Employee Energy Key To Business Success
ANN ARBOR, Mich.---Firms going public that place high value on employee energy, corporate culture, rewards and organization structure outperform their peers on stock price growth, sales growth and size when measured as total assets, according to a new study by the University of Michigan Business School's Zell Lurie Institute for Entrepreneurial Studies.
At the same time, companies that focus on the product, technology or venture capitalists have lower performance scores five years after an initial public offering (IPO), the study shows.
“The initial results show that long-term firm survival and growth is a function of people, but the people who seem to matter are internal to the firm not external,” said Theresa Welbourne, adjunct professor at the Zell Lurie Institute and CEO of eePulse Inc.
Welbourne collected data from 300 senior executives who led firms that went public in 1996, the largest IPO year ever. CEOs and senior executives were asked 50 questions regarding different factors that business, finance and management theory experts claim are vital to an organization’s success.
Questions on financing, economic conditions, sales, quality, marketing expertise, leadership, employees, how hiring decisions are made, and the use of outside experts were included in the survey. On a scale of 1 to 5 (with 1 being not important at all and 5 being very important), each executive was asked to rank more than 50 different factors on the importance of these items to their firm’s success.
The statistical analysis of all the questions showed seven key factors emerging from the data, ranked by the respondent’s order of importance (with ratings in parentheses):
- Energy: The sense of urgency or energy level that is exhibited by employees (4.09).
- Product/Technology: The overall product and technology the company offered (4.07).
- Culture: The firm’s overall values and culture (4.01).
- Rewards: The rewards and pay system for all employees and executives (3.73).
- Structure: The way the company is organized internally (3.43).
- Board of Directors: The board and advice given by board members (3.17).
- Venture Capitalists: The VCs themselves and the advice they give (1.78).
Additional analyses predicting firm survival and performance through the end of last year will be done over the next few months. The second phase of the study looks at the factors that executives said were important and how those resources relate to long-term financial performance and growth. It also includes interviews with CEOs and senior executives.
Other research conducted by Welbourne shows that maintaining a high-energy culture that places high value on people and the relationships that the business has with stakeholders, such as employees, will outperform their peers in the long run.
“They win because employees in these high performance-oriented businesses will go above and beyond to help their firms when the going gets tough,” Welbourne said. “This is particularly true for IPOs because after the IPO executives are faced with the ultimate challenge of managing to the quarter, it’s easy to lose perspective and focus on the outside at the expense of the inside.”
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