People management in multinational organizations

Transcription

1 People management in multinational organizations 26E03400, 6 ECTS

2 Global integration-local responsiveness of HRM practices Session

3 Agenda for today Global integration (GI) -local responsiveness (LR) grid: What is it about and how to apply it? New trends in IHRM: the recent pieces of news that you found in the media Break Class discussion of the Lincoln case led by Ingmar Björkman

4 Course readings for today Course textbook: Pucik, V., Evans, P., Björkman, I., and Morris, S. (2017). Global Challenge: International Human Resource Management. Chicago: Chicago Business Press. 3rd edition, Chapters 2-3

5 Housekeeping issues Malcolm Gladwell: Outliers: The Story of Success (2008) Grading scale used in this course 0-49 points = points = points = points = points = points = 5 Clashes in schedule: Coordination with Paula Kilpinen Alternative assignment for those who cannot attend Friday 10 March afternoon class Invitation to a Research seminar on Russia

6 Invitation 1 st Aalto BIZ Russian Research Seminar Tuesday, February 28 th, 2017 Room A304 13:00--15:50 Seminar 15:50-17:00 Social The Aalto BIZ Russian Research Seminar Series seeks to bring together researchers studying Russia from Aalto and the greater Helsinki area to exchange ideas about Russian business research. Leading Russian business scholars from Helsinki and around the world will present at the seminar series which will occur about twice/year. The seminar series also seeks to help further establish Aalto BIZ s prominence as one of the leading places globally regarding Russian business research. The social hour following the seminar for networking is also an important part of the event to help establish a Russian business research community in the greater Helsinki area which provides an opportunity to discuss research ideas and find co-authors. All are warmly welcomed to attend whether you do research focusing on Russia or not. For additional information, please contact the series organizer Carl Fey: carl.fey@aalto.fi Schedule 13:00-13:05: Introduction, Professor Carl Fey (Aalto BIZ) 13:05-14:05: Dr Alexei Koveshnikov s (Aalto BIZ) presentation and discussion, Managerial styles in private-owned domestic organizations in Russia: Heterogeneity, antecedents, and organizational implications 14:05-14:20: Break 14:20-15:50: Professor Dana Minbaeva (Copenhagen Business School) s presentation and discussion, The need for greater contextualization in Russian management research and IB research more generally: Examples from Russia and Kazakstan 15:50-17:00 Social hour (free food and drinks)

7 Global integration (GI)-local responsiveness (LR) grid Value from global integration High Low Low High Value from local responsiveness Page 7

8 The GI-LR grid The Global integration-local responsiveness grid became dominant framework in IB in the late 1980s and the 1990s Yves Doz and C. K. Prahalad developed the theme of the political imperative to adjust to the demands of host governments in contrast to the economic imperative (Doz 1980, p. 27; see also Doz, Bartlett & Prahalad, 1981; Prahalad & Doz, 1981) The variety of external environments in which the MNC operates and the need to operate and live under the laws and customs of multiple countries led most IB scholars to treat this diversity as a challenge and a constraint that needed to be managed by MNC managers 8

9 Class discussion in groups Please, apply the global integration-local responsiveness grid at one of the following levels of analysis. 1) Which industries derive value from standardizing vs locally tailoring their activities, or both? 2) How can you apply this grid on the level of the multinational corporation? What types of multinationals can you identify with the help of the grid? 3) Which functions of the multinational organization (e.g. production, R&D, HRM, marketing, sourcing etc.) benefit from global integration vs local responsiveness, or both? 4) Which HRM practices (e.g. recruitment and selection; performance management and rewards; development and training; international mobility labour and industrial relations; communication) do multinationals localize in different countries and what do they try to keep the same? Please, present your answers by drawing them on the grip.

10 Arguments for creating value through global integration vs. local responsiveness Arguments for global integration: Economies of scale Consistency and effectiveness Leveraging capabilities & deploying best practices Quality assurance and global branding Arguments for local responsiveness: Different needs Different cultural and institutional environments Different market and industry characteristics Source: Pucik, Evans, Björkman and Morris (2017), Ch. 2 and Ch. 3

11 Industry GI-LR Positioning Value from Global integration High Jet engines Pharmaceuticals Low Coffee roasters Home building Low High Value from Local responsiveness Page 11

12 Strategy in a multinational context Firms respond to various tensions, pressures and challenges through their strategy Global integration MNC (HQ) Global vs local? Cultural, institutional, economic environment Local adaptation

13 Four generic MNC strategies HI Global strategy Transnational strategy Global integration International strategy Multidomestic strategy LO Local responsiveness HI

14 Lincoln Electric in China

15 Class discussion about the Lincoln case 1) How do you explain Lincoln s success in the United States? What roles does the way in which the company manages people play in its success? 2) Should the company introduce the reward system and other elements of how the firm operates in the United States also in China? Why/why not?

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17 What is Welding? A method of joining two pieces of material into one solid piece using high temperatures generated by a heat source Arc welding uses an electric arc to provide the heat for welding of ferrous and non-ferrous metals Arc welding equipment is used to generate and control the electric arc Arc welding consumables are filler metals which combine with the base metals to create a weld 17

18 1) How do you explain Lincoln s success in the United States? What roles does the way in which the company manages people play in its success? 18

19 Lincoln: A Study in Consistency Key capabilities: Extremely High Productivity, Consistent Quality Strategy Quality Value/costs Incentive System Piecework Price carefully & transparently set Price not easily changed Innovation encouraged Strict quality control Bonus Broadens criteria (ideas, coop.) Employment Guarantee 19

20 Principles of Performance-based Rewards Expectancy theory Strong (size, frequency), well-understood & trusted linkages between efforts -> outcome measures -> rewards (money, status, etc.) But danger of sub-optimal efforts (lack of collaboration, knowledge sharing, etc.) if outcome measures are at a too low organizational level Equity theory Performance measures at individual, team, unit, etc. levels The importance of internal and external comparisons Fairness of compensation/reward ( distributive justice ), but also how it has been arrived at ( procedural justice ) Management can influence employee perceptions of justice + Introduction of aggressive systems may lead to poor performers leaving 20

21 Lincoln: A Study in Consistency (not necessarily best practice!) Key capabilities: Extremely High Productivity, Consistent Quality Strategy Quality Value/costs Incentive System Piecework Price carefully & transparently set Price not easily changed Innovation encouraged Strict quality control Bonus Broadens criteria (ideas, coop.) Employment Guarantee Complementary Practices High employee stock ownership Managers and employees treated equally Flat and responsive hierarchy Promotion from within Internal training emphasized Effective use of advisory board Flexibility additional capability: Part of Psychological Contract to work & earn less if little demand Shared values Belief in the individual Meritocracy Fairness Egalitarianism 21

22 The Psychological Contract Individual perceptions of their own obligations towards the employer (and superior), and their expectations of the employer (and superior) Built on the principle and expectancy of reciprocity, balance ( social exchange ) 22

23 The Psychological Contract (2) Psychological contracts are subjective, unique & idiosyncratic Psychological contracts are built gradually, from external communication, initial meetings with the organization, etc. Why important? As long as employer (and superior!) is perceived to keep its part of the contract => performance & engagement (through social exchange ) in line with the contract BUT Psychological contract violation -> lower performance & engagement What is your psychological contract with your direct subordinates, peers, superiors? How does your organization build psychological contracts with employees? 23

24 Lincoln: A Study in Consistency Key capabilities: Extremely High Productivity, Consistent Quality Piecework Incentive System Price transparently set Price not easily changed Innovation encouraged Bonus Broadens reward criteria Employment Guarantee Strategy Quality Value/costs Differentiation from competing firms Flexibility additional capability: Part of Psychological Contract to work & earn less if little demand Complementary Practices High employee stock ownership Managers and employees treated equally Flat and responsive hierarchy Promotion from within Internal training emphasized Effective use of advisory board Shared values Belief in the individual Meritocracy Fairness Egalitarianism 24

25 Strategic HRM (SHRM, Strategic People Management) Strategy, capabilities, people strategy What is our business model (strategy)? How do we deliver value to customers? What are the enabling and differentiating organizational capabilities? (A capability can be observed but must be valuable, rare, difficult to imitate) What kind of people strategy can create competitive advantage? [What human capital is required? What kind of social architecture (org. culture, social capital?)] 25

26 Strategic HRM (People Management): 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 HR practices Differentiation? Internally across employee groups, and Across units Externally from other firms Balancing dualities: Too much consistency or too high degree of differentiation? At Lincoln? In your organization? 26

27 The HRM Wheel Pucik, Evans, Björkman & Morris (2017) 27

28 2. Should the company introduce the reward system and other elements of how the firm operates in the United States also in China? Why/why not? 28

29 x x xx Lincoln s Expansion Abroad 1988 Australia (1938) Canada (1925) France (1955) United States (1895) New push into Asia in the mid-late 1990s What to do in China? 1993 Australia Canada France United States Brazil Germany Ireland Italy Japan Mexico Netherlands Norway Spain United Kingdom Venezuela 29

30 Developments in China 1998: Lincoln Electric (Shanghai) Welding Co. established 2000: Decision to implement piece rate system: challenges related to communication, trust building but progress seems to be good.then, LE buys 35% of Kuang Tai Metal Industrial Co.: Kuang Tai takes control over all activities in China 2004: LE acquires controlling stake in 3 Kuang Tai units in China LE acquires stick electrode plant in Inner Mongolia 2005: Frank Young new head of North Asia, including China Should Frank introduce the incentive system and other elements of how the firm operates in the United States also in China? Why/why not? 30

31 Frank s choices 1. Introduces Advisory Board (though with some adaptation): important vehicle In hindsight: should have done so earlier, in all units 2. Introduces monthly piece rate -like bonus system + 13th month bonus system It is like a piece rate system. It is designed to drive people to do better. We put in the incentive system to that extent that it was possible to do. We adapted it to the circumstances labor laws and culture It is very important to have objective performance criteria in China otherwise personal relationships and power may strongly influence the appraisals. The level of supervisor and peer evaluation in the US doesn t work as well here. It is a cultural issue to some extent. Here you can end up with a system of favors, and those who don t say the right thing to the right people may get bad assessments. 31

32 Lincoln Electric Update The Company is famous for its productive and highly-skilled work force, as well as its unique compensation system, Incentive Management. The system compensates and encourages individual and team initiative and responsibility at all levels of employment within the U.S. subsidiary. Lincoln's other global operations have their own systems, where appropriate and practical. Lincoln has never experienced a work stoppage in its 100-plus year history. Promotion from within; Guaranteed Continuous Employment Plan provides covered employees with security against layoffs due to lack of work; Lincoln s pay-for-performance culture rewards employees for their contributions to the success and profitability of the Company. The average bonus award over the last 10 years is 40% of an employee s year to date (base earnings). 32

33 HRM and the global-local dilemma MNC (Headquarters) Global Standardization 1. What practices are important for our competitiveness? Subsidiary characteristics Subsidiary HRM practices Performance? 2. In what way MUST we adapt to the local context? Cultural, institutional, economic environment Local Adaptation 33

34 but also, HRM and the global-local dilemma : Hamlet s question To locally adapt and/or not adapt (globally standardize) organizational practices, that s the question What to re-create?? (finding a third solution) Answer requires an in-depth understanding of a variety of factors: External: Cultural, Economic, Institutional (laws & norms) Corporate: Degree of integration, perceived value of practices Focal unit: Strategy, workforce, work organization, org. culture 34

35 People Management: To Adjust or Not to Adjust? Arguments for a local approach to people management Cultural differences (regarding authority, conception of self & collectives, societal order, etc.) Institutional differences (regulations, local practices) but a differentiated perspective is needed Some practices are more contextual than others Blue collar practices may be more local than managerial practices There are advantages to global standardization (and integration) of some people practices And remember: There is more variation within a culture than there is between cultures The importance of selection Culture can often be an alibi for resisting change Culture can become a catch-all for not trying to understand complexity 35

36 China: The first bird gets shot Culture of fear and punishment What is happening here? 36

37 Chinese Culture in Flux Hierarchy Group orientation Traditional Values Emerging values Communist Values Egalitarian Societal order: Relationship 2,000 years 30 years Party Ascribed status Hero: Scholar Past oriented Indirect (face saving) communication Last 35 years Country orientation Class background Farmer/Worker Future Secrecy Less hierarchical, Individualist-materialist, Towards rule by law Achievements, Entrepreneur, Current oriented, More direct communication Differences across generations, education, firms, regions.. 37

38 Power distance (hierarchy) among inhabitants in two countries Low Power Distance United States China High Power Distance Can we find people who fit in? 38

39 Strategic International HRM: Guiding Principles Starting point: Internal consistency Fit across HR practices (internal fit ) Fit with other parts of the work organization Consistency between HRM strategy, policies, and actual practices (external fit ) Differentiation? Internally across employee groups, and Across units Externally from other firms Balancing dualities Too much consistency or too high degree of differentiation? How to do this across global operations? What to retain, what to respect, what to re-invent? 39