Structuring a new business venture

The Changing Role of Strategic Human Resources

Culture as a Major Aspect of HRM Overseas

Culture is a key component to human resource management (HRM) on a global scale. Understanding culture but also appreciating cultural differences can help the HRM strategy be successful in any country. Geert Hofstede, a researcher in the area of culture, developed a list of five cultural dimensions that can help define how cultures are different.

The first dimension of culture is individualism-collectivism. In this dimension, Hofstede (n.d.) describes the degree to which individuals are integrated into groups. For example, in the United States, we are an individualist society; that is, each person tends to look after himself or herself and immediate family. There is more focus on individual accomplishments as opposed to group accomplishments. In a collective society, societies are based on cohesive groups, whether it be family groups or work groups. As a result, the focus is on the good of the group, rather than the individual.

Nonverbal Language

One of the factors of culture is nonverbal language, such as the use of handshakes, kissing, or bowing. This image shows Luisa Dias Diogo, Prime Minister of Mozambique greeting Adao Rocha, Senior Counselor of the Prime Minister of Cabo Verde.

Source: Richter Frank-Jurgen, Flickr

Power distance, Hofstede’s second dimension, refers to the extent to which the less powerful members of organizations accept that power is not distributed equally. For example, some societies may seek to eliminate differences in power and wealth, while others prefer a higher power distance. From an HRM perspective, these differences may become clear when employees are asked to work in cross-functional teams. A Danish manager may have no problem taking advice from employees because of the low power distance of his culture, but a Saudi Arabian manager may have issues with an informal relationship with employees, because of the high power distance.

Uncertainty avoidance refers to how a society tolerates uncertainty. Countries that focus more on avoidance tend to minimize uncertainty and therefore have stricter laws, rules, and other safety measures. Countries that are more tolerant of uncertainty tend to be more easygoing and relaxed. Consider the situation in which a company in the United States decides to apply the same HRM strategy to its operations in Peru. The United States has an uncertainty avoidance score of 46, which means the society is more comfortable with uncertainty. Peru has a high uncertainty avoidance, with a score of 87, indicating the society’s low level of tolerance for uncertainty. Let’s suppose a major part of the pay structure is bonuses. Would it make sense to implement this same compensation plan in international operations? Probably not.

Masculinity and femininity refers to the distribution of emotional roles between genders, and which gender norms are accepted by society. For example, in countries that are focused on femininity, traditional “female” values such as caring are more important than, say, showing off. The implications to HRM are huge. For example, Sweden has a more feminine culture, which is demonstrated in its management practices. Mentoring to employees is a major component in managers’ performance appraisals. A manager coming from a more masculine culture may not be able to perform this aspect of the job as well, or he or she may take more practice to be able to do it.

The last dimension is long-term and short-term orientation, which refers to the society’s time horizons. A long-term orientation would focus on future rewards for work being done now, as well as persistence and an ordering of relationships by status. A short-term orientation may focus on values related to the past and present, such as national pride or fulfillment of current obligations. We can see HRM dimensions with this orientation in succession planning, for example. In China the person getting promoted might be the person who has been with the company the longest, whereas in short-term orientation countries like the United States, promotion is usually based on merit. An American working for a Chinese company may get upset to see someone promoted who doesn’t do as good of a job, just because they have been there longer, and vice versa.

Based on Hofstede’s dimensions, you can see the importance of culture to development of an international HRM strategy. To use a transnational strategy, all these components should be factored into all decisions such as hiring, compensation, and training. Since culture is a key component in HRM, it is important to define some other elements of culture.

Examples of Countries Exhibiting Hofstede’s Dimensions
Country	Power distance	Individualism/Collectivism	Masculinity/Femininity	Uncertainty Avoidance	Long/Short-Term orientation
New Zealand	22	79	58	49	30
United Kingdom	35	89	66	35	25
United States	40	91	62	46	29
Japan	54	46	95	92	80
Taiwan	58	17	45	69	87
Zambia	64	27	41	52	25
India	77	48	56	40	61
China	80	20	66	40	118
Philippines	94	32	64	44	19
Note: Power distance refers to the comfort level of power differences among society members. A lower score shows greater equality among levels of society, such as New Zealand; A high ranking here in individualism/collectivism, such as the United States, means there is more concern for the individualistic aspects of society as opposed to collectivism. Countries with high scores on individualism means the people tend to be more self-reliant; A lower score in masculinity/femininity may indicate lower levels of differentiation between genders. A lower score, such as Chile, may also indicate a more openly nurturing society; Uncertainty avoidance refers to the tolerance for uncertainty. A high score, such as Japan’s, means there is lower tolerance for uncertainty, so rules, laws, policies, and regulations are implemented; Long/short-term orientation refers to thrift and perseverance, overcoming obstacles with time (long-term orientation), such as China, versus tradition, social obligations.

Culture refers to the socially accepted ways of life within a society. Some of these components might include language, norms, values, rituals, and material culture such as art, music, and tools used in that culture. Language is perhaps one of the most obvious parts of culture. Often language can define a culture and of course is necessary to be able to do business. HRM considerations for language might include something as simple as what language will documents be written in (the home country’s, the host country’s, or a third option)? Is there a standard language the company should use within its communications?

Management in International Business

HR as a Strategic Partner

The role of HRM is changing in business, particularly in international business. Previously considered a support function, HRM is now becoming a strategic partner in helping a global company achieve its goals. The strategic approach to HRM—strategic human resources management (SHRM)—means going beyond administrative tasks such as payroll processing. Instead, managers need to think more broadly and deeply about how employees will contribute to the company’s success.

SHRM is not just a function of the human resources (HR) department—all managers and executives need to be involved because the role of people is so vital to a company’s competitive advantage. In addition, organizations that value their employees are more profitable than those that don’t (Huselid, 1995; Pfeffer, 1998; Pfeffer & Veiga, 1999; Welbourne & Andrews, 1996). Research shows that successful organizations have several things in common (Pfeffer & Veiga, 1999):

· providing employment security

· engaging in selective hiring

· using self-managed teams

· being decentralized

· paying well

· training employees

· reducing status differences

· sharing information.

When organizations enable, develop, and motivate human capital, they improve accounting profits as well as shareholder value in the process (Becker, Huselid, & Ulrich, 2002). The most successful organizations manage HR as a strategic asset and measure HR performance in terms of its strategic impact. When each piece is in the right place, it creates a high-performance work system (HPWS)—a set of management practices that attempt to create an environment within an organization in which the employee has greater involvement and responsibility.

The following are some questions that HRM should be prepared to answer in this new world (Ulrich, 1998):

· competence—To what extent does our company have the required knowledge, skills, and abilities to implement its strategy?

· consequence—To what extent does our company have the right measures, rewards, and incentives in place to align people’s efforts with the company strategy?

· governance—To what extent does our company have the right structures, communications systems, and policies to create a high-performing organization?

· learning and leadership—To what extent can our company respond to uncertainty and learn and adapt to change quickly?

Crucial Role of SHRM in Global Firms

Developing an effective international workforce is much more difficult for a competitor to emulate than buying technology or securing capital (Briscoe, Schuler, & Claus, 2009). Besides, how well companies manage their HR around the world can mean the difference between success and failure. In a nutshell, firms that effectively manage their international HR typically outperform competitors in terms of identifying new international business opportunities, adapting to changing conditions worldwide, sharing innovation knowledge throughout the firm, effectively coordinating subsidiary operations, conducting successful cross-border acquisitions, and maintaining a high-performing, committed overseas workforce (Brannen & Peterson, 2009; Gong, 2003; Minbaeva, Pedersen, Björkman, Fey, & Park, 2003; Oddou, Osland, & Blakeney, 2009).

In many multinationals, an important challenge is balancing the need to coordinate units scattered around the world with the need for individual units to have the control necessary to deal effectively with local issues (Schuler, Budhwar, & Florkowski, 2004). Achieving this balance becomes more difficult as the level of diversity that firms are exposed to increases. For example, consider a situation where the parent firm’s national culture differs dramatically from the cultures in its overseas subsidiaries. In this case, it may be harder for the parent firm to share information, technology, and innovations between the home office and foreign outposts. It may also be more difficult to promote needed organizational changes and manage any conflicts that arise between employees in different countries.

Fortunately, international human resources management (IHRM) strategies can overcome such problems. For instance, IHRM professionals can help ensure that top executives understand the different cultures within the company workforce and around the world. They can also offer advice on how to coordinate functions across boundaries and develop outstanding cross-cultural skills in employees (e.g., through various training programs and career paths that involve significant overseas exposure) (Briscoe, Schuler, & Claus, 2009; Fey & Björkman, 2001; Wright, McMahan, & McWilliams, 1994).

Of course, these are general suggestions, and a range of HR practices might be used to implement them. Companies should develop an international HR philosophy that describes corporate values about HR—this in turn, will shape the broad outline of what constitutes acceptable IHRM practices for employees all over the world. From there, individual units can fine-tune and select specific practices that best fit their local conditions. But this is easier said than done, especially for firms operating in dozens of countries. Multinationals typically find it extremely difficult, for example, to design a compensation system that is sensitive to cultural differences yet still meets general guidelines of being seen as fair by employees everywhere. Indeed, culture may impact local HRM practices in a variety of ways—from how benefit packages are constructed to the hiring, termination, and promotion practices used, just to name a few (Briscoe, Schuler, & Claus, 2009).

Nevertheless, selecting the right IHRM strategy can pay off, particularly in difficult foreign markets. Consider multinationals wanting to quickly enter countries with transitional economies—those that are moving from being state-dominated to being market-based (e.g., China and Russia). Choosing to enter those markets by buying local firms, building new plants, or establishing joint ventures may create significant HR challenges that will undercut performance if not handled well. Consequently, global firms need to adopt an appropriate IHRM strategy to meet transition economy challenges.

The Importance of Human Capital 

Employees provide an organization’s human capital. Your human capital is the set of skills that you have acquired on the job—through training and experience—which increase your value in the marketplace. The Society of Human Resource Management’s Research Quarterly defined an organization’s human capital as “the collective sum of the attributes, life experience, knowledge, inventiveness, energy, and enthusiasm that its people choose to invest in their work” (Weatherly, 2003).

Focus on Outcomes 

Unfortunately, many HR managers are more effective in the technical or operational aspects of HR than they are in the strategic, even though the strategic facet has a much larger effect on the company’s success (Huselid, Jackson, & Schuler, 1997). In the past, HR professionals focused on compliance to rules, such as those set by the federal government, and tracked simple metrics—for instance, the number of employees hired or the number of hours of training delivered. The new principles of management, however, require a focus on outcomes and results, not just numbers and compliance. Just as lawyers count how many cases they’ve won—not just how many words they used—so too must HR professionals track how employees are using the skills they’ve learned to attain goals, not just how many hours they’ve spent in training (Ulrich, 1998). John Murabito, executive vice president and head of Human Resources and Services at CIGNA, says that HR executives need to understand the company’s goals and strategy and then provide employees with the skills needed. Too often, HRM executives get wrapped up in their own initiatives without understanding how their role contributes to the business. That’s dangerous, because when it comes to the HR department, “anything that is administrative or transactional is going to get outsourced,” Murabito says (Marquez, 1997). For example, Bank of America outsourced its HRM administration to NorthgateArinso. NorthgateArinso now provides timekeeping, payroll processing, and payroll services for 10,000 Bank of America employees outside the United States. To avoid being outsourced, HRM needs to stay relevant and accept accountability for its business results. In short, the people strategy needs to fully align with the company’s business strategy, keeping the focus on outcomes.

Key Elements of HRM 

Beyond the basic need for compliance with HRM rules and regulations, the four key elements of HR are summarized in the figure below. In high-performing companies, each element of the HRM system is designed to reflect best practices and to maximize employee performance. The different parts of the HRM system are strongly aligned with company goals.

Key HRM Elements

Selection and Placement

It’s good for firms to acquaint prospective new hires with the nature of the jobs they’ll be expected to fulfill early in the hiring process. This includes explaining the technical competencies needed (e.g., collecting statistical data) and defining behavioral competencies. Behavioral competencies may have a customer focus, such as the ability to show empathy and support of customers’ feelings and points of view, or a work-management focus, such as the ability to complete tasks efficiently or to know when to seek guidance.

In addition, an SHRM best practice is to make the organization’s culture clear by discussing the values that underpin the organization. For example, firms can describe the “heroes” of the organization—those employees who embody the values of the organization. A service company’s heroes may be the people who go the extra mile to get customers to smile. In a software company, the heroes may be the people who toil through the night to develop new code. By sharing such stories of company heroes with potential hires, the firm helps reinforce the values and behaviors that make the company unique. This, in turn, will help the job candidates determine whether they’ll fit well into that organization’s culture.

Job Design 

Job design refers to the process of combining tasks to form a whole job. The goal is to design jobs that involve doing a whole piece of work and that are challenging but ultimately doable for the employee. Job design also takes into account issues of health and safety of the worker. When planning jobs or assigning people to jobs, HR managers also consider training (ensuring that employees to have the knowledge and skills to perform all parts of their job) and giving them the authority and accountability to do so (Lawler III, 1992).

One company that does training right is Motorola. As a global company, Motorola operates in many countries, including China. Operating in China presents particular challenges in terms of finding and hiring skilled employees. In a recent survey conducted by the American Chamber of Commerce in Shanghai, 37 percent of US-owned enterprises operating in China said that recruiting skilled employees was their biggest operational problem (Lane & Pollner, 2011). Indeed, polled companies cited HRM as a problem more often than they cited regulatory concerns, bureaucracy, or infringement on intellectual property rights. This is because Chinese universities don’t turn out candidates with the skills that multinational companies need. As a result, Motorola has created its own training and development programs to bridge the gap. For example, Motorola’s China Accelerated Management Program is designed for local managers. Motorola’s Management Foundation program helps train managers in areas such as communication and problem solving. Finally, Motorola offers a high-tech MBA program in partnership with Arizona State University and Tsinghua University, so that top employees can earn an MBA in-house. Such programs are tailor-made to the minimally skilled—but highly motivated—Chinese employees.

Compensation and Rewards 

The SHRM function also includes evaluating and paying people on the basis of their performance—not simply for showing up to the job. Firms must offer rewards for skill development and organizational performance, emphasizing teamwork, collaboration, and responsibility for performance. Good compensation systems include incentives, gainsharing, profit sharing, and skill-based pay that rewards employees who learn new skills and put those skills to work for the organization. Employees who are trained in problem solving and a broad range of skills are more likely to grow on the job and feel more satisfaction. Their training enables them to make more valuable contributions to the company, which, in turn, gains them higher rewards and greater commitment to the company (Barnes, 2001). Likewise, the company benefits from employees’ increased flexibility, productivity, and commitment.

When employees have access to information and the authority to act on that information, they’re more involved in their jobs, more likely to make the right decision, and more inclined to take the necessary actions to further the organization’s goals. Similarly, rewards need to be linked to performance so that employees are naturally inclined to pursue outcomes that will earn rewards and further the organization’s success at the same time.

Diversity Management

Another key to successful SHRM in today’s business environment is embracing diversity. In past decades, “diversity” meant avoiding discrimination against women and minorities in hiring. Today, diversity goes far beyond this limited definition; diversity management involves actively appreciating and using the differing perspectives and ideas that individuals bring to the workplace. Diversity is an invaluable contributor to innovation and problem-solving success. As James Surowiecki (2005) shows in The Wisdom of Crowds, the more diverse the group in terms of expertise, gender, age, and background, the more ability the group has to avoid the problems of groupthink. Diversity helps company teams to come up with more creative and effective solutions. Teams whose members have complementary skills are often more successful because members can see one another’s blind spots. People from different backgrounds will probably make different kinds of errors, which also means that they’ll be more likely to catch and correct each other’s mistakes.