and its workers benefited significantly from the projects, as the companies increased their profits, personnel turnover decreased, and job satisfaction improved.
Sixth, the firms that conducted the RCTs with me and my team have now a better understanding of the idea of evidence-based management and know how fruitful collaborations with researchers could be. As I regularly present my research projects at practitioners workshops (e.g. the “Going Kreis” in November 2024) and as a major European newspaper already reported about one of my projects (Frankfurter Allgemeine Zeitung), I expect also the interest by companies to collaborate with researchers might increase in general because of Managing People.
Taken together, I expect that my research has a major impact on research, firms and the society at large and can lay the foundations for many future research projects conducted in collaboration with organizations.