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«Cambridge University: Philip Stiles and Jonathan Trevor Erasmus / Tilburg University: Jaap Paauwe and Elaine Farndale Cornell University: Patrick Wright ...»

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Best practice and key themes in global human

resource management: project report

24 November 2006

Cambridge University: Philip Stiles and Jonathan Trevor

Erasmus / Tilburg University: Jaap Paauwe and Elaine Farndale

Cornell University: Patrick Wright and Shad Morris

INSEAD: Guenter Stahl and Ingmar Bjorkman

Sponsored in full by

1 / 52

Contact details:

Dr. Philip Stiles

Judge Business School

University of Cambridge

T: 01223 339 700

E: p.stiles@jbs.cam.ac.uk Dr. Jonathan Trevor Judge Business School University of Cambridge T: 01223 339 700 E: jpt28@cam.ac.uk 2 / 52 Table of Contents i. HR practices

ii. Employee relations

iii. The HR function

iv. Knowledge management

The study methodology

Convergence

2. TALENT MANAGEMENT

Recruitment, selection, and succession planning

Emphasis on global branding to attract top talent

Strong commitment to training and development

Multi-level approaches to talent retention

Talent management in emerging markets

3. PERFORMANCE MANAGEMENT

Global performance management

Management of potential

4. REWARD MANAGEMENT

Performance contingent pay

Market benchmarking and positioning

Total rewards models

Flexible benefits

5. EMPLOYEE RELATIONS

Employee relations best practice

Trade union recognition

Direct communication channels

Fit between employee relations policy and corporate goals

6. ORGANISATIONAL CULTURE AND HRM

Emphasis on attitudes and cultural fit in the selection process

Secondary socialization and training

Rewarding employees for displaying shared values

Alignment is critical

7. HR FUNCTIONAL EXCELLENCE

The roles of corporate and subsidiary HR departments

Monitoring HR department effectiveness

HRM delivery mechanisms

8. KNOWLEDGE MANAGEMENT

Common human capital practices

Unique human capital practices

Common social capital practices

Unique social capital practices

Common organizational capital practices

Unique organizational capital practices

Geographic notes

9. CONCLUSION

3 / 52

1. PROJECT OVERVIEW How do global organizations manage their people? Both executives and academics believe that human capital management and investment is essential to the competitiveness of firms, but there is a wide variation of opinion about how best these complex organizational activities are implemented in practice. The work presented in this report, conducted by the Global Human Resource Research Alliance (GHRRA) – a team comprising researchers from the universities of Cambridge, Cornell, Erasmus/Tilburg and INSEAD – reveals a number of innovative practices pioneered by an outstanding group of international companies, a raft of leading or `best’ practices that are common across many companies, and certain practices that are unique.

We have found the organizations which are performing well in terms of people management combine strong discipline in human capital management with attention to the importance of social capital – the building of relationships and networks within the organization – and organizational capital – the structure and culture of the firm.

The reinforcing or multiplier effects of this combination creates inimitable conditions for the management of people and drives more than just HR excellence but also knowledge management, employee engagement and workforce adaptability.

As well as human resource practices and processes, our focus also turned to the role of the HR function itself. We found this also varied in terms of its power and influence and structure, but common to most of our companies was the HR function’s role in setting global standards for HR practice, particularly in relation to performance, resourcing and the development of a high potential cadre and in managing the careers and rewards of the senior executive team.

In this section, we highlight the major themes to emerge from the study. We will look the key findings from the areas of HR practices, employee relations, HR functional excellence, and knowledge management within the HR community. We then explain how the study was conducted, and conclude with our view on the issue of convergence of HR practice and process across national cultures.

These areas will be mirrored in Part I of the report and given extensive detail from the case companies supplemented by the findings in Part 2 of the report of a web based survey of executive opinion in global organizations, within which we examined major HR practices, including staffing, performance management, rewards, development, and career management, HR delivery and knowledge and learning.

i. HR practices

In staffing, the importance of aligning individuals to the values of the company is highlighted by the practice of values-based interviewing – where specific attention is paid to identifying whether the individual’s attitudes will match the values of the organization. In some companies, scanning for talent occurs even in the absence of a specific vacancy. Talent inventories are used for both selection and succession purposes, and the continuous process of developing a ‘talent pool’ - recruiting the best people and assigning them roles rather than hiring specific individuals for specific positions - are best practice. Sophisticated employee on-boarding practices with online provision and buddy systems in place in a number of firms to welcome and induct new members and active feedback sessions are provided to understand where the new employee is in terms of their familiarity and development within the organization.





Employee referrals (the practice of existing staff recommending individuals to the organisation) have become a common approach, reducing cost of recruitment and also helping to ensure cultural fit.

In performance management, participative goal setting, with both work and development goals, based generally around balanced scorecard initiatives, provide a direct link to strategic objectives. Multiple inputs at the appraisal, with most 360 approaches now managed on-line are common for at least mid-level managers and above, and with bi-annual formal reviews and constant informal feedback, often on a daily basis, to ensure projects/workload is on track and to ensure adequate resources are being given where appropriate. Developmental focus in the appraisal is a given.

The developmental and pay reviews are split in all cases, and the line of sight to rewards is clear in most firms through the use of performance/potential matrices.

Forced ranking is in evidence in a number of companies, though was by no means the norm whereas calibration of performance outcomes by central HR and senior management ensuring a fair distribution is seen across most of the sample companies.

Rewards in nearly all cases were managed with both group and individual elements in pay determination. The move to greater variable pay as a percentage of total compensation is in evidence across companies in all geographies. In some companies, vestiges of tenure-based pay remained but this was rare. For managerial staff, companies have pay for performance and flexible benefits and in some cases, employee equity ownership schemes, though in some cases ESOPs have been discontinued as not generating sufficient motivation. For senior managers, long-term incentive programs are in place across all companies. For collective bargaining purposes, pay forums and trade union negotiation for annual pay rounds remain a major part of the reward and employee relations landscape. Care is taken to balance social and economic rewards; an emphasis on adherence to cultural norms with recognition events, leadership visibility and symbolic ceremonies are highlighted.

Annual excellence awards and recognition schemes in general are the norm.

In development, the prevalence of coaching initiatives is evident, aligned typically to transformational leadership initiatives aimed at instilling leadership qualities throughout the firm. For high potentials, the provision of strategic projects of a shortterm nature, often international in scope, to assess potential, are common. A major issue is to get the company’s `bench-strength’ up to acceptable levels, and for most key roles, to have at least one individual who could step into the shoes of the incumbent should the need arise.

The presence of academies (at country and at group level) and corporate universities is prevalent, to co-ordinate learning and development. Self-managed learning through on-line provision of content is also common. A number of organizations also spread their reach towards linkages with academia in terms of industry partnerships for innovation and for developmental experiences, such as international specialist programs for high potential individuals.

5 / 52 ii. Employee relations The organizations in our sample are from a variety of sectors but face similar challenges, in particular; fast-paced environments, increasing customer sophistication, the need for innovation and also the need for cost-efficiency. Though the companies in our group are among the best in the world, they are not immune from downsizing, restructuring, and we encountered issues of employee relations conflict, particularly linked to concerns about headcount reduction and off-shoring practices, and the flip side of commitment, work intensification and an employer- biased work-life balance.

Partnership arrangements between unions and management are common but a wide variation in practice emerges, depending on whether the partnership is one of true consultation or on a telling and informing basis. Centralised vs. localised bargaining represents, in most cases, an uneasy balance, and the pervasiveness of HR practices has not dislodged the need for IR.

In some countries, for example, Japan, Germany and the Netherlands, works councils are the norm, and for these organizations, a centralized union strategy generally coexists with local union relationships at divisional or business unit level. In some companies, non-unionism is an integral part of the company strategy.

Employee voice is considered important in all companies, and examples of initiatives include monthly management meetings, quarterly town hall meetings, the employee satisfaction survey and suggestion schemes.

iii. The HR function The companies in our sample have adopted similar forms of administrative HR provision, such as shared services, HR intranets, self-service HR, and, to a lesser extent, outsourced HR, all enabled by significant advances in administrative processes and information-capture technology. These moves have been made in the interests of efficiency gains and also for the purpose of enabling a smaller core of HR staff to pursue more `strategic’ activity. For this strategic work, there are a number of examples of HR as internal consultants, aiming to add value through thought leadership, particularly around issues of change and also process expertise. The HR director tends to be a member of the executive committee of the organization, which is an important structural signifier for the value of HR. There is recognition in the organizations that `change readiness’ in employees is important for the revitalisation of the firm. Therefore the centrality of the HR function is crucial. Talent management as an overarching concern, ensuring the linkages between component parts of staffing, performance management and development are aligned, shows the importance of managing the system of practices. The understanding of labour force demographics and the implications for the talent pool is held to be crucial for long-term advantage by many of the companies. The HR strategy looking at both short-term and long-term trends is usually downstream from the business strategy, and one issue that consistently emerges is the lack of real depth in viewing the long-term, particularly in terms of labour market scanning.

The performance of the HR function is measured largely in terms of employee and customer satisfaction feedback metrics. Financial indicators such as return on 6 / 52 investment for HR activities are also systematically used across the companies, but are universally recognised as a limited measure of functional effectiveness. The background of the HR function is increasingly for HR managers to have had line experience.

iv. Knowledge management How knowledge created and diffused is a subject of high importance in the sample organizations. Surprisingly, there are few explicit attempts to develop knowledge strategies. Where there are systematic attempts to manage knowledge within the organization, it is based on electronic connectivity (intranets, knowledge-management systems) allied to a communities of practice approach with incentives geared to ensuring the sharing of information gathered from key clients. We saw few metrics in place to assess whether knowledge was being captured and transferred. In other formal structural terms, there are recognised meetings, for example, annual conferences of senior managers, and regular (quarterly in some cases) gatherings faceto-face of global HR personnel to facilitate knowledge sharing. Cross functional working and decision-making structures were common. People exchange within corporate HQ and businesses is also used, and so too benchmarking best practice, though this is so only in a few companies on a formal basis. The development of networks outside the organisation, through membership of industry clubs, consortia, interlocking directorships, and integration of suppliers and customers into the design and production processes adds depth to the knowledge-base.

The study methodology Case studies The research examined 19 companies in-depth, using interviews with multiple members at different levels to tap into the ways that employees understand their context and experience of HR and how they communicate that understanding among themselves and to others. Interviews took place at corporate level, regional level and country level. HR members were interviewed, and also a sample of senior managers and line managers. Approximately 15-20 interviews per case were conducted. The companies were selected on the basis of their international scope.

Survey

A second stage of research was a web-based survey. The total number of companies taking part in this phase was 20 multinationals, with 263 participants responding in total from three major geographic regions (Americas, Asia-Pacific, and EMEA – Europe, Middle-East and Africa). The survey contained items on six key HR practice areas (staffing, training and development, appraisal, rewards, employee relations and leadership and succession), the HR delivery mechanisms (including the use and effectiveness of outsourcing, shared services, web-based HR, off-shoring and onshoring), local leadership and knowledge management (for full details of the method and sample in the survey, see section II)

Convergence

7 / 52 A major challenge for this work on international HR is to identify possible `best practices' in light of certain organizational and societal contexts. We have been struck by the convergence of practice across different national contexts and across different industries / sectoral contexts. The similarity of approaches to the organization of HR and HR practices across our companies indicates the similarity of the challenges and demands on international business which prompt a similar response in HR design and delivery. Also, the presence of a small number of excellent companies has generated imitative behaviour, while the work of high profile consultancies has spread ideas and common approaches to such issues as performance management, HR function design and organization structure.

The core activities associated with high performance HR, for example, selective recruitment, developmental appraisal, pay for performance, strong emphasis on development, employee voice mechanisms, appeared throughout the sample.



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