High-Performance organizations and macroeconomic performance

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HIGH PERFORMANCE
ORGANIZATIONS AND
MACROECONOMIC PERFORMANCE
G
lobal economies today face the challenges of
uncertainty and vulnerability. As the United States
slowly recovers from the Great Recession, Europe is
grappling with financial turmoil, while emerging economies
such as China, India and Brazil are cooling after an explosion
of growth. In order to survive and gain competitive
advantage in this volatile global environment, organizational
leaders need to understand not only the drivers of superior
organizational performance, but also the drivers of superior
macroeconomic performance. To that end, Kenexa, an
IBM Company, has explored the characteristics of High
Performance Organizations (HPO) and studied their effects
on macroeconomic performance.
Since the 1990s, HPOs have increasingly attracted interest
from academia and the business world (Boxall & Macky, 2009).
Whenorganizationsexecutehighperformancepractices,they
are more successful in a wide range of employee outcomes
such as job satisfaction and turnover intentions (Huselid,
1995). HPOs also demonstrate superior organizational
performance, in the form of stock market returns and labor
productivity (Combs, Liu, Hall, & Ketchen, 2006). It stands to
reason that HPOs, by consistently producing better employee
and business outcomes, can positively impact the economy
in which they operate. However, little research has analyzed
the effect of HPO drivers on macroeconomic performance.
Further, a clearly articulated theoretical model that explains
the mechanisms through which HPOs might affect the
economic climate has yet to be presented. To remedy this,
1
Data are available at: http://www.imf.org/external/ns/cs.aspx?id=28 and http://www.conference-board.org/data/economydatabase/.
we have presented a comprehensive model of HPOs and
macroeconomic performance, as well as provided empirical
support for the link between them.
THE WORKTRENDSTM
SURVEY
Our analyses are based on data collected in 2011 from two
different sources:
• Macroeconomic performance data were collected
from the World Economic Outlook of the International
Monetary Fund (IMF) and the Conference Board
Economy Database1
• HPO characteristics were assessed with Kenexa’s
WorkTrendsTM
survey
The WorkTrends survey has been administered annually
or biannually since 1984. In 2011, the WorkTrends survey
was taken online by approximately 31,000 employees in 27
different countries who work full-time for an organization
of 100 staff members or more. The survey asks employees
more than 200 questions about their opinions and attitudes,
manager and leadership behaviors, organizational practices,
and demographic variables. WorkTrends data are unique,
because they are a representative sample; a cross-section
of workers across the globe. The global nature of these
data allowed us to evaluate the link between country-
level high performance organizational characteristics and
macroeconomic performance.
High Performance Institute

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© 2012 Kenexa Corporation 2
WHAT MAKES A HIGH PERFORMANCE ORGANIZATION?
HPOs consistently deliver high quality products and services
(Owen, Mundy, Guild, & Guild, 2001). They can be differentiated by
their continually superior performance such as higher customer
satisfaction, greater customer loyalty and higher productivity
(Wiley, 2010). Our review of the literature suggested HPOs share the
following four fundamental characteristics: customer orientation,
quality emphasis, innovation and effective leadership.
Customer Orientation
Customerorientationisanorganization’sdispositiontocontinuously
deliver superior value to its customers (Slater & Narver, 1994). In
WorkTrends, we asked employees to evaluate customer orientation
with the following items on a five-point agreement scale:
• Customer problems get corrected quickly
• Our policies and procedures are designed to make it easy for
customers to do business with us
• We regularly use customer feedback to improve our work
processes
• Overall, customers are very satisfied with the products and
services they receive from my organization
Empirical evidence supports the link between customer orientation
and business performance. Organizations are more successful
when they embrace a customer-focused orientation (Narver, Alater,
& MacLachlan, 2000). Appiah-Adu & Sing (1998), and Hartnell, Ou
& Kinicki (2011) found customer orientation is positively related to
operational performance such as quality and service, new products’
success, sales growth and return on investment.
Quality Emphasis
Quality emphasis is a set of organizational practices to ensure the
consistent production of high quality products and services (Powell,
1995). We asked employees to rate quality emphasis by indicating
their level of agreement to the following items about where they
work:
• We set clear performance standards for product/service
quality
• Our improvement efforts result in both higher quality and
lower costs
• We are continually improving the quality of our products
and services
• Day-to-day decisions demonstrate that quality and
improvement are top priorities
Like customer orientation, empirical research has established the
link between quality emphasis and organizational performance
(Juran, 1993; Powell, 1995).
Innovation
Innovation is the process of creating better or new products,
processes, services, or ideas (Kimberly & Evanisko, 1981).We assessed
innovation with the following items:
• Where I work, employees receive the support they need to
implement innovative ideas
• When employees have good ideas, management makes use
of them
• Where I work, we act on promising new or innovative ideas
• I feel free to try new things on my job, even though my efforts
may not succeed
Organizations that emphasize innovation gain more market
share and are more profitable than less innovative organizations
(Gopalakrishnan, 2000). This could be for two reasons. First, the
knowledge contained in the innovations is not readily available
to competitors and thus protects profit margins, resulting in
significant financial benefits (Rumelt, 1987). Second, innovation
helps organizations develop products or services at a lower cost
than their competitors (Afuah, 2003).
Effective Leadership
An organization’s success is fundamentally dependent upon the
skills and actions of its leaders (Wiley, 2010), especially in highly
competitive markets where organizations face the challenges
of scarce opportunities and limited resources (Wasserman,
Nohria, & Anand, 2001). The Leadership Effectiveness Index (LEI)
was developed to measure employees’ perceptions of their
organization’s senior leaders. Senior leaders are effective if they
are capable and trustworthy, inspire confidence, are committed
to high quality products and services, and have communicated a
motivating vision. We consider the following items when evaluating
employee perceptions of leaders at their organization:
• Senior management at my organization has the ability to
deal with the challenges we face
• I have confidence in my organization’s senior leaders
• I trust the senior leaders of this organization
• The senior leaders of my organization have communicated a
vision of the future that motivates me
The quality of executive leaders explains around 45 percent of
an organization’s performance, (Day & Lord, 1988) and effective
leadership positively affects organizational performance outcomes
such as labor productivity, return on assets, and outputs of patents
(Wang, Courtright, & Colbert, 2011).
A MODEL OF HPOs AND MACROECONOMIC PERFORMANCE
The link between organizational characteristics and organizational
performance has been studied extensively in the literature. However,

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few studies have looked beyond organizational-level outcomes and
considered the broader effects of HPOs on the economy. HPOs have
the potential to influence macroeconomic performance via three
mechanisms, each a major component of gross domestic product
(GDP): consumption, investment and international trade.
• Consumption: More successful firms contribute to increased
demand for jobs. This in turn boosts households’ incomes
and the overall aggregate demand
• Investment: Successful firms are able to expand and invest
more efficiently in research and development
• International trade: As firms perform better and grow, they
have the resources to expand their operations and explore
new markets, increasing overall exports.
Figure 1 illustrates how HPOs may affect the national economy.
FIGURE 1: ORGANIZATIONAL CHARACTERISTICS AND
TABLE 1. CORRELATIONS BETWEEN HPO CHARACTERISTICS AND
2
See the Appendix for a detailed explanation of the macroeconomic performance indicators used in this study.
3
Several authors suggest that RGDP per hour worked would be a more suitable measure of labor productivity. The reason is that labor legislations differ significantly across
countries. For example, according to the Conference Board data, the average annual hours worked per worker in France is 1,441 and in the U.S. 1,705. This would lead to misleading
conclusions. However, data on average annual hours worked per worker are only available for OECD countries so taking this indicator would reduce our sample size significantly.
Leadership
Effectiveness
Customer
Orientation
Quality
Emphasis
Innovation
Higher
Productivity
Lower Costs
Faster Sales
Growth
Higher Profits
Job Growth
Higher National
Income and
Consumption
Higher Investment
and Business
Confidence
Increasing
Aggregate
Demand
Organizational
Characteristics
Organizational
Performance
Macroeconomic
Outcomes
GDP
Growth
Economic growth
Labor Productivity
Growth
Customer Orientation .41 .37
Quality Emphasis .51 .46
Innovation .55 .51
LEI .48 .46
FIGURE 2. IMPACT OF ORGANIZATIONAL CHARACTERISTICS ON
ECONOMIC GROWTH
8
7
6
5
4
3
2
1
0
Leadership
Effectiveness
Innovation Customer
Orientation
Quality Emphasis
Average of five top-scoring countries Average of five bottom-scoring countries
GDPPERCAPITAGROWTH(%)
Note: All values are Pearson Product Moment correlations. N=27. All
correlations statistically significant at the p < .05 level.
THE EMPIRICAL LINK BETWEEN HPOs AND MACROECONOMIC
PERFORMANCE
To empirically assess the model presented in Figure 1, we aggregated
highperformanceorganizationalpracticestothecountrylevelandthen
correlatedthemwithmacroeconomicperformance.Followingprevious
research, we defined macroeconomic performance with two indicators:
economic growth and labor productivity.2
Economic Growth
Economic growth plays a crucial role in reducing poverty and
increasing countries’ living standards and therefore overall wealth
(Barro and Sala-i-Martin, 1995). Economic growth is commonly
measured with the growth rate of real gross domestic product
(RGDP) per capita (Borensztein, Di Gregorio, & Lee, 1998; Mankiw,
Romer, & Weil, 1992).
Labor Productivity
Labor productivity is used by other economists to measure
macroeconomic performance (Hall & Jones, 1999). Labor
productivity is defined as RGDP per worker. It allows us to explore
the role played by the most important factor of production: labor, as
it measures how much output is being generated by each worker.3
Table 1 displays the results from our empirical analysis, which shows
statistically significant correlation coefficients between each HPO
characteristics and each macroeconomic performance measure
examined. These results suggest improving certain organizational
characteristics may have a significant impact on an economy at a
national level.
Figure 2 and Figure 3 compare the macroeconomic performance
of the five top-scoring countries per HPO characteristics with that
of the five bottom-scoring countries. The top five countries show
significantly higher GDP per capita growth and labor productivity
growth than the bottom five countries for each characteristic. The
resultssuggestsignificantrelationshipsbetweenHPOcharacteristics
and macroeconomic performance.

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Table 2 shows the countries in our sample ranked by each HPO
characteristic. The results reveal that emerging markets in Asia
(India, China and Indonesia) consistently place in the top five across
all HPO characteristics. These countries also show strong economic
performance over the last 10 years. On the other hand, Japan and
Italy—the developed economies that have significantly slowed
down in recent years—are consistently located in the bottom
five on HPO characteristics. The U.S., which has recovered from
the economic downturn slightly better than European countries,
is in the top five for customer orientation only. Overall, our results
suggest countries tend to perform better when there is a higher
incidence of firms that are customer-orientated, place greater
emphasis on quality, are more innovative, and have more effective
senior leaders.
The results demonstrated in Table 2 may be explained by the
characteristics of emerging markets. According to The Center
for Knowledge Societies, emerging markets are those “regions of
the world that are experiencing rapid informationalization under
conditions of limited or partial industrialization.” Emerging markets
lie at the intersection of non-traditional user behavior, the rise of
new user groups, and innovations in product technologies and
platforms, which provide tremendous opportunities for market
growth and innovation (The Center for Knowledge Societies).
Compared to organizations in developed markets that have
mature and relatively stable markets, the organizations in emerging
markets are more likely to continuously improve their products
and cut costs through innovation to increase market share. These
organizations are also more likely to put a strong emphasis on
quality and customer services to earn new customers’ acceptance.
The organizational leaders in emerging markets are more likely
to demonstrate strong leadership capabilities in dealing with fast
changing situations. As a result, organizations in emerging markets
show rapid financial growth, contributing to outstanding overall
economic performance.

TABLE 2. COUNTRIES RANKED BY HPO CHARACTERISTICS
Innovation
Top 5
India 69
Indonesia 56
China 55
Qatar 53
Turkey 53
Bottom 5
Japan 27
Italy 35
Finland 36
Spain 37
South Korea 40
Customer Orientation
Top 5
India 82
Indonesia 76
Switzerland 72
China 72
United States 71
Bottom 5
Japan 43
Argentina 56
Italy 58
Spain 60
South Korea 62
Quality Emphasis
Top 5
India 80
China 69
Indonesia 69
South Africa 69
Saudi Arabia 67
Bottom 5
Japan 47
Italy 54
Argentina 54
France 56
Spain 56
Leader Effectiveness
Top 5
India 74
Qatar 60
Indonesia 59
Netherlands 59
China 58
Bottom 5
Japan 31
Argentina 40
Finland 41
Italy 41
France 42
Note: Percent favorable values are presented.
FIGURE 3. IMPACT OF ORGANIZATIONAL CHARACTERISTICS ON
LABOR PRODUCTIVITY GROWTH
8
7
6
5
4
3
2
1
0
Leadership
Effectiveness
Innovation Customer
Orientation
Quality Emphasis
Average of five top-scoring countries Average of five bottom-scoring countries

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CONCLUSION
The literature linking HPO characteristics and firm performance is
extensive. However, few studies have discussed the effects of HPOs
on macroeconomic performance. Also lacking is a theory that
explains the relationship between organizational characteristics
and macroeconomic performance. To fill this gap, we developed
a detailed model of HPO and macroeconomic performance, and
then empirically assessed the model using a global survey across 27
countries. Results indicated countries enjoy higher economic and
labor productivity growth rates when they are filled with companies
that engage in HPO practices, such as customer orientation, quality
emphasis, innovation, and leadership effectiveness. This is likely
because HPOs yield better organizational performance, such as
higher profits and lower costs. On the aggregate, this contributes
to higher consumption, investment, and international trade at the
country level, which in turn feeds macroeconomic performance.
Our findings suggest characteristics that enable firms to gain and
sustain superior business results also enhance macroeconomic
performance. The implications of this conclusion are instructive
to organizational leaders at the company and country levels. HPO
practices help leaders cultivate better firm performance, giving
them a competitive advantage in the current uncertain global
environment. Further, given our results linking organizational and
national performance, policy makers have an interest in supporting
firm performance to help the national economy.
Organizational leaders and policy makers can improve their firm’s
and their country’s performance by emulating HPOs:
• Organizations can focus on customer orientation by
seeking and sharing information about customers’needs
and expectations, delivering customer service training, and
recognizing excellent service (Schneider & Bowen, 1995).
• Organizations can emphasize quality by setting clear
and measurable standards for product and service and
introducing quality assurance systems.
• Practices that promote innovation can be implemented,
such as setting up a fail-safe environment, encouraging
participative decision-making and idea sharing, and
rewarding creative problem-solving and idea development.
• Organizations can select effective leaders by using the right
assessment tools or and improving current leaders’skills by
providing opportunities for training and development.
This study is one of the first of its kind. Being exploratory, future
research on the topic is suggested. Specifically, studies that expand
the sample to include more countries or multiple years would be
very valuable. Also, future research could empirically evaluate
the mediating role of job growth, consumption, and the other
economic phenomena hypothesized in Figure 1.
REFERENCES
Afuah, A. (2003). Innovation Management (2nd Edition). Oxford University Press.
New York.
Appiah-Adu, K., & Singh, S. (1998). Customer orientation and performance: A
study of SMEs. Management Decision, 36, 385 – 394.
Barro, R., & X. Sala-i-Martin (1995), “Economic growth,” McGraw-Hill, Cambridge,
MA.
Borensztein, E., J. de Gregorio, & J-W. Lee (1998). How does foreign direct
investment affect economic growth. Journal of International Economics, 45, 115-
135.
Boxall, P., & Macky, K. (2009). Research and theory on high-performance
work systems: progressing the high-involvement stream. Human Resource
Management Journal, 19, 3-23.
Combs, J., Liu, Y., Hall, A., & Ketchen, D. (2006). How much do high-performance
work practices matter? Personnel Psychology, 59, 501-528.
Day, D. V. & Lord, R. G. (1988). Executive leadership and organizational
performance: suggestions for a new theory and methodology. Journal of
Management, 14, 453-464.
Dollar, D., & Kraay, A. (2002). Growth is Good for the Poor. Journal of Economic
Growth, 7, 195-225.
Gopalakrishnan, S. (2000). Unraveling the links between dimensions of
innovation and organizational performance. The Journal of High Technology
Management Research, 11, 137-153.
Hall, R., & Jones, C. (1999). Why Do Some Countries Produce So Much More
Output Per Worker Than Others? The Quarterly Journal of Economics, 114, 1, 83-
116.
Hartnell, C. A, Ou, A. Y, & Kinicki, A. (2011). Organizational culture and
organizational effectiveness: A meta- analytic investigation of the competing
values framework’s theoretical suppositions. Journal of Applied Psychology, 96,
677-694.
Huselid, M. (1995). The Impact of Human Resource Management Practices on
Turnover, Productivity, and corporate financial performance. The Academy of
Management Journal, 38, 635-672.
Juran, J. (1993, July). Made in U.S.A.: A renaissance in quality. Harvard Business
Review, 42-50.
Kimberly, J. R., & Evanisko, M. (1981). Organizational innovation: The influence
of individual, organizational and contextual factors. Academy of Management
Journal, 24, 689-713.
Mankiw, G, D. Romer & D.Weil (1992). A Contribution to the Empirics of Economic
Growth. Quarterly Journal of Economics, 107, 407-437.
Narver, J. C., Slater, S.F., & MacLachlan, D. L. (2000). Total market orientation on
business profitability. Journal of Marketing, 54, 20-35.
Owen, K., Mundy, R., Guild, W., & Guild, R. (2001). Creating and sustaining the high
performance organization. Managing Service Quality, 11, 10 – 21.
Powell, T. (1995). Total quality management as competitive advantage: A review
and empirical study. Strategic Management Journal, 16, 15-37.
Ravallion, M. (2001), Growth, Inequality and Poverty: Looking Beyond Averages.
World Development, 29, 1803-1815.
Rumelt, R. P. (1987). Theory, strategy, and entrepreneurship. D. Teece (Ed.), The
competitive challenge, 137-158. Cambridge: Ballinger.
Schneider, B., & Bowen, D. (1995). Winning the service game. Boston: Harvard
Business School Press.

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Slater, S. F., & Narver, J. C. (1994). Does competitive environment moderate the
market orientation-performance relationship? Journal of Marketing, 58, 46-55.
The Center for Knowledge Societies. (2008). The emerging economy report.
Retrieved from http://www.emergingeconomyreport.com.
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leadership and performance across criteria and levels: A meta-analytic review
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The Contingent Opportunities View of CEO Leadership. Strategy Unit, Harvard
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Wiley, J. W. (2010). Driving success through performance excellence and employee
engagement. Kenexa High Performance Institute.

APPENDIX: MACROECONOMIC INDICATOR DEFINITIONS
Economic Growth
Economic growth (EG) is one of the main determinants of a country’s
standard of living and one of the main instruments for poverty alleviation
(Ravallion, 2001; Dollar & Kraay, 2002). EG is commonly measured as the
growth rate of real gross domestic product (RGDP) per capita. GDP per capita
is the total market value of all final goods and services produced in a country
in a given period of time divided by the average (or mid-year) population for
the same period.
Labor Productivity
Another indicator to measure a country’s economic performance is labor
productivity. Labor productivity is commonly measured as real gross
domestic product divided by the number of people employed during that
period.
Real and Nominal GDP per Capita
GDPpercapitaiscommonlyreportedinnominalandrealterms.NominalGDP
per capita is expressed in current market prices and therefore incorporates
changes in prices. Real GDP per capita is GDP per capita evaluated at the
market prices of some base year and accounts for real changes in quantities
produced over time. When comparing GDP per capita figures from one
period to another, it is desirable to use real GDP per capita. For an illustrative
example, consider the following table that displays the hypothetical nominal
and real GDP per capita in the UK for 2009 and 2010.
The table shows that UK’s GDP per capita in nominal terms increased by 72.1
percent between 2009 and 2010 (from £5,000 to £8,607). However, prices
also increased by 50 percent during the same period (from £10 to £15). To
meaningfully compare UK’s 2010 GDP per capita to its 2009 GDP per capita,
we multiply the 2010 total quantity of final goods and services produced
by the market price in 2009. Then we divide this figure by the population
in 2010. We define this as 2010 GDP per capita at 2009 constant prices or
simply 2010 real GDP per capita. The 2010 real GDP per capita equals £5,738
((35,000 million × 10) / (61 million)). Using real GDP per capita, we obtain a
more realistic growth rate of 14.7 percent (from £5,000 to £5,738), and not
72.1 percent, as it appeared with nominal data.
The Purchasing Power Parity (PPP) Term
Real GDP is commonly expressed in U.S. dollars using the market exchange
rate or the purchasing power parity (PPP) conversion rate. When we
compare real GDP across countries, the PPP is a more precise measure than
the market exchange rate because it takes into account both the relative
differences of costs of living and the inflation rates between two different
countries. Taking the market exchange rates would distort real differences in
income and would produce misleading conclusions. The purchasing power
parity (PPP) between two countries is the rate at which the currency of one
country needs to be converted into that of a second country to ensure
that a given amount of the first country’s currency will purchase the same
volume of goods and services in the second country as it does in the first.
The IMF and the World Bank commonly express PPP as local currency per
U.S. dollar. To facilitate price comparisons across countries, the International
Comparisons Program (ICP) was established by the United Nations and the
University of Pennsylvania. PPPs generated by the ICP are based on a global
survey of prices.4
The PPP rate is provided by the World Economic Outlook.
To calculate the GDP per capita in PPP terms we use the following formula:
For an illustrative example, suppose that the salary in 2010 of John, an
economist, is 50,000 U.S. Dollars and the market exchange rate reported by
Yahoo! Finance is 10 Mexican pesos per U.S. dollar. If we use this exchange
rate, this would imply that John’s salary corresponds to the salary of 500,000
Mexican pesos earned by Michael in Mexico. We assume that in the same
period a BMW cost 250,000 Mexican pesos in Mexico but only 15,000 U.S.
Dollars in the United States given its technological advantage with respect
to Mexico and its higher standard of living. While John can buy three BMWs
in the U.S., Michael can only buy two given his salary in Mexico. Therefore,
although they earn the same nominal salary, their standards of living are
different given the differences in the costs of living. The PPP rate converter
considers these discrepancies and in this specific case would be 16.66
Mexican pesos per U.S. Dollar (250,000/15,000) and not 10. So in PPP terms
Michael’s salary in the U.S. would be 30,000 U.S. dollars (500,000/16.67).
Note that two countries with the same currency (Germany and France
for example) may have different PPP rates because these countries have
different inflation rates and different standards of living.
TABLE 3: HYPOTHETICAL NOMINAL AND REAL GDP PER CAPITA IN THE UK FOR
2009 AND 2010
Total Quantity
of Final Goods
and Services
Produced
(Millions)
Market
Prices Population
Nominal
GDP per
Capita
Real GDP
per Capita
(Base Year
2009)
2009 30,000 £10 60.0 £5,000 £5,000
2010 35,000 £15 61.0 £8,607 £5,738
ABOUT KENEXA, AN IBM COMPANY
To us, business has always been personal—and it’s always
been about making the workforce smarter, which is why we’re
proud to be the platform for a Smarter Workforce. We look at
it from two angles—empowering people and transforming
business. Our tools enable businesses to attract and keep the
best people, develop their skills, cultivate new leaders and
capitalize on their collective intelligence by applying human
insights, social tools and workforce analytics to transform the
way they work. We provide deep insight and experience in
employee engagement, talent management and leadership
development mixed with the world’s best technology and
social platforms, giving us the unique ability to build a
Smarter Workforce.
Real GDP per capita in national currency
Implied PPP conversion rate
4
Source: http://www.imf.org/external/pubs/ft/fandd/2007/03/basics.html.
Real GDP per capita at PPP =

High-Performance organizations and macroeconomic performance

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