Uncovering competitive and institutional drivers of HRM practices in multinational corporations Elaine Farndale & Jaap Paauwe Tilburg University, The Netherlands Submitted to: Human Resource Management Journal, Special Edition on International HRM April 2007 This paper is not yet finalised and, for this reason, the authors request that it is not quoted without permission. However, the authors warmly invite requests to do so or discussion about any issue in connection with this paper.
Dr Elaine Farndale & Professor Jaap Paauwe Department of Human Resource Studies Tilburg University PO Box 90153 5000 LE Tilburg The Netherlands Tel. : +31 (0)13 466 2827 / 2371 Fax: +31 (0)13 466 3002 Email: [email protected] nl, [email protected] nl 1 Uncovering competitive and institutional drivers of HRM practices in multinational corporations ABSTRACT Current international human resource management (IHRM) literature focusing on multinational corporations (MNCs) presents evidence of both similarities and differences in the HRM practices adopted in different global locations.
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However, the drivers behind this duality require more detailed investigation. This paper focuses on exploring why MNCs position themselves within global markets as they do, exploring how extant theory can help explain the drivers behind both global and national HRM practices. Based on a worldwide sample of in-depth interview-based case studies of well-known MNCs, we explore the ways in which different firms react to both institutional and competitive pressures in selecting their approach to HRM.
The findings uncover a differentiation between external global competitive isomorphic pressures, external national institutional isomorphic pressures, and internal processes of strategic choice and competitive differentiation. It is suggested that MNCs face all three drivers of HRM simultaneously, leading to different patterns of practice adoption, adaptation and innovation. KEYWORDS HRM practices; multinational companies; isomorphism; differentiation. 2 Uncovering competitive and institutional drivers of HRM practices in multinational corporations INTRODUCTION
Interest in the value of human resource management (HRM) practices in terms of contribution to firm performance continues to be high as the HRM field seeks legitimacy in both academic and practitioner fields. Despite groundbreaking work by authors such as Huselid (1995) and Pfeffer (1995), there are as yet no definitive solutions offered as to what universal HRM ‘best’ practices consistently deliver high firm performance (Paauwe & Boselie, 2005; Purcell, 1999). In the area of employee relations, this has evolved into a debate on the convergence or divergence in practices due to increasing globalisation (Geppert, et al. 2002; Paauwe, 2004). Equally, in the broader field of HRM such discussions are also underway (Brewster, 1999). When considering international organisations, this brings to the fore the distinction between universalistic ‘best’ practice versus best fit (contingency) approaches to HRM (Delery & Doty, 1996). Multinational corporations (MNCs) are at the heart of these debates, as they operate at both the global and national level, are one of the main driving forces (next to information and communication technology – ICT) behind globalisation, and are confronted with a variety of HRM practices in their countries of operation.
At the same time, MNCs benchmark themselves against each other to improve both efficiency and effectiveness. Benchmarking might result in a certain amount of reproduction of HRM universalistic practices through competitive isomorphism (DiMaggio & Powell, 1983), but at the same time these practices can show variations in approach, content and implementation resulting in competitive differentiation. Reflecting deeper on these observations, we can distinguish both universal 3 ationales for the adoption of HRM practices and more context-dependent or best fit perspectives (Child, 2000). To continue the debate as to why we observe both similarities and differences in MNC HRM (see, for example: Ferner, 1997; Ishniowski & Shaw, 1999; Park, et al. , 2003), this paper focuses on why high-performing MNCs position themselves within global markets as they do, exploring how extant theory can help explain the drivers behind both global and national HRM practices.
We first explore the roots of universal or best fit approaches to HRM, looking at both global and local influences. The paper then draws on a range of extant, often contrasting, theoretical perspectives in order to uncover the underlying drivers shaping HRM. Importantly, the paper focuses on both internal and external drivers, exploring the environment in which the firm is operating and the strategic choices being made within organisations in reaction to this environment (cf. Almond, et al. 2005). This theoretical argumentation culminates in the application of the contextually based human resource theory (Paauwe, 2004), and is explored empirically through the analysis of fourteen in-depth case studies from around the globe. ADOPT OR ADAPT: GLOBAL/LOCAL HRM MNCs hold a unique position with their cross-border activities, creating choices on how to operate within this global environment. The first strategic decision is selecting an appropriate internationalisation strategy.
The options available are most frequently described in terms of Perlmutter’s (1969) and Bartlett and Ghoshal’s (1989) classifications: ethnocentric, global strategy in which control is centralised and subsidiaries resemble the parent company; polycentric, multi-domestic strategy in which control is decentralised and subsidiaries 4 conform to local practices; and the geocentric (or regiocentric as added by Perlmutter & Heenan, 1974), transnational strategy in which subsidiaries and headquarters alike adhere to worldwide (or regional) standards as part of an organisational network.
Corporate strategy thus varies based on the extent to which firms want or need to adapt practices to local conditions. MNCs also have the option of adopting the practices with which they are most familiar or which appear to promise high returns in performance, regardless of the location of their subsidiary (Gooderham & Nordhaug, 2003). The universality of HRM practices within a company across the globe creates cross-border equity and comparability, and alignment of systems internationally to facilitate an internal labour market (Almond, et al. 2003). However, this standardisation can lead to conflict between company practices and local prevailing conditions in terms of national cultural phenomena, institutions and business systems. The extent of adaptation of HRM practices required is thus largely related to the extent of difference that exist between the parent and host country in terms of national regulations, institutions and culture, as well as corporate strategic choice (Taylor, et al. , 1996).
There is thus a need to achieve legitimacy in all environments, but at the same time a requirement to remain competitive in these same markets (Kostova & Roth, 2002). If we consider further what universalistic ‘best’ practice means, this has often been associated with the Japanese management practices of the 1980s in production manufacturing environments, where cost and quality issues predominated. Companies developed lean or agile manufacturing systems, mirroring practices in the Japanese motor industry (McCurry & McIvor, 2002).
The characteristics of these lean manufacturing systems were linked in turn to HRM practices in the form of high performance work systems, focusing on employee 5 development, employee participation, teamwork, incentive-based pay, and investment in recruitment and selection (Applebaum, et al. , 2000; Boxall & Purcell, 2003). Thus these practices became accepted amongst manufacturing companies as appropriate practices to adopt in order to improve firm performance. Empirical studies explored the transfer of these Japanese employment practices in MNCs from Japan as they expanded into Europe and North America.
They found that US manufacturers that adopted a full system of innovative Japanese HRM practices achieved higher levels of productivity and quality than those manufacturers who only adopted certain individual practices, supporting the universal ‘best’ practice theory (Ichniowski & Shaw, 1999; Park, et al. , 2003). However, the number of US manufacturers found to be adopting full systems of Japanese HRM practices remained minimal, implying that there are drivers other than pure anticipated performance outcomes impacting on the choice of HRM practices. Other such factors have been argued to include: national culture (Harris, et al. 2003; Sparrow, et al. , 1994; Schuler & Rogovsky, 1998); nationality of ownership, country of origin and branch of industry (Edwards & Ferner, 2002; Ferner, 1997; Hedlund, 1986; Lachman, et al. , 1994); and national institutions and business systems (Budhwar & Sparrow, 2002; Harris, et al. , 2003; Whitely, 1992). THEORETICAL PERSPECTIVES ON HRM DRIVERS Although this range of drivers has been widely discussed, less attention has been paid to the potential conflicts between the underlying theoretical perspectives applied (such as neoinstitutional theory, resource based view, strategic balance theory, human agency and strategic choice).
Such a focus can provide deeper explanations for why we see both 6 similarities and differences in the HRM practices of MNCs across the globe. Here, starting with the external context, both competitive and institutional drivers for isomorphism and differentiation are considered. This debate is then contrasted with internal issues of strategic choice which may override external influences. These contrasting perspectives are then integrated to explore how this can help uncover the drivers behind the adoption, adaptation or innovation of HRM practices by MNCs.
Universal practices emerge when firms benchmark against each other, copying practices which promise to deliver desirable outcomes. This can be described through neo-institutional theory, which seeks to explain homogeneity within a specific organisational field, exploring how exposure to similar local market conditions can lead to increasing similarity of HRM practices and systems. This aspect of firm behaviour is described as competitive isomorphism (DiMaggio & Powell, 1983).
Competitive isomorphism assumes a system of economic rationality, which emphasises market competition and economic fitness as drivers for similarity. However, although temporarily giving firms a benefit by keeping up with competitors, if all organisations within a given field are doing the same activities, this does not result in sustained competitive advantage. The best fit (or contingency) approach to HRM focuses on the need to match HRM practices to prevailing conditions in a specific organisation field, rejecting the notion of one best way of doing things in all contexts (Delery & Doty, 1996).
This approach also draws from neoinstitutional theory, but is related to DiMaggio and Powell’s (1983) second type of isomorphism: institutional isomorphism. Institutional isomorphism identifies three mechanisms which are said to influence decision-making in organisations: coercive mechanisms which stem from power sources stronger than the organisation; mimetic 7 mechanisms which result from patterns of responses to uncertainty; and normative mechanisms which are associated with the adoption of standards and routines considered appropriate in a specific environment.
Applying this theory to the field of HRM (cf. Paauwe & Boselie, 2003), coercive mechanisms include the influence of social partners (trade unions, works councils), employment legislation and the government. Mimetic mechanisms refer to benchmarking and the imitation of strategies of successful competitors. Normative mechanisms include the impact of HRM professional bodies and employers associations. All three mechanisms have the ultimate goal of achieving legitimacy within the organisation field to ensure access to necessary resources from potential exchange partners.
Institutional isomorphism has a similar effect to that of competitive isomorphism in that organisations look more and more alike, and hence do not achieve competitive advantage above others in the field as they are not able to differentiate themselves. In contrast to these isomorphic influences, the resource based view of the firm (RBV Barney, 1991) can best help explain how firms attempt to differentiate themselves by cultivating their resources in a way which is different from their competitors.
The RBV focuses on how firms maximise their sustainable competitive advantage from available resources (Morris, et al. , 2006). The firm is seen as a bundle of tangible and intangible resources and capabilities required for product/market competition (Kamoche, 1996). As traditional sources of competitive advantage (such as quality, technology and economies of scale) become more easily imitable, and therefore less of a factor for competitive differentiation, competitive advantage can still be achieved through developing human 8 esource capabilities that are valuable, rare, imperfectly imitable, and imperfectly substitutable (Barney, 1991; Wright, McMahan & McWilliams, 1994; Boxall, 1996). This approach to differentiation is less about being reactive to the firm’s environment as in neo-institutional theory, and is more about exercising strategic choice by building on and cultivating internal resources and capabilities. We can thus start to see the crucial role of active human agency in the decision-making process: this is the leeway which the organisation has in deciding on how to react to different environmental pressures and expectations.
Oliver (1991) explored the strategic responses of organisations to the institutional processes that affect them, and suggests there is a scale of organisational resistance, ranging from passive conformity (acquiescence) to proactive manipulation. There are thus limits to the willingness and ability of (members of) organisations to conform to different institutional mechanisms and pressures. This notion of individual agency has been reinforced in MNC research.
The role of power and politics has been shown to influence organisation actors in deciding whether to extend or limit the extent of global policies in order to safeguard their own interests (Edwards & Kuruvilla, 2005; Ferner, et al. 2005a). Institutional pressures are thus found not to have a deterministic effect, but are moderated by the role of powerful individuals and groups within the organisation (Edwards, et al. 2005). MNC actors at national or regional level can thus draw on elements from the institutional context in order to prevent the implementation of crossnational HRM practices emanating from corporate level (Ferner, et al. 2005b). Of course, this means the HR function itself has a crucial role to play. Farndale and Paauwe (2006) developed an empirically-based contextual framework of the processes by which HR activities are developed, implemented and coordinated, focusing in particular on who is involved and how these processes are implemented across the different levels of the MNC 9 (corporate, regional, divisional and local/national). They found a strong correlation between the internationalisation strategy of the firm and the required role of the corporate HR function to support that strategy.
Organisations can thus choose to be either more or less similar or different to their competitors (Deephouse, 1999), which can be explained both by neo-institutional theory and the RBV respectively. Strategic choice in competitive positioning determines whether a company opts to be more differentiated from or more similar to its competitors. Deephouse (1999) suggests that there needs to be an equal balance achieved between these two extremes in order to be successful in the marketplace.
His empirical exploration of his strategic balance theory based on research among financial service firms found that moderately differentiated firms, with a balance between an institutional/legitimate focus and a market focus, perform higher than either highly conformist or highly differentiated firms. However, this notion of human agency is not the only internal driver of HRM practices at play. There is also an institutionalised driver which is found in the broader administrative heritage of the organisation as a whole (Bartlett & Ghoshal, 1989).
The power structures and relationships between subsidiaries and headquarters are affected by past decisions at the political level as much as by external institutional level influences (Ferner, et al. , 2005b). Thus decisions and actions from the past are reproduced in existing organisation structures creating an internal institutionalised environment and organisation heritage. Contrasting dualities Neo-institutional theory thus assumes that organisations conform to institutional pressures in order to achieve legitimacy, which will enable them to acquire the necessary resources to 10 operate successfully within a given context.
However, drawing according to the RBV, organisations are also motivated from an economic or competitive perspective to position themselves differently from competitors. Thus the institutional and resource-based views need to be combined in the field of strategic IHRM, distinguishing between rational (“bounded by uncertainty, information limitations and heuristic biases”) and non-rational choices (“bounded by social judgment, historical limitations and the inertial force of habit”) (Oliver, 1997: 10). Achieving balance between the non-rational institutional and rational competitive challenges facing MNCs has also been addressed in the HRM trategy literature. Boxall and Purcell (2003) distinguish three primary goals of HRM strategy – labour productivity, organisational flexibility and social legitimacy. The first two represent the goals related to the competitive environment, while the latter goal of social legitimacy addresses the institutional pressures. They argue that achieving these goals simultaneously is crucially important for the long-term survival of organisations. Alongside this dichotomy of institutional and competitive drivers, Kostova and Roth (2002) argue there is also duality between external institutional pressures and internal processes.
MNCs are faced with maintaining legitimacy as well as remaining competitive not only in a single location, but in all of the locations where they operate. This gives rise to institutional duality: the external institutional context can come into conflict with the internal relational context, which depends on the role which subsidiaries play in relation to the headquarters, shaped by levels of dependency and trust between corporate headquarters and subsidiary and the degree to which the subsidiary identifies with the parent company (Kostova & Roth, 2002: 218-20).
They found that the less dependent a subsidiary is on its local host country, the less 11 likely there will be a need for local legitimacy, and hence more powerful MNCs operations will be able to exercise their own strategic choice. Another related aspect of duality is the distinction between so-called high context and low context perspectives for observing differences and similarities in HRM policies and practices.
In highly context-specific situations (for example: strict labour legislation, high union presence), practices are more likely to be customised, but where context is less dominant, universal rationales may be observed (Child, 2000). The global level has very little regulation in HRM (beyond the work by the ILO or the UN, for example), and so could be described as a low context scenario where there is more scope for strategic choice within MNCs. Hence there is the potential either to adopt universalistic practices by benchmarking the activities of competitors, or to opt for competitive differentiation.
However, at the national level, there are more coercive and normative pressures on MNCs to conform to the local environment, and hence in this high context situation, the leeway for strategic choice is reduced and more local ‘best fit’ approaches to HRM may be adopted. Here the focus on institutional isomorphism is likely to be stronger. In summary, in order to clarify this discussion, Figure 1 represents an overview of the range of theoretical perspectives explored here, presented in four quadrants – Q1, Q2, Q3 and Q4 – which represent differing degrees of institutional and competitive drivers in the internal and external environments.
Insert Figure 1 about here 12 To move this debate forward and into an empirical setting, an extant model which incorporates both these internal and external environments, as well as the institutional and competitive perspectives is adopted here. The contextually based human resource theory (CBHRT: Paauwe, 2004) highlights the need for balance between the various drivers potentially shaping HRM strategy. Paauwe (2004) argues that firms need to be able to pursue economic rationality whilst simultaneously being confronted with relational rationality challenges.
The former rationality focuses on the need to create added value and be competitive, whilst the latter emphasises the importance of institutional legitimacy, creating sustainable relationships with all relevant stakeholders of the firm and hence achieving both environmental and organisational ‘fit’ (Paauwe, 2004: 36). The CBHRT model (Paauwe, 2004: see Figure 2) shows how the external product/market/technology (P/M/T) competitive dimension and the social/cultural/legal (S/C/L) institutional dimension of an organisation’s environment dominate the crafting of HRM.
In addition, the unique internal historical heritage and configuration of the organisation have a role to play in terms of organisational, administrative and cultural legacies. This heritage is the outcome of past choices and constraints which the organisation has endured, resulting in a unique pattern of relationships existing between HRM practices and other organisational characteristics (Paauwe, 2004: 91). Insert Figure 2 about here The model also includes the notion of human agency, denoting the impact of the ‘dominant coalition’ of the organisation on the making of strategic choices (Child, 1972).
The dominant coalition (the people who hold the decision-making power in the organisation) is able to 13 moderate the external and internal contingency factors noted so far, dependent upon a range of factors which affect the leeway available for shaping HRM policies and practices within an organisation (Paauwe, 2004: 96). Finally, drawing from the strategic HRM literature, the framework shows how decisions can be made regarding the bundling of HRM practices adopted to ensure synergies and hence unique enhancements to competitive advantage (Barney, 1991; Kamoche, 1996).
This CBHRT model, combined with the preceding overview of theoretical perspectives informing the IHRM field, together allow us to explore in further detail in an empirical setting the drivers behind the adoption, adaptation and innovation of HRM practices within MNCs. METHODOLOGY In order to explore these issues further, 14 case companies were selected based on their superior business performance and reputation as an employer as defined through 2004 Fortune listings and equivalent rankings (see Table 1).
This method of case selection is purposive and follows that suggested by Truss (2001: 1122): “to take a firm that is financially successful in conventional terms and ask what HR policies it uses to achieve this level of performance. ” Insert Table 1 about here A series of in-depth case studies in multinational firms was thus undertaken. The study was designed to explore what MNCs themselves described as HR excellence, and was carried out 14 in collaboration with researchers across the globe from 4 universities1. During 2004-5, interviews were held with 214 interviewees in 14 ultinationals based in 17 countries (see Table 1). Pseudonyms based on the relevant sector are used here to protect the identity of the companies for confidentiality reasons. A multiple respondent approach was adopted, including interviews with 138 HR professionals and 76 non-HR staff (senior executives, line managers and employee representatives). 79 of the interviews were carried out at corporate headquarters, 87 at either country or divisional head office level, and 48 at unit level within a specific business division.
The interviews were semi-structured, based on a schedule designed and piloted by the four academic partners, covering questions about the business context, HRM practices and the HR function. Letters were sent to the head of HR at corporate headquarters inviting the companies to take part in the study. One contact person per company was established, who provided a list of interviewees for the study, based on the researchers’ requests. (The risk of self-selection bias due to interviewees being allocated by the company is recognised, however, in order to gain sufficient access, this was the most feasible methodology. )
Interviews were carried out face-to-face where possible, otherwise by telephone (less than 5%). Where permitted the interview was recorded. Interviews usually lasted around 1? hours and were mostly carried out with two researchers present. This allowed the interviewer to concentrate on interaction with the interviewee, whilst the other person focused on making accurate notes and raising any issues which required clarification (Eisenhardt, 1989: 538). The content of the interviews was summarised in individual case studies, which was then passed to the designated contact person in each company to check for factual errors.
This 1 A footnote will be added to acknowledge the research team once the paper has concluded the blind review process. 15 resulted in very few and only minor changes being suggested by the contact person, which were then incorporated into the final case study. Any discrepancies between multiple respondents within the same company were noted in the case study. The completed case studies were coded by the authors independently, both for evidence of similarities and variations in HRM practices.
The cases were then further coded based on the five drivers identified in the CBHRT model: the product/market/technology competitive dimension; the social/cultural/legal institutional dimension; the organisation heritage; the impact of the dominant coalition; and the horizontal fit between HR-systems. Each section of coded text was grouped according to this coding framework enabling the researchers to identify patterns in the data. Where minor differences in coding between the two researchers were identified, these were discussed and an appropriate coding was agreed upon by the researchers together.
This case study approach was adopted for its ability to cover multiple levels of analysis and detailed contextual conditions (Yin, 1994: 13). It is primarily applied in a descriptive manner, exploring links between the selection and adoption of HRM practices, rather than being theory-testing or theory-building (Eisenhardt, 1989; Yin, 1994). FINDINGS The data analysis was carried out at four levels. Firstly, similarities in HRM at the global level between firms are explored, followed by variations at this same global level.
The section then changes focus to the national level, looking first at the variations and then similarities in HRM practices. For each level, the related drivers are also noted. Appendix 1 includes a brief 16 introduction to each company to give an indication of its internationalisation strategy and stage of development. The first stage of the analysis was to consider the similarities across organisations at the global level, looking for examples of universal practice across the case companies.
The most common universal practices to emerge at this level are: talent management for senior managers, open job posting, expatriate management systems and succession planning tools. 10 of the 14 companies have developed corporate-wide performance management systems based on competency-based assessment and development tools for senior management. For example, in Engineerco a new global IT tool for talent management is enabling head office to encourage a focus on this aspect of HRM across the company as well as encouraging consistency in practices.
All but 2 of the 14 companies have implemented an open job posting (OJP) system on the corporate intranet in recent years, encouraging employees to take responsibility for their own career moves. In Electronico, for example, the OJP system being implemented to support corporate restructuring was described as encouraging a culture of an open process, giving structure to this process and providing IT-based tools on a common platform to support the process. The management of expatriates is also most commonly under the control of Global HR, which sets out the rules by which assignments are managed.
For example, group-wide systems operate via the intranet in Powerco for managing expatriation, opening up the visibility of all vacancies and making application easier for all. And finally, although succession planning appeared more often to be under the remit of local management, there are frequently global systems and tools being made available for this local implementation. 17 Exploring the drivers for these universal practices, the primary force appears to be the availability of ICT. As new systems are developed, the companies expressed how these tools were able to assist in goals of standardisation at the global level.
Additionally, the companies were also keen to ensure their ICT systems supporting HRM were at least at the level of their competitors, if not exceeding them. The impact of the HR function itself was also observed as a driver for standardising practice across a company. For example, in Engineerco, the HR agenda is set by Global HR, in conjunction with the local country business manager. The only way in which a local country-level HR initiative can become established in corporate practice is for the country-level HR manager to lobby the Executive Committee to get the initiative put on the global agenda.
Conversely, the only feedback of real interest to Global HR is how well the global HR priorities are being implemented at country level. The following stage of analysis was to explore variations in global HRM policies, undermining the notion of universal practices at this global level. Varied practices were noted particularly in the areas of reward, diversity policy, performance management systems for non-senior staff, employee relations and training.
For example, Consumerco and Foodco, despite both being major global competitors in the FMCG market, have very different philosophies behind reward strategies: Consumerco focuses predominantly on a base salary system, whereas Foodco has introduced variable pay at all levels of the organisation. Consumerco has adopted this salary system for the majority of its employees to enable the company to remain flexible to market changes – as targets change, there are no direct salary implications for individuals so they are more willing to change in line with business needs.
Innovco has also taken a very strong approach to promoting diversity and developing its employees, to enable it to stand out against its competitors and attract the top talent. Market 18 differentiation was stated by each of the companies presented here as a primary driver behind the HRM practices adopted. The evidence regarding performance management systems includes Engineerco’s companyspecific global system aimed at breaking down potential complacency in the existing ‘job-forlife’ corporate culture to introduce instead more of a customer-focus to encourage employees to work towards sales targets and to increase their customer orientation.
Specific to Consumerco, performance management practices are being designed to support the matrixbased organisation structure. People are assessed for their effectiveness in supporting the interdependency relationships between business units on how well they work together, have common goals and joint systems to track progress, and the extent of communication and general commitment to the structure. In employee relations, Engineerco is dominated by its Swedish origins and encourages a consensus relationship in industrial relations and employee involvement in its operations around the world.
Finally, Powerco wants to develop HRM practices as levers for change, and training is seen as a key driver for achieving the high level of transformation required. This training is not just about developing specific skills, but is also about changing the corporate culture in line with the business need. At the global level, Retailco, stood out as different from the other cases. This case showed little evidence of global benchmarking of practices, but likewise did not show clear evidence of specific HRM practices in each country in which it is operating.
What is remarkable about this case is that the driver behind the development of HRM practices across the whole company is the corporate culture. Retailco depends on its culture being maintained by people 19 growing through the company, with the corporate culture reflected in leadership styles, communication methods, ways of working and reporting hierarchies, but without prescribing the format of these activities.
In summary, at the global level, the dominant drivers of similarity amongst MNC HRM practices appear to be ICT from the product/market/technology dimension of the CBHRT, and the role of the Global HR function, as part of the dominant coalition within the organisation. Variations in practice appear to be driven more by corporate desire for competitive differentiation (again from the product/market/technology dimension) and by the desire to achieve organisational fit between HRM practices and the organisation’s heritage or current goals (from the organisation heritage and HR-system bundling dimensions).
Analysing the data at the national level, less emphasis was being placed here by the interviewees on the detail of the practices themselves, but more on the drivers for introducing a particular practice. We therefore focus here on presenting first the drivers of HRM practices, followed by a short description of how the practice then manifests itself. Significant national level drivers of differentiation are the specific sector in which a subsidiary is based, the product which it is producing, or the labour market which it is tapping in to.
For example, in one business area of Electronico, there is an incredibly short innovation cycle and the importance to the business of having innovators is high. Therefore, appropriate HRM systems are put in place here to support recruitment and retention, ensuring adequate development, recognition and exposure to others within the group. In Powerco, by contrast, parts of the business are very long-term and high risk regarding safety, and so there are year- 20 long development programmes put into place for new employees before they start to carry out their work.
At the national (or regional) level there were also similarities between MNCs. The wellestablished Asian practice of structured annual graduate recruitment is practiced by all the cases operating in Asia, largely as a result of societal tradition and expectations. Another primary driver for isomorphism at this national level is legislation. For example, in France there is a legal requirement for a minimum spend on training. Therefore, in Powerco, whose home country is France, there is a very high level of spending across the company (around 8% on average of the annual salary bill).
Of course, this spending requirement also applies to other companies based in France, and creates a universal practice of high training spend within the country. To give another example, Manufco have undertaken a number of IJVs in China; here, the company is forced by legislation to adopt local Chinese HRM practices in order to be allowed to operate in the country. Legislation is particularly influential in the area of employee relations. Many countries across Europe have strict regulations regarding consultation and negotiation with employee representatives and trade unions.
In Foodco, industrial relations was highlighted as the only area not yet affected by the shift within the company to more global policy setting, due to the very specific local arrangements needed. All companies expressed how local legislation determines both the remit and membership of employee representation bodies. However, there was also some evidence in the cases of the national traditions starting to break down as large multinationals begin to develop different approaches in institutionalised environments (cf.
Gooderham, et al. , 1999). For example, Manufco, predominantly based in Asia, is deliberately increasing its experienced hires and not relying on the annual graduate 21 intake for finding the best talent. Digico is another company that is also attempting to find ways for non-home-country nationals to progress higher in the organisation by adopting new HRM practices. The bundling of practices at national level within a company to produce synergies is also leading to specific organisational HRM configurations.
In Electronico, interviewees expressed that the monitoring of consistency between HR-systems is what gives the company the edge: “the processes and the metrics must make sense together”. By standardising practices and providing access to all relevant information via intranet, policies (like performance appraisal) can be implemented consistently. This bundling of practices in Consumerco has lead, according to interviewees, to the strength of the system, which is important for retention, lying less in individual tools and processes and more in how to the systems fit together in an integrated way to support each other and business goals.
In summary, at the national level, similarities in HRM practices are largely driven by social expectations and legislative requirements, both covered by the social/cultural/legislative dimension of the CBHRT. Once again, as also observed at the global level, differences are more likely to be initiated internally by the dominant coalition to achieve competitive differentiation, fit with local business needs, or the bundling HRM practices into corporatespecific systems (more akin to the organisation heritage and HR-system bundling dimensions of the CBHRT).
Having found evidence of both global and national isomorphic and differentiated HRM, and of the drivers of these practices based on the framework proposed by the CBHRT (cf. Paauwe, 2004), Table 2 presents an overview of the study’s key findings. 22 Insert Table 2 about here DISCUSSION Having discussed the range of extant organisation theory that can help us to understand how MNCs react to their environments producing either isomorphism or differentiation between firms, these theories have been applied here to explore in greater detail the drivers behind the similarities and variations in HRM practices in MNCs.
In order to progress this debate, the contextually based HR theory of Paauwe (2004) has been used, which highlights both institutional and competitive pressures alongside the notions of organisation heritage, strategic choice and the bundling of HR-systems. Based on an empirical study, the findings from the case studies highlight the presence of drivers for both universalistic best practice in HRM (cf. Huselid, 1995; Pfeffer, 1995) and best-fit contingent approaches (cf. Delery & Doty, 1996). These are evident at both the global and national level across MNCs as discussed below.
At the global level, the findings suggest that there is evidence of universal HRM practices across MNCs (e. g. online job posting, talent management systems and expatriation management systems). These practices are predominantly facilitated through the use of ICT to disseminate consistent policies, tools and procedures to all parts of the company. Equally, another major driver is the competitive isomorphism of competitor benchmarking in the marketplace (cf. DiMaggio & Powell, 1983), with firms adopting practices they observe as successful in other organisations. It therefore appears to be predominantly the 3 product/market/technology competitive dimension of the CBHRT (cf. Paauwe, 2004) which is driving the application of these universal practices. The companies are also exercising their leeway for strategic choice, and are aligning HRM strategy with corporate strategy, and aligning HRM policies themselves into synergistic bundles, to ensure consistency of implementation throughout the company. This is also leading to competitive differentiation, with MNCs placing themselves uniquely in the marketplace with their own particular configuration of corporate strategy, HRM strategy and HR-systems.
The dominant coalition within the firm reinforces this process of selection, with the corporate HR function in some cases crucially dominating the globalisation of HRM practices across a firm (cf. Farndale & Paauwe, 2006). Overall, considering broader organisation theory, quadrants 3 and 4 of Figure 1 (above) show how theories of competitive differentiation (cf. Barney, 1991; Deephouse, 1999) and competitive isomorphism (cf. DiMaggio & Powell, 1983) help us to understand this global strategic decision-making and benchmarking for competitive advantage.
Further research in the field could refine further this notion that at the low-context, global level, we can expect to see a high degree of corporate leeway leading to less institutional isomorphism, and stronger competitive drivers. At the national level however, there are many examples of similarities in practice. Particularly here, the societal/cultural/legislative dimension of the CBHRT plays a significant role. The findings highlight normative drivers such as culturally-based societal expectations of consensual trade union relations, and annual graduate recruitment in Asian societies.
Equally, legislation is a primary coercive driver in the adoption of HRM practices, particularly in the 24 field of employee relations. Here, at this national level, there is clear evidence of similarity of practices, primarily being driven by institutional mechanisms (cf. DiMaggio & Powell, 1983). Referring again to Figure 1, quadrant 2 highlights this notion of institutional isomorphism of firms. Further research could test whether indeed at this high-context, national level, institutional drivers are stronger and corporate leeway is more limited, leading to more customisation and fit of HRM practices to the organisational field.
Differentiation of practice at the national level was also apparent in the case companies, and was largely linked to the organisational heritage dimension of the CBHRT: there are expectations based on past practices of how the company will continue to operate in the future, regardless of its location. This highlights the remaining quadrant in Figure 1, Q1. Different employee groups and different areas of corporate activity require customised approaches to HRM to ensure the relevant business needs are met even within a single country.
This differentiation is partly driven by external drivers for legitimacy such as sector or market demands, but in our cases was more focused on the company’s dominant coalition’s response to these demands in terms of finding its niche position, achieving competitive differentiation, and ensuring internal organisational fit between HRM practices and corporate strategy. Future research could explore this internal process level to observe both institutional organisation heritage influences and strategic choice influences affecting corporate reactions to external institutional and competitive drivers.
Having observed both competitive and institutional drivers at work, this raises the issue of how to balance these competing forces for isomorphism and differentiation (cf. Boxall & Purcell, 2003). Corporations can, of course, choose how to deal with local pressures when adopting their competitive position in the market (cf. Deephouse, 1999; Gooderham & 25 Nordhaug, 2003; Taylor, et al. , 1996). Thus we have seen evidence of Consumerco and Foodco, for example, taking opposing positions on the adoption of variable pay as a mechanism of strategic positioning in the FMCG marketplace.
The role of the dominant coalition, in this case Global HR, also shows the impact of human agency in determining HRM activities (cf. Oliver, 1991). The findings also start to address the question of how MNCs reconcile competing pressures from the competitive and institutional contexts. The extent to which a firm either adapts to demands in its organisational field, or is more innovative in developing a unique competitive position, appears to be largely driven by its chosen internationalisation strategy (cf. Bartlett & Ghoshal, 1989; Perlmutter, 1969).
The more advanced transnational organisations (in this study, Consumerco, Electronico, Foodco, Innovco, Oilco, Softco and Digico) show more evidence of being driven by competitive forces, often adopting universal practices and reducing contingent approaches to HRM. Thus, the more transnational an organisation, the more it will try to coordinate HRM practices from the global level. This coordination comes predominantly from the Global HR function, and hence is highly dependent on the ability of individuals within the function to operate at this level, highlighting the significant role of the dominant coalition at corporate level (cf.
Farndale & Paauwe, 2006). However, in the more polycentric organisations of Powerco, Retailco, Visionco, Aeroco and Turboco, the level of global policy making in HRM is much more restricted with less leeway for corporate HR, and therefore there is more local fit in HRM policies and practices across the company. CONCLUSIONS 26 The study presented here has explored the influence of both competitive and institutional drivers on the adoption of HRM practices in MNCs, using Paauwe’s (2004) contextually based HR theory as a framework. The empirical work has been carried out in high-performing large MNCs to observe the drivers of HRM practices.
All 14 companies included in the sample are in various stages of development between ethnocentric, polycentric, geocentric or regiocentric internationalisation strategies, and all are faced by changes in their sector and market, and by the different cultures and institutions prevalent in the different countries in which they operate (see Appendix 1). Given the multitude of contextual factors and strategic choice opportunities, it is not surprising that the HRM practices across these high performing firms were found to be both similar in some respects and vary in others both at the global and the national level.
However, this paper set out to consider the underlying drivers of these similarities and variations. In conclusion, we found that at the global level, similarities are largely driven by external competitive factors such as mimetic benchmarking resulting in the adoption of universal ‘best’ practices, and the availability of ICT systems and tools. Similarities in approach to HRM at the national level appear to stem largely from external institutional sources, such as legislation, national traditions and expectations.
In contrast, differences in approach between MNCs at both the global and national level seem to be predominantly led by internal competitive processes, such as the corporate strategy, structure or culture. In other words, external institutional and competitive drivers are leading to isomorphism, but internal drivers are more likely to lead to differentiation. The MNCs studied are all subject to these three levels of drivers of HRM, all carrying a different weighting in the different company settings depending on current corporate challenges and the stage of corporate internationalisation. 7 The outcome of these variations in contextual factors is a varied degree of adoption, adaptation and innovation of HRM practices within the MNCs. In companies where decentralisation is strong, there are only minimal global HRM practices in place and little activity to increase these. However, where centralisation or transnationalisation is stronger, there is a robust framework of global HRM policies in place providing a broad framework within which subsidiaries must operate.
This study has provided a broad range of data in terms of comparisons of how large organisations are managing their operations in a number of countries across the world. The study is currently limited in its presentation of evidence from a small number of examples representative of the broader set of data held in the case studies. The paper is also limited by its focus on intended HRM practices, as opposed to an observation of actual implementation and how the practices are then perceived by employees. Further research is required to see how perceptions of HRM actually match the intentions of the firms.
The study is also limited by the way in which the questions were posed during interviews: companies were not expressly asked about the drivers of practices, but this was deduced by the researchers based on the information provided. Companies were also at liberty only to tell the researchers about what they thought were their own best practices, as it was important for the study to understand the company perspective of what they believed worked well, rather than asking detailed questions about every HRM practice in place.
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Institutional drivers Competitive drivers 36 FIGURE 2 A Contextually Based Human Resource Theory Source: Paauwe (2004: 91) 37 TABLE 1 Case Companies Company Engineerco Sector (Electrical) Engineering Power generation & distribution Retail Employees 116,000 HQ base Switzerland 2004 Fortune (or equivalent) listings Global 500 Best Companies to Work For Global Most Admired Global 500 Europe’s top 50 companies Best Companies to Work For Interviews 13 Powerco 167,000 France 9 Retailco 84,000 Sweden 9 Consumerco FMCG 98,000 USA Electronico
Electronics / electrical engineering FMCG 417,000 Germany Foodco 234,000 UK / The Netherlands UK UK Global 500 Fortune 500 Best Companies to Work For Global Most Admired Global 500 Best Companies to Work For Global Most Admired Europe’s top 50 companies Global 500 Global Most Admired Europe’s top 50 companies Global 500 Pacific Star award for activities in Asia; Business Commitment to the Environment Award Fortune 500 Global 500 Global 500 Fortune 500 Best Companies to Work For America’s Most Admired Global 500 Largest TV manufacturer in China Global 500 Global most admired 1 18 9 Aeroco Turboco Aerospace, defence Aerospace, marine & energy IT software & infrastructures Oil/energy Software/ hardware/ IT services Consumer electronics Consumer electronics Consumer electronics 90,000 24,000 12 25 Softco Oilco Innovco 41,000 119,000 319,000 USA UK/NL USA 17 24 9 Manufco Visionco Digico 290,500 53,000 128,000 Japan China South Korea 24 12 22 38 TABLE 2 Drivers of HRM practices in MNCS based on the Contextually Based Human Resource Theory Driver HRM response 1.
Product/Market/Technology Product market/sector • Recruitment and retention practices supporting high innovation • Long-term development programmes for specific employee groups in high-risk positions Market differentiation • Base salary system vs. variable pay system • Strong focus on diversity policy for recruitment and retention • Introducing experienced-based hires instead of annual graduate recruitment in Asia • Encouraging the career progression of nonhome-country professionals Information technology • Corporate wide systems for: talent system/tool availability management, open job posting, succession planning, expatriate management 2.
Society/Culture/Legislation Societal expectations • Annual graduate recruitment National culture • Consensus-based industrial relations systems (based on Swedish origin) Legislation • High training spend in France • Adoption of all local HRM practices in Chinese IJVs • Employee consultation and negotiation systems in accordance with European laws 3.
Organisational heritage Corporate culture • Performance management system to change corporate culture • Training as a lever for change • Culture as the guiding philosophy behind all HRM practices Corporate structure • Performance management system to support the functioning of the matrix structure 4. Dominant coalition Role of the Global HR • Standardisation and control of areas of HRM practice 5. HR system bundling
Internal consistency • Standardisation of HRM practices and dissemination via intranet System strength • Integration of HRM tools for horizontal and organisational fit Example company Electronico Powerco Consumerco/Foodco Innovco Manufco Digico Various Asian-based MNCs Engineerco Powerco Manufco Foodco (and others based in Europe) Engineerco Powerco Retailco Consumerco Engineerco Electronico Consumerco 39 APPENDIX 1 Case company profiles
Engineerco: simplifying its highly decentralised structure to increase central control and agility; recent major cost-cutting program including divestment of businesses and staff reduction; new culture focused on controlling costs; good reputation as a life-long employer. Powerco: operating as a holding company around the world; home country influence abroad is limited; aiming to develop a more global focus; excellent reputation as a life-long employer and as a public service provider.
Retailco: highly successful and expanding retailer across the globe; decentralised operational power at retail store level; corporate culture is its strongest asset, stemming from its founder and its country of origin; identity is used for competitive advantage in attracting employees. Consumerco: undergone major change, developing a new organisation structure which emphasizes global/ regional brand development, shifting from country-focused operations; culture is performance driven, encouraging constant measurement of results.
Electronico: a solution provider, proud of its ability to innovate; long-term history of solid results based on a strong country-of-origin corporate culture; increasing interaction between business divisions to extract value from its global status rather than operating on a country-level basis. Foodco: recently suffered a financial shortfall thus undergoing major restructuring focussing on centralising business divisions at the country and regional levels; focus on speeding up operations and creating more interlinkages between business areas.
Aeroco: undergoing rapid and far-reaching change, fro