12 April 2024

Can stress boost organisational performance?

Moderate stress can actually have a wider positive impact if companies help employees manage and harness its potential, say Felix Jan Nitsch and Luk Van Wassenhove of INSEAD

We have often been told that too much stress is bad for our mental and physical health. Backed by studies, such a narrative has led to the birth of entire industries purportedly to help combat stress, ranging from mindfulness meditation apps, to gym classes, spas and other stress-busting products. 

But the fact is that stress has become an inescapable fact of urban living. From delivering a presentation to coping with the pressures of technology (known as “techno stress”) and even simply catching the rush-hour train, we experience varying levels of stress every day. 

The question is: is stress always bad? After all, without the fight-or-flight instinct when under threat, homo sapiens would never have survived. In fact, a certain level of stress can improve performance at an individual and organisational level, as we show in our recent study, ‘The Effect of Acute Stress on Humanitarian Supplies Management’.

Uncovering “good” stress

Although workplace stress is common, people in certain roles are under more pressure due to the nature of their work and the environment in which they operate. An example of roles exposed to acute stress is that of humanitarian aid workers. Tasked to provide urgent aid in often extreme physical conditions, they operate under intense time pressure and tend to experience emotional trauma. 

Hence, in our study with Maximilian Burkhardt and Stefan Spinler, we used the humanitarian operations context to show that while high stress levels harms performance, moderate levels can in fact provide a boost. Our experiment with 154 students from the WHU – Otto Beisheim School of Management, involved a role-playing game, where they assumed the role of the procurement manager of a humanitarian organisation. 

Each participant is responsible for ordering a perishable item – be it food or medicine – to meet beneficiaries’ needs, with the goal of minimising the overall cost. While performing the task, participants were exposed to one of five conditions: no stressors, low time pressure, high time pressure, physical stressor (noise) with emotional stressor (emotive images) and physical stressor with neutral distraction (non-emotive images). 

We assessed their overall stress levels by having them self-report their psychological stress levels and measuring their heart rates using sensors worn on their wrists as an indication of psychological stress. To understand the impact of stress on decision making, we linked the individuals’ stress response to the quality of their decisions, based on the closeness of their order quantities to the optimal quantity. 

Use stress in moderation  

The results show that in general, the groups exposed to low time pressure and as well as noise and emotive images displayed medium levels of arousal and physiological stress. These groups of participants placed orders closest to the optimal quantity, outperforming those who were not exposed to any stressor. On the other hand, participants exposed to high time pressure experienced high arousal and physiological stress. Unsurprisingly, they performed the worst.

Presumably, moderate stress levels have the effect of channelling cognitive resources to the task at hand. This effect improves performance, not unlike the fight-or-flight response mentioned earlier. But as stress levels rise, the negative impacts set in. Past a certain point, stress eventually causes performance to suffer.

The levels of stress experienced by employees and their response to stress do not only affect the mental health and wellbeing of individuals, but have downstream effects on the organisations. In the case of our role-play scenario, a reduction in the decision quality of individual procurement managers will impede the humanitarian organisation’s ability to deliver the right quantities of perishable supplies to people in need.

Managing stress at an organisational level 

A good understanding of the optimal stress levels for individual employees can ultimately improve organisational performance. Organisations can take concrete steps to tackle – and harness the power of – workplace stress. Based on our findings, we suggest a three-step approach: assess, measure, and train.

First, assess what causes stress at the organisational level. Stress may be caused by conditions such as extreme time pressure, low tolerance for error or exacting clients. When designing interventions, it helps to focus on stressors that trigger the highest levels of stress, especially structural stressors. These may include a lack of psychological safety in the work culture, systematic understaffing that leads to burnout, insufficient attention to occupational safety and health protection and the lack of employment protection. On the other hand, stressors such as moderate time pressure could be harmless, since their effects on decision-making can be negligible or even positive.

Second, measure stress levels of individual employees. Since individuals have different thresholds and responses to stress, what is stressful to an individual may seem normal to another. In other words, the relationship between stress levels and performance is non-linear. As demonstrated in our study, stress responses can be obtained through a simple questionnaire and a heart rate tracking device. In the process of data collection, care must be taken to protect the interest of employees by adhering to ethical and privacy standards.

Harnessing the power of stress

Another important actionable insight from our study is that people can get better at managing stress. This is evident as the accuracy of participants’ orders improved as the role play experiment progressed. The learning effect was observed for all participants regardless of the condition they were subject to, even though it was most pronounced in the high-stress group.

Human beings are incredibly adaptable. The trick to harnessing the benefits of stress while overcoming the downsides is knowing where to draw the line. Having uncovered what triggers high and moderate stress in individuals and how it affects their performance, the third step for organisations is to train employees to better cope with stress and mitigate its negative impacts. 

Apart from conventional hands-on training, immersive and virtual reality tools can allow employees to experience various stressful situations through simulation and learn to cope with them. Ethical boundaries must be respected in the process of training and data collection, paying special attention to the unexpected implications of using new mixed-reality technologies on employee well-being.

In addition to training, another possible intervention is the implementation of decision support systems. Setting up a system that offers the necessary data to support decision making and is capable of applying prescribed rules to make decisions can take the load off employees. This can be very useful to humanitarian workers in the field or any roles in high-stress conditions.   

In a nutshell, not all stress is bad. It is important to understand that the extent – rather than the mere presence of stress – affects decision making and overall performance. At an organisational level, good stress management should start by assessing stress, specifically identifying structural stressors and measuring individual stress levels. Ultimately, it is possible to maintain or even improve performance in demanding environments with organisational commitment and support. 

About the Authors

Felix Jan Nitsch (left) is a Postdoctoral Research Fellow in Marketing at INSEAD, where he studies consumer behaviour under stress. Luk Van Wassenhove is an Emeritus Professor of Technology and Operations Management and the Henry Ford Chaired Professor of Manufacturing, Emeritus at INSEAD. He leads the INSEAD Humanitarian Research Group as the Academic Director.

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