The relevance of the object of study is determined by the role the Human Recourse Management plays in the organization of sound business strategies. The urgency of the topic in its turn is based on the importance of human recourses in the modern labor market and the need to enhance the relationship between employer and employee in the enterprise which is the main prerequisite for productivity and the creation of sound climate in organization. This introduction outlines the main contours of our research by means of analyzing the role of human resources in economic activities and the function of HR policy and procedures in employer-employee communication in company. Attempt is made to analyze the theoretical debates in academia concerning this problem, which provide us with a possibility to create viable methodology.
The role of HRM in contemporary economic activity
Human Resource Policy became an important element of the contemporary economic activities, due to the growing interconnectedness of the world, growing world population and technological changes. HRM represents a two-folded reaction, firstly people help organization to achieve its goals and then the organization helps people to make them more competitive and cost-effective. In short, it can be said that “the purpose of human resource management is to improve the productive contribution of people to the organization in ways that are strategically, ethically, and socially responsible” (Werther, Keith, 2000).
The world of business has become more turbulent and efficient (Burke and Cooper, 2004).
Among the challenges that organisations often come across with Ulrich (1997) lists several major such as: globalization, creating organisational facilities, transformation and innovation, implementing technology, human capital, increasing responsiveness etc. But, however many of these new policies can be copied, Human Resource Management presents a unique advantage and task for the firm that is very difficult to copy (Pfeffer, 1994, 1998). If an organization seeks to be competitive in future it is urgent that it creates responsive HRM practices and raise talented HR professionals. This will increase the value of organisational competitiveness (Ferris et al., 1999).
Traditional understanding of competitive advantage focused on the economic issues. But the new understanding places higher the priority of human resources and capital. (Huselid et al., 1997). As a result of new challenges pacing organisations such as increasing competitiveness, globalization of economy, technological changes emphasize the importance of developing innovation, creative approach and flexibility. In this way, according to Ichniowski et al (1996) the most critical firm resource do not lie in the bank counts or assets but are in people and the system of management. During the past years the role of HRM in the economic activity was reconsidered. Rather than considering HR as a cost, now it is regarded as strategic objective of investment that creates value.
The importance of the human resource management for the good performance of the enterprise is confirmed by the latest research into this problem. The results of these researches may be summarized as follows: the more profound are human resource practices and procedures the more effective are the economic activities of the firm.
Pfeffer (1998) gives some reason why human resource policies pay dividends. Such procedures as selective hiring, sharing of knowledge, and training result in excellent performance results and are hard to copy. But in the long run they give much productivity and profitability.
HRM procedures impact in employee skills by creating and developing human capital. (Wright et al., 1994). Effective selection and recruitment practices provide the firm with qualified personnel. Human resource policies are crucial for the rising the productivity and motivation of the staff through the mechanism of performance appraisals, various incentives for excellent performance and internal promotion mechanisms (Brown et al., 2003).
Ulrich (1997) describes the role of Human Resource policies in the extraordinary way. Human Resource policies, according to him, are designed to increase employee’s competitiveness. Moreover they must be assessed in terms of accumulation of intellectual capital and added value. That is why Human Resource Management must be crucial part of the tool box of the successful manager who wants to improve the competitive advantage of his company. Moreover, the creation of the sound HR policies is a crucial constituent of developing communicational environment between employees and employers. An excellent communication climate in the enterprise makes a team-work more effective and motivation of the workers higher. The atmosphere created by the sound human resource policies constitutes one of the main prerequisites for successful realization of the company’s strategies and productivity. That is why in order to provide qualitatively new framework for robust human resource policies it is important to remember that:
- Human capital is a key to competitive advantage.
- The traditional authoritarian relationship between employees and organization are no longer viable and there is an urgent need of creating new framework.
- A lot is known about individual abilities and development of institutional efficiency.
- It is now better known about a means of improving practices for organization.
- It is urgent to create new organizational formats that would place more emphasis on the human resource policies and procedures.
The organisations by implementation of human resource policies can find and even produce the hidden value in the employees and increase the chances to develop human and organisational capabilities. The examples of the policies of successful companies show that they implemented sound human resource practices (O’Reilly and Pfeffer, 2000). According to this research the high levels of employee motivation and responsibility depends on the way he is treated by the organization. If the organization provides the conditions for the employee to take active part in the activities of the company, to have a say in important issues and problems, to share his experience on crucial for the organizational goals issues it makes him more responsible and committed. The sound human resources policy is required to achieve such results.
HRM policies also have an impact on the work’s design so that motivated and qualified staff can use their knowledge to perform their jobs (Bailey, 1993).
In total the well-designed human policies have a profound impact on the performance of the employees which in terms influence on the company’s performance. In this way HR practices influence workers’ contributions through ensuring their motivation, skills and participation in the decision-making process. As the major research into these issues show that has an efficient impact on the financial results of the company.
As Pfeffer supposes (1998, p. xvi): “The returns from managing people in ways that build high commitment, involvement, and learning and organizational competence are typically on the order of 30 to 50 percent, substantial by any measure.” And later he adds (Pfeffer, 1998, p. 32): “substantial gains, on the order of 40 percent or so in most of the studies reviewed, can be obtained by implementing high performance management practices.”
In the view of this the discussion of the sound human resource management practices and procedures is the main goal of our research. Following the studies of talented business administrators and human resource management we will try to make our contribution in developing new approaches for the human resource management. It is important to remember that the correlation between theory and practice must be maintained in order to make human resource practices the instrument in the tool box of every practitioner. In fact, there is an evident problem with the introduction of best HR policies and procedures. Many of researches state that some of organizations do not use innovative practices (Johns, 1993; Rynes et al., 2001). This problem is the result not only of practitioner’s oversight and understatement of the human resource policies, but the evident absence of the link between theory and practice. To redress this situation is one of the primary goals of our present research. The resolution of this problem depends on the development of practice-oriented HRM theory without which there is no room for the implementation of sound HR policies.
Our research is comprised of two main parts. In the next chapter we will make an analysis of the literature on human resource policies and procedures. That will allow as discussing the dominant theoretical debates within the theory of HRM, find out the positive and negative features of the analyses of various authors in this field. And in the third chapter we shall discuss the relationship between theory and practice by means of analyzing contemporary human resources practices and procedures.
This research can be useful both for the theoreticians and practitioners of human resource management, but it doesn’t not have a claim to make a comprehensive analysis of this multi-faceted problem
HR management developed as a field of research during last century by applying different scientific model. Applying analytical and situational analysis it became rigorous scientific discipline contrary to prevailing methods of intuitive and subjective manager’s decisions relying only on personal intuition of the decision-maker.
Beyer and Trice (1982) found out that the organizational research is built on the rational choice theory. Analyzing different practices under certain circumstances the researcher proposes the methodology of problems’ resolution and assesses the alternative possibilities. This process has several phases: finding the theoretical resolution for specific problem, creating and adoption of practical approach and its implementation.
At the macro level, HRM has a function as a major scientific approach aimed at enhancing the economic performance of the firm (Baron and Kreps, 1999). According to this view, the goals and perspectives for HRM are dictated by strategic need of the enterprise. The role of HRM in this view is developing human resources to serve the strategic goals of the company. They must be trained, selected, educated and rewarded in the view of achieving further business objectives.
Strategic HR policies are usually considered to be linear, instrumentalist, rational tools for practical realization of the company’s mission. Another problem discussed through strategic HRM approach concerns the internal coherence of HR practices (Baron and Kreps, 1999; Huselid et al., 1997). Thus, the HR function must be in line with enterprise goals in the first place and thus, only be human-centered.
At the micro level, HRM studies are often considered to be tied with accurate and careful analysis of the organization. (Dipboye, 1994). According to this theoretical position, the implementation of the theoretical solutions must dependent on the organisational needs and capabilities. This process must be standardized and universal. An HR intervention must be designed on adequate knowledge of the organizational processes and be cost-effective. The HR policies and procedures are canceled of followed-on on the sheer basis of their efficiency for the organisational structure.
The future research has shown that HRM can enhance the efficiency and profitability of the firm. For example, Huselid et al. (1997) found that with every deviation increase in the efficiency of HRM policies, sales per employee raise by 5.2. percent or nearly $45000. Another study Huselid (1995) found that the efficiency of company’s performance was connected with increases in HR practices that had a goal of improving employee knowledge, professional skills and motivation through performance appraisals, payment-for-performance and promotion.
This research by giving more attention to the mere availability of training and the process of selection rather than focusing on the specific types of HR methods encouraged many firms to introduce these procedures. Moreover the academic research gave many specific tools for the implementation of the sound HRM procedures. In staffing the research gave for the employer the possibility to rely on parameters which are accurate and useful (Schmidt and Hunter, 1998).
In training process the created model of instructional systems proved effective in the realization of the training programs (Goldstein and Patrice, 1990)
The studies on the link between HRM policies and firm’s economic performance
In the beginning of the 90-th a research prospects were reoriented towards searching the link between HRM policies and practices and firm’s overall financial performance (Becker and Gerhart, 1996). The research showed positive correlation between these two variables, which were proved by the studies of separate firm, industry and economy (Becker and Huselid, 1998).
In several national surveys (over 2000 firms) Becker and Huselid has shown significant impact of human resource policies on several variables of the firm performance.
During the past decade there were produced various research proving the important role of human resource policies play in the economic performance of an enterprise. This evidence was presented in the variety of organizations including those in the manufacturing, health care and professional services (Liker, 2003).
Huselid (1995) found the connection between HRM practices and company’s economic performance in a sample of almost 1,000 US firms. He showed that the utilization of HRM policies and procedures had a stable and positive effect on employee’s productivity and turnover and on corporate financial efficiency.
Arthur (1994) made a comparison of two separate HRM strategies in analysis of 30 American steel mini-mills. One strategy was designed to make the employee comply with strict rules and procedures of the enterprise in the view of reducing costs and providing firm efficiency. Another strategy put emphasis on the creating motivated and skilled employee. The analysis showed that the second strategy was more efficient in the realization of two interconnected goals – ensuring excellent economic performance and developing intellectual and human capital of the firm which is the best investment in its future.
Banker et al. (1996) also conducted a longitude study observing the influence of teams on economic performance of the firm. The use of the work teams made according to this study made a great contribution to increasing the level of quality and productivity.
Welbourne and Andrews (1996) observed the influence of HR policies on improving the efficiency of public offering enterprises. Two variables such as a value of human resource and organization reward proved to be the elements of the long-run company survival.
Another study conducted by Delaney and Huselid (1996), in nearly 600 profit and non-profit enterprises observed the positive correlation between HR policies and firm economic performance.
Davidson et al. (1996) showed that the availability of retirement program, a strategic HRM policy resulted in the favorable attitude of investors.
Schneider et al. (2003) outlined the results of analysis of the correlation between staff attitudes and firm’s overall economic performance. Using the staff attitude data from more than 30 companies through the period of 8 years and economic results of these companies during the same period, the researchers utilized cross-lagged model to find out the correlation between these parameters. The study showed that the satisfaction with the job and security had a positive effect on such economically important dimension as ROA (returns on assets) and EPS (earning per share). As a conclusion of the analysis Schneider et al. find out that HRM increases efficiency of production, which then increases market and financial performance of the organization. This in turn increases payment and provision of social services to the employees that results in the higher rate of employee motivation and commitments (Cameron et al., 2003).
Batt (2002) in the analysis of the U.S. national call centers sought to find the relationship between HRM procedures, employee layoffs and the overall organisational performance. She concluded that the layoffs were lower and sales increase higher in those call centers that put emphasis on high skills, participation in the decision-making process and working in teams.
The study conducted by Carpenter et al. (2001) focused on the role of the CEOs with experience abroad and found out that there was correlation between the CEOs with international assignments and the performance of multinationals for which they work. It means that if human capital is connected with financial, economic and organisational resources it produces a great effect on the overall economic performance of the company.
Similarly, Perry-Smith and Blum (2000) drawing on a national representative sample of 527 US firms found out that the more comprehensive are work-family practices within the firm the higher is the level of firm economic performance. This correlation proved to be stronger in older firms which employ a larger number of women.
In the same vein, Guthrie (2001) found out a positive correlation between the utilization of high-involvement procedures and firm overall economic performance. What is interesting that the study found the high return on assets was correlated with the high level of utilization of these practices and stated the increased productivity when the utilization of high involvement policies was low.
Konrad and Linnehan (1995) examined the problem of whether the formal HRM structures promote the goals of sound economic performance. The analysis of the HRM structures in 100 organizations showed that the formalized structure had poorer effect on the overall organization’s performance than substantive HRM practices.
Terpstra and Rozell (1993) found out that those organizations that use the processes of the employee selection recommended by psychologists have higher performance. But unfortunately few organizations use these kinds of processes.
As most researchers suppose the internal characteristics of the HRM policies make them critical for ensuring high performance of the firm. On the other hand, the contingency perspective which puts the emphasis on the particularistic dimension of the HRM, saying the implementation of human resource management policies must be measured with the specific characteristics of the firm, entire industry and economy (Lepak and Snell, 1999).
Youndt et al. (1996) examined general and contingency approaches to HRM in manufacturing firms. The data from 97 plants was collected which showed that the effects of contingency approach prevail. These two findings suggest that the universal and contingency approaches are complementary. This means that the decision-makers and HRM must pay attention to both approaches which can prove effective under certain specific circumstances.
It is important to remember that theoretical debates in the field of human management notwithstanding sometimes opposite directions they take and conclusions they make are very fruitful for the implementation of the sound human resource policies and procedures.
The HRM is in process of self-reflection. For much time, HR practices were adopted as temporarily measures and were implemented in a superficial manner (Whitney and Tesone, 2001). In the case of the absence of immediate positive results organizations rushed to implement other solution (Micklethwait and Wooldridge, 1997).
Rynes et al. (2002) interviewed HR managers to define whether their perception of HR practices was coherent with research findings. HR managers are supposed to translate the information on the new and best HRM practices to the top-management of the firm and persuade it to implement such policies to make firm more competitive. But as a result of the study showed the majority of the HR managers lacked knowledge on the best HR policies and procedures.
Case studies and analysis conducted in the course of two past decades give interesting insights in the characteristics of efficient work places. We now know more about the steps to be made to meet both human and economic needs (Katzenbach, 2000). But notwithstanding the fact the knowledge of importance of human resource policies for the successful business is appropriate not so many of the firms implement sound HR policies. The reason of the gap between theory and practice is connected with researchers themselves. As Blanton (2000) and Boehm (1980) note they are to busy on communicating with each other and spend little time working with practitioners.
The methodology of human resources policies and procedures
The relationship between theory and practice of human resources management, policies and procedures is evident. The viable theoretical approach leads to the creation of the effective HR procedures and practices. This chapter deals with analyses of the most effective and widespread procedures, their regional and global implementation and the consequences for the success of the human resources policies. In this chapter we are also going to apply a case-study approach to the research of HR procedures and policies, which would provide us with a possibility to the study the relationship between HR management and their effect on the greater results of the company’s operations.
The methodology of HR is determined by implementation of various practices connected with human resources. Each approach is in turn based on specifics of the object and the company’s policies. To understand the meaning and implementation of these approaches one needs to discuss the main types of contemporary HR policies in the view of the changes in national and global economies.
The relation between theory and practice in HRM
Notwithstanding the evident efficiency of human resource management practices as we noted in the previous chapter there exists an essential gap between theory and practice. As Othman (1999) notes it is tied with the low level of implementation of the strategic HRM approach in the enterprises. Similar to using other innovations, the implementation of HRM occurs “… in many different orderings, with omission, repetition, recyclings, and truncations” (Beyer and Trice, 1982, p. 597). The utilization of the strategic HRM implies that the newly implemented procedures and practices are coherent with greater strategic goals of the firm. However, it is big exclusion that these HR policies and procedures were implemented in package and as systems (Ichniowski et al., 1996). Often HRM procedures implemented in the firms fail to comply with academic instructions to be realized in planned manner (Dipboye, 1994). In opposition to the general academic model the introduction of the various HRM practices such as training, selection procedures rare starts with analysis of the necessary empirical data (Saari et al., 1988).
It often happens that certain programs are adopted because they are faddish, i.e. implemented by other firms. Many HRM decisions are based not on the rigorous scientific analysis but depend on the personal perceptions of managers which are not always corresponding with real needs of HM policies.
Many of the HRM policies that received scientific approval are not properly and widely used. For instance, the selection procedures defined as the most appropriate (Schmidt and Hunter, 1998) found less utilization in practice than subjective approaches to employee’ performance (Wilk and Cappelli, 2003). The most widely utilized techniques for the interview are not recognized by the most prominent researcher as being valid.
The majority of organizations invest not so much in their employees. The assessment of performance often has many drawbacks, described by the academics nearly half a century ago. The measures to increase performance and productivity widely advised by the researches are rarely implemented in the enterprises.
All this facts point to the urgent need of improving the cohesion between theory and practice in the field of Human Resource Management. Unless it is done the prospects for designing sound and robust HRM policies and procedures remains blurred. To make the interconnection between theories and practice more strong and solid it is necessary to fix good relationships between practitioners and researchers.
Effective human resource practices and procedures
Effective HRM policies and procedures are long-standing and understandable for all stakeholders. Pfeffer (1994) gives 16 interconnected HRM policies. No enterprise implements all of them but they are crucial for fostering perfect performance and providing the conditions for the development of the human capital. The realization of these practices depends on the unity of efforts on the part of managers and employees. It means that the full implementation of these practices is the issue of robust coordination and collaboration. Many employees would reject to participate in these practices, others would agree. It depends on the level of commitment. Pfeffer’s (1994) original list of HRM procedures and practices consists of the following:
- Employment security creates a long-standing commitment of the organization to its people. Employees respond accordingly.
- Selectivity in recruiting means you hire perfect people in terms of performance, showing to all that high performance aspiration exist and organization is an excellent one.
- High wages attract more and better applicants who stay. Firms can be more selective in employing and high wages give a signal that the organization highly evaluates its people.
- Motivation pay shows that the organization highly regards performance and shares performance from it with its entire people.
- Employee ownership goes in line with the goals of people with managers and shareholders. Employees are more likely to take a long-term view of the company.
- Information sharing makes more people professional and empowered.
- Empowerment and participation descends decision-making to lower organizational levels where hands-on experience resides.
- Use of teams and job redesign deeply increases communication, coordination, disciplined actions, data collection and monitoring and supervision.
- Training and skill development makes perfect problem-solving tools and enables people to use knowledge.
- Utilization and training increase employment security and motivation.
- Discursive egalitarianism fosters communication, reduces contradictory attitudes and directs people towards a common goal.
- Salary compression reduces competition, increases cooperation, and makes understandable that all people have value.
- Promotion fosters training and development, increases the probability that managers understand business, increases trust between management and employees and serves as a promotion for perfect performance.
- Long-term perspective supports the necessary long-term commitment to implement effective HRM practices.
- Measurement of the practices suggests that HRM is important and provides data on how well these practices are implemented
- Management philosophy connects the individual HRM practices into a coherent system, offers tools explaining what the organization is doing and why, and supports experiment to attain efficient HRM practices. A philosophy of organization ties all the individual practices intact.
This is not an easy approach. It requires organizations to motivate their workers and the workers be committed to the mission of organization. It requires robust and professional managers to organize the process of creating human capital and inspiring employees to perform at great level.
Many managers consider it to be a big difference for what is good for an enterprise and for people. But usually it is not true. If the organization adopts “best human resource practices” the performance of employees will increase significantly.
Insightful human resource managers propose seven principles for good treatment of people in the organization that create virtuous spiral in the organization.
- Retention and attraction. Organization must develop values that determine the form of the workplace they seek to achieve in order to attract and hold professional people.
- Hiring procedures: Organisations need to employ people who satisfy their principles, central competencies and mission.
- Training. Organizations are required to constantly train employees so they become more effective and give those conditions and opportunities for growth and development.
- Workplace design. Organizations must provide the necessary constitution of the workplace so as provide employees with adequate conditions for good performance, feedback and autonomy.
- Strategy and mission: Organization is required to formulate its goals and mission and make them understandable for the ordinary employees.
- Systems of reward: The implementation and realization of the reward system is inseparable from the entire performance and efficiency of the organization.
- Leadership: Organization must inspire and create leadership skills to foster development of professional employees with competitive advantage.
Best HRM practices and procedures in service sector.
Service sector differs from other economic activities by the specific product it delivers to a customer and the way it delivers it. Thus, human resource management practices in service sector companies are of unique nature.
Research into the issue of the best practices in service sector suggests the following HRM practices (Wright et al., 2003):
- In staffing the usage of structured interviews, opportunities of promotion for professional workers;
- At least 20 hours for training be in formal or substantial for year for employee.
- The usage of performance appraisals, the possibility to gain bonuses for perfect individual performance;
- In terms of employees’ involvement creating problem solving groups and the creation of just grievance procedures.
These practices have proven to be successful in restaurant and entertainment business in US. They have a positive impact on firms’ overall economic and financial performance and provided possibilities for creating cost-effective human capital.
It is important to not that these mere practices and procedures are not sufficient for the market success. The major emphasis must be placed on the quality of the services delivered, which is not directly connected with sound Human Resource Management but, of course, depends on it.
Human resource management in service sector must have contingent parameters. It is argued that the uniformity of HRM environment is rare case. Thus as noted in previous chapters for managers to be qualified it is relevant to combine the rationales of universal and contingent approaches. In this case the main emphasis is needed to be placed on the quality of service delivery. In this regard even cooperation between two separate and concurrent service providers may take place to meet the customers’ need as often happens in private health care sector. Thus the main prerequisite for robust service HRM is the satisfaction of the customers.
HRM practices for the flexible customer solutions
The demands of just-in-time production place higher requirements on HRM to provide flexible customer solutions. The attention of HRM must be centered on ability of creating flexible teams and work-groups to meet customers’ needs in flexible solutions.
One should point to two major solutions in this regard – vertical and horizontal. Horizontal solutions are those solutions that can be applied across all companies in the given industry, and vertical solutions refer to solutions that are implemented within separate organization and replicate its structure (Terpstra and Rozell, 1993).
Another parameter of organization’s solutions is their scope and scale. There may be small scale solutions like those implemented within a work group or a large scale solutions like those implemented for the whole enterprise (e.g. creating CAD system).
The third parameter of delivering flexible solution is the level of integration. The level of integration depends on the customer need and the specifics of the product. The most integrated solutions can be found in IT sector where hardware, software, network products are so integrated by their standards and realization that the solutions for customer also become integrated.
The cohesion between scale and scope with the latter parameter defines the level of coordination in the organization. And the last dimension of customer solution but not the least is a percentage of profit that comes from solution. The level of revenues which comes from the customer determines the organizational structure of the companies. If customer’s demand for solutions is high the company creates more solutions unit (IBM has approximately 14 units) (Ulrich, D., 1997).
The realization of these parameters to provide customer solutions presupposes improving of employee’s talent and flexibility. The best way of providing customers solutions is organization of the robust teams which work on realization of the customers’ specific needs. The team formulates customer’s interests and strategy and creates customer’s agenda by product line, special solution and location. The plan must identify possible investments to win big contracts on solution. Thus the continuous link and communication with customer’s representatives is needed. The realization of efficient flexible solutions suggests the improvement of employees’ skills. They must be more customers’ oriented and flexible as well.
In large-scale customer solution programs the improvement of employees’ talents and skills is urgent for special tasks need special training. The skills are trained correspondingly to a specific task an employee is assigned for. Such kind of specialization makes the process of training more efficient and centered on the specific solution implementation. An important tool for ensuring project perfect performance is increasing salaries for the employees participating in project. It will make them more responsible and motivated in regard of its realization. Moreover, this HRM procedure eventually results in increasing overall financial performance of the whole company, which confirms the robustness of the practice’s applied. A profound role in building positive team climate belongs to the relationship builder, a manager who organizes the relationship between employees and managers, partners and even rivals. This provides the possibility of fostering interaction between employees which in turn helps attract all human capital to serve the goal of creating customer’s solutions. The practices performed by relations builder help workers to become more adaptable to the continuously changing environment of the global market. Adaptable individuals are efficient in solving difficult problems and are more loyal and psychologically stable (Pfeffer, J., 1998).
Human Resource Management and career development
The past models of career development are no longer adequate for the modern companies. Changes in the world economy, decline of manufacturing and growth of IT and services sectors disrupted a long tradition of life-time employment. That also resulted in the changing relationships between company and its employees. Thus to ensure the implementation of best HRM practices and procedures requires elaboration of new approach to career development. The life-long employment required a framework of permanent rewards for the workers that were based on seniority, loyalty and performance. For the employment standards become more flexible the past approach to career development is no longer viable.
In the changed environment more emphasis is placed on employee’s flexibility than on the employment security. The worker must be competitive which can be ensured by enhancing his competence and creating attractive portfolio (Brewster C., Hilary H., Paul S., 2004). Thus continuous education and training becomes prerequisite of worker’s success.
The new career development pattern must be in the midst of management and customer needs. More emphasis must be placed not on the job development but on promotion of learning for knowledge is the most important comparative advantage in the changing and flexible business environment. The learning process must be based on the available resource and be substantiated and not formalized. This is a main task of HRM. The HRM must create sound career development program which must include:
- Developing potential through learning and fostering creation of new skills.
- Strategic implementation which means make workers perform well and tie their development with the overall company’s goals.
- Employability – attention to continuous education and training.
- Diversity – creating positive effect of the specialization of employees’ skills.
- Nurturing culture – creating robust culture of workers’ communication, team spirit and ability of adapting to difficult contingencies.
This approach fosters freedom for employees, which is considered to be a condition for high performance of the company. A one example of this model can be found in HRM practices of Brazilian company Semco. Its CEO drawing on this assumption gives employees possibility to decide on what work they will do and how they will are going to do it. This approach helped this company to occupy a solid place on the IT and service market in Brazil. The workers tying their career development with performance of their company utilized all their creativeness, skills and potential that resulted in great progress of the company. Therefore, it is urgent to recognize these HRM practices and procedures as being of high priority for the contemporary business (Werther W.B., Keith D., 2000).
Team work and its role in HRM
The implementation of team approach in modern companies has been developing for 20 years. Team approach is implemented when the task is complex, interdependent and the importance of it is high.
Teams were adopted not only by big but small organizations as well. Teams can enhance customers’ satisfaction with the products’ quality and performance; they are more responsive to transformation of the market environment (Anon, 2002). The utilization of teams also increases employee’s satisfaction with salaries and helps adapt it to his performance in order to make employment more flexible.
Teams in organization can be constructed vertically and horizontally. The vertical approach can be implemented in the case of realization of strategic imperatives of a company like those connected with abovementioned customer solutions. Horizontal teams are based on bottom-up approach. They represent employees’ effort to career development and achieving the goals of company which are interconnected. Team work must be built on skills, knowledge and communication in order to provide best conditions for realization of employees’ potential. Efficient team work thus needs workers to be adaptable, motivated and monitored. For the teamwork to be effective HRM practices must be based on the following principles:
- Utilize selection mechanisms that evaluate team skills.
- Seek staff with the collective attitudes.
- Identify responsibilities of team members.
- Train and learn entire teams if possible.
- Use team construction to define roles.
- Utilize team learning and training to provide teamwork skills and creativeness.
- Assess team training.
- Increase rewards for team-centered behavior and reduce for individual-centered behavior.
- Be responsive to team mates’ preferences in individual or collective work.
- Create reward system according to the specific tasks of it operations.
- Vary different types of incentives to foster cooperative behaviors..
- Performance management
- Involve teamwork competencies on performance appraisal tools.
- Request employees’ feedback on their own and team performance.
The role of HRM practices and procedures in improving well-being and employees’ health
First of all, it is a HRM task to observe employees’ well-being and health. In this view they must know workers well – involving their skills and limitations. All it suggests that HRM must spend great deal of time, resources to ensure the care about the employees.
The effective HRM policies on controlling employees’ health and well-being must be based on the necessary information gathered from the interviews and audits.
Employees’ problems must be detected at the early stages of their development so that they wouldn’t become the problems that have negative effect on the overall performance of organization. When the problems are met frequently then it must mean that there exist obvious problems with working environment and management. Thus proactive measures must be more welcomed than reactive ones. It is better to create perfect conditions than manage negative outcomes.
The HRM procedures are needed to be custom to the individual needs of each employee. It is also necessary to inspire workers to provide their views on the possible instruments of change. To realize this, mere management which focuses on the daily activities in first place is not sufficient. It is critical to organize a good leadership which will build long- and short-term perspectives on the issues of employees’ well-being and health (Johns, G.1993). This will provide organization with possibilities of improving conditions of the human capital which is the main source of organization’s progress in the age of globalization.
For effective management of well-being and health-related issues it is important two realize four major conditions:
- Clear objectives shared by all workers.
- Organization’s embedding in its environment, fostering good relations with all relevant parties.
- Perfect social interaction between units and between individual employees, sound working climate.
- Creating activity’s patterns that can be implemented on a daily basis not demanding special intervention or attention.
Besides this one of the most critical practices for ensuring employees’ health and well-being is stress training (Mcgoldrick J., Stewart J., Watson S., 2002). It includes:
- Ability to detect stress challenges and employees’ reaction.
- Creating methodological framework to discuss and solve stress problems.
- Awareness of stress effects and possible costs.
- Acquiring skills and knowledge about intrusions.
- Realizing necessary interventions in the department.
- Resolving conflicts
- Analysis of the stress reasons and the possible means of it prevention.
In total, these HRM practices resolve many of the problems connected with well-being and health. It is critical to implement these practices in organization and their relatively high cost prove to be lower than the decline of overall performance connected with health and well-being problems.
International assignments and staffing as HRM practices in the age of globalization
With the rise of globalization the development of international assignment and staffing policies became inevitable. International human resource management became an important part of HR policies. The main theoretical questions relate to several crucial problems:
- The issue of the increasing number of international assignments in MNC and the importance of creating compensation packages and special management rising from it. Main approaches to compensation are examined, each having certain advantages and drawbacks. The most relevant issue in this view is financial support, additional payments related to relocation and extra-needs.
- Preparing workers for an assignment, giving support to them in the host country and managing their repatriation.
- Employment of the staff for operations in the host countries became a relevant issue for multinationals. HR policy in the host countries meets the limitations of its legislative system and must be corrected ad-hoc. Another problem is training and employment of professional human recourses in the host countries, where a company operates.
As we noted the globalization processes created new challenges for the companies in their HR. For a long time they needed the management of the short-term assignments for their employees, but the changing business climate forces them to change their policies. Now the length of assignments depends on the time of the tasks and demands the employee must perform (training, improving qualification, permanent presence etc. This developments need new approaches to HR managements and the main task is to preserve both the viability of the company and well-being of the assignees.
Two facets of the same HR policy
Staffing of multinational enterprises has usually been easily described as involving only three different types of international employees:
- parent-country nationals (PCNs).
- host-country nationals (HCNs).
- third-country nationals (TCNs).
The first two categories refer to the staffing HR policies, the third – to the assignee’s practices, which represent the separate facet of the problem. These notions seem to have been first introduced into the HRM research by Patrick Morgan, then director of international HR at Bechtel, in 1986 (Kaponya, 1991).
Definition and categories and of the international employees
The management of traditional expatriate has historically been the primary time-consuming responsibility of the HR manager (and the primary research focus of academics). Most of the literature in HRM that deals with expatriates (individuals who are or have been on foreign assignment) assumes that all international “assignees” fit into this generic category. Studies have referred to “international assignment experience” or “expatriate” to simply refer to someone who has been on a foreign assignment for more than a year. For example in a recent study on the impact of international assignment experience on MNE CEOs, the notion of “international assignment experience” was having been on a foreign assignment for more than one year (Brewster, Mayrhofer, Morley, 2000).
The second “generic” category of international employees are HCNs, termed as citizens of the country of a foreign subsidiary or joint venture who are hired to work in the subsidiary located in their home country. If they are redirected to the headquarters of the parent firm, they are generally called to as inpatriates. And if an MNE hires a citizen of a country other than the parent country or the country of the subsidiary to work in one of its foreign subsidiaries, this person is referred to as a TCN (third-country national). In opposition to the literature on PCNs and expatriates, there has been very little literature published on the local nationals (HCNs) or TCNs, with the exceptions of short discussions in books about expatriates or HRM. Noteworthy, MNEs are starting to pay more attention to the strategic dimension of HCNs. Significant portions of time at HR professional roundtable and conferences have to deal with HCNs and TCNs, because they are of great importance to the making of personnel MNE foreign operations. In addition, MNEs such as Microsoft, Siemens and Morgan Stanley are seeking to move from their domestic operations to countries such as China, India, Russia, and the Philippines. In these locations MNEs can find highly skilled and educated employees at wage levels far less than their domestic counterparts. This process of moving work from one’s domestic location to one’s international location is referred to as “offshoring”. The almost exclusive focus in the HR literature on PCNs and expatriates has meant that HR managers (and MNE executives) have had to implement their global staffing plans without all the information they need to make fully informed decisions about their employment options.
The earliest work on the purpose of assignment was published in 1974 (Kaponya, 1991). The categories of foreign assignees were the following:
- CEO – director or general manager of a foreign subsidiary.
- Structure reproducer – sent abroad to duplicate (start up) the domestic operation in a foreign locale.
- Troubleshooter – sent abroad to solve business or personnel problems.
- Operative – sent abroad to perform functional tasks, such as accounting, sales, or manufacturing, usually as a supervisor.
Options of HR assignment policies
MNEs have particular concern for the global staffing and development of their employees and, through that, their ability to disseminate knowledge and innovation throughout their global operations. This has led HRM professionals to seek as many options as possible for international staffing.
Even though the use of expatriates has seemed to be a logical choice for staffing international operations – after all, the use of parent-country nationals seems to be most appropriate for the control and managerial tasks assigned them, particularly maintaining the policies and culture of the parent firm (as true for Philips as for Matsushita and Procter & Gamble) – several issues have arisen that have persuaded MNEs to seek other options. Some of the issues include the high cost of foreign assignments, difficulties in providing adequate training for foreign assignments and thus problems with adjustment of expatriates and their families, local countries’ desires for hiring of local employees and managers, problems encountered in dealing with repatriates, and a growing suspicion that local hires may actually perform better.
The following is a list and description of other types of international employees that have been identified through observation of multiple MNEs, review of the literature, and through interaction with HR professionals at many HRM conferences and at their companies. Different types of assignment present specific methods of HR policies. Now we shall discuss the main categories of international assignees and analyze the appropriate HR policies concerning them.
The main categories of international assignees
These are domestic employees whose jobs entail frequent interaction with people in other countries (via telephone, e-mail, fax, or even snail mail) but who never leave home. These contacts could involve sales, procurement, or banking with people or businesses that are located outside the home country of the firm.
- International commuters These are people who typically live (and do most of their work) in their home countries but who regularly commute to specific foreign locales to perform some aspect of their work (e.g., sales people who work with specific customers, members of teams of various types, or managers who visit specific foreign locales on a regular basis).
- Employees on long-term business trips These IEs take international trips that last a few weeks or months at a time. They involve, for example, trips for negotiations (say, of a licensing agreement, a subcontract, a sale, a purchase arrangement, or an alliance), to check up on deals, to work with development teams, to work with staff in multiple countries, etc.
- Assignees on short-term foreign postings These are assignments that last less than one year (but more than a few weeks) and are increasingly used as a substitute for more expensive longer-term international assignments. Employees on these types of assignments can be HCNs, PCNs, or TCNs and could be referred to as expatriates, inpatriates, or international transferees, depending on which direction, relative to the parent firm, they are relocating, although normally the term “expatriate” is used for individuals who relocate for a period longer than one year. These assignments are usually used for technology transfer or to establish new operations, but are also being increasingly considered as a tool for management development, to leverage this form of business travel to help increase the global mind-set among firm employees or to teach the global culture of the firm. Short-term assignments are concentrated in the high-tech sector and in the pharmaceutical, diagnostics, and healthcare sectors. Normally these short-term assignments do not involve the relocation of the employee’s family. This international employee will probably live in a company-owned or -rented apartment or hotel room and will not be paid the traditional “rich” expatriate compensation package.
- Assignees on intermediate-term (twelve to thirty-six months) foreign postings This is the traditional expatriate (normally considered a PCN, at least in US firms, where assignments have tended to be for this duration). Surveys find that 58 percent of assignments are up to three years in length, while 42 percent are for over three years (Brewster, Mayrhofer, Morley, 2000). Most of the HR literature concerns itself with the selection, preparation, compensation, and management of this type of expatriate (both going to – expatriate – and returning from – repatriate – foreign assignment). These IEs are usually used either to manage foreign operations or for control purposes (e.g., accountants or financial comptrollers) and are typically concentrated in the machinery, shipbuilding, manufacturing, chemicals and agricultural, and consumer products and retailing sectors.
- Assignees on long-term (greater than thirty-six months,e.g., up to five years) foreign postings These types of assignments tend to be used more by firms from countries, such as Japan, or in Western Europe, than, say, by US multinationals. But some US MNEs, such as PepsiCo, which use such long-term assignments, differentiate the long-term from the short or intermediate-term assignments. These types of assignments obviously involve major commitments by the parent firm and would normally be managing director assignments for major foreign subsidiaries or to regional headquarters. They include major relocation incentives and involve the relocation of and support for the whole family.
- Permanent transferees Often referred to as localization, this normally refers to the situation where a person in the previous category (long-term assignment) is converted to permanent local status. These people stay in that one locale, usually for the rest of their career with that firm. They become permanent residents of the foreign country. The major reason for converting assignees to local status is to remove them from the typical, very expensive, expatriate compensation and benefit package, which is meant to keep the expatriate “whole” until they return to their home country. HR policies concerning these assignees are directed at lowering their compensation package.
- Permanent cadre Some organisations with lengthy international experience (such as Royal Dutch Shell, Nestlé, Unilever, the United Nations, CitiBank, and many countries’ foreign diplomatic offices), employ international employees who spend their whole careers in overseas assignments. They move from one foreign assignment to another. They may maintain citizenship in a particular country, but in many ways could be viewed as employees with no home country (except of course, for diplomats). Many problems related to compensation and benefits (such as the portability and coverage of insurance and pensions) arise for HR in the management of these employees, as they move from one country to another.
- Local hires These are the traditional HCNs. There is increasing focus on preparing and relying on local employees (referred to as a “localization strategy”). Generally the foreign country wants the foreign investor to employ local citizens as much as possible and the MNE often accepts the many business reasons for relying on local hires, as well. Recruiting, selecting, training, and compensating such a “foreign” workforce represent major complexities for HR.
- International transferees This category refers to people who are moved from one foreign subsidiary to another, but who maintain their home bases (in a foreign subsidiary) and usually return after such assignments to their home offices. This is usually done for development purposes (of foreign employees), but not seen as in the permanent cadre category. Large, mature MNEs, such as Unilever and Nestlé, use these types of assignments for their local employees to internationalize them and to teach them about the international operations and culture of the firm.
- Internships (temporary immigrants): Some employers who are having a hard time finding employees during a tight labor market are resorting to recruiting workers from outside the firm’s home country, for six-month to two-year internships. Such a tactic is viewed as a way to recruit highly skilled workers (usually college students) and to screen them for potential full-time employment (and, of course, to fill a job need, at least on a temporary basis).
- Returnees These are emigrants who are hired (or selected) to return to their home countries (they could be hired in a number of places, e.g., the country of the parent firm or some other country and could be current employees or not). For example, in a highly successful strategy, KFC employed a first-generation Chinese American to return to China to establish its chicken restaurants. This category of the human resources is implemented by HR managers to increase the level of the workforce in the view of enhancing own conditions. These international employees may not be placed on a full expatriate compensation package, but rather may receive a form of hybrid compensation, with some aspects of the package received by a traditional expatriate and some aspects of local employees, although the typical form of compensation for this category needs to be further researched.
- Outsourced employees This is a situation where the MNE decides to pay someone else for the services of an “employee” or group of employees. These people could be traditional “temporaries” hired from an agency, leased or rented managers or specialists, or a whole task or project outsourced to an external firm. Japan Tobacco International refers to its internally developed GEC as an “Overseas Payroll Company,” which, the vision is, will eventually manage a large cadre of globally mobile employees. This source of IEs simplifies compensation and benefits issues, since all the employees (from the GEC) receive the same pay and benefits, no matter where they work within the firm, possibly with cost-of-living adjustments. Another use of outsourced employees is the practice of MNEs to have another company, such as Wipro in India, take over some of their operations.
- Individuals on self-initiated foreign work experience (SFE) This term refers to individuals who travel abroad (usually primarily to be tourists) but who may seek work as they travel, and it may involve a large (although unstudied) number of people. The reasons for such travel may differ from region to region and such SFEs may be similar to – yet significantly different from – traditional expatriates, in nature of their assignments and in their treatment on normal HR issues, such as compensation and benefits. To some extent, these individuals might often be what are referred to earlier as TCNs, although they are typically hired as locals.
The variety of stuffing options: implications for HR police and procedures.
HRM professionals need to develop an appreciation for the fact that their responsibilities related to their international employees has become very complex. That is, they vary according to the particular form of international employee and their country of operation, the type of foreign operation (for example, wholly-owned subsidiary or international joint venture), or phase of globalization.
This increased variety of employees presents all sorts of new challenges for the selection, preparation, deployment, and management of a global workforce. Not the least of these is the increased need by all managers – and for HR managers in particular – for increasing their cross-cultural awareness, knowledge, and skills, their foreign language ability, and their overall management competency within this new international setting.
These phenomena create many new performance management problems, which become even more difficult as the variety of employees expands. All of these become critical concerns: the impact of national culture on performance and how it is defined, on standards for performance, on the review-ability of reviewers, on who reviews (their cultural experience and savvy), etc.
Pay and support services are also likely to be structured differently for a short-term business traveler sent on an assignment for six months to finalize the start-up of a new foreign subsidiary than for a manager sent for three, four, or five years to run such a subsidiary. Differences would also be pretty important between the pay and support services of the immigrant or foreign student (and each of these would be different from each other) hired to return home to work in a foreign subsidiary in comparison with a person who makes a career out of moving from one foreign assignment to another.
These problems need more development of the HR policies and procedures, because even the most elaborated issues are not adequate. Historically, the traditional focus was made on three basic reasons for the use of international employees – 1.to fill positions for technology transfer, 2. for management development to develop international business competency 3. and to coordinate and control foreign operations) is no longer adequate. The questions include the following:
- The extent of the use of each of these types of IE.
- How do the preparation and support for each of these types of IE vary? What form do the preparation and support take for each?
- Which performance management problems arise for which type of international employee? And which solutions are most appropriate?
- Are there specific management, organizational, and HR outcomes that differ according to the type of international employee.
The UK’s Cranfield School of Management has provided some clarification of these problems for four basic types of assignments (short-term, long-term, international commuter, and frequent flyer) and the types of problems associated with each (Mcgoldrick, Stewart, Watson, 2002). The types of problems examined included dual career/family issues, work/life balance, cost of assignment and administration, repatriation/career, tax management, cultural differences, stress and burnout, inconsistent policy and practice, and compensation packages.
Training in the global enterprise
When enterprises operate subsidiaries and partnerships overseas, the training of the members of their global workforce takes on special importance and difficulty. Many HR professionals simply try to apply successful training programs from headquarters. But often this doesn’t work, as General Electric found out when it purchased a French medical equipment manufacturing firm, Cie Générale de Radiologie (CGR), in a bid to solidify GE’s place as the leader in this industry. GE executives planned seminars for the French managers to socialize their new French counterparts into the “GE culture.” The French managers were given T-shirts to wear at the seminars with the slogan, “Go for one,” meaning “Our goal as GE managers is to be number one in the industry.” The French managers wore the T-shirts but were highly insulted and humiliated, feeling they were being forced to wear uniforms, something which is anathema to the French. Needless to say, the seminar did not achieve its goal of building cohesion among the French managers and their new employer, GE.
In addition, GE posted English-language posters, tried to adapt the accounting system without understanding French accounting standards, shut plants and laid workers off, American-style, when it lost money the first year, resulting in 1,500 key employees quitting and creating a recruiting nightmare. In essence, GE lost a significant portion of its competitive advantage in Europe in this industry due to its cross-cultural misunderstandings, its lack of respect for anything French, and a poor HR strategy.
Under the best of circumstances, the provision of training programs, particularly programs so seemingly nebulous as cross-cultural training, are controversial among top executives. When competition is strong and there is heavy pressure to cut costs, as is generally the case with international competition, training budgets are often among the first areas that get cut.
Nevertheless, since a global enterprise’s human capital may be its most important source of competitive advantage, a well trained and educated global workforce is critical to success in the global marketplace. Therefore, the following seven imperatives have been suggested as key to global organisational learning and training and development. Further, these imperatives provide a statement of the values which underlie current discussion of training and management development for the successful MNE.
Imperatives for the HR policies and procedures in Global Training
- Think and act globally. That is, a global enterprise must think about and prepare for a presence in all the critical markets in the world, not just its home region.
- Become an equidistant global learning organization. That is, learning from all cultures, anytime, in any manner possible, must be facilitated.
- Focus on the global system, not its parts. That is, development programs need to focus on breaking down the silos of departments and even the boundaries between countries and those that separate customers and suppliers and focus on the “big picture” global organisational system.
- Develop global leadership skills. Global leadership requires competencies different from those needed in the domestic marketplace. These should be the focus of global training and development programs.
- Empower teams to create a global future. Multinational and cross-border teams should be increasingly used and empowered to perform critical organisational projects and problem-solving activities. In addition, multinational teams can, themselves, be a major tool in the development of cross-cultural competencies.
- Make learning a core competence for the global organization. That is, the global organization needs to become a global learning organization, where learning and development permeates all that the organization does. As Arie de Geus, former head of strategic planning at Royal Dutch Shell, puts it, “Over the long term, the only sustainable competitive advantage may be an organization’s ability to learn faster than its competitors.”
Education levels and forms
One of the reasons that the provision of training to multiple subsidiaries around the world is so complex is because the basic educational infrastructure varies so much from country to country. The basic level of literacy varies dramatically; the nature of the educational system and the type of education it provides varies significantly (e.g., whether theoretical or practical in orientation); the level, nature, and availability of higher education varies; the availability of vocational education varies considerably; and teaching and, therefore, learning styles, used in any country’s school system, vary from culture to culture as well. In addition, familiarity with various teaching techniques and media as well as relationships between students and instructors also vary so much that it is often impossible to transfer directly either the content or the method of instruction from one place to another.
Training and preparation of the assignees
The first international training responsibility for an HR manager usually involves the training and preparation of international assignees and their families. Indeed, for many enterprises that have recently “gone international,” this may well be the only international training issue looked at for some time after the enterprise begins developing its international operations. And, as indicated in the previous discussion, even this area of training responsibility often receives little attention. Management development programs will typically not involve any international considerations and the training of local workforces stays primarily the concern of local national HR managers. Yet, at some point, the global enterprise usually comes to recognize the importance of training and preparing its expatriates. The preparation of international assignees prior to going overseas (and after arrival) is at least as important to their successful performance as selecting the right candidate and family in the first place. A lot of evidence suggests that firms still do not do a very good job of selecting or preparing their IAs. Indeed, surveys find that only about 35 percent of US firms offer any pre-departure cross-cultural or language training for their expatriate managers (Budhwar, 2001). The percentage is not much different for Asian or European firms. And yet the inability to adjust or to perform the expected role – both of which can be improved through training and orientation – generally provide the major reasons for “failure” in an overseas assignment. According to Roger Herod, who at the time was vice-president of international human resources at Campbell Soup Company, “There is too much emphasis on executives’ technical abilities and too little on their cultural skills and family situation. When international executive relocations fail, they generally fail either because expatriates can’t fathom the customs of the new country or because their families can’t deal with the emotional stress that accompanies relocation.” (Briscoe, Schuller, 2004) In both cases, orientation to the “culture shock” they will experience in their new environments seems particularly important.
Preparation for the international assignment
Experienced HR managers think it is absolutely essential for success in international assignments to first, provide both an international assignee (IA) and his or her family enough adequate and accurate information about the assignment and location for them to be able to make informed decisions about the desirability of such an assignment. This needs to be more than a short familiarization trip to the proposed location, even though this is important and should be seen as a necessary part of the preparation and orientation process. Both the employee and spouse should be well briefed on the new assignment’s responsibilities, as well as on the firm’s policies regarding IA compensation, benefits, taxes, security procedures, and repatriation.
In addition, the employee and family need to be provided with all the information, skills, and attitudes which they will need to be comfortable, effective, and productive in the overseas assignment. Much of this orientation and training must be focused on the cultural values and norms of the new country and their contrast with those of their home country. Given a number of different types of problems that I As and their families might face plus a number of possible development objectives, the particular methods chosen for training and orientation should vary as well. First, in the development of such an IA preparation and training program, HR must recognize the various types of problems that exist for). These range from difficulties with business relationships (either within or external to the firm or with headquarters), difficulties within the IA’s family, or difficulties with either the host-or home-country governments. Each of these potential sources of difficulty has its own particular solutions with its own specific objectives that will help overcome the problems. For example, developing a working knowledge of the host-country language can lead to improvements in a number of the possible relationship concerns. And the particular development methods chosen should be matched to specific development needs. As the differences between the culture of the IA and his or her family become greater relative to that of the new foreign location, the length and rigor of the training should also become greater. Ultimately, the objective is for the IA to be successful in his or her assignment, to remain in the foreign locale for the duration of that assignment, and to return to the parent firm to an assignment that effectively uses the IA’s new skills and motivation. In terms of design for training for international assignees, research and writing about training, in general, have suggested a number of guidelines that seem appropriate, here. For example, training needs to take into account the influence of the environment, which seems particularly relevant in cross-cultural training. And it ought to progress in terms of content and pedagogy in relation to the knowledge, experience, and competencies of the trainees.
In the broader picture, many firms divide their preparation of IAs into two categories: counseling and training. The counseling component deals primarily with the mechanics of a move abroad while the training tries to develop skills and sensitivities to national and cultural issues that will better enable the IA and family to adapt to and enjoy their new situation. Increasingly, firms are realizing how important such preparation is to the international business success of their IAs. Novartis, the Switzerland-based global pharmaceutical firm, does a particularly good job of this type of preparation. The types of topics covered by its normal counseling and training sessions for people going on a foreign assignment include the following:
- Counseling: compensation, benefits, and taxes; travel; shipping and storage of household goods; housing and property management; local transportation; allowances; vacations and home leaves; language training and orientation; and children’s educational expenses and options.
- Training: local customs, politics, religions, attitudes; local laws; safety, health, and security; cultural sensitivity, food, water, and so on; and background briefing on company: history, policies, individuals.
Such an extensive program of preparation can minimize the high level of premature returns and bad experiences due to maladjustment to foreign assignments by IAs and their families and the consequent inadequate levels of performance in the foreign assignment.
The previous paragraphs in this section have focused on the training and preparation of international assignees and their families. But some form of training and/or orientation would also seem appropriate for other international employees. This would include domestic internationalists, international commuters, business travelers, and virtual internationalists, as well as traditional short-term and long-term international assignees. If the global enterprise really wants to expand its workforce’s global business capabilities, then it seems essential that it provide cross-cultural training and orientation to everyone.
Global executives: developing managers in the global enterprise
Too much localization has often resulted in insufficient globalization of the managerial ranks. But reversing this reality is not easy, in terms of both the cost and complexity of developing a new breed of global executives and the challenge this creates for the established process of management development.
Often, the business environments that international firms experience are radically different than what they are used to. In such situations, HR must tailor its policies and practices to local conditions while at the same time modifying the mind-set and technical skills of local managers and employees to accept and match world-class standards. To facilitate and manage this globalization, it becomes critical for firms to identify and develop leaders who are capable of functioning effectively on a global scale and with a global perspective. In a global economy, this strategic preparation of global leaders has become a major component of HR’s contribution. In essence, HR must design HR processes, including global training and management development programs, which encourage and facilitate the organization so as to ensure that its “global whole” is greater than the sum of its domestic parts.
This discussion has demonstrated the important role of HR in its delivery of training and management development to the global enterprise. Indeed, even major international development bodies, such as the International Labour Organization, the World Bank, the International Monetary Fund, and the United Nations have focused on the importance of training and development, both for their own organisations and for transnational firms, in general. It is helpful at the end of this discussion to summarize what these organisations are saying about the importance into the future of training and development activities and to combine that with some suggestions about how HR and MNEs can continue to use training and development to ensure their global success.
Compensation and benefits for expatriates
Just as there are objectives for an overall international compensation program, the component that involves expatriates (expats) must also meet certain objectives in order to be effective. These include (1) providing an incentive to leave the home country for a foreign assignment; (2) maintaining a given standard of living (although this is being questioned by many MNEs as the cost of sustaining expatriates overseas gets too high); (3) taking into consideration career and family needs; and (4) facilitating re-entry into the home country at the end of the foreign assignment. To achieve these objectives, MNEs typically pay a high premium over and beyond base salaries to induce managers to accept overseas assignments. The costs to firms often range from two to two and half times to four to four and a half times the cost of maintaining the manager in a comparable position at home.
Approaches to compensation
There are numerous approaches followed by global enterprises to compensate either local or international employees.
- Negotiation/ ad hoc: When firms first start sending employees on international assignments, and while their number of assignees is still relatively low, the common approach to determining pay and benefits for those expats is ad hoc, or negotiation of a separate (and usually unique) compensation package for each individual considered for an overseas posting. At the early stages of “going international” the firm sends its best expert overseas. There usually isn’t much of a search; and the firm does whatever it takes to get the person relocated and pays whatever costs arise. Because the person and the assignment are so important, the firm tends to take care of all of their concerns. This approach is quite simple initially, and, given the inexperience of HR managers at this stage, the limited amount of information available about how to design a compensation system for expatriates, and the many complexities in such a compensation package compared with domestic compensation and benefits, it is easy to see why HR managers follow this approach.
- Balance sheet: The approach followed by most multinationals when their international business expands to the point where the firm has a larger number of expats (in the vicinity of twenty or so) is what is referred to as the balance sheet approach. At this stage, the negotiation, or ad hoc, approach will have led to too many inconsistencies between the compensation packages of its many expats and the firm will realize it needs to develop policy and practice that will apply to all expatriates. (In addition, the ad hoc approach will now be viewed as taking too much time – and cost – to negotiate, develop, and manage such a unique package for each expat.) The firm will seek a more standard approach and will begin to make policy about what will and what will not be covered (although the actual application of all the possibilities in a balance sheet approach can still be quiet cumbersome and administratively expensive).
- Localization: A relatively new approach to expat compensation is referred to as localization. This approach is being used to address problems of high cost and perceived inequity among staff in foreign subsidiaries. Under localization, expatriates (usually individuals who are early in their career and who are being posted overseas for relatively long-term assignments or are TCNs or are returnees) are paid comparably to local nationals. This can be relatively simple to administer, but since expatriates may come from different standards of living than that experienced by local nationals, special supplements for expats may still have to be negotiated.
- Lump sum: Another approach that some MNEs are trying, particularly in response to concern over the perception that the balance sheet intrudes too heavily into expatriates’ lifestyle decisions, is the lump sum approach. In this approach the firm determines (sometimes in negotiation with the expat candidate) a total salary for the expat, to cover all the major incentives and adjustments, and then lets the expat determine how to spend it, for example, on housing, transportation, travel, home visits, education, lifestyle, and so forth. This lump sum allowance is a single payment, made at the start of the relocation process, to the transferring expat to cover all of the above, or only the costs associated with the relocation, itself. Or, sometimes, the lump sum payment is split between payment at the outset of the assignment and the remainder paid upon successful completion of the assignment (as an incentive to perform successfully and to stay with the firm until the end of the assignment).
- Cafeteria: An approach which is increasingly being used for very highly salaried expat executives is to provide a set of “cafeteria” choices of benefits, up to a predetermined monetary limit in value. The advantages accrue to both the firm and to the individual and are primarily related to the tax coverage of benefits and perquisites as compared to cash income (pay check). Since the individual doesn’t need as much cash (since most expenses are paid for by the firm), this approach enables the expat to gain benefits such as a company car, insurance, company-provided housing, and the like that do not increase the expat’s income for tax purposes.
- Regional systems: For expats who make a commitment to job assignments within a particular region of the world, some firms are developing a regional compensation and benefits system to maintain equity within that region. This is usually seen as a complement to the other approaches. And if such individuals are later moved to another region, their pay will be transferred to one of the other regional systems, depending on what is used there, such as the balance sheet approach.
- Global: A final approach being followed, at least for expats above a certain pay level (i.e., therefore, for professional/technical/managerial employees), is to implement a common global pay and benefits package for each covered job classification applied to everyone in that classification, worldwide. This is often done in recognition of the fact that for many specialized occupations, there is in fact a global labor market, with qualified specialists from anywhere and everywhere in the world all applying for the same jobs. In this approach, MNEs will have two general pay classifications: local employees below a defined level and international. The international level will almost always include a performance-based component. The standard used is usually the level paid for those occupations at the firm’s headquarters.
Insurance is another area of benefits that can add complexity to the design of compensation programs for expatriates. Most big firms provide their managers and senior technicians with life insurance as part of their employees’ benefit packages. But many life insurance policies have clauses that in case of declared or undeclared war the insurance is null and void (which may be more likely to happen in a foreign assignment). Thus the firm may need to purchase special coverage while the expatriate is overseas.
In addition, the typical travel coverage (such as that provided when buying airline tickets through a credit card) may not be valid if going abroad for an extended period of time. Again, the firm may want to consider purchasing special travel insurance for its expatriates and their families.
Depending on the location of the overseas assignment, the firm may also have to provide special “work risk” insurance, for more dangerous or remote locations and, possibly, other forms of special insurance, e.g., kidnapping insurance.
Maternity and family leave
An area of employee benefits that has been receiving increasing attention from state and federal legislators in the US involves the provision of leave for reasons related to family need (e.g., maternity leave, paternity leave, family leave, etc., with or without pay, with guarantee of getting one’s job back at the end of the leave). This is a benefit provided by most countries, but is still not fully provided in the US. It has been a long time coming in the US (and is still not there at the level experienced by most workers around the world). Almost immediately after Bill Clinton became President in 1993, Congress passed the Family Medical Leave Act, providing unpaid leave for employees who need to take care of family emergencies, a bill which the new President signed. A number of states have also now passed similar legislation.
Other countries tend to be further advanced in the provision of this particular benefit. Approximately two-thirds of all nations, including most industrialized countries, have provision for paid and job-protected maternity leave of four to twelve months prenatal and three to twenty-nine months postnatal. The leave may be paid by the employer or by the government, or both. In some countries, including Norway, the Netherlands, Belgium, and Germany, up to 100 percent of salary is reimbursed during maternity leave. Leave in Sweden is available to either parent at 90 percent of wages during the first twelve months, and less thereafter (Gupta, 1998).
Flexible benefits are the approach to benefits in an increasing number of American organisations. In essence, employees are typically given choices, up to a certain dollar limit, among a series of options for their benefits, including such things as pension contributions, health insurance options, dental insurance, life insurance, etc. MNEs are beginning to examine flex benefits for their global operations, designing global flex-benefit plans
- Flex benefits have been successful in the US, so employers in other countries are beginning to take a look at the idea.
- MNEs have a need to attract and retain more diversified workforces (in terms of age, marital status, family situation), thus they are looking at flex benefits as a way to attract workers with diverse benefit needs.
- Foreign firms are investing in American health care companies and are thus being exposed to how important flex benefits are in the US for controlling rising health care costs.
- The increased aging of the labor force around the world is leading MNEs to look at flex benefits as a way to provide diverse benefits to all workers with a single benefits program.
Issues such as tax treatment of benefits, private versus state health care, employee expectations and culture, non-standardized social benefits from country to country, and varying company structures will need to be addressed in order to design flexible benefit packages that might be used throughout an MNE. Nevertheless, such an approach may help simplify worldwide complete compensation systems for multinational firms.
Present research was devoted to analysis of viable human resource management practices and procedures. As the first section of the study showed HRM plays crucial role in organization performance. Utilizing human capital that is embedded in people it increases employees’ productivity, motivation and loyalty to organization’s mission. Moreover it helps create sound communicative climate in the organization by fostering professional and friendly relations between employees and managers. The human resources in HRM are not considered to be a cost but an effective investment in the company’s future. Robust HRM practices and procedures become a critical comparative advantage in the volatile climate of international business.
But for HRM to be effective needs profound link between theory and practice. Thus in the second section we study various approaches to and models of HRM. The majority of research show the strong correlation between sound human resource practices and policies with firm’s financial performance. Professional HRM must be based on the rigorous theoretical analysis of different policies but not on the subjective and ungrounded perception of managers. Thus the relation between theory and practice must be enforced to fill the gap of robust HRM practices. This conclusion leads to research of the HRM practices implemented in modern organizations. Therefore in the third section of current research focuses on the analysis of best HRM practices’ structure and peculiarities of their implementation in service sectors, for custom solutions management, international activities and providing well-being and health of employees. This gives us valuable material for understanding the role of HRM in modern economic activities.
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