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CHAPTER 2
Human Resource Management in the International Firm:
The Framework
SYNOPSIS OF CHAPTER
In this chapter, we lay out the conceptual framework for the book. We start by arguing thatHRM can contribute most significantly to firm performance when HR practices
support the organizational capabilities that allow the company to competesuccessfully. We review how the HRM domain consists of a number ofkey elements that we represent as different parts of an HR Wheel. These includeguiding principles for HRM decision making, the development and implementationof HR practices in different parts of the corporation, the roles of the HR functionof the firm, and HR outcomes that contribute to value creation in the enterprise.In our discussion of HRM we distinguish between three different stages, using the metaphors of the builder, the change partner, and the navigator.
LEARNING OBJECTIVES
- To understand how HRM can support the development oforganizational capabilities that differentiate the firm from its competitors, and help the firm implement its strategy successfully.
- To understand the key element of the HRM domain in multinational corporations represented in the HR Wheel
- To comprehend the different stages of HRM in multinationals: Getting the HRM basics in place; adjusting to environmental and strategy change; and long-term capability development.
SESSION OUTLINE
I)The Opening Case
Show Transparency 2
Ask the participants to read the opening Lincoln Electric caselet or the full Lincoln Electric in China case – see Teaching Support Material. You may also show a short (12 minute) CBS video segment on Lincoln Electric, broadcast on 11/8/92. (The video is of course old but provides a good feeling for the Lincoln Way in action.)
Questions:
- 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?
Lead a brief discussion based on the input from the participants on question 1. Write key words on the whiteboard. If necessary, encourage the participants to think about the strategy, organizational capabilities, and people management practices of Lincoln. Either develop the model outlined on Transparency 3 on the whiteboard or show the transparency.
Show Transparency 3
As is evident, the strategy is remarkably simple: provide high quality products at reasonable prices through a constant eye for productivity gains and product improvements. The redistribution philosophy and system is crucial to the success of this strategy, driving the organizational capabilities that allow the firm to make this strategy work—very high productivity, innovation (incremental), and an extreme level of adaptation as the employees commit to adjusting their working hours to changes in demand.
Ask the participants why this seems to work – why do Lincoln employees buy into it? A part of the answer lies in the complementary policies that support this system. Lincoln's genius is making this system seem fair, empowering, and unifying. This is done through the complementing work practices that the company has implemented, including: many own shares in the company; there is relatively little difference in pay and perks between executives and employees, and workers are listened to on the advisory board. The practices are embedded in strong corporate values: belief in the individual, meritocracy, fairness, and egalitarianism.
Show Transparency 4
Point out the consistency: across HR practices, with other parts of the work organization, and between companies policies and actual practices (leading to a trust in the HRM system).
Lead a relatively brief discussion on question 2: 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? Or differently put: what shall the firm do in China, and why? Point to the importance of considering arguments for and against the transfer of entire work systems (including HR practices) to other cultural and institutional settings. Point out that you will return to the questions of local responsiveness in Chapter 3, and global integration in Chapter 4. (If you use the full Lincoln in China case you are likely to spend more time on this part.) You may here also mention that although Lincoln has adapted to the Chinese environment in various ways (partly as an outcome of the local labor laws stipulating minimum pay and the maximum amount of overtime that an employee can work per month) it has implemented a performance-based pay system that mirrors many aspects of the US system. Further, it uses actively and successfully an advisory board as a vehicle for enhancing communication across organization levels.
II)The HR Wheel
Show Transparency 5
Use transparency 5 as a way to make sure that the participants understood the crucial linkages between strategy, organizational capabilities, and HR practices in the Lincoln example. Argue that this should be the starting point for thinking about HRM in any organization.
Show Transparency 6
Generalize from the Lincoln case. Point again to the consistency of the various elements of how Lincoln operates in the US.
Discuss the issues of differentiation. The low degree of differentiation across organizational members fosters a sense of fairness and trust, while it may for instance discourage external applicants from applying for senior executive positions. Point out that many other firms make much larger differences in how they manage different employee groups. You may show Transparency 7 here (or decide not to in order to save time).
Show Transparency 7
Return to transparency 6. While Lincoln initially attempted a wholesale transfer of its work system to overseas units it is now more conscious about the need to critically analyze the need for at least some local responsiveness. Point out how Lincoln differentiates itself from its competitors and other employers through its HRM, an important issue especially in locations where the firm is well known and therefore able to attract job applicants that fit its model.
Briefly mention the potential drawbacks of too much consistency/differentiation. The issue of balancing dualities will be returned to later.
Show Transparencies 8-11
Show transparency 8 but refrain from spending much time on its content. Spend instead some more time on explaining the three different roles of the HR function presented on transparency 9. Make sure that the participants understand the importance of the different organizational outcome of (among others) HRM listed on transparency 10. Finally, present transparency 11 and go through its different parts, beginning with strategy and then organizational capabilities, and followed by guiding principles, HR practices, roles of the HR function, and organizational outcomes.
III)Three Stages of HRM in Multinational Firms
Show Transparency 12
Transparency 12 outlines the three stages of HRM. The focus here turns to the HR function and how different issues become important at different stages in the evaluation of the firm. Go through each of the parts of the table and point to the differences across the stages.
Show Transparencies 13-14
Link back to the Lincoln case when showing transparency 13. Spend more time on the next transparency and make sure that the participants understand why it is so common for HRM systems (as well as many other systems) to become rigid over time.
Show Transparency 15
This transparency summarizes key issues for the HR function in terms of how to adapt to changes in the environment as well as in the strategy of the firm. How to manage processes of change is the theme of Chapter 11, so it may not make sense to get into too much detail at this stage.
Show Transparencies 16-19
Transparencies 16-17 present some of the important dualities facing multinationals, while transparency 18 (from Table 2-2 on page 72) has a more comprehensive list. The latter transparency may be left out to save time and reduce overlap. Multinationals will always be facing opposing forces like local responsiveness and global integration, and short term exploitation and long term exploration. The key message on these slides is that firms should realize that such confronting tensions between opposites cannot be solved through either-or solutions once and for all. Rather, such tensions must be anticipated and managed. The navigator (or helmsman) is a useful metaphor for understanding how todeal with these tensions. HRM plays a crucial role in enhancing the lateral coordination needed to handle such tensions, a theme that will be discussed at length in later chapters of the book.
Show Transparency 20
The last transparency summarizes the key message in each of the three stages of HRM.
TAKEAWAYS
1. To add long-term value, HRM has to support the development oforganizational capabilities that differentiate the firm from its competitors,and help the firm implement its business model successfully.
2. Differentiated capabilities must satisfy three criteria: They must createvalue for the customer, be rare and unique, and be difficult to duplicate bycompetitors.
3. Keep the guiding principles of HRM in mind—internal consistency ofhuman resource and work practices; differentiation among employeegroups, between locations, and from other competitors; and balancingdualities.
4. Every firm has to cope with a number of basic and vitally important HRMtasks: attracting and recruiting employees, developing and retainingpeople, and managing and rewarding performance. The core HR task—getting the right people into the right place at the right time—must not beneglected.
5. The HR function covers three roles: HRM process and contentdevelopment, HR service delivery, and business support. Each of thesedistinct but interrelated roles is important, and they all need to be staffedby competent HR professionals.
6. Human capital and social architecture, change capability and strategicagility, and sustainable organizational performance are the keyorganizational outcomes of HRM.
7. It is useful to conceptualize the three stages of how HRM creates value inmultinational firms. The theoretical perspective behind the builder isinternal consistency; behind the change partner, it is the fit with thechanging environment and strategy; and behind the navigator, it is theduality theory.
8. Beware of the dangers of becoming stuck at specific HR stages. Buildersmay become administrative custodians, losing the business credibilitynecessary to act as change partners. Change partners may neglect theimportance of internal consistency and solid foundations.
9. One of the ways in which HRM contributes to organizational performanceis in helping the firm adjust to environmental change. However, sincechange involves significant realignment, this often takes much more time(continuity) than people expect.
10. Organizational effectiveness is inherently paradoxical, requiring opposingstrategies and capabilities. Two dualities of concern are centralizationversus decentralization (reflecting the global–local dilemma) and resourceleverage versus resource development (also known as exploitation versusexploration).
TEACHING SUPPORT MATERIAL
For this chapter we suggest that you use this award-winning case:
Lincoln Electric in China
By C.Galunic and I. Björkman , INSEAD-case 4850, 1999 (available through ECCH)
Overview
The case presents first in detail the strategy, organizational capabilities, and people management system of Lincoln in its US operations. It then describes Lincoln’s experiences when the firm internalized its operations. The focus of the final part of the case is on China, focusing on whether to implement the US system also in China. The case has a teaching manual.
Study Questions
- How do you explain Lincoln Electric’s success in the United States? What role does the way in which the company manages people play in its success?
- 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?
Please note!
At the time of writing, the Lincoln Electric in China case, published in 1999, is being updated to January 2010; the new case will soon be available through ECCH.
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