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SMM232
International Human Resource
Management
Lecture 2
IHRM – managing complexity
and integration in MNEs
Learning Outcomes
•
Analyse the role of corporate HR departments in an international
organisation
•
Explain the contribution of HR to integrating international
businesses.
•
Explore the challenges facing international HR departments in
adjusting to a new strategic role.
“Managing conflicting demands”
Bartlett, Ghoshal & Beamish (2008) outline a framework for
understanding the conflicting demands on multinational firms (for a
summary, see Edwards & Rees, 2011: 78-83):
• ‘global integration’ – pressures to reduce costs by standardising
operations worldwide
• ‘local responsiveness’ – pressures to respond to needs of local
markets
• ‘worldwide learning’ – pressures to ensure that knowledge can
circulate in the business.
Each can pull in different directions – creating a range of dilemmas
for international businesses.
Some of these issues can be illustrated through the ‘integrationresponsiveness’ grid.
3
Dilemmas of transnationals
Evans et.al.(2010) identify two tensions (‘dualities’) in MNEs.
•
Local responsiveness vs. global integration
•
Exploit resources now v. build capacity for the future.
There is also the problem of greater uncertainty and risk to
investments in foreign subsidiaries – stakeholders etc.
Challenge for management is how to achieve coordination and
control to minimise uncertainty and risk, and make sure all parts of
the firm contribute to the strategy – at the same time, they also need
to resolve or manage these dualities and dilemmas.
HRM tends to be local because of requirements of local labour law but this can create problems in MNEs because of a) lack of
consistency b) need to develop some global policies.
4
Integration-Responsiveness Grid
Products and Functions – where is HR?
Future
High
Present
Global
Transnational
Chemicals
Consultancy
Research
Integration
Shampoo
Marketing ?
Beverages
HR
Multidomestic
Low
Responsiveness
High
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Solutions to complexity?
• Build a matrix organisation for coordination.
• In a national context, the development might look like this.
• Before the matrix
CEO
Coffee
Chocolate
Pasta
Sweets
Businesses
Functions
HR
HR
HR
HR
Finance
Finance
Finance
Finance
HRM in transnational firms
National matrix structure: aims to make best use of specialist
functional skills (HR etc.) in ‘shared services’ – but with growing
complexity
CEO
Finance
HR
Coffee
Chocolate
Pasta
Functions
Sweets
Businesses
Transnational matrix structures
In a multidivisional international business the structures become
extremely complex, making it hard to make decisions and circulate
knowledge. For example:
CEO
Corporate staff (finance, HR, planning)
Pasta
Coffee
Development Development
Technical
support
Technical
support
Europe
America
Asia
Pasta
Pasta
Pasta
Coffee
Coffee
Coffee
Coffee marketing
What can firms do about
complexity?
Kidger (2002) summarises some ‘classical’ approaches to managing the relationship
between HQ (‘principal’) and the subsidiaries (‘agent’).
‘Agency theory’: analyses the relationship between two sets of actors in an
economic relationship – in particular how a ‘principal’ can ensure that an ‘agent’ acts
in their interest, and does not ‘cheat’ (either by ‘slacking’ or taking individual
advantage). ‘Asymmetric information’.
Three forms of control – often overlapping.
• Output control – sets and financial targets and incentives.
• Behavioural control – directly guides agents’ decisions (operating procedures).
• Cultural control – agents share values of the principal.
Evans et. al. (2010) note that firms historically have either:
•
•
created matrix structures (as above) or
built up their HQ and sent expatriates to control subsidiaries.
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Solutions create more problems
• Behavioural control through complex of matrix structures –
already discussed.
• Behavioural control through centralised HQs: overweight,
cumbersome and expensive HQs – hits local autonomy (and
prevents knowledge flowing). Creates layers of bureaucracy.
• Behavioural control through expatriation is costly and sometimes
inappropriate.
• Financial controls through incentives – often used, but do contain
risks. And is a ‘low trust’ method that can diminish co-operation.
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Amplification and
elimination
Lane et. al. (2006: 18-19) point to two defective approaches to
dealing with complexity: ‘amplification’ or ‘eliminating input variety’
Amplification
‘Amplification’ means increasing the number of decision makers to
handle more and complex issues (comparable with building up the
HQ). But, as well as cost, this is a problem. What if they are all the
same – with the same viewpoints?
‘Eliminating input variety’
This means denying the complexity (‘ostrich behaviour’) or
creating the illusion of certainty (such as ‘managing by numbers’).
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Developing ‘requisite variety’
Evans et.al. (2010) and Lane et.al. (2006) raise the need for
‘requisite variety’.
The variety or multiplicity found in the environment can only
be recognized, understood, and interpreted correctly by a
matching condition of variety… in the organisation.
In other words, decision makers need to be able to recognise
complexity and organisations need the capacity to respond.
What role does this mean for HRM – and IHRM?
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HRM’s role
‘Perhaps the single most critical domain for the multinational firm’
(Evans et al, 2010)
Why?
• ‘Structure cannot cope with the complexity’
• HRM has the role of building and supporting processes that
help manage complexity – in particular enabling:
• ‘cultural control’ to work effectively (values, vision, teams),
• support behavioural control (expatriates),
• and understand the limits of financial control.
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HRM international challenges
(Mendenhall et al., 2007)
Companies need a global HR strategy to implement global business
strategies.
‘We have all the financial, technical, and product resources we need to be a
dominant global player. What we lack are the human resources’
(CEO, Brunswick Group cited in Mendenhall, 2007: 20)
Mendenhall et. al. (2007) identified a ‘Big Five’ global HR challenges.
1.
Enhancing global business strategy
2.
Aligning HR issues with global business strategy
3.
Designing and leading change
4.
Building corporate cultures
5.
Developing global leaders
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How to meet the challenges
Align HR issues with global business strategy: projects and knowledge
sharing
• Promote worldwide learning through ‘knowledge networking’ (Dickmann
& Müller-Camen, 2006).
• Build global teams – multi-cultural and virtual
Building corporate cultures – and cohesion
•
Role of top management is to create a ‘sense of purpose’, promote
values - including ethical standards - and priorities.
•
Building trust, a ‘global mindset’, effective cross-cultural
communication: see Lane et. al., 2006.
•
Understand cultural differences and their impacts on HR policies.
Designing and leading change - Developing global leaders
• Enabling change through good processes.
• Global career management, expatriation and impatriation.
• Instead of complex structures, organisations need complex people –
that is, international managers with ‘global competencies’.
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Role of corporate HR
(Scullion & Starkey: 2000)
Corporate HR departments have shrunk as HR processes have
been decentralised and outsourced. Why?
•
To develop local sensitivity
•
To lower cost of administrative overheads.
•
To reflect a move from ‘ethnocentricity’ to ‘geocentricity’ by
some companies moving to a transnational structure
However, HRM has been identified as having a critical role in
transnational businesses – especially in the field of ‘integration’
•
This may be leading to a partial re-centralisation of HR that is
going hand-in-hand with a restructuring of the corporate HR
function around strategic objectives.
Integration in the MNE
(Kim, Park & Prescott, 2003)
What do we mean by integration – where does HRM play an key role?
Kim et.al. looked at the case of International Rectifier Co. which was
facing a typical set of problems in a global industry – that is, the need to
coordinate and control units in each business function.
Functions looked at were: R&D, manufacturing, and marketing. These
were defined as the key functions for achieving:
• Economies of scale
• Economies of scope
• Learning
They looked at two questions:
• How do firms integrate business functions?
• What is relationship between the pattern of integration and firm
performance?
Modes of integration
Modes of integration:
•
People (transfer of managers, meetings, teams, training, committees
and integrators’). Involves personal control (including face-to-face)
and ‘socialisation’ into firm’s values etc. (‘sharing vision, values and
norms and building trust’)
•
Information (transfer of ‘information’ through impersonal data
systems)
•
Formalisation (standardised work procedures, manuals, rules)
•
Centralisation (locating decision-making power at HQ)
Modes of integration - Findings
The most effective mode of integration varied by business function:
• R&D – people and information more effective than formalisation
and centralisation.
• Global manufacturing – people, information, formalisation.
• Global marketing – information and centralisation.
Conclusion: managers need a differentiated approach to business
integration. In two key areas people-based integration was positively
associated with effectiveness.
N.B. The study explored integration in a global business – needs of a
transnational are likely to diverge from this. In what direction?
Why?
Why do you think ‘people’ factors are especially
important in R&D?
Regenerating corporate HR
(Scullion & Starkey: 2000)
What should corporate level HR do to promote integration - not only now
(‘exploitation’) but in the longer term (‘development’)?
Scullion & Starkey identified growing roles for corporate HR
department in the 30 firms in their study:
•
senior management development and reward on a global basis –
alignment with longer-term corporate goals
•
use of international assignments (expatriation) for co-ordination of
the organisation and career development
•
succession planning
•
developing a cadre of international managers
Consistency and flexibility
(Harvey and Novicevic, 2000)
Also argue that ‘corporate HR function can play more influential roles in
global organisations than in the past’ (1252).
These roles are due to the problems for firms when moving from a multidomestic to a globally-integrated structure – need for ‘competent leaders’.
Because of their complexity, such organisations find it hard to make a
simple ‘fit’ between HR and strategy. This creates pressures to look at
competencies of managers who can fulfil a number of tasks.
In addition, complex organisations require ‘soft’ forms of control as well as
formalised and centralised policies. ‘Hard’ mechanisms are not sufficient
because of uncertainties that need a flexible response. Typically ‘soft’ forms
have embraced the use of expatriates – ‘soft but centralised’.
HR contribution in MNEs
• Analysing global and local HR implications of firm strategy.
• Understanding culture and national institutions – location decisions
• Developing competence in mergers, acquisitions, alliances and
large-scale change.
• Managing international employees (IAs, expatriates) –
• Pay, benefits, performance and careers of international staff.
• Alignment between this and reward arrangements for all staff?
• Facilitating and supporting multi-cultural and virtual teamworking
• Supporting and managing strategic global management issues
• Talent and succession planning – building global competences
• Supporting business integration in appropriate ways.
• Building an HR function to deliver these services.
References
Bartlett, C., Ghoshal, S. and Beamish, P. (2008) Transnational Management (5th edn). New York McGraw-Hill
Dickmann, M. and M. Muller-Camen (2006). ‘A Typology of International Human Resource Management Strategies and
Processes’. International Journal of Human Resource Management, 17,4, 580-601.
Edwards, T. and Rees, C. (2011) International Human Resource Management (2nd edn). Harlow: Pearson Education
Evans, P., Pucik, V. and Bjorkman, I. (2010) The Global Challenge: Frameworks for international human resource
management. New York: McGraw-Hill
Kelly, J. (2001) ‘The role of the personnel/HR function in multinational companies’, Employee Relations, Vol. 23, No. 6,
536-557
Kidger, P. (2002) ‘Management structure in multinational enterprises’. Employee Relations, Vol. 24, No. 1: 69-85
Kim, K., Park, J-H, and Prescott, J.E. (2003), ‘The global integration of business functions’ Journal of International
Business Studies, 34: 327-344
Lane, H.W., Maznevski, M.L., Mendenhall, M.E. and McNett, J. (2006) Handbook of Global Management: A guide to
managing complexity. Oxford: Blackwell
Mendenhall, M.E., Oddou, G., & Stahl, G.K. (2007) Readings and Cases in International Human Resource
Management. (4th edition). London: Routledge.
Novicevic, M & Harvey, M. (2000) ‘The changing role of the corporate HR function in global organizations’, Int. Journal
of Human Resource Management, Vol. 12:8 December 2001 1251-1268
Scullion, H. and Starkey, K. (2000) ‘In search of the changing role of the corporate human resource function in the
international firm’, International Journal of Human Resource Management, 11 (6): 1061-1081
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