2

16
por una sociedild n:ul:l .....
con los derechos
THE FIVE FACTORS
The most important question about the human resources policies of any firm is:
How well do those policiesfit? HR systems are precisely that-systems-whose com-
ponents sometimes work together and sometimes clash. And they are embedded
within larger systems of relationships: the firm and its diverse stakeholders; the so-
ciety or societies the firm inhabits; and so on. Thus, the question How well do the
firm 's HR policies Jit? can be divided into two parts. First, do the HR policies fit in
the broader context of what the firm is trying to do, where it is located, and how
it operates? Second, to what extent are the individual pieces of the HR system in-
ternally complementary or consistent?
The notion that an organization ought to craft HR policies that are internally
consistent and that suit its strategy, technology, and context is hardly controver-
sial. Yet it is much harder to pulloff than it sounds. Conspicuous examples of mis-
aligned and/or internally inconsistent HR practices are not hard to find, and we'll
provide numerous illustrations throughout this book. Imitation may be the sincer-
est form of flattery, but it is also one of the ways in which organizations can de-
velop human resource practices that are either misaligned with their strategy and
context or internally inconsistent with other policies and practices already in place.
One sometimes observes a frenzied and indiscriminate rush to emulate the human
resource practices of highly successful companies-for instance, emulating a com-
petitor's pay system without due regard for the delicate interplay among different
elements of an HR system or for differences in strategy, technology, and context
between your organization and your competitor's that Cshould) impinge on the
choice of HR practices. It is not difficult to find examples of organizations that
have embraced initiatives around total quality, empowerment, and teams-simul-
taneously producing miss ion and value statements that champion their commit-
ment to these endeavors-but whose HR practices regarding recruitment and se-
lection, compensation, performance management, and promotion are essentially
unchanged from an earlier era in which individual contribution, narrow jobs, and
risk aversion were the ways of the world. Another common source oftIR mis-
i alignment Cparticularly among organizations that are growing, diversifying, or glob-
j alizing rapidly) is the wholesale transfer of HR practices that were well suited" to
1 a specific line of business, geographicallocale, organizational scale, or segment of
.i the workforce to another context to which they are distinctly mismatched.
The External Environment: Social, Political, Legal, and Economic 17
In this chapter, we will describe the framework We use to assess the fit of an
HR system within the organization's broader context. Issues of internal consistency
among HR practices are taken up in Chapter 3.
When asking Does tbe HR system jit? in a specific situation, it helps to have a
general framework for analysis, which directs your attention to important categories
of issues and key concerns within each category. A well-known example of su eh
an framework, used to analyze business strategy, is Michael Porter's Five Forces
1
We follow Porter's lead and provide a list of five categories offactors that bear on
the HR system of any organization. The five factors are: (1) the social, political, le-
gal, and economic environment; (2) die workforce; (3) the organization's culture;
(4Tthe organization's strategy; and (5) the technology of production and organi-
zation of work.
In this chapter, we will discuss each of these features of the organizational
context. Our objectives for now are modest. Except for technology, we'll be quite
brief about things we will be looking at within each category, making lists and
giving a few simple illustrative examples. We won't come to many conclusions in
this chapter about how these things interact with the firm's HR system; such con-
clusions will be reached throughout the course of the book.
THE EXTERNAL ENVIRONMENT:
SOCIAL, POLlTICAL, LEGAL, ANO ECONOMIC
The boundaries among social, political, legal, and economic pressures on the or-
ganization are fuzzy, so we group them in a single general category. But, trying
hard to separate them into subcategories, here are the sorts of things we have in
mind:
Socialforces impinging on HRM begin with the local society's norms about
work and employment in general. What in the society lends status to individuals?
What sorts of behavior are frowned upon and what sorts are condoned? What are
viewed as the social responsibilities of the firm? What types of organizational con-
trol are (not) acceptable and legitima te?
Concerning the political environment, how do political pressures work on the
organization in terms of HR policies and practices? What do local governments ex-
pect? What support can be obtained from the political system? What impediments
are imposed by the political system? Are aspects of employment relations subject
to centralized bargaining and negotiation? Are employees and employers politically
organized and mobilized?
Moving a small step to the legal environment, what are the statutory respon-
sibilities of the organization? What rights do workers have, both individually and
collectively? What sorts of employment practices are sanctioned? What legally en-
forced distinctions must be made among workers (e.g., exempt versus nonexempt
in the United States)? What distinctions are impermissible?
As for the economic environment, what conditions exist in the local labor mar-
ket? How great is labor mobility? What economic pressures does the organization
face in other product and factor markets?
18 Chapter 2: The Five Factors
As an example of how the external environment can affect HR practices and
policies, consider how the employment systems and internallabor markets of top-
tier Japanese corporations are supported by Japanese institutions and environmental
conditions. A detailed discussion of these firms and their HR practices will be given
in Chapter 9, but for now, suffice it to say that these practices involve a lot of in-
vestment by the firm in the employee's skills and training, early in the employee's
career. These practices make sense for the firm if the firm can be relatively sure
that employees will not depart for other jobs-that is, if labor mobility is low. And,
in Japan, it is: Putting it a bit thickly, it is sometimes said (among Japanese) that
it is better to be a substitute on the championship team than to be the star of a
second-place team. Status accrues to workers at the elite firms, status that they (at
least until recently) lose if they shift jobs, especially to move to a lower status firm,
even in a higher-status position. This is complemented and enhanced by low eco-
nomic rewards for mobility. Finally, Japanese labor unions are organized on a com-
pany basis. These external social and economic factors work together to lower la-
bor mobility and thus complement the array of HR practices employed by the
Japanese elite firms. Of course, to the extent that economic and social conditions
are changing in Japan, elite Japanese companies are changing their HR policies.
And when they go overseas, these firms both adapt to the different environments
they face and consciously attempt to site their facilities in locales that foster low
labor mobility and so fit relatively better their distinctive HR practices.
EnvirOD1uental factorsare particularly important for multinational firms, espe-
cially those that seek (sorne times under political or legal pressure) to have a work-
force that is representative of the host country. Note, for example, the relative dif-
ficulties that Japanese firms have had in the United States in building paternalistic
relationships with workers, faced with a culture of labor-management antagonism
and legal limits on what can be discussed directly with workers.
Even the physicJlI environment can have significant implications for HRM! When
'confronted (in an international executive education session) with the case of the
United Parcel Service (UPS), with its "cradle-to-grave" employment system and
strong conformist culture, an astute participant from the Arabian Gulf asserted that
the UPS employment system would not work well in his country: Because of his
country's "itinerant" culture and oppressive c1imate, few workers are willing to re-
main employed there more than a few years, making it impossible for UPS to re-
coup the large front-end investment it makes in individual workers.
2
THE WORKFORCE
The key factors he re are mostly demographic. How old is the workforce? How
well educated? How homogeneous or heterogeneous socially? Social h.omogeneity
refers to uniformity witll respect to social characterstics-sex, race, age, income
group, education-and to norms of behavior derived from the society that work-
ers come from. Another important form of workforce homogeneity is partly social,
partIy technical-namely, the occupational mix required in the organization. For
instance, a law partnership that specializes in business law will be much more ho-
The Organization's Culture 19
mogeneous than a "full-service" law partnership, which in turn is much more ho-
mogeneous than, say, Unilever.
The demographic distribution of the workforce can powerfully constrain em-
ployment strategy. For example, firms with a bulge of middle-level managers hired
in anticipation of growth that fizzled out may be unable to sustain lifetime em-
ployment policies. Organizations with workers who are, on average, less well ed-
ucated, will find total qua lit y initiatives more difficult to implement successfully
(see Chapter 9). The amount of workforce heterogeneity (e.g., in age, gender, ed-
ucation, occupation) also has implications for the degree of diversity an organiza-
tion should display in its personnel practices (recruitment, performance evaluation,
compensation, benefits, etc.). And heterogeneity can fundamentally affect basic mo-
tivational techniques. For instance, peer pressure as a motivational tool or control
device works best in general when the workforce exhibits a fairly high degree of
social homogeneity.
Especially in the United States, firms are exhorted by poltical forces to diver-
sify their workforces. As we will see in Chapter 14, there can be substantial po-
tential benefits from doing so. But when we come to this discussion, we will be
especially concerned with challenges that arise generally in dealng with demo-
graphic heterogeneity.
THE ORGANIZATION'S CULTURE
The organization's culture refers to norms of conduct, work attitudes, and the val-
ues and assumptions about relationships that govern behavior at the organization.
Many variables enter here, including: Is the culture egalitarian or hierarchical? Is
the culture one of cooperation or competition among co-workers? Is work itself
regarded as a joy or as drudgery that provides a means to sorne other end? Is con-
formity important, or does the organization encourage diversity or even contention
in thought and action? Are workers regarded as mere employees-that is, is the
labor exchange largely "economic" in character?-or are workers regarded more
as family members?
Research on organizational culture suggests several important caveats and re-
minders in thinking about the topic.
3
First, please be sure to distinguish the orga-
nization's culture from the norms of the society in which the organization is
embedded. General social norms can either support or deroga te a particular
organization's culture, but organizations sometimes display significantly diverse or-
ganizational cultures within a single social environment.
This raises a second caveat: Many studies of organizations and their cultures
suggest it is misleading to speak of "organizational culture," because in fact orga-
nizations ofien display quite distinct subcultures, even within a single locale or or-
ganizational unit. Obviously, variations in culture, within and between organiza-
tions, are likely to have a lot to do with the kinds of work being performed (i.e.,
the core technology). For instance, we would not be surprised to observe different
value systems among those who heal the sick versus those who manufacture vac-
uum cleaners. However, technological determinism isn't likely to get us very far, be-
20 . Chapter 2: The Five Factors
cause we also observe substantial variations in norms and value systems among or-
ganizations rotighly the same things. Consider as examples: Ben and Jerry's
("hippie" ice cream manufacturers in the United States) versus most of their com-
petitors; or the fun-Ioving culture of get-it-done cooperation among employees in
various jobs at Southwest Airlines, versus the more strait-laced, bureaucratic, "I don't
do it if it isn't part of my job description" approach at most U. S. airlines. (We sum-
marize evidence in Chapter 19 regarding the very different values and assumptions
reflected in the organizational blueprints espoused by the founders of Silicon Val-
ley technology start-ups, even within the same industry.)
A final caveat concerns the manageability of organizational culture. There is
considerable debate, among both scholars and practitioners, about whether man-
agers can (or should) consciously manipulate the system of workplace norms and
values, or whether instead culture must be informal and emergent, either because
that is its nature or beca use that is when it is most beneficial for an organization.
We will not make strong assumptions about the ability of managers or others to
engineer cultures according to a particular blueprint they seek, but we will assume
that the HR policies and practices in effect, as well as how they are implemented,
can send powerful messages that are likely to influence organizational norms and
values as experienced by employees.
For that reason, the implications of organizational culture for HR policies (and
vice versa) can be enormous, because culture is either reinforced by or clashes with
specific practices and policies, rendering the culture more or less effective as a
means of coordinating and controlling activities. In Chapter 10, for instance, we w:ll
see that a culture that stresses cooperation generally won't mesh well with a sys-
tem of performance evaluation (to determine raises, bonuses, or promotion) em-
ploying a strictly enforced curve to make large distinctions. Wide pay dispersion ac-
cording to rank fits well with a hierarchical culture and poorly with an egalitarian
culture. A firm that seeks to encourage individual creativity through explicit rewards
and recognition will find that this is more diJficult in a culture stressing conformity
(in attire and behavior). An organization that wishes to foster a feeling of family
might structure compensation along lines that has the symbolic nature of a gift.
THE ORGANIZATION'S STRATEGY
By the organization's strategy, we mean the answers to the following questions:
What are the organization's distinctive competencies, things it can do
the competition (or, at least, nearly as well as the best)? On what basis do es the
organization hope to achieve competitive advantage-for instance, technical inno-
vation, premium customer service, superior quality, an integrated line of products
or services, or low-cost production? On what basis will its competitive
be sustaned-is the company relying on financial and knowledge-based barrlers
to entry, on legal protection, on a reputation for aggressive behavior in response
to challenges? What are the long-term objectives-for instance, growth, market
share, or niche penetration? What actions are being taken to get there? We also in-
elude here the firm's financial strategy, especially its financial structure; for instance,
The Organization's Strategy 21
the use of debt versus equity financing and whether its equity is widely and pub-
licly held versus privately and closely held.
It is not hard to think of connections between business and financial strategy,
on the one hand, and HR policies on the other. Here are four examples.
1. Nordstrom versus traditional retailers. A retailer whose strategy is predi-
cated on the quality of its customer service should structure its employ-
ment relationships differently than does a firm aiming to be a low-cost
provider of sorne good. In the United States, for example, the Nord-
strom chain of department stores has managed to differentiate itself from
the competition-and generally to make handsome profits in a period of
declining profitability within retailing-by giving unparalleled service to
the customer. The centerpiece of their strategy is the personal relation-
ship between the customer and the Nordstrom "associate." Nordstrom's
particular retailing strategy drives their recruitment, training, compensa-
tion, promotion system, job design, and other personnel practices. They
recruit highly educated and aggressive sales people, who resemble the
upscale clientele to whom they will be selling, train them incessantly so
they know all the merchandise and can therefore advise customers and
engage in cross-selling, provide long-term advancement opportunities to
cut down on turnover, and so on.
Conversely, much of Nordstrom's volume-oriented competition has
viewed the sales force as an unfortunate expense item requiredto ring
up the merchandise. These companies tend to believe that economies of
scale, skilled buyers, and shrewd financial management, rather than a
highly motivated sales force, are the key strategic weapons. Accordingly,
they rely more on harsh discipline, close supervision, and low wages for
the sales force; offer few, if any, promotion opportunities for sales per-
sonnel; and typically provide little or no training.
4
2. RFIMAX versus traditional realty firms. RE/MAX, a real estate network,
tries to attract clients by having very active and aggressive agents, whom
it attracts with a compensation system that is nonstandard in the indus-
try. Most real estate sales agents working for a large agency will keep
sorne fraction of their commissions, giving the rest to the agency to pay
for clerical support, advertising, office and phone services, and the like.
In sorne cases, agencies will pay their agents a base wage, as a buffer
against a run of bad luck or a downturn in sales in general. Agents
working for RE/MAX, however, keep 100% of their commissions, get no
base wage, and in fact must pay the agency "rent" for office space and
related overhead expenses. Accordingly, the agent who elects to work
for RE/MAX must be confident about her abilities and willing to work
hard for sales.
5
3. Financial structure in tbe United Sta tes and japan. An organization's fi-
nancial strategy can have important implications for its HR system (and
vice versa). It is not altogether surprising, for instance, that Japanese or-
22 . Chapter 2: The Five Factors
ganizations, noted for their long-term employment relationships and
treatment of workers as strategic assets, have traditionally secured exter-
nal financing from institutions with whom they are tied through long-
term collaborative relationships. Less subject to the vagaries of an
anonymous and short-term-oriented stock market and financial commu-
nity, Japanese firms have had more latitude to pursue a high-commit-
ment approach to HRM, even during periods when it might be tempting
to do what many U. S. firms have done: downsize, renege on past
promises, impose tighter control s over workers, and the like.
6
Similarly,
many companies in the United States that display high-commitment
work systems and long-term employment relations exhibit little debt,
fund their growth internally, and retain all or most of the stock among
employees (or owners). Typically, these are companies whose competi-
tive strategies are predicated on long-term relations with customers
and/or suppliers, and therefore on long-term relations with employees,
requiring that the workforce be perceived as an investment or asset to
be nurtured and protected for the long haul, rather than an expense
item to be pruned whenever this is expedient in the short term.
4. Investment banking and market making. Sorne investment banks pursue
both traditional investment banking and trading and market-making ac-
tivities because of perceived synergies in these activities. But this strat-
egy can lead to difficulties in the HR domain. Because investment bank-
ing and trading are quite different tasks, appropriate incentive systems,
means of control, and so on are also likely to be quite different, which
can lead to tension between the two groups within the firm.7 The
broader point here is that decisions about whether or not an organiza-
tion follows a strategy of product diversification and/or vertical integra-
tion will have enormous implications for HRM, ineluding whether jobs
and career paths are defined narrowly or broadly, how performance is
evaluated and managed, and how desirable it will be for compensation
schemes to be uniform versus differentiated among parts of the organi-
zation. Conversely, it should be elear that an organization's human re-
source practices can constrain choices of business and financial strategy
in important ways.
THE TECHNOLOGY OF PROOUCTION
ANO ORGANIZATION OF WORK
We assume that you were not surprised by our definitions of the political, social,
legal, and economic environment, the organization's culture, and its strategy. But
by technology 01 production, we mean something a bit broader than you might
think, so we will be more detailed in this section.
Under the general rubric of technology, we inelude factors and conditions that
bear on how labor inputs are converted to outputs. We have in mind the broad
The Technology of Production and Organization ofWork 23
picture of how tasks are organized and coordinated, not simply what kinds of ma-
chines (if any) are employed. A list of sorne of these factors and conditions fol-
lows, together with sorne examples of how each bears on important HR policy
issues.
Physical Layout, and Worker Privacy and Proximity
Is the work conducted in a single location, with workers in close proximity to one
another, or is the work conducted at isolated locations? This is potentialty impor-
tant in at least two ways: First, work conducted in isolation will be harder to mon-
itor and harder to direct. Consider far-flung service-oriented companies, such as
United Parce! Service or Federal Express. It is not surprising that such companies
typicalty combine information technology (e.g., on-board devices that transmit data
to central mainframes) with strong inculturation of their workforce in order to en-
sure compliance with Company policies and quality standards. In contrast, when
work is conducted i ~ an environment with many (similar) workers present, peer
pressure can.more readily be employed (for good or, in the case of peer-induced
output restrictions, for bad). Second, when workers are in close proximity and
technicalty interdependent, it also becomes harder to treat differently workers who
see themse!ves as similar (in social science jargon, forces of social comparison are
stronger; see Chapter 5) and worker dissent is more easily mobilized. It is hardly
a coincidence that unions are more prevalent in such settings.
Required Skills
What skills are required? Are those skills acquired externally or on the job? Are
those skills firm-specific or are they transportable? When workers' skills are ac-
quired on the job, new hires are usually less productive than workers with longer
job tenures, because the new hires invest a fraction of their time learning what to
do and how. Even when skills can be acquired off the job, the firm often pays for
their acquisition (se e Chapter 15). In either case, the costs of turnover can be high
and the firm will take steps to retain its already-trained workers and attract work-
ers it will want to keep. When skills are acquired on the job and skill requirements
increase with rank, promotion-from-within systems acquire substantial advantages
(see Chapters 8 and 16). When workers acquire skills on the job, they often do so
from co-workers, which has implications for how rewards are distributed. In par-
ticular, seniority-based pay and promotion systems are often employed under these
circumstances, so that senior workers are willing to share their knowledge with
their junior colteagues.
Monitoring Employee Input
For a variety of reasons, it is often important to monitor what the employee does
on the jobo This can mean monitoring the employee's overall level of effort, the
quality and care taken, or how the employee altocates time among tasks. Setting
aside for now the question of why we might want to monitor the employee, the
24 . Chapter 2: The Five Factors
technological questions are, How and how well can we do it? How expensive is
it to monitor? To be sure, this is connected to matters of physical proximity and
privacy: How easy is it to observe the employee? How intrusive would direct mon-
itoring be?
In many cases, direct monitoring of activity is either too costly or too intrusive
to undertake. In su eh cases, indirect measures of employee contributions are sought.
Often these measures are simply the level of output achieved by the worker: How
many pieces of fabric does a fabric cutter cut? What are the unit costs achieved
by a plant (measuring the performance of the plant manager)? What profits are
achieved by the firm, and what happens to the market value of its equity (mea-
suring the performance of a corporation's CEO)? The relevant technological ques-
tions here are:
1. To what extent can the employee, by her levels of input, control these
measures of output? In almost every job, the tangible measures of output
are not completely under the control of the individual employee. Raw
materials may be bad. Uncontrollable factors may intervene, such as a
crippling natural disaster in a salesperson's or plant manager's territory.
If we measure a output by the dollar volume of sales or
the number of units sold, we will be looking at a very noisy measure of
labor input because so many factors outside the salesperson's control
can influence a good or bad resulto In contrast, if we look at the output
of a piece-rate cutter of fabric, there is a much more direct and noise-
less connection between labor input and the level of output.
2. When employee input is multifaceted, are there good (relatively noise-
free) measures of the different facets? Can we find a good summary mea-
sure of the many facets, good in. the sense that it captures what is impor-
tant to the firm? For instance, fabric cutters might sacrifke quality for
speed. It is probably cheap and easy to monitor the speed with which a
fabric cutter works, but it may be very difficult or expensive to get good
contemporaneous information about the quality of his work.
As we will see in Chapter 11, these two factors playa critical role in design-
ing extrinsic incentives. When workers have little control over tangible measures
of output, it can become next-to-useless to base incentive compensation on those
measures of output. Furthermore, when a job involves a number of tasks, only
sorne of which are easy for the individual to control, performance-based rewards
will often encourage a risk-averse employee to focus on those tasks over which
he or she has the greatest control. But it is often the hardest-to-measure stuff that
is most important fram the organization's viewpoint. This dilemma was dramati-
cally illustrated by the trouble that Sears encountered in the early 1990s with their
automotive repair centers, in which mechanics and managers were rewarded based
on the volume of certain kinds of repairs. Perceiving that they would be evaluated
based on the quantity of repairs that they carried out, some Sears employees per-
formed unnecessary repairs and did not focus much attention on the harder-to-
The Technology of Production and Organization ofWork 25
measure dimension of the work quality (including the evaluation of what work
was needed).
There are two further technological considerations connected to the ability to
monitor worker inputs, but they are sufficiently important to warrant their own
subsections:
Task Ambiguity and Creativity
When "what to do" is reduced to a standard operating procedure, task ambiguity
is low. But sorne jobs score quite high on task ambiguity and requisite discretion,
such as physicians, self-directed research scientists, and high-Ievel general man-
agers. In these jobs, it can be just as important (if not more so) to exercise good
judgment in selecting what tasks to carry out as it is to execute those tasks well.
A physician who selects the wrong procedure but performs it masterfully is of lit-
tle use to the patient! In extreme cases, creativity-finding entirely new tasks to
perform or, at least, new ways to perform old tasks-is the most important factor
in good performance.
In general, the greater the level of task ambiguity, the harder it is to control
performance by explicit incentives, because it is harder to measure performance.
At the very least, explicit incentives should be based on long-term performance,
usually defined in a broad, diffuse, and subjective manner. Reliance on intrinsic
goals or rewards is often more effective still.
An interesting case in point concerns medicine and the impact of medical mal-
practice suits. It has been argued that in response to costly malpractice suits, med-
ical practice (at least, in the United States) has be en reduced more and more to
going "by the book"-foHowing a sequence of steps, performing batteries of tests,
and otherwise limiting the use of the physician's subjective judgment. It is clear
why defensive, by-the-book medicine is practiced-it makes it easier to refute mal-
practice after the fact-but it is far from clear that the benefits (discovering truly
incompetent physicians) outweigh the costs of overtesting and other forms of de-
fensive medicine.
8
Patterns ofWorker Interdependence and Cooperation
By worker interdependence, we mean the extent to which the product of one
worker's efforts is affected by the efforts of other workers. In sorne cases, each
worker's efforts stand or faH on their own; examples might include writers and
traveling salespersons (except insofar as a writer's success depends on the editor
or publisher, and a salesperson's success might depend on the quality of the prod-
uct being sold or on after-sale service given by others). In other cases, interde-
pendencies are sequential--each person depends on a sequence of "predecessors"
but not on anyone further down the chain. Sequential manufacture along an as-
sembly line or in a batch process often has this character. In still other cases, in-
terdependencies are complex and reciprocal; the results of one person's efforts de-
pend on the efforts of others, whose results depend in turn on the efforts of the
first. Many sorts of team production (e.g., hospital care) have this character.
26 . Chapter 2: The Five Factors
The greater the interdependence, the harder it is in general to untangle the
level of one worker's performance from the overall performance of the group. For
that reason, extrinsic, single-worker incentive schemes are harder to maintain, es-
pecially if they generate wide disparities in rewards. How would you like to fly
on an airplane in which the pilot and copilot were fighting over the controls, com-
peting to receive "credit" back at headquarters for landing the plane? When inter-
dependence is high, group-based incentive systems are often employed, with sorne
reliance on peer pressure (when feasible) to control free-riding.
When workers must cooperate extensively, there is the same kind of potential
for distortion of incentives discussed aboye in the case of Sears' automotive repair
centers. The extent of an employee's cooperation will often be harder to measure
and take longer to reveal itself than other aspects of that same employee's job per-
formance (such as the quantity of output, attendance, etc.). Performance evalua-
tion and reward schemes that focus too much on shorter-term and easier-to-mea-
sure outcomes can provide inadequate incentives for workers to cooperate. For
this reason, for example, the most experienced or lead workers in a piece-rate fa
cility (such as fabric cutting), who are expected to devote sorne of their time to
training new workers and solving problems that arise, sometimes receive time-
based pay rather than piece-rate wages.
The impact of patterns of interdependence doesn't end with questions of mon-
itoring and incentives. There are also social ramifications; for instance, high levels
of interdependence generally involve high levels of personal interaction, which can
trigger processes of social comparison (see Chapter 5).
The Distribution of the Outcomes: Stars. Guardians. and Foot-Soldiers
9
In sorne jobs, such as basic researcher, one or two home runs m a lifetime make
for a successful career, and the firm is willing to try out a lot of players to find
the one home-run hitter in the crowd. In selling big-ticket items, it may take more
than one or two home runs to make a career, but a single high-margin sale is
worth a lot, and it may be worth losing a lot of potential sales to hold out for the
big win. In other jobs, it is the failures that 100m large. Aircraft pilots want to get
their planes down nice and smooth, and they want to stick to the schedule when
possible. But a failure (that is, a crash) is a lot worse for an airline than sticking
to a schedule is good. In still other jobs, variations in individual performance don't
matter too much; organizational success depends on the aggregated performance
of large numbers of individuals, none of whose individual performance is decisive.
The observed distribution of outcomes reflects two sets of forces: (a) each
worker faces (uncontrollable) environmental uncertainty that makes the outcome
of his efforts somewhat random; and (b) different workers in the same job, acting
in the same circumstances, may get different outcomes because of variations in
skilllevel, ability, determination, and the like. The issue he re is the distribution or
range of possible outcomes of a worker's efforts on both these grounds, measured
in terms that are meaningful for the firm.
lO
3
38
CONSISTENT HR PRACTICES:
THE WHOLE CAN BE MORE
THAN THE SUM OF THE PARTS
In this chapter, we examine the proposition that the HR systems of successful firms
often display practices reinforcing consistent themes or messages. Organization A
operates as "one happy family"-extrinsic rewards are deemphasized; explicit guar-
antees of lifetime employment are offered; pay differentials are minimized; few ob-
vious status differentials exist among members (few organizational charts, no re-
served parking spaces, etc.); more compensation is given in the form of personalized
gifts and benefits that reinforce the psychological bond between the employee and
the organization; performance is appraised on the basis of doing things "our way"
and conforming with broader company goals, rather than based purely on mea-
surable outputs; upper-Ievel vacancies are filled exclusively from within; and so
on. Organization B, on the other hand, has a consistent "dog-eat-dog" philosophy
that appeals to self-interested behavior: It emphasizes extrinsic rewards; new em-
ployees must sign a document acknowledging that they understand their employ-
ment is "at will" and can be terminated at any time by the employer; compensa-
tion is based on comparative performance (e.g., salesperson or branch manager of
the year); status differences are emphasized (keys to an executive washroom, re-
served spots in the parking lot, a carpeted area in the cafeteria for managers and
an executive dining room for upper managers); incumbent employees are given
no advantage over outsiders when filling a vacancy; few benefits are offered, and
those that are offered are distributed according to a "cafeteria" plan, in which work-
ers can customize their own benefits package or even trade off sorne of their ben-
efit entitlement for additional payo
Our stereotypical Organizations A and B may have radically different HR sys-
tems simply beca use they face radically different external forces. But we believe
that such radically different HR systems can flourish reasonably well in very simi-
lar situations. Indeed, the differences in HR policies may be attributable entirely to
the histories of the two organizations. Very distinct arrays of HR policies can fit a
given external environment quite well if the arrays are internally consistent; and
Why is Consistency of HR Practices Desirabte? 39
for the same reason that internal consistency is valuable, it isn't easy to tinker suc-
cessfully with such arrays at the margins, nor, once established, to reconfigure the
array from scratch.
In this chapter, we will explore the issue of internal fit or consistency among
HR practices, focusing on four questions: Why is consistency useful and/or desir-
able? Along what dimensions can consistency be measured? Over what span should
consistency be pursued? What role do history and organizational inertia play in dis-
cussions of consistency?
But before getting to these questions, we should be clear about what sorts of
consistency we have in mind. There are (at least) three aspects of consistency: (1)
Different parts of the overall HR system that bear on individual employees-re-
cruitment, compensation, performance appraisal, promotion, training, and so on-
should be consistent or (perhaps a better word) complementary. For example, poli-
cies that emphasize extensive and expensive training should be complemented by
compensation, promotion, and recruitment policies that reduce turnover. We will
call this single-employee consistency, emphasizing that the different pieces of HR
policy that bear on a single employee should be consistent with one another. (2)
The treatment of different workers should, at least over sorne span, be consistent.
If employee A is treated in a particular fashion, a similarly situated employee A'
should be treated similarly. We will call this among-employee consistency. (3) The
HRM philosophy and premises of the organization should demonstrate sorne de-
gree of temporal consistency or continuity. The appropriate extent of temporal con-
sistency will depend, of course, on a number of factors, not the least of which is
the rate of change in the organization's environment. But in general howemployee
A is treated today should not differ radically from how she was treated yesterday.
These represent different aspects or meanings of consistency in HRM, and at
different points in this chapter we will focus on one to the exclusion of others.
But we deal with them together beca use they are interrelated through their ratio-
nales.
WHY 15 CON515TENCY OF HR PRACTICE5 DE51RABLE1
Consistent HR practices are desirable for (at least) five sets of reasons. First, there
are sorne obvious technical benefits of consistency. For example, a firm choosing
to invest heavily in training its employees will see increased value in careful screen-
ing of applicants and in practices that are intended to decrease turnover. When
on-the-job training accumulates over a period of years, practices that reward se-
niority (and thus reduce turnover among employees with longer tenure) make
sense. When the firm employs informal training, provided by more senior work-
ers to their more junior colleagues, seniority-based rewards also help by putting
senior workers at no disadvantage when they share their knowledge. To cite an-
other example, a firm that wishes to broaden its workforce (hiring, say, more
women and minorities) may find it relatively advantageous to move to a cafeteria-
style benefits plan. These reasons all pertain to single-employee consistency. At
the same time, temporal consistency and among-employee consistency have dif-
40 Chapter 3: Consistent HR Practices:The Whole Can Be More than the Sum of the Parts
ferent (and fairly obvious) technical benefits, having to do with economizing on
costs of administration.
A second set of reasons why consistency is desirable concerns the psychology
of perception and cognition. From basic psychology, we know that messages are
more salient and recalled better when the multiple stimuli being transmitted are
simple and support the same theme, as in an effective advertising campaign. Con-
sistency, which also entails simplicity (i.e., everything follows the same basic prin-
cipIes), is thus desirable because it aids in the learning process that individuals
must undertake, to understand what is expected of them and what they can ex-
pect in turno
For example, owing to their technologies, sorne firms find that they must give
their personnel wide discretion in sorne (but not all) matters. In these cases, the
firms must choose whether to provide direct incentives for employees to perform
as desired versus using indirect control based on the perception of mutual inter-
ests. When it comes to other activities that these individuals perform, the firm may
be able to monitor its personnel quite closely and thus control them by rules.
Should the firm use rules? The choice whether to do so depends on how the firm
aims to control its employees in the first set of activities. If the firm chooses close
supervision of those activities that can be closely supervised, its employees may
infer that they are not trusted and adjust their behavior accordingly by acting in
ways that are consistent with not being trusted.
1
Control of the first set of activi-
ti es by trust will then be compromised: Employees will infer that they are not
trusted (and thus not trustwortby) , and react accordingly. A pharmaceutical com-
pany, for instance, will often need to give bench scientists wide discretion in pro-
ject selection and choice of techniques. The same company presumably could mon-
itor their scientists' attendance and punctuality easily by using time clocks. However,
doing so would clash with-and thus undermine-the autonomy and trust involved
in other, more important, facets of the employment relationship.
This category of reasons----largely about single-employee consistency as phrased
above-can be extended to among-employee and temporal consistency. In most
cases, an employee assumes that how she and others have been treated in the
past, as well as how other similarly situated employees are being treated contem-
poraneously, provides good data for how she can expect to be treated now and
in the future. Consequently, if HR practices changed frequently or varied consid-
erably across similar employees, the process of learning what to expect and what
is expected would be seriously impaired.
A third category of reasons for pursuing consistent HR practices involves so-
cial forces. Consistency-in the sense of congruence with external social norms
and preconceptions----aids learning. It is easier to mold individuals' tastes and ex-
pectations when the organization's practices consistently (and symbolically) mimic
previously internalized patterns of relationships in other contexts, whether these
patterns are akin to an anonymous marketplace (dog-eat-dog) or a family rela-
tionship (mutual caring). This factor may help explain, for instance, why Japanese
corporations setting up operations in the United Sta tes have often opted to site
their plants in small towns and rurallocations, where the strong "group ethic" and
Measuring Consistency 41
family atmosphere sought at work may mirror workers' roles outside the work-
place more than would be the case in an urban environment. For the same rea-
sons of inference and cognition cited in the previous paragraph, this rationale for
consistency extends from how a single employee is treated to how groups are
treated through time-for instance, only a dysfunctional family would extend mu-
tual caring to sorne siblings and adopt a dog-eat-dog stance of (non)care toward
other siblings, or oscillate back and forth between these two distinct modes of in-
teraction.
A fourth advantage of consistent HR practices relates to recruitment and se-
lection. Workers are not all alike, and they will do better or worse in a given or-
ganization according to how well they are matched to its attributes. Just to keep
tumover costs in line, the firm should hope that prospective employees can un-
derstand the nature of employment on offer, so that mismatching and concomitant
quits don't resulto Indeed, even if a somewhat mismatched worker doesn't quit, he
may be less happy and productive if the job doesn't fit his tastes in employment.
Consistency in HR practices allows for better initial matches in three ways.
First, insofar as consistency promotes understanding, prospective employees are
better able ro comprehend at the outset what they are getting themselves into. Sec-
ond, to the extent that there are correlations among the preferences of a given
worker-for example, someone who feels comfortable with performance-based
compensation also desires similar hard-edged practices when it comes to promo-
tion criteria, benefits, decision-making authority, and the like-then clusters of HR
practices that are consistent in matching those correlations will achieve better
matches. Third, individuals may have ataste for co-workers who have the same
preferences they do--warm and fuzzy types may not interact well with very com-
petitive types-and consistent HR practices, insofar as they lead to a workforce
that is homogeneous in terms of such preferences, may promote teamwork and
worker cohesion. Of course, all three aspects of consistency are desirable for these
job-match considerations.
Finally, among-employee consistency is desirable because it defuses invidious
social comparisons and feelings of distributive injustice. These jargon-Iaden terms
are treated in depth in Chapter 5, but for now the simple idea to keep in mind is
that people tend to resent it when someone "just like them" receives significantly
different (especially better) treatment, apparently for no good reason. Favored treat-
ment may buy the good will of the person receiving it. But because people focus
on the injustices they face, the cost of ma1contents will usually exceed the bene-
fits provided by those receiving favored treatment. Thus, defusing these compar-
isons is a good idea.
MEASURING CONSISTENCY
Having extolled the virtues of consistency, how do we measure it? When it comes
to among-employee and temporal consistency, measures are fairly straightforward:
the uniformity of practices and treatment among similarly situated individuals (de-
fined in terms relevant to the specific organization-see below); and the continu-
42 . Chapter 3: Consistent HR Practices:The Whole Can Be More than the Sum of the Parts
ity in HR philosophy and practice over time for the organizational unit under study.
But how do we measure single-employee consistency? Alas, there is no precise
formula or litmus test to use in assessing the consistency among the distinct pieces
of an organization's employment practices. (If it were that easy, we would never
observe companies making mistakes in aligning their HR practices!) But our four
categories of reasons for seeking single-employee consistency provide several gen-
eral suggestions for how to gauge this aspect of consistency in an organization's
employment practices.
In view of technical complementarities among policies and practices, a good
starting question is: How does a given policy or practice being contemplated af-
fect the costs and benefits associated with other HR activities? If a new training
program or compensation system is contemplated, for instance, will it increase or
decrease the returns from the company's current practices concerning recruitment,
employment security, job design, performance appraisal, diversity, collective bar-
gaining, and the like? Is a policy of frequent rotation among specific tasks for pro-
duction workers-aimed at increasing worker knowledge and stimulating sugges-
tions among employees--consistent with piece-rate compensation? (Probably not;
see Chapter 9.) Does a contemplated system of detailed peer review make current
compensation and promotion practices more valuable or less?
Other reasons for seeking consistency are psychological or social in nature and
lead us to ask whether the various messages communicated are congruent with
one another, especially within the broader social context. HR policies or practices
should be analyzed for (in)consistency not only in terrns of their substance but
also in terms of process and symbolsm. Although we can't provide anything like
a comprehensive checklist, here are sorne themes that represent important sources
of potential (in)consistency among human resource practices:
Does the organization presume trust or distrust in relations between the firm
and its employees (and among employees themselves)?
Does it as sume an inherent desire to do good work or an inherent tendency
for employees to shirk unless they are motivated and controlled by incen-
tives or fear?
Is the emphasis on egalitarianism or meritocracy? centralization versus local
decision making and control? openness or secrecy? competition or coopera-
tion? tradition and stability or flux and change?
Is the focus on individuals or on groups as the key organizational units?
Is the emphasis primarily on outcomes (getting the job done) or process
(following rules)?
Is the organization viewed primarily as an economic entity devoted to mak-
ing money, a noneconomic entity devoted to the maintenance of its mem-
bers (or its own perpetuation), or an organization serving sorne higher call-
ing?
Does the organization offer "jobs" or "careers"?
The Organizational Menagerie 43
To the extent that an organization's HR practices provide unambiguous and
consistent messages about these topics, employees will have a clearer and more
powerful sense of what they can expect and what is expected of them, thereby
aiding in the attraction, motivation, and retention of people best suited to the
enterprise. This suggests that a test of consistency along these dimensions is:
How consistent are the expectations of employees, both in terms of what (they
believe) is expected of them, and what they expect of their fellow employees
and the organization? How quickly and effectively do new recruits come to learn
these things?
As for screening of prospective employees, tests of consistency include ho-
mogeneity of the workforce in terms of their tastes in personal (co-worker) rela-
tionships and the extent to which prospective employees are able to anticipate
what a job with the organization entails, what will be expected of them, and what
they can expect in return.
THE ORGANIZATIONAL MENAGERIE
Do not be misled by our juxtaposition of Organizations A and B at the start of
this chapter. These are hardly the only two consistent patterns of HR practices.
For one thing, consistency is culturally relative; a pattern or practice that is
viewed as consistent in Japan might send very mixed signals to a German work-
force. But even more, "visionary" organizations are often those that, in a par-
ticular time and social and economic context, find practices that fit together tech-
nologically and allow employees to anticipate what they can expect and what
is expected of them. Because of heterogeneity in the workforce, in the legal,
economic, and technological environment, and (even) in the population of other
functioning organizations, it is witless to try to give a short list of consistent or-
ganizational types.
For instance, one of the authors of this book,. together with Professor M.
Diane Burton of Harvard University and Professor Michael T. Hannan of Stanford
University, has conducted a study of the "HR blueprints" of over 150 emerging,
high-tech companies located in the Silicon Valley. The nature of this study and
specific data are reported in detail in Chapter 19 (where further references are
given). Rather than repeat definitions and data here, we'll simply give you an im-
portant bottom line from the perspective of this chapter: The data collected indi-
cate that when it comes to founders' HR blueprints for this collection of firms,
there are five fairly distinct and prevalent types of organization in the "menagerie,"
together with a number of close cousins and hybrid rnixes. These distinct types
are: commitment-model firms, somewhat like our organization B; bureaucratic firms,
which to sorne extent approximate the classic portrait of bureaucracy sketched by
Max Weber; star-model firms that resemble academic departments in elite univer-
sities; the autocratic model, in which the founder is more or less (and for better
or worse) a virtual dictator; and the engineering-model firm, a peer-driven, team-
oriented model in which skills are valued and cool technology motiva tes the troops
44 Chapter 3: Consistent HR Practices:The Whole Can Be More than the Sum of the Parts
(SOft of an engineering fraternity house). We want to stress two conclusions that
emerge from this research:
There is no consensus as to the best HR blueprint for a high-tech start-up in
the Silicon Valley, even within particular industry niches, at least based on
what the researchers observed. And there aren't two polar organizations. In-
stead, the data suggest a richer menu of consistent possibilities .
Each of these five models "resonates" with-is consistent with--organiza-
tional forms that exist in the larger social environment from which employ-
ers and employees are drawn. Consistency, at least in part, derives from the
preexisting conceptions of the people involved, about how organizations can
and should be structured and managed.