Factors to consider in establishing an ethical and cohesive strategy for a worldwide workforce
Much of the political opposition to globalisation is based on what is perceived to be the exploitation of the weak by the strong. The image of the voracious multinational company decimating all before it in the merciless drive for profit is so ingrained in the public consciousness, that to be labelled thus can have a devastating effect on an individual company’s reputation throughout its markets.
Dr Kathy Monks, senior lecturer in HR management at Dublin Business School and author of research paper Global or Local: Managing HR in the Multinational Company, points to the example of Nestlé, whose profile suffered badly in the West following its aggressive marketing of powdered baby milk in the Third World.
The best means of countering such damaging slurs is to establish your credentials as an ethical organisation, dedicated to nurturing the well-being and prosperity of individual employees and their home regions. It is a philosophy which Canon president Mitsrai calls "kyosei" – living together. "When we work in different parts of the world, we want to be welcomed and respected. We have to live for the common good". Such is the perceived power of this message that many multinationals, including Shell and BP, push it as part of their global brand.
But there is evidence that companies are not as good at this as they might hope. Going global is an intricate process laced with nuance. As a BA spokeswoman admitted prior to the company’s relaunch as a global operator, "The further away from our Western culture we go, the less satisfied our customers are. I would hesitate to call it racism, but people from other cultures have felt looked down upon. Customers from Singapore said that our alliance with Qantas Australia looked like the whites of the world uniting."
Actively investing in the local community is one way of redressing this. Firms like Ford might well be accused of PR stunts when they build schools and clinics, but these are nonetheless a boon to those who use them and have the added benefit of stressing the message: we are here to stay. "You’re either part of the infrastructure of a country, or you’re not," says Kevin Delany, partner in global HR solutions at PricewaterhouseCoopers. "Big organisations ought to be, it’s part of their global responsibility." He notes the opprobrium that was heaped on those Western firms which quit Kuwait at the outbreak of the Gulf War only to return once the situation had settled. "They were accused of cherry-picking for wealth."
But such apparent altruism can still cause damage to reputation if it is tinged with any hint of paternalism or imperialism. The process of going global has to be inclusive – those on the ground in new territories have to believe they have every chance of eventually progressing to senior positions in the company. Globalisation has to be seen as an exercise in corporate democracy. "I hope that one day one of them will have my job," says Ford India’s (Australian) managing director of pupils at the local Ford school.
All this is fine, so long as the venture is successful. But the damage in the UK sustained by BMW, say, in the aftermath of the messy sale of Rover speaks for itself. Moreover, companies can find themselves criticised when they apply the "when in Rome" ethos to controversial topics like pay. A company like Nike might protest that it pays workers in developing countries better than the local market rate, but that hasn’t stopped it from being publicly criticised as exploitative. Indeed, paying over and above the local rate doesn’t answer the wider moral problem of whether it is ethical for western organisations to pay third world wages, while western financial institutions are continuing to demand first world interest payments on outstanding national debts.
Companies are increasingly defining both their reputations and their ultimate market success in terms of their in-house cultures. But many find that in this sphere the global/local paradox is difficult to resolve. How do you get everyone singing from the same hymn-sheet while respecting the fact that different local cultures will want to sing in different keys and different languages – and possibly choose to pipe a different tune altogether?
Go too far in one direction and you risk imposing an alien culture on an understandably resentful workforce. But to take the opposite direction may mean diluting the essential character of an organisation that forms an important part of its overall brand. As Delany at PWC points out, when it comes to determining identity, even the largest global organisations are still reliant on their roots. "The idea that even global companies see themselves in terms of their country of origin is often too broad a stroke," he says. Asked the origination of their company, his clients are more likely to reply, "We’re a Mid-Western organisation," or "We’re from Hamburg".
The solution many multinationals have arrived at is to construct a broad framework enshrining corporate belief systems and practices at an international level, while allowing local offices the autonomy to interpret these as they see fit. One way of doing this, says Delany, is to educate the top cadre of, say, 200-300 managers across the world in corporate culture and methodology and hope for a trickle-down effect. Kathy Monks agrees: "Companies can use management development as glue." The practice has the added bonus of creating a new kind of "internationalised" manager, capable of being interchanged with relative ease to other parts of the organisation.
While this is a model most new-breed multinationals have adopted, all interpret it differently and some are prepared to grant more autonomy to local regional offices or subsidiaries than others. At Asea Brown Boveri, for example, corporate mission statements are rewritten for each country. In some national markets, explains ABB, it is not considered ethical to talk of making profits. At the opposite extreme lies a company like Hewlett-Packard, whose famous "HP way" of doing things is so strong a global culture that HPers claim they can sniff each other out in a room of strangers.
Many companies have discovered that the use of global IT systems also hastens the speed with which uniformity of practice, if not actual cultures, can be achieved. "Technology has helped enormously," says Oracle EMEA HR director, Vance Kearney. "When you move to a worldwide system, it forces you to examine your business processes."
Getting the right reporting structure in place can also have a powerful impact on the homogeneity, or otherwise, of global organisations. Unsurprisingly, this is a complex process that needs seemingly continuous fine-tuning. With their dotted lines and diagonal arrows, international reporting structures typically take on the nightmarish quality of a self-assembly furniture instruction sheet.
"We’re pretty firm when it comes to reporting," says Russell Martin, the outgoing global HR director of data services provider Primark. "HR people report to the HR function directly at the centre – but with a strong dotted line into their country managers." But this raises all sorts of questions about split loyalties. "The skill is in recruiting people who can form that kind of bond of trust."
Frustratingly, the most rationally laid structures can prove disastrous if they are applied without taking into account much muddier political or social issues. It might, for example, make logistical sense for the country head of one subsidiary to report into a global group’s regional headquarters. But if this office is located in a country traditionally at odds with the first, there might be trouble ahead.
The essential culture of any company is always intangible – and is therefore best fostered informally. But that can be a difficult nut to crack. As GE’s ebullient CEO Jack Welch remarks, "Getting a company to be informal is a huge deal and no one ever talks about it." Some have tried to. At PWC, for example, staff are encouraged not just to welcome colleagues from abroad with cups of coffee, but to pick their brains.
Undoubtedly the best means of furthering a common culture is to gather together as many disparate groupings of employees as often as possible. These meetings usually have a formal remit: to hammer out group strategies, or discuss market-related topics. But their importance lies outside the seminar room. "The real value lies in the interaction of people who don’t usually interact," says Sorrell at WPP. "Over time it creates a critical mass of connections between people, and that builds our internal network."
The introduction last month of a formalised Human Rights Bill, modelled on that already in force in the EU, shows that the trend towards international law at the expense of individual national systems continues apace. Or does it?
In fact, the situation on the ground for most multinational organisations remains as complicated and disparate as ever. "It is impossible to avoid local employment practice," says Delany at PWC. In this area, just as much as culturally, the importance of having local HR expertise in place to navigate the idiosyncratic byways of national bureaucracies and fit these as well as possible into the overall corporate framework is critical.
Moreover, as Delany points out, attitudes towards how law is practised and implemented can vary substantially from territory to territory – and companies will have to employ a degree of pragmatism in tackling these issues particularly when it comes to mergers and acquisitions. A European operation expanding into the US, for example, might find itself initially stymied by the influence lawyers exert over even the most seemingly insignificant transaction. In other countries the enforcement of the precise letter of the law is inexact, to say the least.
In an effort to impose some sort of rationalisation on the process some group HR functions have taken steps to group like with like. Russell Martin at Primark describes three such groupings of countries: red, amber and green. The latter grouping consists typically of Far Eastern countries where legal systems are "relatively flexible in terms of how you can influence employee contracts. The UK and the US are amber. But most of continental Europe is red – because of the restrictive statutory situation, the presence of workers’ councils and so on. If someone says they want to change the pension scheme in France or Germany, we’re on red alert."
Acquisitions and Mergers
Assessing the failure rate of foreign mergers and acquisitions and joint ventures is a favourite activity of global expansion consultants at present, mainly because the results make for such satisfactorily dire reading. The rate of foreign expansion is more than doubling year on year, but most firms are still not exacting anything like the benefit they expect to receive for these investments.
According to a recent study, quoted by Christopher Crosby at consultants TMA, some 63 per cent of all international joint ventures fail, and an even heftier 83 per cent do not deliver share-holder value. This survey also claims that 90 per cent of failures are attributable to "major unforeseen difficulties due to cultural difficulties". Granted this is a catch-all equivalent to "spending more time with the family". in political circles, but it clearly raises questions about the role of the HR function at the outset of negotiations.
"A critical issue for HR is how much involved it gets with the strategic issue of whether to acquire a company in a region," says Monks. "If a decision is made to acquire, to what extent has there been HR involvement in the decision? What are the implications as regards infrastructures, language issues, and the availability of a skilled labour force?" She claims that too many deals are signed before these considerations have been properly weighed. And a recent CIPD survey, conducted in conjunction with consultancies Bacon & Woodrow and PWC backs this up. One in three of those surveyed considered that advisers to the bidders had a limited understanding of the HR issues, or none at all.
More seasoned practitioners do not make these mistakes. At General Electric, for example, questions of how a new workforce will be integrated within the organisation are raised at the outset of negotiations – the company’s investigations include possible HR and general management implications as well as the obvious financial and legal.
Global management consulting organisations like PWC, Deloitte &Touche and TMA can make this process easier by providing clients with tools and metrics to analyse these "soft" issues. TMA’s World Prism system provides some 20 different metrics on which national and corporate cultures can be assessed. For example, it might help determine whether a target company’s culture is individualistic or collectivist, and then assess the implications this might have on the way employees on the ground expect to be managed.
Most global HR directors concede that internal communication issues represent one of the toughest challenges of their remit. "We wrestle with it every day," says Sorrell at WPP. "How do we get the 33,000 people in our wholly-owned and affiliated companies to face in the same direction. How do we create a ‘network economy’ inside WPP – a social system in which people know, like and respect one another and are willing to share ideas quickly and openly."
Undoubtedly the arrival of the internet, intranet and video-conferencing has facilitated this process considerably – and some companies are prepared to invest heavily in ensuring these technologies are used to their best advantage. Earlier this month the US-based Delta Air Lines began offering its European staff virtually free PCs for use at home in a bid to aid HR communication. "They will look at the intranet when it is convenient rather than when they are busy at work," claimed HR director for Europe, Laura Butcher.
These new technologies have also changed the way that often far-flung employees further down an organisation communicate with each other. The rise in importance of virtual teams working across international barriers bears this out. Links are now routinely made between departments across the world that might otherwise know little of each other’s operations.
To this extent, globalisation is democratising itself – communicating with others internationally is no longer just the province of a class of corporate oligarchs.
Technology can also play a part in reducing language barriers. Although most western multinational organisations insist that English is the preferred management language – Oracle employs resident English teachers at some of its subsidiaries – they are nonetheless building multilingual global HR systems, allowing staff access to self-service HR applications in their own language. Similarly, the Web has also had a significant impact on the type of learning and training that organisations can offer.
But the actual worth of all these tools is questionable unless there is a demonstrable commitment to company-wide communication from senior management. Even something as apparently prosaic as a regular message from the CEO can make a big difference. Sorrell at WPP makes a point of communicating his take on the company’s progress on a monthly basis. Welch at GE, meanwhile, is a solid believer in the importance of getting staff to speak openly about concerns without fear of repercussions. Thus the group has pioneered what it calls staff "work outs" in many of its international offices. These are meetings than can be called by anyone to address a problem with no boss in the room.
In terms of the central tenets, the process of motivating an international workforce is no different from inspiring a domestic one. All staff need a product they are proud to sell, a sense of belonging to the organisation, and the belief they are being properly remunerated and supported in exchange for their commitment. These are universal concerns.
The problem facing any global HR function, however, is how to ensure that these goals are actually being met, and in this respect the international reporting structure of an organisation is clearly critical. Broadly speaking, the new thinking is that companies should aim to decentralise authority, but align functional disciplines – while simultaneously creating a centralised hub of corporate knowledge. It’s clearly a difficult equation to get right and – as we have seen – frequently results in tangled and often ambiguous reporting arrangements.
There is a growing realisation, however, that the right type of international manager can do a great deal to cut through this potential confusion. Delany at PWC describes the emergence of a new, very hands-on breed, internationalist in outlook. The primary personal quality of such a manager, he adds, is sensitivity: the ability to recognise when something seemingly insignificant could have major ramifications in terms of a group’s sense of well-being. Primark’s global HR director Russell Martin is a case in point. As well as grasping the big picture, he claims, the importance of zooming in on particular circumstances can’t be exaggerated.
"We recently acquired a company in the Philippines and learnt not only that it is customary to provide staff with bags of rice once a month, but that if there’s a death in the immediate family, it’s up to us to pay and deal with the funeral."
But motivation is also about incentives, and co-ordinating an equitable system across widely varying territories is a political hot potato for most companies. Many have attempted to tackle this by defining a tiered system. At Primark, for example, policy is divided into three categories. First, those employment principles "which are absolutely uniform, whether in Washington or Bangalore". These typically include appraisal mechanisms, competencies and critical success factors. Second, issues which need a consistent approach, but which might be tweaked according to local market conditions. Pay levels, employee benefits and educational strategies all fall into this grouping. Finally, there are issues left entirely to individual country managers: holiday entitlements, office smoking and dress policies, and so on.
"It is the local labour markets that determine what you do," adds Kearney at Oracle. "We tell staff: ‘if you want the boomerang allowance, live in Australia’." But on the issue of pay, there is evidence that a fresh outlook might soon be demanded. "The issue of pay comes down to equity," says Monks. "It’s a question of how you perceive you’re being paid compared to those around you. It’s more an issue for senior management, lower down its down to local conditions."
But the rise of virtual team working in companies means "those around you" may no longer apply in its strict meaning. The inequity of a programmer in Mexico being paid £15,000 to do the same job as a close team colleague in Silicon Valley earning £100,000 speaks for itself. Global organisations might find that on this point at least their "when in Rome" local strategies are set to become increasingly controversial.
The four phases of globalisation and the HR challenges
Although globalisation is a goal many organisations aspire towards, it is not a state achieved overnight – and neither is there a fixed path towards it. Nonetheless the migration from domestic to global operations involves a series of relatively predictable stages, each requiring a differing input from the HR function
Description Direct sales to overseas customers, or partnerships with import/export firms and distributors
HR challenges In the early stages few people from the parent company are involved and are usually chosen on the basis of sales or international experience. As sales grow, an export department is created and the training role of HR increases. There may be demand for expertise in export documentation, international trade financing and overseas distribution and marketing
2 International division and sales subsidiary
Description There is increasing communication, co-ordination and control between domestic and international operations: country and corporate cultures gain in importance. An international division, overseeing all international operations, is set up. A sales subsidiary generally involves a branch operation
HR challenges Remuneration issues become more complex: new relocation packages for staff moving abroad, as well as compensation for host-country nationals. The HR function might have increased decision-making and responsibilities for international polices and practices. Outsourcing HRM might be necessary
3 Multinational corporation
Description Operations are in several countries, each viewed and treated as a relatively separate entity. These are mainly staffed by host-country nationals with key managers from the headquarters company. Headquarter country managers retain much local authority and many decisions are taken by the corporate centre
HR challenges Compensation and benefits, staffing, relocation, expatriation, and repatriation responsibilities grow. There might be additional training and development required. HR must also ensure consistency with corporate headquarters and balance local values and practices
4 Global organisation
Description A borderless operation, the organisation’s HQ could be located anywhere. Strategic planning is conducted on a global basis, as are technology, innovation and resources. Products and services are the same worldwide
HR challenges An entirely international focus: hiring individuals worldwide; balancing integration with differentiation and providing management development for global managers and executives. Continued compensation and outsourcing issues