Proceedings of 24th International Business Research Conference

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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Analysis of HRM Systems Based on Organizational
Institutionalism
Toshiko Suda
The research underlying this paper involves case studies of
human resource management (HRM) in large pharmaceutical
firms operating in Japan. The subjects of the case studies were
four Japanese-owned and three foreign-owned pharmaceutical
firms, and this study found that the HRM systems of the subject
firms were moving more rapidly toward western-style HRM
systems than has been the general trend in Japanese firms. The
most striking feature in these Japanese pharmaceutical firms is
their use of market pay data for individual pay determinations;
the use of market pay data is not common practice in Japan,
where organization-based HRM is widespread. These findings
were analyzed based on institutional theory, and institutional
entrepreneurship was used to analyze changes in these HRM
systems. This study then discusses some of the causes of the
changes occurring in the HRM of Japanese pharmaceutical firms,
including the influence of large foreign-owned multinationals and
technological, market and regulatory disruptions in the Japanese
pharmaceutical industry.
Introduction
There have been lively debates about human resource management (HRM)
issues in Japan since the 1990s, and the evaluation of Japanese HRM has
changed during that time. From the 1980s to the early 1990s, the strengths of
Japanese HRM were praised by both Japanese and foreign researchers.
However, beginning in the mid-1990s, the weaknesses of Japanese HRM began
to be noted, and many Japanese firms have subsequently changed their HRM
systems.
___________________________________
Dr. Toshiko Suda, Graduate School of International Management, Aoyama Gakuin University,
Japan, Email: tsuda@gsim.aoyama.ac.jp
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
The main types of Japanese HRM systems are organization-based,
person-based and seniority-based (Suda, 2007). Although Japanese HRM is
changing, the average years of service of Japanese employees remain among
the highest in advanced countries, and pay profiles in Japan continue to be more
seniority-based than those of other industrial countries in terms of both employee
age and years of service (JILPT, 2012). Moreover, although job-based grade and
pay systems were introduced in Japan in the late 1990s and the rate of
introduction of those systems has been increasing, person-based grade and pay
systems continue to be more common in Japanese firms, particularly for
non-managers (ILA, 2010; JPC, 2013).
In sum, although the direction of change in Japanese HRM is toward a western
model, it currently operates in a manner that is between the former Japanese and
western types. Several studies have described a complicated situation regarding
this change in contemporary Japanese HRM (JILPT, 2005; Suda, 2007).
The author of this study researched HRM systems in large pharmaceutical
firms operating in Japan to investigate the complicated process involved in
changing Japanese HRM. A particular industry was selected as the research
target because it is useful to identify a particular context in which to capture the
complicated process involved in transforming an HRM system.
The theoretical framework of this study is organizational institutionalism.
Among the various theoretical debates within organizational institutionalism,
institutional entrepreneurship was selected as the main approach to analyze the
changing aspects in the HRM system.
Theoretical Framework
New Institutionalism
The theoretical background of this research is organizational institutionalism,
based on the new institutionalism in institutional sociology. The “meaning of
institutions” in institutional theory is largely divided into two aspects: one consists
of formal institutions, such as laws and other regulations, and the other consists
of informal institutions that influence social actors, such as values, customs and
culture (Meyer & Rowan, 1977; DiMaggio & Powell, 1983; Scott, 2008).
Institutional theory focuses on the process by which formal and informal
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
institutions spread and become established in a particular social unit, which is a
process called “institutionalization”. Scott (2008) noted that coercive, normative
and cognitive elements facilitate institutionalization and labeled these elements
the three pillars of institutionalization.
New institutionalism began to develop in the late 1970s (DiMaggio & Powell,
1991; Greenwood et al., 2008). New institutionalists claim that the activities of
organizations in the same organizational field tend to converge. The
organizational field is often considered to be a social unit of institutionalization
(Wooten & Hoffman, 2008). There are various definitions of the organizational
field such as “organizations that constitute an organized area of institutional life;
key supplier, resource and product consumers, regulatory agencies and other
organizations that produce similar services or products" (DiMaggio & Powell,
1983: 148p) and a field that is “formed around the issues that become important
to the interest and objectives of a specific collective organizations" (Hoffman,
1999: 352p). The areas indicated by an organizational field are not always the
same; however, an organizational field is generally considered to be the
meso-level of a social unit such as an industrial sector (Fligstein & McAdam,
2012).
The three pillars that facilitate institutionalization appear in each organizational
field. Thus, when firms that occupy the same organizational field are surrounded
by identical coercive, normative and cognitive pressures, their decisions and
behaviors—such as strategies and policies—tend to converge. DiMaggio and
Powell (1983) called this tendency to converge “institutional isomorphism” and
proposed that it operated through three mechanisms: coercive, normative and
mimetic pressures.
Furthermore, once institutional isomorphism occurs, isomorphic behaviors
become part of the institutional environment in that organizational field. As a
result, isomorphic behaviors in an organizational field tend to be stable (Meyer &
Rowan, 1977; DiMaggio & Powell, 1983; Scott, 2008). New institutionalism
brought new insights to organizational theory and explains why firms in the same
organizational field have strategies and policies that tend to be similar and why
some organizations cannot change even when they must cope with changing
environments (Greenwood et al., 2008).
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Institutional Entrepreneurship
New institutionalism is useful in analyzing convergence and stability. However,
many researchers have noted that new institutionalism is not as useful in
analyzing change (Greenwood & Hingings, 1996; Hoffman, 1999), which is a
frequent topic of research. Conversely, institutional entrepreneurship has been
one of the primary approaches to institutional change. DiMaggio (1988) proposed
the following concept of institutional entrepreneurship: “New institutions arise
when organized actors with sufficient resources (institutional entrepreneurs) see
in them an opportunity to realize interests that they value highly" (DiMaggio,
1988: 4p). Since DiMaggio’s conceptualization, many studies have been
conducted and research questions investigated in the area of institutional
entrepreneurship. Two of these main research questions are discussed below.
The first research question examines the types of firms that can act as
institutional entrepreneurs. The main issue in addressing this question is whether
the main actors in the current institutional environment can become
entrepreneurs. The actors that are powerful enough to change their institutional
environments are resource rich and are likely to have strong and influential
positions. However, these same actors are hindered in this regard by the very fact
that they are embedded in their institutional environments and are subject to
regulatory, normative and cognitive pressures. Therefore, such actors may not be
able to imagine new practices, and even if they can imagine new practices, they
may have difficulty initiating those new practices due to regulatory and normative
pressures. Moreover, because these main actors may enjoy a privileged status in
their current institutional environments, changes in those environments may be
contrary to their interests, and they may resist change as a result (Hardy &
Maguire, 2008; Greenwood & Suddaby, 2006).
By contrast, peripheral actors are able to imagine and execute new practices
because they are less likely to be embedded in their current institutional
environments. In this respect, such actors have an opportunity to act as
entrepreneurs, but they may not have sufficient power to change their institutional
environments (Maguire et al., 2004).
Many empirical studies have been conducted to investigate the issues
described above. According to the results of such empirical studies, both main
and peripheral actors can act as entrepreneurs. Regarding the main actors, their
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
international experience is one of the primary reasons that they can act as
entrepreneurs. Because they tend to do business internationally, main actors are
likely to have overseas experience; as a result, they are likely to be familiar with
practices in other organizational fields. Consequently, they can introduce new
practices to a given country and generate changes in that country (Greenwood &
Suddaby, 2006).
The second research question examines what types of field conditions are
best suited to institutional entrepreneurship. Many studies have focused on field
conditions such as whether emerging or mature fields, or fields that are stable or
in crisis, are better suited to institutional entrepreneurs (Greenwood & Hingings,
1996). Several researchers have found that emerging fields are suited to
institutional entrepreneurs because the environments of emerging fields are less
likely to be institutionalized than those of mature fields (Maguiere et al., 2004).
Even in mature fields, fields in crisis may be suited to institutional entrepreneurs.
Disruptive events such as technological, market and regulatory changes often
facilitate institutional entrepreneurship (Hoffman, 1999).
General Trends in Japanese Firms’ Hrm Systems
This section discusses the general trends in the HRM systems of Japanese
firms that have been captured by large-scale surveys. Although HRM systems
have many features, this section focuses on employee grade and pay systems
related to Japanese HRM as organization- and person-based.
The first aspect of HRM systems is the employee grade system. There are two
types of grade systems: job- and person-based. The job-based grade system is
popular in many advanced countries, whereas the person-based grade system is
popular in Japan (Koike, 1999; Milkovich & Newman, 2002). According to a 2010
survey by the Institute of Labor Administration (ILA), in evaluating their managers
41.2% of Japanese firms used a person-based system, 30.9% used a job-based
system and 19.1% used a mixture of job-based and person-based systems.
Alternatively, for non-managers, 65.5% of respondents used a person-based
system, 15.9% used a job-based system and 15.2% used a mixture of personand job-based systems (ILA, 2010). Thus, although Japanese firms have
introduced the job-based system, the person-based system remains the
dominant employee-grade system in Japan.
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
The second aspect of HRM systems is the pay system. Although pay systems
have several aspects, this study focuses on base pay. Regarding the pay system,
this paper focuses on person- and organization-based systems as the two main
characteristics of Japanese HRM pay systems.
First, this paper focuses on the person-based pay system. According to a 2012
survey by the Japan Productivity Center (JPC), with respect to managerial pay
systems, 65.5% of respondents used the person-based system and 79.2% used
a job-based system. For non-managers, 77.3% used the person-based system
and 58.4% used the job-based system (JPC, 2012). The sum of the respondent
rates exceeds 100% because many of the respondent firms combined personand job-based systems. The rate at which job-based pay systems have been
introduced is higher than the rate of introduction of person-based grade systems,
particularly for managers.
Second, this paper focuses on the organization-based system, in which
individual pay is based only on an internal assessment within the given
organization and market pay for a job is not considered. This type of pay system
is widespread in Japan under the organization-based approach. In fact, there are
little available market pay data for Japan (ILA, 2011, JILPT, 2004).
Research Design
This section presents the research theme, the research questions, the
characteristics of the pharmaceutical industry (which is the subject of this
research) and the research methods utilized.
Research Theme
The theme of this research is an investigation of the complicated process of
changing HRM systems in the pharmaceutical industry in Japan.
Research Questions
Although the research questions address both change and stability, the paper
focuses more on aspects of change than of stability. Therefore, only research
questions related to aspects of change are discussed below.
- What aspects of HRM in the pharmaceutical industry have been changing,
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
including to what extent they have been changing, why they have been
changing and how they have been changing?
Characteristics of the Pharma Ceutical Industry
The pharmaceutical industry was selected as the research subject because it
represents the organizational field; large pharmaceutical firms operating in the
Japanese marketplace were targeted for the study. Pharmaceutical firms are
subject to strong coercive and normative pressures. In terms of coercive
pressures, most of the management functions of pharmaceutical firms are
regulated, including development, production and sales. Pharmaceutical firms
also experience strong normative pressures because they make products for
human health care.
In the international pharmaceutical industry, European and U.S. firms are the
main players, whereas Japanese firms are smaller and weaker. In terms of sales
turnover, the largest Japanese pharmaceutical company was ranked only 14th in
the world market in 2011. Until the mid-1990s, approvals to sell pharmaceuticals
were required on a country-by-country basis. However, in 1998, the International
Conference on Harmonization of Technical Requirements for Registration of
Pharmaceuticals for Human Use (ICH) stipulated that once a pharmaceutical was
approved by one country (such as Europe, the U.S. or Japan), it could be sold in
other countries (after adding data to examine ethnic differences). Before this
agreement, the Japanese pharmaceutical business was relatively protected from
large foreign-owned pharmaceutical firms; after the ICH agreement, however,
foreign-owned firms pursued the Japanese market more aggressively.
Research Methods
The main research method used involved case studies; the main research
methods used in the case studies were interviews and analyses of internal
documents. Therefore, the case studies used in this research are characterized
as qualitative case studies. Qualitative research is suited to cases that (1) are
contextualizable, (2) contain vivid descriptions (3) involve the dynamic (and
possibly causal) structuring of an organizational member’s socially constructed
work, and (4) describe the worldview of the people under the study (Lee, 1999).
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
The subjects of the case studies were four Japanese and three foreign-owned
pharmaceutical firms operating in Japan, and the time frame was from January
2010 to February 2012. Follow-up research was conducted with three firms
between 2012 and 2013 (i.e., with A pharm, B pharm and D pharm).
A Pharm
Table 1: Profiles of the Firms in the Case Study
Home country
Sales turnover
Sales turnover
(International market) (Japanese market)
U.S.
1st
9th
B Pharm
Switzerland
2nd
8th
C Pharm
France
4th
12th
D Pharm
Japan
17th
3rd
E Pharm
Japan
19th
2nd
F Pharm
Japan
14th
1st
G Pharm
Japan
35th
5th
Sources: (1) Sales turnover (international market): Pharmaceutical Executives. 24 (5). (2) Sales
turnover (Japanese market): IMS.
The research also employed two additional research methods. The first was
group interviews of 30 employees of the pharmaceutical firms, consisting of six
researchers (including two medical doctors), nine clinical researchers, nine
medical representatives, and six administrators (two of whom were former
medical representatives). The group interviews were conducted between
January and June of 2011. The main purposes of the group interviews included
investigation of the labor market in the Japanese pharmaceutical industry and the
career aspirations of pharmaceutical-firm employees.
The second research method consisted of interviews of professionals related to
the pharmaceutical labor market, including researchers, consultants, recruiting
agencies, contract organizations in the pharmaceutical industry—such as clinical
research organizations (CROs), clinical sales organization (CSOs) and clinical
manufacturing organizations (CMOs)—and professionals working in personnel
functions at other large pharmaceutical firms operating in Japan. These
interviews were conducted between 2011 and 2013.
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
Research Findings
The case studies gathered data for various aspects of the HRM system,
including recruitment, employee grading, performance reviews, pay and
development; however, this paper focuses on employee grading and pay.
Employee Grading
Six out of the seven firms in the case study used a job-based grade system to
evaluate their managers, which was based on job analysis and a point-factor job
evaluation. These six firms also implemented job-based grade systems for
non-managers. To some degree, there were variations among the six firms in the
employee grade systems used for non-managerial employees. Some of the firms
implemented job analyses and a point-factor job evaluation (as they did for
managers), whereas other firms loosely defined “jobs” and considered
competencies in determining individual grades. Thus, each of these six firms
implemented an employee grade related to each job to some degree, although
the extent of rigor that went into defining each job differed among the firms. In
summary, for both managerial and non-managerial employees, the employee
grade systems at these six firms were basically similar. By contrast, the seventh
utilized a person-based system.
The six firms had two main objectives in using job-based grades. One objective
was to implement performance-based HRM and the other was the use of market
pay. For both purposes, it was necessary to define jobs because the jobs
provided the underlying bases to evaluate individual performances and to gather
market pay data.
Pay
Although there are various aspects of pay (such as base and incentive pay),
this paper focuses on base pay. The six firms that utilized a job-based grade
system implemented job-based pay based on their grade structures. Therefore,
the base-pay systems in the six firms were basically identical, although the
details of the pay systems differed. By contrast, the seventh case study firm,
which used a person-based grade system, implemented person-based pay.
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
The case studies collected information about market pay from the six firms that
used job-based grade and pay systems. Market pay information was gathered
using several methods. For example, the six firms participated in market salary
surveys and exchanged pay information with other large pharmaceutical firms.
The primary reason that these firms considered market pay was to cope with
increased labor mobility in the pharmaceutical industry. Because labor mobility
has increased, market pay for each job family has gradually been established in
the pharmaceutical industry, and firms must set pay levels based on market pay.
In other words, these firms believed that they had to offer competitive levels of
pay for job families with high market pay, but they did not need to be as
competitive for job families with low market pay. The situation in the
pharmaceutical industry is different in this regard from many other industrial
sectors in Japan in which market pay has not been developed.
The employee group interviews also revealed evidence of increased labor
mobility in the pharmaceutical industry. The majority of the interviewees had
experienced job-hopping, which was typically a career aspiration. Moreover, all
30 interviewees but one had had contact with recruiting agencies, which is quite
different from many industries in Japan.
As indicated below, interviews with specialists in the pharmaceutical labor
market confirmed the research results reported above. Labor mobility in the
pharmaceutical industry in the past has been higher than in other industries
because general skills requirements are high in many job families in the
pharmaceutical industry. Recently, labor mobility has been on the upswing. One
of the main reasons for this increasing mobility is that large foreign-owned
pharmaceuticals have been recruiting more aggressively. Because mid-career
recruiting is the typical practice in the home countries of many foreign-owned
pharmaceutical firms, it is easier for foreign-owned pharmaceutical firm to explain
the need for mid-career recruiting (as opposed to new-graduate recruiting.
Because it is also normal for foreign-owned pharmaceutical firms to use
recruiting agencies, it is easy for foreign-owned pharmaceutical firms to explain
recruiting through agencies. Although Japanese-owned pharmaceuticals rarely
engaged in mid-career recruiting and hardly ever used recruiting agencies in the
past, they recently have adopted a more positive view of mid-career recruiting
and the use of recruiting agencies.
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Proceedings of 24th International Business Research Conference
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Discussion
The section analyzes the findings gathered by this research, including the
three research methods of case studies, employee group interviews, and
interviews of professionals in the pharmaceutical labor market. As noted above,
the analytical framework is Organizational Institutionalism.
First, the paper analyzes institutional isomorphism within the organizational
field. The case studies found that six out of the seven firms in the case study
implemented essentially the same employee grade and base-pay systems as
job-based systems. This finding supports institutional isomorphism because
practices among organizations within the same organizational field seem to have
converged; as a result, their practices tend to be similar (DiMaggio & Powell,
1983).
The main reason for this similarity is that HRM in the case study firms has been
moving toward a more western style of HRM system than has been the general
trend, as indicated in the research findings discussed above, and the extent of
the changes in HRM systems in the case study firms were similar. Next, based on
institutional entrepreneurship, the author analyzes why the case study firms
changed their HRM systems more than general trends indicate.
Who Are The Institutional Entrepreneurs?
One of the main questions in institutional entrepreneurship is who can be
institutional entrepreneurs. Furthermore, one of the main questions regarding this
issue is whether main actors, who tend to be embedded in the current institutional
framework, can act as institutional entrepreneurs. The previous research has
found that main actors can act as institutional entrepreneurs because they have
extensive experiences in other organizational fields, such as overseas
experiences. HRM systems in the case study firms appear to be evolving toward
a western type of HRM. One of the main reasons for these changes is increased
labor mobility in the pharmaceutical industry. Foreign-owned pharmaceutical
firms are the main actors that facilitated the increase in labor mobility; thus,
foreign-owned pharmaceutical firms appear to be the main actors that changed
the labor market and the HRM systems in the Japanese pharmaceutical industry.
Large western pharmaceutical firms are the main actors in the international
market, and they operate under the necessary conditions to be institutional
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Proceedings of 24th International Business Research Conference
12 - 13 December 2013, Planet Hollywood, Las Vegas, USA, ISBN: 978-1-922069-37-5
entrepreneurs; this is consistent with DiMaggio's position that “new institutions
arise when organized actors with sufficient resources (institutional entrepreneurs)
see them as opportunity to realize interests that they value highly” (DiMaggio,
1988; 4p). The Japanese pharmaceutical market has become increasingly
attractive to large western pharmaceutical firms, which have increased their
investment in the Japanese market by changing their sales policies, for example,
from consignment to Japanese-owned pharmaceutical firms to direct sales. This
situation in the Japanese pharmaceutical market is the very situation in which the
institutional changes proposed by DiMaggio (1988) occur. The present study
found that the main institutional entrepreneurs that facilitated changes to HRM
systems and the labor market in the Japanese pharmaceutical industry were
large, foreign-owned pharmaceutical firms. As the main actors in the international
pharmaceutical market, these firms had sufficient power to change, and they had
sufficient experience to change because they had direct experiences with other
types of HRM systems and labor markets in their home countries.
The second question is what field conditions are suited to institutional
entrepreneurship. The pharmaceutical industry is a mature industry and the main
players, including the case study firms, are established firms with long histories.
Moreover, the pharmaceutical industry in Japan has faced disruptive events in
technological, market and regulatory areas. With respect to technological
changes, the development of new drugs has become more difficult and requires
larger amounts of money than in the past. Under these circumstances, Japanese
pharmaceutical firms have had more difficulty competing against large U.S. and
European pharmaceutical firms. In terms of regulatory changes, large U.S. and
European pharmaceuticals have increased their investments in the Japanese
market since the regulatory changes initiated by the ICH agreement. As a result,
market competition in Japan has intensified. Disruptive events have occurred in
all three of the above-referenced areas: technology, market place competition
and regulation. Therefore, the pharmaceutical industry in Japan is suited to
institutional entrepreneurship.
Conclusion and Implications
As discussed, this research examined HRM systems at large Japanese
pharmaceutical firms and found that the HRM systems at the case study firms
were similar. The main reason for this similarity is that the direction and extent of
the changes are similar among these firms. The similarity among the case study
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Proceedings of 24th International Business Research Conference
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firms supports institutional isomorphism. Thus, this research supports many
aspects of organizational institutionalism’s claims that are discussed in this paper.
Due to word limitations, this paper cannot discuss the reasons for the similarities
in terms of the three proposed types of mechanisms of institutional isomorphism
described by DiMaggio & Powell (1983): coercive, normative and mimetic.
With regard to analyzing changes to HRM systems, this research generally
supports discussion within institutional entrepreneurship. However, also due to
word limitations, this paper cannot sufficiently examine the reasons for and
mechanisms of these changes as they relate to institutional entrepreneurship
because it is outside the scope of this paper. Another important issue that this
paper is not able to address relates to differences between HRM systems; only
one case study firm implemented a different type of employee grade and pay
system than the others. The author plans to discuss these issues in other papers.
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