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 ‘integration-responsiveness’ grid.

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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.

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Integration-Responsiveness GridProducts and Functions – where is HR?

High

Low

Integ

ration

Global Transnational

Multidomestic

Responsiveness High

Present

Future

Research

Marketing ?

HR

Chemicals

Shampoo

Beverages

Consultancy

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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

HR HR HR HR

Finance Finance Finance Finance

Businesses

Functions

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

Chocolate Pasta Sweets

HR Finance

Businesses

Functions

Coffee

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 Europe America Asia

Pasta

Coffee

Pasta

Coffee

Pasta

Coffee

Development

Technical support

Development

Technical support

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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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’).

Amplification and elimination

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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’. 15

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 - FindingsThe 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 multi-domestic 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.

ReferencesBartlett, 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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