1. Human Resource Management in the International Firm: The Framework
Chapter 2
Human Resource Management in the International Firm: The Framework
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

2. How do you explain Lincoln Electric’s success in the United States?
What are potential problems associated with introducing its reward system and other elements of how the firm operates in the United States in its operations in China?

3. Incentive Scheme & Strategy
Quality
Low costs
Value-Added
to Customers
Price reductions
Improved performance
Capabilities
Productivity
Adaptive to demand changes
(Process) Innovation
Profits
Let’s see how the incentive scheme is aligned with the strategy of the firm.
Explain a little bit and say that this year they had a roe of about 14% (lower than previous years but higher than competitors). This looks like a perfect exercise of strategic alignment: incentive schemes match the strategy.
So, if it is so simple to get this right, why not everyone uses it? Is it really so simple?
Returns to Owners
Employee
Rewards

4. The People Strategy Process
Business Strategy and Organisational Capabilities;
Strategy has to do with making forward-looking choices under conditions of uncertainty.
- Choices which parts of value chain the firm will focus on,
What will develop and do in house
Buy in from outside
Geographical mrkts it will serve
Myraid of other choices.

5. The People Strategy Process
During 1980s strategy meant competitive positioning based on the analysis of industry characteristic,
Then, having the right strategy was not enough,
You also need a capacity to execute strategy, (having also right leaders to implement, managing major changes, rewards for new strategy, and soon.....)
Focus of strategic HRM was on strategy implementation.

6. Strategy Process In 1990s the resource-based view of the firm came in
Organisational Capabilities: ‘The ability to perform repeatedly a productive task which relates to a firms’s capacity for creating value through effecting the transformation of input ,
To output; ‘The firm’s ability to combine and leverage its resources to bring about a desired end.
Capabilities:
3M innovations,
Toyota – improvement process in manufacturing
Sothwest Airlines – deliver customer experience at low prices
Those managing capabilities earn higher returns. Bacause competitive advantage is more sustainable. Capabilities are difficult to unravel and hard to imitate.

7. Organisational Capabilities
In most cases firm must put in place a range of capabilities to create value. There are usually few that drive the company’s competitive advantage.
These differentiating capabilities must satisfy ;
1. They must create value for the customer
2. The capability has to be rare and unique,
3. The capability has to be difficult to duplicate...

8. Organisational Capabilities in MNCs
Best practices; Haier in China, CEMEX in Mexico, Lincoln Electric and Southwest Airlines in USA, Toyota in Japan. While they deploy very different HR practices, all these companies are clear about which organisational capabilities are needed to support their business model, and they make sure that their HR practices drive the necessary actions and behaviours. However, as they internationalize it becomes more challenging. It is difficult to transfer organisational capabilities abroad. The underlying HR practices do not necessarily travel well to a different environment.

9. Lincoln: A Study in Consistency
Strategy
Quality
Value/costs
Incentive System
Piecework
Price transparently set
Price not easily changed
Innovation encouraged
Bonus
Broadens reward criteria
Employment Guarantee
Complementary Policies
High employee stock ownership
Managers and employees treated equally
Flat and responsive hierarchy
Promotion from within
Internal training emphasized
Effective use of advisory board
Internal and external consistency (‘fit’)
Piecework:
transparency: procedural justice; price not easily changed: linkage to motivation, innovation
Guaranteed employment (must take any job, 75% of full week, can be sacked):
+ loyalty, greater motivation to innovate, greater motivation to invest in firm-specific training
- loss of flexibility (expansion, across tasks)
Selection: Self-selection and 1/4 leaving during the first 3 months
Politics
very flat organization - we’re all management!
small differences between top executives and workers (US average 326:1 in 1998, Japan 20:1, PRC state-owned company 4-5:1), i.e. distributive justice. President: 90: 360,000, 91: 300,000. Massaro in early 2000: 1.5 million
philosophy: individualism, people are capable! Security bad
Changes in the 1990s
lower profitability ==> lower bonuses (50-60%) though borrowing money in to pay)
new externally recruited executives: less time with employees, don’t know them, the advisory board ‘doesn’t work’ ==> discussions with United Auto Workers in 1997
Future concerns for Lincoln (in the US?)
- lack of growth (otherwise producing for stock to keep up the piece rate compensation) and profitability
- does it make sense to retain the very low level of interdependence of work tasks? (if not, what are the problems?)
- too little new blood and ideas? Towards lean manufacturing with smaller buffers =>?
- what will happen in new units? how to transfer the system?? Built on mutual trust and strong culture
- pressure from external shareholders?
It is necessary to construe the HR system in an appropriate way. Everything has to be consistent and convincing not to be perceived as alienating, demotivating, and bringing anger. In other way, they have to manage the interpretation and meaning that people give to the system by using a set of complementary policies that give consistent meaning to the incentive system: it has to be fair, empowering, and unifying.
Explain the complementary policies: this is difficult to do
Being a leader is being able to manage interpretation and meaning: 1. Know possible alternative interpretations; 2. Build complementary policies to reinforce the interpretation
In this way employee will trust the scheme, interpret positively because you’re a part of the system
TAKE AWAY: you’re not just a designer, you’re also an anthropologist. You have to be able to understand the meanings given and, reinforce the one consistent with what you want. (it relates to culture)
Shared values
Belief in the individual
Meritocracy
Fairness
Egalitarianism

10. Best Practices may also fail
A number of firms have tried to copy Lincoln’s compensation system but failed.
What they have missed is that at Lincoln, the piece-rate system is only one of the tools that drive cost flexibility and productivity. It is the unique bundling of people management and organisational practices that produces the desired effect.

11. The People Strategy Process
Clarify the strategy (business model) necessary to win in the market Specify organizational capabilities required to support the business model Design and deploy HR practices that enable differentiating capabilities

12. Recruitment & Selection Process & Content Development
The HR Wheel
Internal Consistency
Sustainable
Performance
Change
Capability &
Strategic
Agility
Differentiation
Organizational
Outcomes
Guiding
Principles
Human
Capital &
Social
Architecture
STRATEGY
Balancing
Dualities
ORGANIZATIONAL
STRATEGY
Business Support
CAPABILITIES
Recruitment & Selection
HR Function Roles HR
Practices
HR Service
Delivery
Development
& Training
HRM
Process & Content Development
Performance
Management

13. HR Practices: Guiding Principles
Starting point: Internal consistency
Fit across HR practices
Fit with other parts of the work organization
Consistency between HRM strategy, policies, and actual practices
Differentiation?
Internally across employee groups, and
Across units
Externally from other firms
Balancing dualities: Too much consistency or too high degree of differentiation?

14. ALLIANCE PARTNER EMPLOYEES
Employee Group Differentiation
High
ALLIANCE PARTNER EMPLOYEES
Low value High firm-specificity
CORE EMPLOYEES
High value High firm-specificity
Firm-specificity
(uniqueness)
CONTRACT EMPLOYEES
Low value Low firm-specificity
KEY EMPLOYEES
High value Low firm-specificity
Low
Low
High
Strategic value
_________________________
Source: Lepak and Snell (1999)

15. Key HR Practices
Recruitment & Selection • Workforce planning • Employer branding • Recruitment • Induction & socialization • Selection • International transfers • Termination & outplacement
Development & Training • Training (on & off-the-job) • Talent assessment and reviews • Succession planning • Career management • Coaching and mentoring • Leadership development
Performance Management
• Job evaluation
• Goal/standard setting
• Performance measurement
• Appraisal and feedback
• Compensation and benefits
• Rewards and recognition
Communication
Labor & Industrial Relations

16. HR Function Roles HRM Process & Content Development
Developing policies, tools, and processes that help the firm develop and maintain organizational capabilities required to support the business model
HR Service Delivery
Ensuring that core HR processes are carried out at low cost and with desired service levels
Business Support
Contribute to discussions about strategy and organizational capabilities
Work with line and top managers on people-related issues

17. Organizational Outcomes
Human Capital
Knowledge and skills required to carry out the strategy
Social Architecture
Social capital
Share values, beliefs, and norms (corporate culture)
Global mindset
Change Capability & Strategic Agility
Sustainable Performance

18. Theoretical perspective
Three Stages of HRM
Activity
Focus of attention
Theoretical perspective
Metaphor
Building HRM
Foundations – getting the basics in place
Internal consistency
Fit
(across HRM and work practices)
The builder
Realigning HRM
Adjusting to environmental & strategy change
Change
(with environment and strategy)
The change partner
Steering via HRM
Long-term capability development
Constructive tension between opposites
Duality
The navigator

19. Building HRM
Getting the HRM foundations right is always the starting point Fit with strategy and intended organizational capabilities is crucial for competitiveness But over time the Builder can become a Custodian…

20. From Builder to Custodian to…
Well-integrated, successful HRM systems can become rigid
Commitment to practices whose appropriateness is taken-for-granted
Complacency
HR people too remote from the line to see the real needs
Cannot change parts without disrupting others ― changes always come with costs
The needs of the organization change over time, in part due to international expansion
Changes in strategy and external environment
Entry into new institutional and cultural contexts
In face 1: the environment & strategy taken for granted as they were totally, in reality of course there are not very likely to be so. In face 2 the relationship between HRM and the environment is problematized. If there were an automatic adaptation of HRM practices to such changes it would be unproblematic - in reality of course not the case. Rather, there are lots of examples of custodians of existing HRM practices: taken for granted, their own face may be at stake. Small HR empires may have developed over time, e.g being responsible for formal corporate training, e.g. AT & T had 2500 people in their corporate training unit!
Glaxo-Wellcome
Strategic aim to speed up significantly the product development process. Took ten years and included among others: introduction of cross-functional team work, changes in performance management, selection and development, technology, workflows, careers and deeper cultural norms and values
Motorola and other Western firms in China
How to localize a significant part of the operations? Return to this question during the next session
Now:
One specific example of environmental change and how to handle it
Need for realignment of HRM

21. HR and Change To realign HRM successfully the HR function must:
Understand the new strategy and the organizational capabilities required to support it
Design and successfully implement HR practices that help fill organizational capabilities gaps through
- Investments in Human Capital
- Developments in the Social Architecture of the firm
But HR is also increasingly expected to act as a sparring partner to line management in discussions on how to manage processes of change …
... and point to the dangers of becoming fixated on change!

22. Tensions and Contradictions facing Multinational Firms
Short term versus Long term
Entrepreneurship versus Global customer orientation
Local responsiveness versus Global integration
Innovativeness versus Global efficiency
Challenge versus Risk management
Engagement versus Explanation
Teamwork versus Accountability
Loyalty versus Layoffs
Change versus Continuity

23. From Tensions and Contradictions to Dualities
Short term AND Long term
Entrepreneurship AND Global customer orientation
Local responsivenes AND Global integration
Innovativeness AND Globally efficiency
Challenge AND Risk management
Engagement AND Explanation
Teamwork AND Accountability
Loyalty AND Layoffs
Change AND Continuity

24. Some of the Dualities Facing Multinatinal Firms
Managing today’s assets— building tomorrow’s assets
Satisfying customer needs— being ahead of the customer
Short term—long term
Exploitation—exploration
Loose—tight
Opportunistic—planned
Entrepreneurship—control/accountability
Flexibility—efficiency
Competition—partnership
Low cost—high value-added
Differentiation—integration
Decentralization—centralization
Unit performance—corporate integration
Individual accountability—team responsibility
Change—continuity
Speed of responsiveness—care in implementation
Professional—generalist
Technical logic—business logic
Taking risks—avoiding failures
Task orientation—people orientation

25. It’s the key task for the Navigator function of HRM
Steering between dualities is crucial for the multinational corporation
It’s the key task for the Navigator function of HRM
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26. Get the basics right … … then focus on the change agenda … … and prepare yourself to manage tension and contradiction