Session3 IHRM in Organizational Context

Unit-2 by Anju Chawla 1

Chapter 2The organizational context

By Anju Chawla Trainer for Marketing & HR

with IIPM, Symbiosis, IRS & ICFAI


Session’s objectives

structural responses to international growth control and coordination mechanisms

(cont.)

In this session, we examine how international growth places demands on management, and the factors that impact on how managers of internationalizing firms responds to these challenges. We start with the premise that the human resource (HR) function does not operate in a vacuum, and that HR activities are determined by, and influence, organisational factors. We cover the following areas:


SESSION’S objectives (cont.)

mode of operation used in various international markets

effect of responses on human resource management approaches and activities.


Figure 2-1: Management demands of international growth


The path to global status

Causes structural responses, due to: Strain imposed by growth and

geographical spread Need for improved coordination and

control across business units The constraints imposed by host-

government regulations on ownership and equity

Evolution path common but not normative


Figure 2-2: Stages of internationalization


Stages of internationalization: Exporting

Typically the initial stage of international operations Usually handled by an intermediary

(foreign agent or distributor) Role of HR department unclear at this

stage


Figure 2-3: Export department


Sales subsidiary Replacing foreign agents/distributors with

own through sales or branch offices/subsidiaries

May be prompted by: Problems with foreign agents More confidence in international activities Desire for greater control Give greater support to exporting activities

PCNs may be selected, leading to some HR involvement


Figure 2-4: Sales subsidiary


International division Creation of a separate division in which all

international activities are grouped Resembles ‘miniature replica’ of domestic

organization Subsidiary managers report to head of

international division Objectives regarding foreign activities may

determine approach to staffing of key positions Expatriate management role of corporate HR


Figure 2-5: International division


Global product/area division Strain of sheer size may prompt

structural change to either of these global approaches

Choice typically influenced by: The extent to which key decisions are to

be made at the parent country headquarters or at the subsidiary units (centralization versus decentralization)

Type or form of control exerted by parent over subsidiary


Figure 2-6a: Global product division Figure 2-6b: Global area division


The matrix

An attempt to integrate operations across more than one dimension

Violates Fayol’s principle of unity of command

Considered to bring into the management system a philosophy of matching the structure to the decision-making process


Figure 2-7: The matrix


Problems with the Matrix Bartlett and Ghoshal

Dual reporting

Proliferation of communication channels

Overlapping responsibilities

Barriers of distance, language, time and culture

Leads to conflict and confusion

Creates informational logjams

Produce turf battles and loss of accountability

Make it virtually impossible to resolve conflicts and clarify confusion


Beyond the matrix

Less hierarchical structural forms Heterarchy- MNC may have a number of different kinds of centres

apart from the traditionally HQ. Argument in favor is : competence can be found in a location different than the parent company. Focus is on corporate culture and less on top down approach.

Transnational- here interdependence of resources and responsibilities across all business units regardless of national boundaries.It is a complex flow of components, products, resources, people and information among its subsidaries, while simultaneously recognizing distributed specialized resources and capabilities.

Networked firm- Subsidaries have developed into significant centres for investments, activities and influence and can no longer be regarded as the periphery. GE has established a ‘centre of excellence’ in Hungary for R&D in its lighting division.


Figure 2-8: The networked organization


Figure 2-9: US, European and Japanese structural changes


Control mechanisms

“Globalization brings considerable challenges which are often under-estimated….

Every morning when I wake I think about the challenges of coordinating our operations in many different countries”

Quote by Accor CEO


Figure 2-10: Control mechanisms


Mode of operation and HRM Not just subsidiary operations Firms may also adopt contractual

modes Licensing Franchising Management contracts Projects

And/or cooperative modes (such as joint ventures)


Figure 2-11: Linking operation mode and HRM


Interfirm linkages

Alliance (strategic alliance, cooperative venture, collaborative venture or corporate linkage)

A form of business relationship that: Involves some measure on interfirm

integration Stops short of a full merger or acquisition


HR factors

HR issues and activities that affect the successful functioning of international joint ventures include: Assigning mangers to the joint venture Evaluating their performance Handling aspects pertaining to career

path Compensation benefits


Session’s summary

The organizational context in which IHRM activities take place. Different structural arrangements have been identified as the firm moves along the path to multinational status – from export department through to more complex varieties such as the matrix, heterarchy, transnational and networked.

Control and coordination aspects. Formal and informal mechanisms were outlined, with emphasis on control through personal networks and relationships, and control through corporate culture, drawing out HRM implications.(cont.)

The purpose of this session has been to identify the HR implications of the various options and responses that international growth places on the firm. This session focused on:


Session’s summary (cont.) The various modes – such as wholly owned, franchising,

management contracts and international joint ventures – used by multinationals for foreign market entry and expansion. Again, we attempted to demonstrate the IHRM implications of these various modes, although noting that most of the literature focuses on wholly owned subsidiaries and international joint ventures.(cont.)


Session’s summary (cont.)

How international growth affects the firm’s approach to HRM. Firms vary from one another as they go through the stages of international development, and react in different ways to the circumstances they encounter in the various foreign markets. There is a wide variety of matches between IHRM approaches, organizational structure and stage of internationalization. For example, almost half the US firms surveyed by Dowling55 reported that the operations of the HR function were unrelated to the nature of the firm’s international operations. A study of nine subsidiaries of multinationals operating in Ireland by Monks56 found that the majority adopted a local approach to the HR function, with headquarters involvement often limited to monitoring the financial implications of HR decisions.(cont.)


Session’s summary (cont.) Stages of development, organizational forms and mode of

operation should not be taken as normative. Research does suggest a pattern and a process of internationalization but firms do vary in how they adapt to international operations – we use nationality of the parent firm to demonstrate this.


The End!

Through the approach taken in this chapter, we have been able todemonstrate that there is an interconnection between international HRM approaches and activities and the organizational context and that HR managers have a crucial role to play. In order to perform this role better, it would seem important that HR managers understand the various international structural options – along with the control and coordination demands imposed by international growth – and the HR implications that accompany the range of operation modes outlined in this chapter.

Assignment:: Find out the HR policies of any MNC and prepare a presentation individually, for next class.

Documents

Session3 IHRM in Organizational Context