Do individualised work arrangements benefit firms? Yes, but not without strong HR practices
Individualised work arrangements will not only persuade individuals to come and work for an employer, but will also lead to better firm performance, writes UNSW Business School's Frederik Anseel
To better serve the needs of a rapidly changing workforce, organisations have increasingly adopted individualised work arrangements. Many individuals are no longer satisfied with an employment agreement that is uniform to all employees and top-down dictated by their employer. Instead, they are looking to negotiate an arrangement that fits their personal situation. For instance, some employees are looking for an individualised work schedule or a customised work-from-home arrangement, while others like to obtain a personalised development trajectory or even pursue an individual incentive scheme.
Who benefits from i-deals and who doesn’t?
To accommodate such individual desires and needs, in the past 15 years, organisations have started experimenting with individualisation as a new principle to design employment arrangements. In the academic literature, these individualised work arrangements are best known as ‘i-deals’ (idiosyncratic deals). Research examining these i-deals has consistently reported positive effects for those individuals receiving an individualised work arrangement. That is, those who received an i-deal have been found to be more willing to go the extra mile, are more satisfied at work, more productive, more loyal to their employer and stay longer with the company.
That’s great news for those negotiating an i-deal, but what does that mean for the firm? Do firms who frequently grant i-deals also benefit from individualisation and perform better than firms who stick to uniform top-down practices? This was the question that our study (published in Journal of Management Studies and authored by Lien Vossaert, Frederik Anseel, Veroniek Collewaert and Nicolai Foss) set out to answer.
At first sight, the question might seem straightforward: if people who are granted an i-deal are more productive and go the extra mile, that should in aggregate result in higher firm performance, right? Not necessarily. People don’t work in isolation. Colleagues and team members closely watch and monitor what is happening to others and compare it to their own situation. When someone receives a favorable arrangement that piques others’ interest, coworkers may become envious even if the arrangement would not be something they’d personally want for themselves.
As a result, research has found that i-deals often trigger negative responses in coworkers, potentially negating any positive performance effects that may have been produced by the i-deal in the first place.
How do firms benefit from individualised work arrangements?
To understand how these unpredictable psychological dynamics play out at the firm level, we collected data from 870 employees from 36 firms over two years. We asked HR representatives of the 36 firms to indicate how many employees typically receive an i-deal, while also indicating how many employees are typically involved in top-down uniform HR practices (e.g., a standard training or performance appraisal). Individual employees indicated how well they felt supported by the organisation and how fair they thought reward allocation was in their organisation. We then compared financial firm performance two years later with the initial performance at the time of the first survey.
What did we find? Firms that frequently granted i-deals performed better financially than those that didn’t, but only when top-down HR practices were also used for the majority of their employees. If an organisation didn’t have a strong set of top-down HR practices in place, more i-deals did not lead to better performance.
Why was this the case? The explanation is employees’ perceptions of support and fairness. Strong top-down HR practices are designed to consistently incorporate basic psychological principles, such as feedback, recognition, growth, and participation. Because this set of common practices ensures that everyone’s basic individual needs are satisfied, they provide employees with a sense of support and fairness.
When employees are then granted an individualised arrangement, coworkers have less of a knee-jerk reaction because they know that there is a set of practices that signal that the company cares for them and ensures they are treated fairly. The strong backbone of HR practices can thus prevent the emergence of negative side effects of social comparison so that firms optimally benefit from the positive effects of i-deals.
How to use individualisation in a post-pandemic work future
While our data was collected before the COVID-19 pandemic, they might provide important insights regarding how to organise work in a postpandemic future. Employers are currently struggling with two key challenges when it comes to managing their workforce: (1) winning the war for talent, as illustrated by stories about The Great Resignation, and (2) designing a hybrid working model.
Individualisation might be a principle that underlies both challenges. Attracting and recruiting scarce talent in a tight labour market is increasingly determined by appealing working conditions. People are looking for jobs that provide them with flexibility and autonomy to shape their own working lives and careers in a way that fits them best. Our research shows that granting i-deals will not only persuade individuals to come and work for an employer, but will also lead to better firm performance.
Similarly, one of the key principles underlying hybrid working models is increased flexibility, adapting work schedules and work locations to what fits best for employees. Again, our study suggests that such individualisation of working arrangement might be beneficial for both employers and employees, as long as the organisation makes sure to invest in a set of strong top-down HR practices.
5 steps to reaping the benefits of individualised work arrangements
1. Get the order right. The starting point is strong and uniform HR practices, not i-deals. While i-deals hold much promise to boost the performance of those who receive them, they also have the potential to undermine group performance and risk provoking envy, comparisons and conflict. A set of strong HR practices at the firm level first needs to provide a solid basis for support and fairness for everyone. Only then can an organisation start thinking about granting unique work arrangements to individuals.
2. Be open and transparent. To attract or retain a star performer, you might be tempted to offer them an individualised deal. Sounds good, but remember – star performers don’t work in isolation, they are part of a team. That team will scrutinise the star performer’s arrangement and compare it to theirs. Be transparent and ready to explain and justify any deal that was granted. Transparency is the basis of fairness.
3. Don’t try to over-structure. Many organisations try to come up with an exhaustive menu of arrangements that are available to all employees, aka ‘cafeteria plans’. But once they have a menu to pick from, these arrangements cease to be individualised. Instead, employees then feel entitled to them and see them as part of the normal package. The very definition of an i-deal is that the organisation works out a non-standard, unique arrangement to meet the desires or needs of one specific employee. The customised nature of the i-deal is exactly what makes it so powerful.
4. Make it work for both the employee and the organisation. Granting someone an i-deal does not mean that everyone is entitled to the same arrangement. Instead, as an organisation, you are signaling that you are open to exploring any arrangement that could benefit both the employee and the organisation. That’s right: individualised work arrangements do not imply simply giving everyone everything they desire. There needs to be a benefit to the team or the organisation as well. I-deals therefore require some negotiation to find that sweet spot where both parties are happy about the agreement.
5. I-deals are a line manager’s responsibility, not that of HR. The benefits of i-deals stem from the enhanced reciprocal relationship between a team member and the manager, who is seen as the representative of the organisation. I-deals allow managers to use their superior understanding and knowledge of their team members to create the optimal conditions for them to be productive. HR business partners often don’t have this local knowledge and may struggle to appreciate the impact of a specific individual arrangement. Of course, an HR business partner can be involved to validate and formalise, but the initial negotiation is between a manager and a team member.
The paper There’s Many a Slip “Twixt the Cup and the Lip”’: HR Management Practices and Firm Performance is published in Journal of Management Studies. Lien Vossaert obtained her PhD from Ghent University and served as an Advisor for the Flemish Minister of Work, Economy, Innovation and Sport. She currently works as Management Consultant at Möbius Business Redesign. Frederik Anseel is Professor of Management at UNSW Sydney Business School. His research focuses on the motivational micro-foundations of how people contribute to organisational success. Veroniek Collewaert is Professor of Entrepreneurship at KU Leuven and the Vlerick Business School. Her research focuses on the intrapersonal and interpersonal dynamics driving relationships between entrepreneurs and investors. Nicolai J. Foss is a Professor of Strategy at Copenhagen Business School. His research interests include issues in organisational theory, strategic management and entrepreneurship.