David

Question 1

Strenghts and weaknesses of the IR perspective

Answer 1

Question 2

Strenghts and weaknesses of the HRM perspective

Answer 2

Question 3

Strenghts and weaknesses of the Economic perspective

Answer 3

Question 4

Broad definition of HRM and classic functions

Answer 4

Broad defenition

• “management of all employment relationships in the firm” (Boxall 1995)

Classic functions of HRM

• work organization, staffing, employee development, reward

Question 5

The goals of HRM (picture)

Answer 5

Question 6

Describe the 4 goals of HRM (Boxall)

Answer 6

It is clearly impossible to make all HR policies reflective of a chosen competitive strategy, some policies are just there to ensure compliance with labor laws etc. -> an example, how strategic tension can arise between different goals of HRM
the four goals are:

• Cost effectiveness: not just low wages!, real costs in relation to value and quality, high labor productivity
• Flexibility: responsiveness of work and the organization to changes in prices, markets, technologies etc., short-run (viability) vs. long-run (strategic), numerical (rapid layoffs or staffing) vs. functional (people can do other peoples’ tasks)
• Legitimacy: managerial authority must be accepted by employees, role of HR is meeting individual and societal goals and value systems -> fairness, diversity etc. companies cannot compete in the market if they have no legitimacy
• Autonomy: managers want to make their decisions autonomously and be able to allocate employees according to strategic objectives

Question 7

tensions between the 4 goals of HRM

Answer 7

• short-run productivity (cost-effectiveness) and long-run flexibility/adaptability
• corporate survival and employee security
• employer control and employee motivation
• the need to secure social legitimacy and desire to enhance managerial autonomy
• managerial autonomy is needed to build productive and flexible enterprises
• excessive autonomy comes at expense of worker rights
• intra-goal tensions! E.g. numerical vs functional flexibility

Question 8

Short description of Economic perspective

Answer 8

• applies notions from economics (incentives, opportunity costs, diminishing returns) to HRM (recruitment, selection, pay, training, lay-offs, job ladders, teamwork, outsourcing…)
• HR practices should be optimally efficient
• Economic fit to market conditions
• Explains market efficiency on the basis of incentives

Question 9

Core theories of the Economic perspective

Answer 9

• Transaction cost
  
  • a cost incurred in making economic exchanges in the market
  • search costs, negotiation costs, monitoring costs, enforcement costs
  • eg. investments in skills raise long-term productivity and earnings
  • the value of some skills might be firm specific
• Asymmetric information/incomplete contracts (principal ó agent)
  
  • interest of employer and employee might diverge => how can the employee be monitored, what type of contracts make sure employees are fully rewarded for good performance? How can incentives be designed by the employer to motivate the employee?
• ILMs (vs. ELM)
  
  • allocation and reward from work is regulated internally and thereby decoupled from the external market
  • Long-term employment (implicit job guarantee)
  • repeated interaction reduces opportunism and both parties have the potential for retaliation (cf. game theory)
• Incentives and reward systems
  • output-based pay systems have various problems: where performance is difficult to specify, the appraisal process is subject to subjectivity, bias and favoritism emphasis on easily quantifiable outputs may decrease quality (nurses -> # of patients treated?); emphasis on material incentives may conflict with work ethos, team spirit etc.
    therefor: Reward in ILMs linked to skills, experience and seniority, deferred compensation to reward loyalty (pay employees for sticking around, doing good today to advance later), gains possible from long-term cooperation and firm-specific investment due to insurance-like commitment
• efficiency wages (Akerlof) explain why firms pay above the market clearing price: higher motivation, induces extra effort

Question 10

Short description of HRM perspective

Answer 10

• HR practices determined by managers (focus on internal practices)
• management seeks “strategic fit” with organizational goals
• humans are “resources” that must be managed in order to contribute to these organizational goals
• explains organizational performance on the basis of strategy
• US tradition?

Question 11

Core theories of the HRM perspective

Answer 11

• motivational focus (vs. incentives -> Economic perspective): rather psychological contract between firm and employees (Guest), complex mix of economic and social goals
• Big 3 theories
  
  • contingency perspective: HRM – Strategy/HRM- Environment fit (Schuler & Jackson 1987)
  • vertical fit: alignment of HR practices with strategic goals of the organization
  • horizontal fit: alignment of HR practices w/ each other, bundles of HRM elements, notion of complementaries
• RBV: competitive advantage through non-imitable resources related to HR -> especially related to skills!
• AMO model: Ability, Motivation, Opportunity to participate lead to better HR outcomes and thus higher performance
• Lepak/Snell paper: align HR architecture according to uniqueness and value of human capital

Question 12

How strategy predicts HRM strategy

Answer 12

• cost leadership: low technology, labor intense -> cost pressure on unionized wages, government regulation sets lower bound (minimum wages) -> outsourcing and offshoring to low wage sites, low investment in skills or long-term career paths
• quality leadership: high technology -> high wages if organized by unions, but need to achieve flexibility, low salience of state regulation since wages above market -> investment in skills, employee development and high wages

Question 13

Short description of IR perspective

Answer 13

• Pluralist view, HR practices influenced by a plurality of actors, (managers, state, unions, employees…), looks at their constellation and power
• IR integrates market (economics) and firm (HRM) perspectives
• Explains conflict on the basis of power
• Importance of history and institutional change
• European tradition?
• fundamental theorem of IR:

“highest economic performance and human welfare are reached with a mix of markets and hierarchical organizations; a balance of competition and cooperation; and a juxtaposition of individual initiative and profit-making on the one hand and a social responsibility and government regulation on the other”

Question 14

Core theories of the IR perspective

Answer 14

• Institutional theory (formal “rules of the game” that provide economic agents with incentives and constraints and thereby induce stable patterns of behavior)
  
  • they arise from political, legal, social environments
  • they create isomorphism whereby organizations adopt similar structures and routines in order to seek legitimacy in this environment
  • but also explains why business organizations have diverse responses to similar economic or technological pressures
• Power (labor power, bargaining power)
• Interest
  
  • Employees: employment (stability), income, qualification, job quality, health and safety
  • Employers: profits, control over property, unregulated use of labor markets
• Authority & Legitimacy
  
  • effective authority requires legitimacy to promote the goodwill of the employees to follow the spirit rather than the letters of rules
• Conflict (latent, manifest, functional)
  
  • may emerge due to the discrepancy between organizational goals and demands, and those of individuals
• Coalitions
  
  • conflict is channeled over time into stable patterns
  • coalitions organize interests into blocks of collective actors to gain power and influence

Question 15

HPWS from IR perspective

Answer 15

• some innovations have negative effects on employees, e.g. increased stress, competition
• misses conflicts: workplace change may lead to conflict, and “success” of these practices initially may be met with less trust later
• is efficiency enough? quality of work, legitimacy, values of democracy etc.
• HPWS are not always in the interest of employers, low uptake of these practices, many focus only on costs
• Unions: superfluous? May create more negotiation but raise legitimacy implementation (critique sometimes: management uses HPWS to take the wind out of union’s sails)
• State: unimportant? Law is an important context for diffusion and implementation
• International HRM: uneven diffusion across countries

Question 16

HPWS from HRM perspective

Answer 16

• usually includes some combination of (in a bundle to achieve greater performance)
  
  • on-the-job work reforms: autonomous work groups, ideally with responsibility for an identifiable product or service, multiskilling and job rotation
  • off-the-job reforms: information sharing (town hall meetings), problem-solving meetings (quality circles), suggestion systems, employee representation
  • supportive organizational and employment practices: careful selection and training, performance-based-pay systems, job security and “flat” organizational design

Question 17

Role of Institutions

Answer 17

• they affect legitimacy and flexibility goals of HRM
• influence how firms coordinate transactions and thus their capacity to develop difficult-to-imitate solutions to management problems
  
  • asymmetric information (solved by employee participation -> Betriebsrat)
  • adverse selection (solved by skill certification -> Master degree, Facharbeiterbrief)
• Institutions shape the supply-side of collectively available inputs into business:
  
  • skills (schools, degrees, certificates…)
  • trust (well functioning legal institutions, police, no corruption…)
• Institutions constrain and enable:
  
  • constraining: strong unions may constrain wage competition and prevent low wage strategies; hard-to-fire laws drive up HR costs and make firms less flexible…
  • enabling: work councils may facilitate cooperation that supports product quality, high-trust economies provide businesses with better predictability and encourage investments…
  • “beneficial constraints”: institutions can keep managers from pursuing short-term strategies that would hurt them in the long run (problem that employers don’t adopt practices who’s return is long-term/uncertain) -> constraints on rational pursuit of self-interest may actually benefit the self-interest of the firms!

Question 18

Different forms of capitalism

Answer 18

• Liberal Market Economies (LMEs)
  
  • arm’s-lengths transactions (hard negotiations, short term contracts that get reevaluated frequently, pursue of “complete” contracts)
  • transferable assets: value of assets can be switched between firms, “keeping options open”, no specialized training but more generalized studies at university
  • market coordination: short-term oriented company finance, deregulated labor markets, general education, strong inter-company competition
  • Examples: USA, UK, Canada, Australia, NZ
• Coordinated Market Economies (CMEs)
  
  • strategic / relational coordination (longer term cooperation, high level of trust)
  • high level of relationship-specific investment: investment in assets whose value is dependent upon the relationship to a specific firm; investment in firm-specific worker knowledge
  • Strategic coordination: long-term industrial finance, cooperative industrial relations, high level of vocational training, cooperation in technology and standard setting across companies (also called obligational contracting -> Frenkel)
  • Examples: Germany, Japan, Sweden

Question 19

Comparative institutional advantage

Answer 19

• different institutional endowments support different types of economic activity
• institutions differ across national contexts
• as nations compete through exports, countries will tend to be successful in different types of industries or market niches
  
  • for different economic sectors: manufacturing vs. service, old vs. new economy, electronics vs. pharmaceuticals
  • for different corporate strategies within a sector: diversified quality production vs. Fordism, quality vs. price competition
  • for different patterns of innovation: LMEs (radical innovation by flexibility of investment, support of risk taking), CMEs (incremental innovation by supporting firm-specific investment, cooperative relationships)
• Examples:
  
  • USA (LME) -> very successful in IT, biotechnology, military production, investment banking, but fell behind in core manufacturing areas such as automobiles, machine tools, electronics
  • Germany (CME) -> very successful in export of high-tech manufacturing, e.g. automobiles, machine tools, chemical industry, but high cost of labor in export-oriented sectors is burden in developing more lower wage service employment

Question 20

Comparative HRM

Answer 20

• idea: istitutions structure HR practices (mostly on a national basis)
• implication: as institutions vary across countries, so will HR practices
• Gooderham: institutional and rational determinants of organizational practices:
  
  • universalist perspective: “best practice”, corporate HR dominates national differences (global integration!), large role of managerial autonomy in deciding HR practices
  • contextualist perspective: “no one best way”, national context constrains corporate HR, more limited role of managerial autonomy due to state regulation and industrial relations

Question 21

Employment relations in GERMANY

Answer 21

• Coordinated Market Economy -> very successful in export of high-tech manufacturing, e.g. automobiles, machine tools, chemical industry, but high cost of labor in export-oriented sectors is burden in developing more lower wage service employment
• role of HRM: strong focus on compliance with the rules and regulations set by the institutions
• career patterns and labor market: internal (keep highly qualified workers!), long tenures, some downsizing
• skills: occupational based apprenticeship, more specialized training, strongly formalized training, many-faced and highly-qualified training opportunities
• pay: low inequality, “equal pay for equal work”, industry-wide collective bargaining
• authority: weak monitoring, high trust, stronger commitment toward company, less self-maximization
• top managers: some bonuses, stock options, moderate salaries, moderate social distance
• IR: sectoral collective bargaining and codetermination, strong employment protection law, strong participation rights due to strong unions, Betriebsrat, seat on the board
• Trend: more performance-based pay (especially in industries with weak employee representation where shareholders have a growing bargaining power), intensifying recruitment & selection processes, growing pressure from competition with countries like China -> focus on high-quality products, fleeing into high-tech, moving up the value chain

Question 22

Employment relations in the USA

Answer 22

• Liberal Market Econom -> very successful in IT, biotechnology, military production, investment banking, but fell behind in core manufacturing areas such as automobiles, machine tools, electronics
• role of HRM: specialized department, strict monitoring resposibility / focus on performance measurement, stark differences between industries and companies due to little regulation
• career patterns and labor market: external, short tenures / short term contracts / frequent switches between workplaces, weak employment laws (easy to hire and fire people, only little ratification of ILO conventions), high downsizing, firms have to “buy” the best people on the market, need for better testing prior to hiring
• skills: more general education & individual skill acquisition
• pay: high inequalities, variable pay, individual negotiation
• authority: short-term contracts may lead to arbitrary behavior and self-maximization which requires stricter monitoring and performance measurement, weak ties with company, low trust
• top managers: stock options, high salaries, high social distance
• IR: few and weak unions, few participation rights -> no “Betriebsrat” e.g.
• Trend: rising absence, recruiting from the external market, growing pressure from competition with countries like China -> implementing cost-cuts and focus on short-term employment

Question 23

Phases of Internationalization and International HRM

Answer 23

1. firm focuses on home market and exporting: short visits by home country managers to foreign sales offices, short foreign assignment
2. firm focuses on local responsiveness and transfer of learning: home country managers are assigned to posts in foreign markets to provide general management, technical expertise and financial control, host country managers are assigned to sales, marketing and personnel posts
3. firm focuses on global strategy: best managers are recruited regardless of country of origin, HRM focuses on developing shared corporate values and norms
4. firm focuses on balancing local responsiveness and global integration

Question 24

Local responsiveness vs. global integration

Answer 24

• especially MNEs face the challenge to design HR systems that retain sufficient unity and cohere to operate as a common enterprise and simultaneously allow sufficient latitude and flexibility to adapt to greatly varying circumstances
• => competing pressures for global integration and local responsiveness

Question 25

Three reasons for practice transfer

Answer 25

• market explanation: transferring practices creates efficiencies, saves costs; if MNCs derive a competitive advantage from their HR practices in their home country, they can achieve this same advantage in subsidiaries by transferring those practices
• cultural explanation: HR practices are a manifestation of the company culture and MNCs want to diffuse their culture to all subsidiaries (cultural integration); belief in superiority of HQ practices (‘best practice’)
• political explanation: organizational actors have vested interest in transferring practices: HQ managers want to raise their status and legitimacy by controlling the transfer of practices (concern with control); managers in subsidiaries want to be seen as ‘good corporate citizens’ by transferring practices

Question 26

Why practice transfer might not work

Answer 26

• Institutional distance (relative distance between home and host country institutional settings) à the grater the distance, the more difficult the practice transfer
• misfit
• ‘ceremonial adoption’ à practices are adopted but changed when implemented in subsidiaries
• opposition by organizational actors (politics, not-invented-here syndrome, power struggles within the organization)

Question 27

The four influences framework (of practice transfer)

Answer 27

• Country of origin effect
  
  • concentration of assets, sales and employment in home country
  • embeddedness in home country: most senior management positions are held by home country nationals; their managerial traditions shape the nature of key decisions in the MNC; key activities are carried out at HQ, e.g. corporate strategy, R&D
  • institutional configuration of home country shapes an MNC’s approach to managing its workforce, e.g. shareholder orientation in USA, stakeholder orientation in Germany
• Dominance effects
  
  • MNCs are interested in emulation work and employment practices used by firms from countries with strong economic performance (Japan -> lean production became popular elsewhere, Taylorism/Fordism was transferred to Europe)
  • Consequently, HR practices used in an MNC can stem from places other than home or host country
• International integration
  
  • MNCs build linkages between their international operations
  • The nature of the relationship between HQ and subsidiaries as well as among subsidiaries differs depending on how production is organized: global concentrated production, host-market production, product specialization, transnational vertical integration
  • whether HR practices are transferred depends on the nature of these relationships
• Host country effects
  
  • Institutional and cultural factors, including:
    
    • labor market regulations
    • production systems and work organization
    • education
    • living standards…

Question 28

Global supply chains

Answer 28

• „Employment relations are embedded in interrelated international, national, local and industrial contest“
• removal of trade barriers + changing IT = global integration
• buyer-driven value chains: lead MNE w/ brand name that has contractors in developing countries who themselves have sub-contractors – common in “light” industries such as fashion, toys or electronics with low barriers of entry.
  => large MNEs with global brands exercise their buying power to organize highly efficient supply chains without owning them!
• producer-driven value chains: usually in capital-intensive industries e.g. automobile manufacturers, where powerful manufacturers lead networks of several tiers of suppliers.
  => MNEs set up own production facilities and subsidiaries in developing countries (FDI)

Question 29

Labor issues in global supply chains

Answer 29

• pressure on working conditions: massive inequalities in wages and working conditions across countries (developed vs. developing); relocation of labor-intensive manufacturing to low-wage countries
• institutional weakness: “competition” between countries to attract FDI -> race to the bottom of lax labor laws
• demands for accountability: institutional theory suggests need for legitimacy

Question 30

Regulating businesses across countries: hard-law vs. soft-law

Answer 30

• Hard law:
  
  • state regulation based in law
  • enforced by administrative agencies or private actors
  • rules aimed at public interest concerns
• Soft law
  
  • voluntary self-regulation
  • enforced by private actors without market mechanisms
  • aimed at positive overall private and social good

Question 31

Pro and Contra for Hard Law

Answer 31

Pro:

• Sanctions possible
• higher pressure to implement certain practices
• binding for all actors (fair)

Contra:

• standard not fitting for everyone, only minimum requirements
• solely dictated by the state, businesses just react
• avoidance tactics by moving business to a different country
• only ex-post sanctions, no proactiveness

Question 32

Pro and Contra for Soft Law

Answer 32

Pro:

• flexibility for businesses
• incentives to go beyond minimum standards
• if rules are too complex, there are problems monitoring compliance
• make global standards possible where cooperation between states would be impossible/unthinkable
• increase stakeholder expectations of standards, make NGO’s requirements visible
• *Contra:**
• pick-and-choose agenda

Question 33

Short description of Rewards and Remuneration

Answer 33

• reward is a bundle of returns offered in exchange for a cluster of employee contributions
• touches on a wide range of HR related topics, such as commitment/retention, status/hierarchy, strategy/performance measures, equity, legitimacy, and motivation/incentives
• extrinsic (compensation) & intrinsic (motivation)
• can include a fixed and a variable part (base-pay + pay-for-performance, bonus)
• Three basic pay criteria:
  
  • value of the job to the company and on the labor market
  • skills, tenure, qualification etc.
  • individual and group performance
• Pay has to take into account
  
  • internal & external equity, business strategy
• Problem: pay is a hygine factor (prevent dissatisfaction), only intrinsic factors motivate
• Chance: equity -> pay is better comparable than “soft” rewards like compliments

Question 34

Pay for Performance

Answer 34

• Reasons:
  
  • differentiate firm from competitors
  • more control over variable pay part
  • more leverage on a person
• Two effects:
  
  • incentive effects (motivation altered from intrinsic to extrinsic)
  • sorting effects (pfp attracts high-achievers over risk-averse people)
• Two ways to measure performance:
  
  • behavior based (subjective): e.g. merit pay; allow inclusion of intangible things linke team spirit, cultural fit, but leave room for bias and likability/sucking-up
  • result/performance based (objective): sets clear incentives, more transparent & legitimate, good control of individual behavior, help focus a group on organizational goals, but threat on quality if employees only focus on what gives an imidiate return, elbow mentality, room for arbitrary behavior (group: trittbrettfahrer)
• empirical findings:
  
  • unclear: a number of studies shows ineffectiveness of increasing extrinsic incentives, but there is some evidence that PFP dramatically increases effectiveness, but can also harm it
  • performance/success of PFP systems is highly situational!

Question 35

Short description of non-standard work

Answer 35

• every employment relationship that lacks aspects of standard employment (adequately compensated full-time jobs, full social-security coverage, no contractual time-limitation and unity of work and appointment, employee development options).
• Typical examples of non-standard work:
  
  • part-time employment (reduced hours),
  • marginal work,
  • fixed-term employment
  • temporary agency work (three-sided relationship among the temporary worker, the agency and the borrowing company -> no unity of work and appointment!).
• despite the negative connotation of non-standard work, some people do voluntarily chose it e.g.
  
  • women who have family responsibilities but want to work a little on the side
  • people in education who need a small extra income
  • elderly people who have reached retirement age and still would like to work part-time…
• non-standard work is nonetheless most popular among low-skilled jobs, especially in production and service jobs (Germany), in the US also popular in high-skilled jobs (IT, engineers)
• Disadvantages:
  
  • lower wages and poorer working conditions,
  • rising occupational differences, social inequality and labor market segmentation,
  • high transaction costs for employers
• Advantages:
  
  • working for a temp-agency still makes full-time work possible, even though people hop from client to client,
  • high-skilled workers may chose non-standard work for personal flexibility reasons and enjoy greater benefits from it, while firms would like to bind them for the longer term -> greater bargaining power, digital bohéme,
  • no (little) monitoring costs
  • wages determined by competition and market clearing price (efficient)
  • moderate stepping stone effect for some employees (into standard work)

Question 36

Temporary agency work

Answer 36

• triangular relationship between the employee, his/her temp-agency and the client organization where the worker is sent
• either a form of subcontracting (if the client organization lacks directive control) or a type of coemployment (if the client organization does have directive control, which is mostly the case, cf. Cappelli/Keller 2013).
• in Germany is concentrated in manufacturing, some in services and predominantly performed by poorly skilled workers (vs. highly-skilled workers in the US, e.g. in IT).
• In Germany, 1.3% of the labor force is employed in temp-agency work, with the UK having the highest share in Europe at 4.5%.
• Relatively big pay differences exist (not so much in the US, where they depend on individual qualification and type of assignment).
• Effects of non-standard work on a firm’s overall performance:
  
  • higher proportions of non-standard workers were associated with less-favorable attitudes towards supervisors and peers, higher turnover intentions and decreased helping behaviors.
  • Especially true for temporary workers (vs. part-time workers)
  • moderated by the amount of contact between standard and non-standard workers and the hierarchy level (low -> worse!).

Question 37

Pay for Perfromance and the four HRM goals

Answer 37

• Cost-effectiveness: can be good in designing incentives and reducing monitoring costs, but have to include risk premium, lead to higher compensation
• Flexibility: variable pay is by nature more flexible, automatically adjusts pay in situation of strobg/weak business performance
• Legitimacy: subjective measures->difficult (bias, likability); objective -> more legitimate, but unintended negative consequences (only “billable” actions), huge bonuses are a threat on legitimacy
• Autonomy: fewer restrictions on variable part of pay, but cap on relation between lowest and highest pay (cf. France) limits autonomy, sorting effect also limits autonomy (unintendedly)

Question 38

Temp agency work and the four HRM goals

Answer 38

• cost-effectiveness: significant cost advantages (search costs, hiring costs, payments to social security system, taxes), pay gaps (despite push for equal pay for equal work)
• flexibility: more numerical flexibility (easy hire and fire, firms in GER use it to circumvent strinct layoff laws), less functional flexibility (in GER, no investment in skills and employee development), more functional flexibility & recruitment tool in US
• Legitimacy: threat! less favorable attitude towards supervisors and co-workers, “amazon affairs” in Germany show that legitimacy is at risk for firms that rely heavily on temp agency work, but moderate stepping stone effect
• Autonomy: in Germany firms use temp agency work to circumvent strict labor laws and increase autonomy