human resource management, the changing nature of the employment relationship - HR Management

The fourth edition of this book provides an opportunity to reflect on the extent of the debate about human resource management, the changing nature of the employment relationship, and the consequences for how organisations and individuals are managed. It is now over a decade since the idea for a comprehensive treatment of HRM was conceived by the authors, and a great deal of the prevailing analysis and data that was available at that time was derived from such sources as the 1984 WIRS 2, the 1988 Company Level Survey and MacInnes’ Thatcherism at Work (MacInnes, 1987). The story wasroadly one of change, but not so much that a radical reshaping of the employment relationship had occurred.

Rather, the effects of deflation and recession in the early and late 1980s had wrought greater damage to the infrastructure of employment than any legally enforced reform, while the move to privatisation, and a stronger role for market-based models of economic activity, had shifted the primary scope of industrial relations away from job regulation and collective bargaining towards coping with outsourcing and downsizing. Despite all these shifts, however, a large part of the analysis and discussion that constitutes the HRM debate today had yet to reveal itself. Some initial studies of non-unionism were only just beginning to see the light of day (McLoughlin and Gourlay,1994), while the role of HRM in transforming and adding value to organisational performance (Pfeffer, 1994, 1998), therelationship between HRM ‘bundles’ and business performance (McDuffie, 1995; Huselid, 1995), the role of the psychological contract in gaining employee assent (Guest and Conway, 1997) and wider changes in the infrastructure of the employment relationship (Cully et al., 1999) would come later in the decade.

The situation is now one of a rich and complex diversity of analyses, in which UK-based research and analysis is playing as significant a contribution as that of the USA – even if some of the policy and research initiatives still derive, prima facie, from a US agenda. What is striking about the HRM debate of the past decade is that two common themes have persisted, and yet neither has turned out to be the determining feature of the way the employment relationship is managed. The first theme is that of HRM’s replacement of the older traditions of personnel management and industrial relations. The approach of what might be termed the ‘Desperately Seeking HRM’ school of analysis seeks to explore the incidence, volume and influence of HRM-based approaches and practices, and to assess whether they are supplanting the historical patterns of UK employee management (Sisson, 1993).

The second theme is concerned to examine the specific impact of focused types of HRM – such as high-commitment management – in order to assess their superiority over both more generalised HRM interventions and traditional methods. While there are obvious limitations in seeking to assess the total impact of HRM, whether by large-scale survey material or by case analysis, there are similar limitations to measuring discrete choices of ‘tools’ with the aim of achieving ‘best practice’, as Purcell (1999) has noted. Thus we have entered the new millennium without a universal model of HRM on the one hand, but, on the other, with a range of HRM activities that are under sustained examination in order to assess their efficacy in achieving superior organisational performance. What is clear is that the HRM agenda still continues to develop and provide opportunities for analysis and prescription.

For some commentators HRM seems to have hit its high water mark and is now on the ebb (Bach and Sisson, 2000), while for others (such as Guest, 1997) there is fragmentary but clear evidence that ‘HRM works’, but we need to put flesh on the bones to consolidate that assertion.

A framework for HRM analysis: strategy, style and outcome

How can we attempt to construct a framework to encompass these divergent views about the relative strength and vitality of HRM? As the subtitle of this chapter suggests, there are at least three approaches to looking at the phenomenon that might help to explain different groups of arguments, based on whether the analysis focuses on the role of strategy, style or outcomes in the conduct of HRM.

  • HRM as strategy

    The strategic emphasis has by far the longest pedigree in the HRM debate; indeed, it is probably the strategic aspirations of the US models that were the defining feature of HRM as it emerged in the 1980s (see also Chapter 2). As we shall see later in the chapter, strategy has been seen as one of the touchstones of HRM’s viability. The extent to which HRM has come to play a role in the direction and planning of organisations has been a persistent theme not simply in the academic literature but in practitioner activity too.

    For example, the HRM Initiative in the UK National Health Service stresses the key role that HR practitioners will play at both national and regional levels in achieving nationally determined and nationally assessed goals for health care delivery. A key part of this initiative is the integration of HRM with the strategic goals of the NHS. Within strategic approaches two further strands might be noted. The first remains centred around macro-strategic issues and the general location of HRM within organizational structures overall – perhaps best summed up by the debate over whether HRM has a seat on the Board.

    The second strand has been more concerned with the formal inputs that HRM can provide – such as better recruitment and selection procedures or better alignment of reward systems with activity – as a way of providing linkages that are demonstrable and robust. In the NHS, for example, a major factor in stimulating these closer linkages is the realisation that variability of treatment rates between different hospitals may be as much to do with the management of the clinical personnel as with their access to medical technology. Thus the health service provides an excellent example of the strategic positioning of HRM and the linkage of its inputs.

    This brings together their respective relationships in the debate over the role of HRM in the health service overall. A contemporary explanation for HRM’s strategic positioning has emerged in the use of the term business focus. This has become a popular and widely used phrase to describe a wide range of organisational activity into which HRM is expected to link. However, it has an ambiguity and a potential for use across not only strategy, but also style and outcomes. If it has a meaning, it is probably best viewed as a general description of the territory that HRM now inhabits, rather than the technically defined and narrower role of personnel management of a quarter of a century ago.

  • HRM as style

    The second approach, based around styles of HRM, has also had an active life, and one that has attracted much discussion within the UK. Some of the antecedents to this can be traced back through the analysis of personnel as a function and personnel managers as actors within organisational settings. Thus Watson’s (1977) analysis of the professional role of personnel managers and Legge’s (1978) analysis of their political location within organisational roles can be seen as important precursors of this approach, while Tyson and Fell (1986) further refined the styles of personnel managers within their tasks.

    Other antecedents can be traced back to the industrial relations tradition, with the ‘unitarist–pluralist’ analysis of Fox (1966) and the ‘traditionalist/sophisticated paternalist/sophisticated modern/standard modern’ formulation of Purcell and Sisson (1983). The idea that style of personnel management or industrial relations can materially affect the operation of the function is deeply rooted in UK analysis, and suggests too that it has proved difficult to change over time, except through profound disturbance or acute threat. In these contexts the reason why UK management has not demonstrated a greater interest in, or success with, strategic approaches to HRM (in contrast to the USA) is largely attachment to a style that is the product of history and institutions over time, each of which is now an embedded feature of the British business system.

    The analysis of HRM in terms of style has also revolved around whether it can be regarded as hard or soft (Legge, 1995) in its intent. Hard HRM is sometimes defined in terms of the particular policies that stress a cost-minimisation strategy with an emphasis on leanness in production, the use of labour as a resource, and what Legge calls a ‘utilitarian instrumentalism’ in the employment relationship; at other times hard HRM is defined in terms of the tightness of fit between organisational goals and strategic objectives on the one hand and HRM policies on the other. Soft HRM, by contrast, is sometimes viewed as ‘developmental humanism’ (Legge, 1995) in which the individual is integrated into a work process that values trust, commitment and communication.

    What is probably more at issue than either of these two characterisations is the question of whether they are equally routes to work intensification and greater demands on the employment relationship by the organisation at the expense of the employee. As Legge points out, it is quite feasible that hard HRM variants can contain elements of soft practice, while the criticism that can be made of soft variants is that they can be held to deliver hard outcomes in terms of the tightness of the fit with business strategy that is sought. Indeed, just as with the broad definition and usage of the term ‘business focus’, noted earlier, so with the meaning and use of the term ‘fit’. Each of the three descriptions of HRM discussed here – strategy, style and outcome – is concerned with fit and the extent to which each achieves it, with the result that ‘fit’ has itself become an infinitely flexible term, and one that becomes increasingly difficult to apply to HRM as a single concept.

    A more recent approach to the question of style can be found in the work of Ulrich (1998). The tradition that sought to present practitioner roles in terms of the organizational location of their work provides a good background to Ulrich’s model of the HRM profession and its contribution to the business. For Ulrich, there are four possible styles or routes that HRM can take. The first is in what he terms work organisation, which involves the practitioner servicing the needs of the organisation in as efficient a manner as possible, but no more than that. In this mode, the style of HRM is as a support function ‘doing the job right’ but with little opportunity to add value or contribute to organisational performance. It might be that minimal HRM mistakes will be made, but conducting HRM in this manner will not provide any particular competitive advantage for any one organisation.

    The second style is to become the employee champion. In this mode the HR practitioner takes on the role of ‘voice’ for employees, seeking to reduce the frictional differences between the organisation and its staff and ensuring that senior management are aware of the concerns of employees. While this might be a different role from the maintenance function of work organisation, it still places the practitioner in a servicing role and does not necessarily create a role with added value; the emphasis is still on reducing dysfunctions. In the third mode, that of agent for change, the practitioner becomes the protagonist in active change management that has the capacity for added value, while in the fourth mode of business partner the practitioner becomes a fully contributing member of the management team, who is able to participate in the corporate planning process and bring the expertise of HRM into the equation with the responsibility to demonstrate how HRM can add value and give competitive advantage.

    For Ulrich the danger for HRM lies in its inability to move on from work organization and seize the developmental opportunity of becoming the business partner. The attractions of this approach to style for practitioners are obvious, with its message of hope and a promise of a substantial role at the heart of organisational structures, and Ulrich’s work has become particularly popular in the professional associations for HR managers in both the USA and the UK.

  • HRM as outcomes

    Over the second half of the 1990s, a further turn in the HRM debate saw a move away from attempts to define what its ‘input’ characteristics might be in favour of examining what consequences flowed from applying HRM in fairly tightly defined circumstances. Whereas both strategic and style approaches to HRM analysis had been concerned with its architecture, an ‘output’-based model concerned itself with examining those organizations that not only constructed their HRM in particular configurations but also found that resultant outcomes could give them a competitive advantage. The impetus for this approach was predominantly American, in particular the work of Arthur (1992, 1994), McDuffie (1995) and Huselid (1995), although UK work has also developed in this area, West and Patterson (1997) in particular.

    The unifying theme of these studies is that particular combinations of HRM practices, especially where they are refined and modified, can give quantifiable improvements in organisational performance. Arthur’s work studied 54 mini-mills (new technology steel mills using smaller workforces and new working practices) and demonstrated that firms using a ‘commitment’ model of HRM saw higher productivity, lower labour turnover, and lower rates of rejected production. In other words, it took the HRM style element a stage further in order to establish whether there was an output effect that could benefit the firm. McDuffie’s work examined 70 plants in the world car industry, and the use of HR techniques that were regarded as innovative.

    His analysis argued that it is when practices are used together, rather than simply in isolation or only for the specific effect of some more than others, that superior performance can be achieved. An important part of this analysis is the extent to which employees gave ‘extra’ in the form of discretionary effort that would otherwise have not been forthcoming without the effect of the chosen practices. Three factors were noted in particular: buffers (the extent to which plants adopted flexibility), work system (the work arrangements that complemented flexibility), and HRM policies (the HRM practices that complemented flexibility). The marked effect on performance was in the combined impact of all three factors working together. This approach moves the impact of HRM from being concerned with strategic choice or style per se to following the output consequences of constructing what have come to be known as ‘bundles’ of HR practice.

    Huselid’s study examined the relationships between the HR system (the groups of practices rather than individual practices), outcome measures (such as financial performance as well as HR data on turnover and absence), and the fit between HR and competitive strategy in 986 US-owned firms employing more than 100 employees. Huselid’s results indicated a lowering of labour turnover, higher sales performance, improved profitability and higher share valuations for those firms that performed well on his indices. In the UK the study by West and Patterson (1997) indicated that HR practices could account for 19 percent of the variation between firms in changes in profitability and 18 percent of the variation in changes in productivity.

    Once again, the complementarity of HR practices was held to be significant. As a result of these types of analysis a great deal of attention is now being paid to what constitutes a ‘bundle’ of HR practices that will afford firms superior performance. But this is no easy matter to settle conclusively. What is obvious about each of these studies is that they were examining patterns of HR strategies, choices, applications and refinements after their introduction. We have little information about how all these factors came to be in place in some firms and not in others.

    For practitioners there is no easy or readily available checklist that can be applied. For each firm contemplating an output model of HRM there has to be a difficult internal process of selecting and testing the bundle that will work in their own circumstances. The mere application of a group of practices, without some assessment of their interconnectedness, is unlikely to have discernible beneficial outcomes. Claims for the contribution of HRM to enhanced organisational performance have been criticised on a number of grounds. Richardson and Thompson (1999) raise several concerns about the research studies. They question the lack of consensus in the measures used to define HRM; the apparent arbitrary selection of items included in HRM ‘bundles’; and the assumption that all HR practices are equally important.

    Furthermore, they suggest that many of the studies ignore other measures of managerial effectiveness and thus risk overstating the impact of HRM. Whitfield and Poole (1997) express doubts over attributions of causality; i.e. is it that HRM leads to better organisational performance or is it that better performing organisations are able to invest more time and effort into the management of human resources? Thus the debate over HRM, whether it is pursued by analysts, academics or practitioners, continues to expand and develop. So far from reaching the high-water mark and ebbing, HRM as a phenomenon continues to thrive. Indeed, the fusion of HRM with business focus, noted above, has ensured that many major organisational changes now intimately involve HRM as part of the equation.

    These changes provide the background against which human resource management has emerged as the predominant contemporary influence on managing employment relationships. It is now commonplace to describe HRM as a managerially derived and driven set of precepts with both line and HR managers actively involved in its operation. What is distinctive about the debate, and perhaps explains its capacity to renew itself after each wave of analysis has been assessed and absorbed, is the shift from the broad question of whether HRM exists at all to more focused analyses – for example, whether particular combinations of HRM policies produce better results in output or services so that competitive advantage might accrue to those organisations that adopt them. Thus HRM continues to provide agendas and prescriptions for debate amongst both practitioners and analysts that are contentious and compelling, and have no settled orthodoxy.

    Why should this be so? Part of the answer lies in the perspective brought to bear upon HRM: there is a diversity in the HRM debate, derived from the manner in which particular participants view the essential elements of HRM and what they believe it is representing, that colours the discussion. For the purposes of this analysis four broad perspectives are set out here:

    • that HRM is no more than a renaming of basic personnel functions, which does little that is different from the traditional practice of personnel management;
    • that HRM represents a fusion of personnel management and industrial relations that is managerially focused and derives from a managerial agenda;
    • that HRM represents a resource-based conception of the employment relationship, incorporating a developmental role for the individual employee and some elements of cost minimisation;
    • that HRM can be viewed as part of the strategic managerial function in the development of business policy, in which it plays both a determining and a contributory role and is particularly so for multinational firms.

HRM as a restatement of existing personnel practice

It is possible to view this first standpoint as a basic but natural reaction to a new and somewhat threatening reformulation of traditional functions. There is, perhaps, an understandable scepticism that HRM can, or ever could, live up to the wider claims of its ability to transform the employment relationship so totally that some of the inherent problems of managing a volatile set of employee issues can be resolved more satisfactorily than by approaches that have grown out of the historical development of personnel management. Throughout the past 15 years this view has remained as a strong reaction to what is seen as the renaming pretensions of HRM. In large part such a reaction can be explained in terms of the gulf that appears to exist between personnel management ‘on the ground’ and the rather more theoretical and ‘strategic’ nature of a great deal of the discussion surrounding human resource management.

For many practitioners the notion that their roles and functions can be seen in anything other than a highly pragmatic light is no more than wishful thinking: there is an important, if straightforward, task of recruiting, selecting, rewarding, managing and developing employees that must be carried out as ‘efficiently’ as possible. In this sense, HRM might be viewed as no more than another trend in the long line of management prescriptions that have each enjoyed a vogue and then lost favour, while the pragmatic nature of established personnel management has ensured that the operational tasks have been accomplished.

HRM as a new managerial discipline

The second perspective contains more diversity and complexity, and incorporates such issues as the philosophies of personnel and industrial relations, the professional desire to present the management of employees as a holistic discipline (akin to the inclusive approaches of accounting and marketing, for example), and the belief that an integrated management approach can be provided by HRM. This would not only unite the differing perspectives of PM and IR but also create a new and broader discipline as a result of the fusion of these traditional elements.

An important outcome of this approach is to view some of these traditional components as now irrelevant or outdated and as dealing with problems that typify past, as opposed to current, practice: this is perhaps most noticeable in the renaming of functional activities so that industrial relations becomes ‘employee relations’, and training becomes ‘employee development’. This retitling is not designed solely to update an image, although that is important in itself, but is more specifically aimed at expressing the nature of the employment relationship in what are seen as changed circumstances.

Thus industrial relations is seen as expressing a relationship based upon a manual, manufacturing (and, often by implication, male) unionized workforce – rather than the supposedly wider concept of ‘employee relations’, which involves a total workforce that includes white-collar and technical staff, of whom many will be female and some or all non-union. A further significant shift in thinking connected with this second approach is that of the desire by management to extend control over aspects of the collective relationship that were once customarily regarded as jointly agreed between employees (usually via their unions) and management.

Treating employees as a primary responsibility of management, as opposed to the jointly negotiated responsibility of both unions and management, suggests an approach that is concerned to stress the primacy of the managerial agenda in the employment relationship, and marks a shift away from one of the fundamental assumptions of the approach (after the Second World War) to managing collective workforces. This shift was underlined in the 1993 employment legislation, which removed from ACAS the duty, originally given to it on its inception in 1974, to promote collective bargaining. In reality, this duty was a reflection of a deeply rooted presumption stretching back throughout most of the twentieth century and, in the UK at least, largely shared by employers, unions and the state, that collective bargaining represented a ‘politically’ acceptable compromise between management and labour; for more discussion of this see Clark (2000).

Over recent years, the UK professional body for practitioners, the Chartered Institute of Personnel and Development, has sought to establish an agenda that is concerned to show this integration into a business-led managerial discipline and the added value that can accrue from effective people management. The annual autumn conference is now the largest management conference held in Europe, and it attracts the most well-known ‘guru’ speakers; its annual HRD spring conference is as influential, and presents as extensive a range of speakers within the learning and development domain, while setting the programme in a business context. With membership now well over 1,10,000 the Institute was successfully granted a Royal Charter in 2000, in recognition of its role as a major professional management association.

Within this framework HRM is one factor in transforming personnel management into a powerful managerial role in its own right. To that extent it is part of a ‘transformation’ within the profession, which sees a move away from technical specificity towards a more rounded and sophisticated contribution to wider organisational objectives. The extent to which such transformations can be achieved is also connected to the third HRM perspective, which is discussed next.

HRM as a resource-based model

A further perspective has been brought to bear on HRM from those approaches that stress the role of the individual in organisations, rather than the collective employment models outlined so far. Personnel management, to a large degree at least, has always been concerned with the interface between the organisation and the individual, and with the necessity of achieving a trade-off between the requirements of the organisation and the needs of individual employees. Traditional personnel management policies that have been developed to cope with this trade-off have often taken a piecemeal approach to certain aspects of this issue: historically, the early twentieth-century personnel function stressed the ‘welfare’ role that could be afforded employees so that basic working conditions (both physically and contractually) could be established.

Subsequently, other styles of personnel management sought to introduce, administer or rectify particular aspects of jobs and roles that individuals carried out. This tradition fostered a belief in equitable selection and reward systems, efficient procedures for discipline, dismissal and redundancy, and clear and operable rules for administering large numbers of employees to avoid arbitrary judgements over individual cases. The prevailing rationale behind all these activities could be seen as a desire to manage the difficulties of the organisation/individual relationship in as technically neutral a manner as possible. This emphasis has fostered a culture within personnel management that is characterised as cost minimisation, often identified with some forms of hard HRM, with the individual as the cost that has to be controlled and contained.

In these circumstances employees become one of the aggregate commodities within the organisation that have to be managed within the organisation’s resources, in the same way that, for example, the finance available to the organisation has to be managed within a framework and according to accounting conventions. The logical extent of this model is reached in human resources planning, with precise numerical assessments of internal and external demand for and supply of labour .

Any alternative to this formalised approach, which treats the individual as a resource rather than an expense and views expenditure on training as an investment rather than a cost, associated with some aspects of soft HRM, can be seen to pose a profound threat to the conventional wisdom of personnel management. The conception of personnel as having an enabling capacity for employees has a long tradition, not least in the United States, where organisational analysis has often provided prescriptions concerning the role of supervisors, work groups and work organisation. The advent of Japanese management systems has, however, highlighted the impact of this approach on the employment relationship.

Whether sustainable or not in the West, the Japanese large-firm emphasis on developing individual employees along particular job paths while undertaking to provide continuous employment throughout the normal working life of the individual has at least provided a model in which the employer seeks to maximise employment opportunities. This approach goes further, however: it regards all employees as potentially able to benefit from further training and development, from which the organisation itself then benefits. So, far from viewing the employee as a cost, which has to be borne by the employer, this philosophy sees the employee as an actual and potential return on investment, which ultimately strengthens the company.

The responsibility of the employer for investment and employment has, at least in the post-war period to date, encouraged large corporate Japanese employers to develop products and markets that have used the invested skills of their workforces. There has been strong interest in what is termed ‘resource-based’ HRM, in which human resources are viewed as the basis of competitive advantage. This means that advantage is not only derived from the formal reorganisation and reshaping of work, but is also powerfully derived from within the workforce in terms of the training and expertise available to the organisation, the adaptability of employees which permits the organisation strategic flexibility, and the commitment of employees to the organisation’s business plans and goals.

HRM as a strategic and international function

The advent of human resource management has also brought forward the issue of the linkages between the employment relationship and wider organisational strategies and corporate policies. Historically, the management of industrial relations and personnel has been concerned either to cope with the ‘downstream’ consequences of earlier strategic decisions or to ‘firefight’ short-term problems that threaten the long-run success of a particular strategy. In these instances the role has been at best reactive and supportive to other managerial functions, at worst a hindrance until particular operational problems were overcome.

In the private sector the well-known case of British Leyland in the 1970s demonstrated a situation where considerable amounts of managerial effort (up to 60 per cent of operational managers’ time by some estimates) were devoted to ‘fixing’ shopfloor problems. In order to re-establish managerial control the company effectively turned the reshaping of industrial relations into its strategy so that it could refashion its product range and market position. In the public sector throughout the 1980s a series of major disputes affected the operations of schools, hospitals and local authorities (among many such examples); in each of these cases changes to the nature of the employment relationship were the root causes of the dislocation.

The Leyland case and the public sector experiences are extreme examples, but each demonstrates the impact that the employment relationship can have on total operations. Human resource management lays claim to a fundamentally different relationship between the organisation’s employment function and its strategic role. The assumption behind HRM is that it is essentially a strategically driven activity, which is not only a major contributor to that process but also a determining part of it. From this standpoint the contribution that the management of the employment relationship makes to the overall managerial process is as vital and formative as that of finance or marketing, for example.

Indeed, the notion that HRM is central to such managerial decision-making indicates the extent to which its proponents feel that it has come out of the shadows to claim a rightful place alongside other core management roles. In this respect one of the traditional stances of the personnel practitioner – that of the ‘liberal’ conception of personnel management as standing between employer and employee, moderating and smoothing the interchange between them – is viewed as untenable: HRM is about shaping and delivering corporate strategies with commitment and results.

One further component in this construction of HRM points towards its international potentialities. While the employment relationship is materially affected and defined by national and related institutional contexts, these variations in labour markets and national business systems give rise to a wide variety of employment policies and strategies for the management of labour within broadly defined capitalist economies. To the extent that an employer operates within the confines of a national business system, characteristics therein do not impinge upon neighbouring business systems. For example, the Americanness of US firms does not impinge on Canadian firms and their employment systems; similarly, the Britishness of UK firms does not impinge on the Irish business system.

In contrast to this, in circumstances where employers operate across national borders, these different institutional characteristics may become factors that an employer wishes to change or override. Thus multinational corporations (MNCs) may seek to deploy centralised – more homogenous – employment strategies, regardless of the institutional character of national business systems where they locate subsidiary operations. Multinational corporations are significant international actors in the world economy and play a key role in the trend towards ‘globalisation’, contributing to industrial development and restructuring within and across the borders of national business systems. But MNCs are not itinerant or transnational as is often suggested.

Management style, strategies and policies are shaped by home business systems – the financial, institutional, legal and political frameworks in which they developed as domestic firms. Thus there is a persistent ‘country of origin’ effect in the behaviour of MNCs whereby the country from where an MNC originates exerts a distinctive effect on management style, particularly the management of human resources. Hirst and Thompson (1999: 84) demonstrate that the majority of MNCs are disproportionately concentrated in their country of origin, sell the majority of their goods and services there and hold the majority of their assets there. In addition to this home country or country of origin effect, government regulation in countries where subsidiary operations of MNCs are located may also have an effect on shaping company practices for the management of human resources.

In some respects the impact of a ‘host country’ business system may constrain the preferred practices that reflect embedded patterns of regulation in an MNC’s country of origin. This interplay between home and host country influences raises important questions (for HR academics and practitioners employed in national and multinational firms) about the nature of international competitiveness and associated questions about how MNCs draw on and seek to diffuse competitive advantage from the business system in which they originate. International human resource management for global workforces is central to this question; policies to attract, retain, remunerate, develop and motivate staff are increasingly vital for the development of international competitive advantage.

Thus the significance of these issues is not confined to theoretical debates on the nature and scope of globalisation; they are of considerable significance in respect of what becomes ‘best practice’ in and between different business systems. For example, in the UK, US MNCs are widely diffused and account for approximately 50 per cent of foreign direct investment (Ferner, 2003), and there is considerable evidence to suggest that subsidiaries of US MNCs diffuse international HRM, that is, within individual MNCs. But in addition to this there is evidence that US MNCs act as innovators in business systems where they operate.

In the British context, productivity bargaining, performance-related pay, job evaluation, employee share option schemes, appraisal, single-status employment and direct employee involvement are now widely diffused in indigenous firms but were pioneered in subsidiaries of US MNCs; see Edwards and Ferner (2002) for a review of empirical material on US MNCs. In summary, MNCs may seek to deploy centralised employment policies to subsidiary operations, a tendency that is more pronounced in US and Japanese subsidiaries but less so in the case of German MNCs. Some MNCs, notably US ones, have powerful corporate HR functions which ‘roll out’ programmatic approaches to HRM that monitor subsidiaries against an array of detailed performance targets.

So within MNCs international HRM may create broad-based HR systems that minimise or override differencesbetween national business systems and, by contrast, emphasise the importance of organizational cultures that are drawn from the strategic goals of the firm. Management style and practices for HRM in MNCs are shaped by the interplay between home and host country and, as Chapter 15 demonstrates, this interplay focuses ongoing debates about the institutional embeddedness of national business systems and the cultural impact of MNCs in overseas economies.

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