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Table 9: Most important mechanisms for monitoring HR department performance * amongst those companies naming the practice as the most important (where data is missing, numbers are too small to give meaningful percentages).
Despite difficulties in this area of practice, some companies interviewed had come up with innovative solutions. For example, IBM uses an HR scorecard to track and measure initiatives in key areas of focus. To measure efforts in the area of workforce optimisation, it compares total labour costs to revenue. In the area of people development, it measures the number of people who have attended critical training and development programmes. The HR department also directly tracks its functional capability through HR hiring and attrition rates or attendance at HR training and development programs. In addition, IBM also conducts an HR Customer Satisfaction Survey twice a year to find out how well their customers believe they are doing in supporting them. Less quantitative measures such as the extent of HR’s involvement in key business decisions are also used to measure added value. Finally, external recognition (such as awards for best company in training and diversity) helps reinforce HR’s functional excellence.
At Infosys, success and performance is measured through process metrics that measure numbers and the quality of service levels through employee or customer satisfaction surveys. These regular appraisals of internal HR processes aim to identifying problem areas and encourage a more process-driven organisation. HR is also measured by looking at attrition rates, the growth of high performers over a period of time, and employee morale and job satisfaction in order to help the company diagnose specific problems and fix them.
In Siemens, an international benchmarking system has been established to make a qualitative assessment of what is best practice, rather than using arithmetic metrics such as ‘time to fill a vacant position’. The arithmetic metrics are considered less comparable as they do not express anything of the country context in which the department is operating. The qualitative assessment mechanism, designed in 41 / 52 conjunction with an external consultancy firm, includes 40 indicators in five areas of HRM. Its use is voluntary; some countries participate in all of the indicators, some only a few, and some none at all. The benchmarks are achieved by the consultancy asking departments themed questions, ranking the responses based on the consultancy’s own criteria for developing a sound approach to modern HR, and then publishing the best practices in an area. Departments are then encouraged to contact those departments ranked highest if they are not there themselves in order to learn from them.
HRM delivery mechanisms
Turning our attention to how HRM is delivered within organisations, the widespread impact of advanced information technology tools is most notable. Many companies, including Oracle, Rolls Royce, Siemens, ABB, IKEA, Infosys, Samsung, Matsushita, and Shell, described having fully accessible web-enabled databases with specific systems particularly for performance management, talent management and open job posting in place. Information technology was seen in particular as an important step in the internationalisation process: it facilitates the standardisation of practices and global policy design linked with a transnational internationalisation strategy (in evidence particularly in ABB, Shell, Siemens, and IBM).
One of the significant issues in deciding on a method of HR delivery is cost efficiency; companies are exploring how efficiency can be achieved particularly through the in-sourcing of transactional, administrative HR activities (primarily at country/regional level). BAE Systems, BT, Siemens, ABB, IKEA, TCL, IBM, and Unilever have all set up some form of shared service centre to handle administrative and sometimes also professional expertise services. These centres are largely intended as contact points for line management to avoid the replication of HR activities at multiple locations across the company. Some organisations, including Oracle, BAE Systems, and Unilever, have also introduced employee self-service systems to allow their employees direct access to programs for booking training, updating personal details, managing their reward package, etc. At Samsung, the emphasis has been on establishing a global HR data system to enable a true overview of employees worldwide.
The influx of shared service centres and e-HRM highlights the importance of the clarity of responsibilities for HRM divided between transformational, traditional and transactional HR roles. Companies such as BT, BAE Systems, and Unilever have focused on developing this clarity, and emphasise the importance of line management rather than the HR department for implementation. A key criteria for success here is ensuring feelings of ownership amongst line management. This point was highlighted internally in a number of interviews, particularly in Oracle and BAE Systems. Indeed, in ABB, Unilever, and IKEA the point was made even stronger: the key to HRM success is line management commitment to practices and ensuring managers are available and capable to carry out the required tasks.
P&G have gone one step further than setting up a shared service centre, and have actually outsourced the administrative tasks of the HR function. This was described as a difficult process and is not common in the market. The first stage was to ‘in-source’ administration services such as relocation, salary planning, travel expense accounting 42 / 52 and data management to a single site. This was then outsourced and is now run by IBM. This created more time for HR in the business units to focus on being a true business partner to line management, and thus making made the function more strategically important. Now there is a strong Business Accounts structure, with the business partner and employee champion role dominating HR activities. There are currently P&G international employee services shared services centres, serviced by IBM, in four countries around the world. The services operated include: payroll, benefits administration, compensation planning, expatriate services, travel and expense management, and HR data management. The aim of this outsourcing is to improve services and reduce costs through process transformation, technology integration and best practice sharing.
In contrast, in ABB in one country, the administration of one area of HRM administration, that of international assignments, was outsourced from 2001 to 2004.
The company’s experience was that the outsourcing process sharpened decisionmaking in the area due to the need to analyse the process closer. However, the administration has since been brought back in-house because of major reorganisations happening across the company and it was felt that the relevant know-how was required in-house.
In the following tables (see Table 10 and 11), we can see the extent to which companies are outsourcing or establishing shared service centres is very evenly split between those adopting or ending these activities over the last five years. Only webbased HRM is showing a real increase in its level of use. The effectiveness of all three mechanisms of HR delivery are seen by around a quarter of respondents as ineffective, around a third see them as somewhat effective, whilst close to four in ten respondents viewing these delivery mechanisms as very effective.
In summary, HR functional excellence combines individual level expertise with clear roles to carry out within a professional HR function which is closely linked to corporate goals and strategy. The mechanisms then chosen to deliver HRM across the company are often designed around cost-efficiency, but are also supportive of HRM strategy. The main challenge still facing MNCs and other organisations today, however, is how to monitor HR function excellence and to learn from this and improve performance for the future.
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8. KNOWLEDGE MANAGEMENTMost firms today associate information systems with knowledge management. If a firm has a good system and process for entering and retrieving information electronically, they argue, then it has a good knowledge management system. Though linked and certainly vital to effective knowledge management, information systems are nothing without appropriate incentive structures, people development programs, personal relationships, and shared vision or goals. Within the HR function, effective knowledge management of practices and systems is key to its value proposition of being able to deliver HR practices and systems that are globally integrated, locally sensitive, and comparatively innovative.
Traditionally, researchers and consultants have tried to warn organizations of the obstacles they face in their knowledge management efforts. But very few studies have looked at what organizations are actually doing to overcome these barriers in a way that allows for both global efficiency and local innovation.
Within our participating companies, we took an in-depth look at how knowledge is managed within the HR function. We examined practices and resources used to improve learning. Across the companies we found many commonalities in how knowledge is managed—from job rotations to complex IT systems. However, we also found some rather interesting practices that companies are using that present themselves as being quite unique to those companies in the study. We also found considerable divergence in how knowledge is managed across regions and countries even within the same company. We summarize our findings here to show which specific practices converged and which were recognized as being unique and innovative.
For simplicity in discussion, we have broken down the knowledge management
practices or systems into three theoretically related, but practically distinct categories:
human capital, social capital, and organizational capital. Human capital is the knowledge, skills, and abilities of the individuals within the HR subsidiary. Social capital is the relationships and interactions that exist between individuals or subsidiaries. Organizational capital is the information systems and processes in place to help the subsidiary capture and combine knowledge.
All three forms of intellectual capital help an organization to learn in different ways.
For example, human capital tends to foster more local experimentation and knowledge creation. Social capital is seen more as an impetus for transferring and sharing information across subsidiaries. And Organizational capital helps an organization integrate and implement practices from other parts of the firm.
Nonetheless, each form of intellectual capital may both help and hinder other forms of learning as well (See Table 12 for further detail).
Below, we first discuss the common practices used to invest in human capital, social capital, and organizational capital (See Table 13). We then discuss any unique practices identified from the companies in the study (See Table 14). Finally, we discuss how organizations are dealing with the increasing tension of being globally efficient locally responsive through their learning efforts.
44 / 52 Common human capital practices We found wide convergence in how firms develop their employees’ knowledge, skills, and abilities. For example, many of the companies have formal practices that focus on external education programs. For example, one particular organization developed a virtual university. Virtual University (VU) is an umbrella organisation that brings together education, development and knowledge from across the company.
It uses established partnerships with education, academia and the wider business community to ensure that the company is recognised as a leader in UK industry and a forward thinker when it comes to capability and individual development. The VU runs over 3,000 e-learning intranet based courses centred around leadership, professional competencies and personal effectiveness. Supply of the e-courses is either the company itself or third party providers including educational institutions.
All courses are subject to a yearly review and continuous improvement. All 100,000 employees, irrespective of role, business or geographical location, are encouraged to use the VU as a learning and information resource. The VU webpage is the most popular site on the company intranet, receiving on average 12,000 hits a day.
Such practices geared toward formalized training and partnering with educational institutions allow the HR staff to gain a greater understanding of theories and the profession of HR—expanding an individual’s ability to create practices new to the organization. The other potential outcome of these practices is to train the HR function to operate in a more evidence based manner, rather than relying on anecdotal evidence about how to manage people (something we strongly sensed was needed within HR). The downside of this practice is that it can be quite costly for companies and may result in little return in terms of developing innovate practices.
Training and development programs are also widely and traditionally used to build the skills and knowledge of the HR function. The danger here is that HR spends so much of its time developing training programs for other parts of the firm that they may take for granted that their own people are in constant need of training and development.
Some of the more recognized companies for their HR staff development showed that this can actually be a time consuming and costly endeavor but can also produce tremendous benefits in terms of building organizational leaders capable of not only running HR but other aspects of the organization.
Another fairly common practice was to appoint boundary spanners or key contacts who were responsible for delivering and gathering information from other HR units in the firm. Often the spanners go from subsidiary to HQ, but are more and more going to other peer HR units for knowledge. Sometimes these boundary spanners devote only part of their time to this work while others will devote full time. Not only are the boundary spanners helpful in going outside of their organization to local contacts for novel and localized knowledge to help create local HR practices, but they are also good at bringing in knowledge from other subsidiaries and helping their own subsidiary to apply it. For example, within one organization a person is appointed specifically to develop international networks within the HR community. The aim is to draw up a list of all the HR people, their contact details and what skills and experience they possess to help support business needs. However, such a practice can be costly for the HR function as such people are often taken from other task oriented work.
45 / 52 Finally, international assignment rotations is a common practice used to build the knowledge and experience of HR members. In such circumstances companies build generalist knowledge of not only HR issues but cultural issues and how they influence an HR practice in a different country. Rotations are effective at helping to give people the expertise to develop and implement HR practices, but they are also quite costly to firms.
Unique human capital practices
One practice that seemed to be quite unique from what other companies was doing is by creating expertise teams whose sole purpose is to develop new HR practices. As one might imagine, putting together such teams requires a major commitment from regional HR leaders and the organization as a whole. Such teams also run the risk of developing practices that are not applicable to certain regions or countries. But if local cautions are heeded, this practice has the potential to capitalize on expertise of individuals in the company to share knowledge and experiment with new HR practices to meet the needs of a dynamic employment environment.
These expertise teams are responsible for creating new knowledge in the areas of talent management, remuneration and learning for the business partners (rather than line managers or employees directly). There are four global Expertise Teams (previously called Centers of Excellence) including a total of 40 people: talent management; remuneration; organization development and learning; and HR systems.
While such teams can be found at the global level, this firm has found them to be most effective at the regional level.