Best Practices in Human Resource Operations for Multinational Companies
“There is a growing consensus that a key differentiator between the corporate winners and losers in the 21st century will be the effectiveness of the human organization” (Taylor et al, 1996). This statement suggests that the best human resource management system will spell success for the adopting organisation. There are many factors that are responsible for the culture adopted by multinational corporations (MNCs). People are the most important and valuable resource that organizations have. They are responsible for marketing, sales, product development, decision making and implementation of an avalanche of programmes aimed at improving the overall competitiveness of the companies they represent. In general terms, a perfect formula for success entails maximizing human resource effectiveness in line with outlined and predetermined goals and objectives.
There are many challenges that occur in trying to maximize the potential of human resources. Global HR managers must be able to strike a balance between their desires for global integration with the need for adapting to the local business environment. The origins of MNCs are important in deciding where the balance is struck. Chang & Taylor argue that the cultural determinants in home countries for MNCs are salient to those of individual firms (1999). This notion is fundamentally different from the desire for borderless and nationless organisations. Numerous researches done have come to the conclusion that the desire for control of institutions is mainly determined by the origin of the parent institution. This explains control practices and organisational coordination adopted by MNCs in host countries. The influence exerted by a home country has been found to be largely subconscious and stems from culture that is transferred from employee to employee as the company expands to new frontiers. Having best practices in HR management means that the influence of culture can be suppressed where it is deemed to be destructive and enhanced where it is helpful. There is a major contrast, for example, between how Japanese MNCs are run and how those in the US are run. The former have been found to be informally centralized while remaining strong and being extremely reliant on an established global network. The latter on the other hand have been found to have more controlled and standardized systems in all its subsidiaries. The US is low on cultural context meaning that it exerts less cultural influence on its MNCS whereas Japan is high on the cultural context meaning that it exerts more influence on its MNCs (Thite, 2004). This distinction is important when discussing mergers, alliances, acquisitions and takeovers.
Toyota, a Japanese MNC has had a very strong culture that has propelled it to success. The company has set up bases of production where labour and raw materials are cheap. The overall strategy has been lean management as well as having numerous product ranges that attract a high number of consumers. This strategy is deeply rooted in the Japanese culture. A company like General Motors, on the other hand, which has a few motor vehicle models for specific targets has found it very difficult to make it in the international market in recent times. It only produces its range of products in the US using the traditional centralized modes of management. This is strongly influenced by the US culture. Comparing the two MNCs reveals that Toyota has had the best strategy as it has grown to be the largest motor vehicle exporter in the world, a position formerly occupied by GM. This shows that for an MNC to succeed, it must adopt HR best practices in order to escape the yoke of culture and home country syndrome.
Geography is another factor that influences the strategies that are adopted by MNCs. This entails the organisation’s responsiveness to the local market demands in relation to global standards. Innovative HR practices are important in achievement of functional excellence. The development, transmission and retention of knowledge within global organisations are a major component of HR management and can be achieved through HR best practices. Research of major MNCs has indicated that the most common structures for division of responsibilities follow this order: the global HR which are responsible for overall policy development, the regional HR which translate the global policies and adapt them to their specific areas, the country HR responsible for national policies specific to the local environment, the shared services centres that are charged with the provision of specialized advice as well as administrative support, the business unit HR which provide advice to the business or take up responsibilities of the latter group in case it is non-existent, the line management that interprets policies and implements them locally and the employees who are at the tail end of the HR system (Zhang et al., 2008). HR best practices help in determining whether to adopt a centralized or decentralized model. Both strategies have been found to be equally effective in the organisations surveyed.
The most common approach however is the centralized model that is adopted by a host of organisations including Unilever, IKEA, Siemens and Shell. These companies also have initiatives that allow them to be aligned to the local business environment either as a strategy for maximizing local potential or as an alignment to mandated legislation. MNCs that maintain their decentralized models include: TCL, Infosys, EDF and Matsushita. These companies choose the multi-domestic approach in order to take advantage of the differing market conditions in the countries of operation. There are companies that have gone beyond the centralization/decentralization model like P&G. It has adopted a strategy that aims at having all employees experience a single employment experience regardless of their position in its global operations. Stiles and others argue that the company has “structured its HR function in a global manner, with global expertise groups (or Communities of Practice) established to develop HRM strategy across national boundaries driven by business needs” (2006). Rolls Royce and ABB have similar strategies that are characterized by a clear articulation of values and goals for their HR functions.
Shell and IBM have HR development programs that are comprised of intensive learning through various means that give them options for career development and advancement. At Shell in particular, there is a program referred to as the Experience Navigator that helps group jobs according to the tasks and experiences required to complete them. This program was necessitated by the fact that many of the jobs advertised by the company seemed similar. This program thus creates a database that helps employees track and plan their careers. At IBM, the employee is trained to eventually become a HR consultant and thus assist the company train others. The purpose of these programs is to develop a world class HR function that assist the companies in execution of their strategies and mandates to the best of their abilities across multiple cultures and geographic locations.
Effective management of people can only be achieved through the engagement of the different structures within MNCs. The most important branch that forms the backbone of MNC success is line management. Meaningful engagement of this division so that policies are well executed by ownership of both the policies and processes to ensure that the MNCs are constantly evolving and adapting to the local business environment can make the difference between success and failure. A lack of line management engagement has been found to be the leading cause of inefficient implementation and lack of functional excellence in high performances systems. Many successful MNCs have one thing in common; they are never complacent. Their continued success does not in any way suggest that they have acquired the perfect system but rather that they are on the right path. MNCs must constantly tighten up. There must always be renewed focus on the improvement of HR systems to guarantee efficiency and effectiveness. An organisation’s leadership is an indispensable cog to its success. Innovative HR practices must be adopted to make sure that the human capital is well managed for maximum returns. This can only be achieved if MNCs adopt HR best practices. The discussion above has illustrated that MNCs are subject to many forces as a result of the desires for local adaptation and global integration (Harzing & Sorge, 2003). This makes them susceptible to influence by numerous competing forces than companies that operate in singular environments. If the latter group adopts HR best practices for continued improvement, then MNCs must undertake multiple efforts in the same regard to remain competitive.
References
Chang, E., & Taylor, S. M. (1999). Control in multinational corporations (MNCs): The case of Korean manufacturing subsidiaries. Journal of Management. 25(4): 541
Harzing, A.W. & Sorge, A. (2003). The relative impact of country of origin and universal contingencies in internationalization strategies and corporate control in multinational enterprises: Worldwide and European perspectives. Organization Studies, 24(2), 187
Stiles, P. et al (2006). Best practice and key themes in global human resource management: project report. University of Cambridge
Taylor, S. Et al. (1996). Toward an integrative model of strategic international human resource management. Academy of Management. The Academy of Management Review, 21(4), 959-985
Thite, M. (2004). Managing People in the New Economy: Targeted HR Practices that Persuade People to Unlock their Knowledge Power. New Delhi ; Thousand Oaks
Zhang, A.Y. et al. (2008). How do I trust thee? The employee-organization relationship, supervisory support, and middle manager trust in the organization. Human Resource Management, 47(1), 111-132.
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