International Human Resource Management and Organization

Chapter 1

1. The Strategic Role of Human Resource Management in a global world

Outline of Chapter 1
The Management Process Strategic Planning and Strategic Trends HRs Strategic Role International HRM

After Studying This Chapter You Should Be Able To:

understand the fundamentals of the Management Process and the role of HR understand that HR is context-driven define strategic HR and give an example describe HR-challenges in international management know the main topics of international HR and the differences to domestic HR

1.1. The Management Process

Authority is the right to make decisions, to direct the work of others, and to give orders. Line managers are authorized to direct the work of subordinates.
Staff managers are authorized to assist and advise line managers in accomplishing their basic goals.

The Management Process

Planning
Establishing Goals and standards Developing Rules and procedures Developing Plans and forecasting.

Organizing
Giving Tasks Establishing Departments Delegating Authority Establishing channels of Authority and communication Coordinating

Staffing
Recruiting Selecting Performance standards Compensation Evaluating performance Counseling Training and developing Job Analysis

Leading
Getting the job done Morale Motivation

Controlling
Setting standards Comparing actual performance to standards Corrective action

HR means performance
Human Resource Management is the process of acquiring, training, appraising, and compensating employees and attending to their labor relations, health and safety, and fairness concerns.

Can HR have a measurable impact on a companys bottom line? Better HRM translates into improved employee attitudes and motivation Well run HR programs drive employee commitment

Is There a One Best HR Way?

HRM is contingent on the companies special situation (strategy, life cycle, products etc.) But: All companies can benefit from
Employee motivation and commitment Results oriented appraisals and compensation Well trained staff Foster good relationships and communication Professional global executives

HRM is Important to all Managers. Dont Let These Happen to You!

Hire the wrong person High turnover Poor results Useless interviews and conferences Court actions Salaries appear unfair Poor training Unfair labor practices

1.2. Strategy and HRM

Vision
Vision: A best case scenario of where the company will be in the future, the kind of company, top management is trying to create

Mission

A mission defines a companys business and a clear view of what the company is trying to accomplish for its customers Strategy is the companys long-term plan for how it will balance its internal strengths and weaknesses with its external opportunities and threats (SWOT) to maintain a competitive advantage.

Strategy HRMStrategy

HRM strategies are the courses of action HR uses to help the company achieve its strategic aims.

Strategy and Strategic HR

Corporate Strategy

Clarify the business strategy

Business Strategy Business Strategy Business Strategy

Functiona l Strategies

Evaluate and refine

Realign the HR functions and key people practices

Realization of business strategies and results

Create needed competencies and behaviors

Dave Ulrichs Role Model.

Strategic HR Siemens Basic HR Strategy

A living company is a learning company Global teamwork is the key to realizing potential and using human resources Redefine management to meet globalization challenges Stakeholder value: achieving a balance of interests A climate of mutual respect

1.3. International HRM

Outline

What drives Globalization? What favors localization? New Challenges for HR? Perlmutters*-IHRM (=International Human Resource Management)-Approaches
What is a international, a multinational, a global company? *Perlmutter is a well known scientist who named these approaches

Group Work (1)

What favors Globalization? What are the driving forces for Globalization? What favors Localization? Which businesses need local adaptation? Which forces slow down or prevent Globalization? Implications of increasing globalization for HR?

New HR-Challenges
Differences between domestic and international HRM

1. More HR activities 2. The need for broader perspective, higher complexity 3. More involvement in employees personal lives 4. Changes in emphasis as the workforce mix of expats and locals varies 5. Risk exposure 6. More external influences 7. The different practices of employment in different countries

Perlmutters MNE-approaches
Ethnocentric Strategy:Strategic decisions are made at headquarters. Key positions are held by headquarters management. Polycentric Strategy:Each subsidiary is a distinct national entity with substantial decision-making autonomy. Geocentric Strategy: Each part of the MNE makes a unique contribution regardless if headquarters or subsidiary. Nationality is ignored in favor of ability.

HR-Strategy: Centralized or decentralized?

Where and how can central services add value?

Criteria's: Efficiency Strategy Corporate Culture Best practices Local and cultural requirements

Global HRConcepts Regional HRConcepts Local HRConcepts

1.4. Summary
Management Process and the Context to HR HRM-Strategy: The linking of HRM with strategic goals and objectives in order to improve business performance and develop organizational cultures that foster innovation and flexibility Globalization and its consequences New Challenges for HR Perlmutter-Approach

2. The Organizational Context

Weve got the kit, weve got the cash its people that will make the difference! But you have to know how to organize, lead and empower your people.

After Studying This Chapter You Should Be Able To:

understand how strategy influences organization understand the relationship between HRM and organizational aspects to see the main advantages and disadvantages or problems of different organization forms explain the stages a firm typically goes through as it grows internationally and how each stage affects the HR function? understand how the HRM function can assist in the firms international growth strategy?

2.1. Wrap-Up: Fundamental Organizational Designs (1)

Functional Organization
CEO Eagle Star

Product Organization
CEO Eagle Star

VP Production Product ion Man.Prod. A Production Man. Prod. B

VP Marketing ProductManager A ProductManager B

VP HRM

VP Product A

VP Product B

Production Man. Prod. A Product Manager A HRM Man. Product A

Production Man. Prod. B Product Manager B HRM Man. Product B

Wrap-Up: Fundamental Organizational Designs (2)

CEO Eagle Star Functional Managers

Matrix Organization

Production

Marketing

HRM

Manager Product A

Manager Product B

Wrap-Up: Fundamental Organizational Designs (3)

Process-Based Horizontal Structure Project Organization Network (virtual) Structure Team-Based Structures Autonomous Internal Units

Organizational Structures in the 21st century

Cultural Change Complexity Knowledge Transportation tech Communication tech Technology Diversity Flexibility Flatter Smaller Quicker networked Demographic Change

Globalization

Hyper Competition

Pace of Innovation

Group work (2)

2. A. How would you describe an organization? What are typical organizational Parameters (and/or control mechanisms)? 2. B. International expansion: Which organizational structures (or organizational strategies) may help a company entering foreign markets or growing its international business? Possible HR-Implications?

2.2. Structures crossing Country Borders

Stages of internationalization
Sales Subsidiary Foreign Production Network of Subsidiaries

Exporting

Licensing, ManagementContracts

Subcontracting

Source: Dowling u.a., International Human Resource Management (also following charts)

Export Department

Managing Direktor

Production Manager

Finance Manager

Marketing / Sales Manager

HR Manager

Domestic Sales

Export Sales

Sales Subsidiary
Managing Director

Marketing / Sales

Export Manager

Human Resources

Produktion etc.

Exports

Sales Subsidiary

International Division
Boardmember Boardmember Human Resources Domestic Division (Product A)
Domestic Division (Product B)

International Division

ExportingDepartment

Subsidiary Country A

Subsidiary Country B

Production

Finance

Human Resources

Global Product Division

Headoffice
CEO

Production

Marketing

Corporate Product Division

Human Resources

Product A

Product B

Product C

Europe

Americas

Asia

Human Resources

Marketing

Global Area Division

CEO

Europe

Americas

Asia

Human Resources

Finance

Marketing

Human Resources

Product A

Product B Product C

The shift to a global company

No national borders and mental boundaries in delivering, sourcing products, services, resources: The world is one market HR: Recruitment across national borders, worldwide strategy and policies, integrated management development, increased sophistication in locating certain HRM-practices Results: Relatively fewer expatriation, increased use of TCN, cross-cultural composition of corporate boards and top management, international corporate culture

2.3. Organizational Dimensions

Organizational Philosophy or Culture Organizational Policies Organizational Structure Organizational Systems
Unique pattern of shared assumptions and values that shape the behavior, activities and communication of people in the organization

7-S-Modell (Pascale/Athos)
Structure (H)

Strategy (H)

Superordinate Goals (W)

Systems (H)

Skills (W) Staff (W)

Style (W)

Example: Googles organizational culture

Few management structure, informal: a fun place to work, teamoriented culture Amazing perks: massage therapy, snacks, gourmet lunches, work-out gyms, pool-tables 20% of work-time on self-directed projects, flexible work hours Open communication, open doors, lunch hour discussions Recruiting only from top-ranking universities (most important: intelligent and smart people) Qualities sought: broad knowledge, expertise in computer science and mathematics, excellent communication and organizational skills, passionate about their work and great colleagues Recruitment ads in movie theatres, employee referral program, contests with prize money Encouraging innovation and creativity (internal web page for tracking new ideas, open discussion of ideas, everybody spends a fraction of the working time on R&D)

Changing Organizational Culture

Culture is resistant to change because it is made up of relatively stable and permanent characteristics Strong cultures are particularly resistant to change Understanding the Situational Factors - makes cultural change more likely dramatic crisis occurs leadership changes hands organization is young and small culture is weak How Can Cultural Change Be Accomplished? requires a comprehensive and coordinated strategy unfreeze the current culture implement new ways of doing things reinforce those new values change, if it comes, is likely to be slow protect against any return to old, familiar practices and traditions

2.4. Melting organization and culture: Mergers & Acquisitions (M&A):

Rank 1 2 3 4 5 6

Why mergers fail

Incompatible cultures Inability to manage target Unable to implement change Synergie non-existent or overestimated Did not forecast foreseeable events Clash of management styles / egos

Negative Impact 5,60 5,39 5,34 5,22 5,14 5, 11

Note: Survey of Forbes 500, assessed on a scale of 1 to 7, where 7 is high

Opportunities and risks of M&As from an HR-Perspective?

HR-Tasks
HR-Due Diligence before acquiring! Integration strategy and plan Permanent communication Integration workshops, teambuilding, cooperation Asses qualification and personality, decide who will get the manager positions Adjustment of HR-instruments Manage undesirable employee fluctuation (20-50% of middle and top manager leave the company within one year)

M&A Dismissals
When merging or acquiring another firm:
Avoid the appearance of power and domination Avoid winlose behavior Be businesslike & professional in all dealings Have positive a feeling about the acquired company The confidence, productivity, and commitment of those remaining affected by how dismissed are treated

Corporate culture and M&A

Merger means encountering different cultures Can we learn from other cultures? Culture shock: New corporate values, structures, systems Costs of culture collision? No culture-management: Fight instead of Integration? Strategies: - Culture removal (dismissals, downsizing) - Culture separation - Culture adjustment and integration Cultural impacts of staffing decisions? How to mobilize valuable (corporate or client) internal experience and knowledge?

Eon as an Example of a successful Post-Merger- Management by HRM

Visioning event Critical processes Town hall meetings with all HR groups Resulted in changes to several processes Organizational design event Implementation

2.5. Summary
Influence of organizational designs to Management and HR Organizational parameters International expansion and adequate structures Organizational culture (corporate culture) and interdependencies to the structural design Structures of a global company Cultural Change: Challenge for HRM We can Create a Culture of Involvement & Participation and committed teams HRM-implications of Mergers & Acquisitions

3. Global Staffing: Recruitment, Placement and Retention

Outline of Chapter 3
Recruitment Process International staffing policies Culture Shock Selection and Assignment Failures and Problems Selecting Host- and Third-Country Nationals Repatriation and Retention

After Studying This Chapter You Should Be Able To:

Understand the need of employment planning and the recruitment process Discuss the main inside and outside sources of candidates in an international context Explain international staffing and how to improve international assignments through selection Understand the culture shock phenomenon Know about the importance of a successful repatriation and employee-retention

3.1. Introduction: The Recruitment process

Goal: Locate and attract good quality
applicants and to make valid, reliable, and cost-effective decisions about whom to select You can never turn a farm horse to racing horse! Which factors will good quality applicants influence to apply?

Employment planning and forecasting

Steps in Recruitment and Selection Process

Recruiting builds pool of candidates

Applicants complete application form

Selection tools like tests screen out most applicants

Supervisors and others interview final candidates to make final choice

Job specifications as basis for recruiting

Determine and specify predictors or requirements necessary for successful performance Define what you mean by success on the job
We will soon consider some predictors for being successful in an international surrounding!

Job Analysis: Analyze and write down the duties and skill requirements of a job and the kind of person who should be hired for the job by collecting the following types of information: work activities, a list of a jobs human requirements (education, skills, personality), reporting relationships, machines, tools, equipment, and work aids; performance standards; job context. Products of a job analysis are Job Descriptions or Job Specifications

Finding Internal Candidates

Succession planning: ensuring a suitable supply of successors for future senior jobs Succession Planning includes: Determine projected need Audit current talent Planning career paths Career counseling Accelerated promotions Performance related training Planned strategic recruitment Advantages and Disadvantages of Inside candidates?

Outside Hiring
College recruiting Internships Referrals Executive Recruiters (Headhunters) Online executive recruiting firm Internet recruiting

3.2. Employee Testing and Selection

Employee testing and selection is the use of various tools and techniques to select the best candidates for the job. These tools cover the selection process, basic testing techniques, background and reference checks, ethical and legal questions in testing, types of tests, and work samples and simulations.
Why is selecting the right employees so important ?
Laws often bar discrimination with respect to race, color, age, religion, sex , disability and national origin. Better dont ask special questions in some countries!

General Selection Procedures

Use of structured interviews varies widely by country
22.9 % 33 % 17.1% 59.1% 29.2 % 34.6% 37.5% 54.8 %

10.3%

12.1%

3.3. International Staffing

Value Systems and Staffing Policies: Ethnocentric, polycentric, geocentric
International Staffing Strategy: 1990 vs. 2000
Ethnocentric Approach Polycentric Approach Geocentric Approach 41% 37% 22% 31% () 38% 31% ()

Group-Work (3)
3.A. What are possible Advantages and Disadvantages of using PCNs abroad (ethnocentric approach)? 3.B. What are Advantages and Disadvantages of using HCNs (polycentric approach)? 3.C. What are Advantages and Disadvantages of using TCNs? 3.D. What are Advantages and Disadvantages of the geocentric (global) approach? 3.E. What is Expat failure? Possible reasons for failure? Direct and indirect costs of failure for the company and the expatriate? 3. F. How to retain good local Manager (HCN) in the MNE?

3.4. Culture Shock

It is a known process with known symptoms

Adjustments to work and environment New and old rules, unspoken rules and expectations You have no way of knowing (violating rules) You will not always know how to calculate or evaluate appropriate behavior Sufferings without apparent origin (strange own behavior) Everyone experiences culture shock somewhat differently

Stages of cultural shock

The Honeymoon Creative Independence Reintegration Become Functional

Disintegration

4 5 6 7 8 Number of Months In Country

10

11

12

3.5. Selection and Assignment

A selection model Predictors of success Expatriation and Assignment to a foreign post Reservations to Expatriation
Whats coming up in the next hour?

Selection Model for international Managers: Mendenhall and Oddou

The self-oriented dimension (selfpreservation, self-enjoyment, mental hygiene) The perceptual dimension (expertise in understanding why host nationals behave the way they do) The other-oriented dimension (degree to which the Expat is concerned about host-national coworkers and desires to affiliate with them) The cultural-toughness dimension (if degree of cultural disparity is high, only applicants with high scores should be considered)

Selection of international Managers

Important Predictors of Success Family situation tops the list Flexibility/adaptability screening was high on results Traits that predict success in adapting to new environments (extra-cultural openness) Previewing what changes an international assignee can expect Job knowledge and motivation

Study Results: Most important prerequisites for success abroad

Study PWC 1999 Technical competence (96%) Leadership competence ability to communicate (74%) Career record (67%) Language ability (60%) Motivation for foreign assignment (60%) Openness (57%) Cultural sensitivity (54%)
Study Amrop/Harvard 1996 Personal leadership traits ( 96 %) Technical knowledge and skills (68%) Specific country knowledge (68%) Involvement in local culture (51%) Regular Contact with HQ (51%)

Reasons not to accept a foreign assignment (PWC 1999)

Concerns about family (76%) Difficulty finding spouse employment, career of the partner (59%) Fear about promotion on return, disadvantage for own career (34%) And.... - Conflict in culture values - Inadequate compensation - Fear of losing touch with mainstream - Problems with the hardships of special locations

Duration of assignment
(2001, German companies)
4 years and more Up to 3 years Up to 2 years Up to 1 year

0%

10%

20%

30%

40%

50%

Foreign Assignments
(Growth rate 1997-1999)
Short-term assignments 54% 49% 44%

Business trips
Virtual assignments Commuter assignments Long-term assignments Permanent transfer 23% 20%

37%

0%

10%

20%

30%

40%

50%

60%

3.6. International Assignment Failure

International assignment failure can cost hundreds of thousands of euros Why International Assignments fail? Personality Persons intentions Family pressures Lack of cultural skills Other non-work conditions like living and housing conditions, and health care

Improving Failure Rates/ Solutions

Provide realistic previews Have a careful screening process Improve orientation Provide good benefits Test employees fairly Shorten assignment length

Group-Work (4)
4. A. Repatriation: Another culture shock? Which problems might arise?
4.B. How should the expat prepare for repatriation? 4.C. What are the main topics or challenges for HRM regarding repatriation? What (aspects) should be covered in formal repatriation programs?

3.7. Repatriation
Planning Preparation

What to do??

Physical Relocation
Transition Readjustment

Problems of Repatriation
Reverse culture shock Leaving the firm prematurely Career Anxiety: Mediocre or makeshift jobs, finding former colleagues promoted Devaluing the International Experience Coping with new Role Demands Loss of Status and Pay Effect on Partners Career Social Factors

Exit after repatriation?

An average of 20-30% of people returning from long term ( over one year) overseas assignment leave their employer within the first year home. High overall costs for company and expats Reasons for the lack of repatriate programs (Harvey-Study, 1989): *Lack of expertise in establishing a program (48%) *Cost of program to train repatriates (36%) *No perceived need for repatriation training by top management (35%) Repatriation problems seem to be not dramatic, or visible, or identifiable. A repatriate exiting the organisation can become just another statistic contrary to the more exciting incidence of Expatfailure!

Repatriation Solutions
Shorten time abroad have written agreement Assign a sponsor Provide career counseling Keep communications open Develop reorientation programs Have returnees advise future expatriates

3.8. Retention
Employees should be seen as valuable assets which need permanent motivation to thrive
High fluctuation costs (direct and indirect costs, problems with clients) Know-how-outflow Work climate suffers Image problems

Global competition, Changing environment

Employability Concept

High flexibility, quick reaction and proaction and permanent adaptation to changing world and change

downsizing, job changes, mobility, lifelong learning, motivated people

Increasing importance to keep and develop the good performing people

Key question: In these times of rapid change how do you get the employees to keep the companys best interest at heart if the company doesnt seem to or is unable to care about whats good for the employee? With other words: How to get committed employees when the employer cannot guarantee job-stability and the employees may be permanently confronted to organizational changes, outplacement etc. ??

Instruments of retention (and motivation!)

material payments
Basic pay Pay for performance Special payments Participation models

benefits
pensions support Loans kindergarten

individual
Professional and personal development career Overseas assignments job enrichment Competencies Working times Project work Work climate

Group-related

Personnel development

Task, Organization, Strategy

What about the boss?

immaterial

3.9. Summary
Steps in recruitment and selection process Internal sources of candidates Outside sources of candidates Hiring locals or using expatriates Culture shock Prerequisites for success abroad Why expats fail Repatriation and Retention

4. Managing Performance and Appraising

Outline of Chapter
Some basics of appraisals and the role in managing performance The appraisal process and its functions Some new tools of appraisal Performance management in a competitive world Expatriate performance and appraisal

After Studying This Chapter You Should Be Able To:

describe the appraisal process and its functions explain and discuss the pros and cons of at least four innovative performance appraisal methods explain and illustrate the Performance Management Process describe the factors influencing managers performance overseas discuss the specialties of Performance Appraisals in an international environment

4.1. Basics of Appraisals

Outline

Why Appraise Performance? Steps in Appraising Performance Who does the Appraisal? The Development Plan Succession Plan

Unsatisfactory

Outstanding

Why Appraise Performance?

Appraisals provide information for promotion and salary decisions Provides opportunity to review an employees work related behavior with the goal of correcting deficiencies Is part of the career-planning process Appraisals help manage and improve your firms performance

Steps in Appraising Performance

The evaluation of an employees current and past performance relative to performance standards Discuss progress & make plans

Define the Job

Set Work Standards

Provide Compare Appraise performance Feedback Performance to the standard

Who Does the Appraising?

Your boss You

Peers Subordinates
Customers Rating Committee
Poor Average Good Extremely Good

Extremely Poor

The Development Plan or Appraisal Interview

Development Plan: an interview in which the supervisor and subordinate review the appraisal and make plans to remedy deficiencies and reinforce strengths. Adequate preparation and effective implementation are therefore essential.

Unsatisfactory

Outstanding

4.2. New Developments in Appraisals

Outline

Forced Distributions Upward Evaluation 360o Appraisals

TQM Oriented Appraisals

Forced Distribution High Performance Insight

30 25 20 15 10 5 0 Low Low- Avg High- High avg avg Low Low-avg Avg High-avg High

Soon: Role game: Forced Distribution with HVB

Merck began using this rating method for exempt employees when it found other methods resulted in 80% of employees rated a 4 or higher on a 5 point scale.

Risks of introducing a forced distribution system

Fits possibly to an individualistic culture ..in a team-culture there is a risk of tension in groups or contra productive results Harms harmony, there will be losers, May have detrimental effects to personnel development (connection between appraisal and wages), delivers no information for Training & Development Risk potential between manager and employee, demotivation In an international context: Who will grade HCNs? A PCN? How big is the difference between the best and the worst? Underlying assumption of a normal distribution is not correct

Upward feedback

What is Upward feedback? Why? In which culture do you expect to find this method? Which preconditions (for a success of this feedback) should be fulfilled? How effective is upward feedback in improving supervisor performance?

o 360

Appraisals

360o assessments evolved from upward feedback appraisals Ratings are collected all around an employee Peers, supervisors, subordinates, customers, suppliers, other departments complete surveys on an individual Great deal of paperwork

4.3. Performance Management Approach

Performance management managing all elements of the organizational process that affect how well employees perform
Multinationals Internationalizations Strategies and Goals Subsidiary Goals Job Goals and Standards

Job Analyses

Performance Appraisal

Encompasses goal setting, worker selection & placement, appraisals, compensation, training, & career management

Management by Objectives
MBO refers to a organizational 6 step goal setting and appraisal program
Set the organizations goals Define expected results Set the departmental goals Discuss departmental goals

Performance reviews

Provide feedback

New Trends in Performance Management ?

Skepticism about an overall motivating effect of appraisals: Excellent interview and counseling skills required Performance Management is more than a Review of Performance: It must be supplemented by an integrated cooperative objective-setting and a development planning process Goals should be flexible to reflect changing conditions Ongoing discussion and feedback by coaches who are not focused to judge their employees but to help them achieve success (e.g. through training, better resources) Upward appraisals and forms of ranking systems gain ground

Group-Work (5)
5.A. Which special Factors may (adversely) affect performance abroad (goal attainment)? 5.B. Technicalities (specialties) of Performance Appraisals in an international context (Which criteria? Who are the partners? Which form? Frequency? etc.)
5.C. Role Game: Forced Distribution with HVB 4 Groups according the assignment

4.4. Expatriate performance and appraisal

Factors influencing Expatriate performance and appraisal:
Compensation package Task / Role Headquarters Support Host Environment Cultural adjustment Different management styles Who conducts the Performance Appraisal? Performance Appraisal Practise (standardized or customized, frequency )

Example: Performance appraisals in Western MNEs in China

Cultural Features
Evaluation Criteria

Face

Group orientation Hierarchy Relationship

Broad Evaluation Criteria, related to task (not to very specific and ambitious objectives), to moral, group behavior, specific job descriptions Self-evaluation and opinions by peers and subordinates (democratic process) Easy and one-way objectives (avoid a possible loss of face if the goals are not achieved) Little criticism and feedbacks, no intensive discussion, limited interpersonal feedback, language barriers, low upward feedback, few reactions on downward feedback, more open when close managersubordinate relationship Expect ready-made training/career development plans

Sources of appraisal Objective setting Performance Review

Training and Development Plan

4.5. Summary of Chapter

People want & need feedback an appraisal gives them that feedback Clarify the performance you expect in advance Appraisals help in managing performance by providing concrete and non-threatening basis for analysis of employees work-related performance Weve seen tools like: Forced Distributions, 360o Appraisals, Upward Evaluation, TQM Oriented Appraisals Performance and appraisal in an international surrounding is a challenging task

5. Training and Development

Outline of Chapter 5
Introduction: Training and Development Process Expat preparation, tools and instruments Cultural Awareness Programs Managerial Development and Training Development of a cadre of international Managers HCN-Training

After Studying This Chapter You Should Be Able To:

discuss how to prepare, to train and develop employees for international posts give some arguments for attendance of cultural-awareness-seminars describe some on- and off-the job training methods illustrate some Career management practices explain how a company may build up a pool of international managers

5.1. Introduction: Training and Development Process

Needs analysis Instructional design Validation Implement Evaluation & follow-up

Training and Development: Group-Work (6)

6.A.: The international company: Why training and development? In which areas? Possible problems? 6.B.: How can the HR-Department prepare an employee for an international assignment? Are there any Criteria for the right instrument? 6.C.: Why train the HCNs? Possible benefits?

6.D.: How to develop a cadre of international Managers? Ways and instruments?

6.E.: How to build teams across borders? Whats your advise?

5.2. Expat preparation

Why preparation? Why often no predeparture training? What Special Training Do Overseas Candidates Need?
Understanding attitude formation Impact of cultural differences Factual knowledge about target country Language and adjustment/adaptability skills

Tools and Instruments

Cultural Awareness Programs Management and Technical Training Language Courses Look-and-sea trips Practical assistance Communication with returned or current expats Organization of social events Job for spouse

Cultural Awareness Training and Assignment Performance

Contextual and situational factors time available duration and nature cultural toughness
Individual Differences Effectiveness expectations Outcome expectations Individual abilities Motivation Cultural Awareness Training Attention Retention Incentives

Reproduction

Skill Development self dimension relational perceptional

Adjustment and performance

Source: Adapt.from Dowling et.al, Tung et.al, Mendenhall et.al

Performance Management System

Cultural Awareness Programs

Targets of cross-cultural training
Recognize own culture Compare behaviors of the host-country with our culture Sensitivity for the host-culture Promotion of intercultural competence Enhance performance

Quality criteria for cross-cultural trainings?

Training For Special Purposes

Diversity training Global business training samples include:
Executive etiquette for global transactions Cross-cultural technology transfer International protocol and presentation Business basics for the foreign executive

Look-and-see trips
Targets:
* Assess suitability for and interest in the assignment * Introduce expatriate candidates to the business context in the host location * Encourage more informed predeparture preparation * Gather information for the decision * Exposure to the expatriate-community

Language training
The role of English as the language of world business Host-country language skills and adjustment Knowledge of the corporate language

Training Trends for Expatriates

Trends in expatriate training and development: Use of continuing cross-cultural training Use returning managers as resources for new assignees Software and internet programs like Bridging Cultures for cross-cultural training

5.3. Managerial Development

Management development is any attempt to improve managerial performance by imparting knowledge, changing attitudes, or increasing skills with an aim to enhance the future performance of the company itself.
Three principal steps: 1. Assessing the companys strategic needs 2. Appraising the managers performance, skills and potential 3. Developing the managers

The changing role of the manager

Conductor Facilitator Coordinator

Benefits of global Integration

Customer Originator
Chief Supervisor The Boss

Managerial Training
Job rotation Coaching/understudy approach Action learning The case study method Games Seminars University programs Role playing Behavior modeling - 4 steps

Career Development
Management must provide development opportunities, feedback, and career-oriented appraisals Careers are no longer viewed as an upward linear progression but reinvented constantly as work environments change Globalization is a great challenge and step for career development
Companys needs
Human resource activities Employees long-term interests

The Employers Role

Career management practices include:
Posting job openings Formal education Career-oriented performance appraisals Management counseling

Application of HR instruments (portfolio, training) Succession planning Lateral development

5.4. Development of a cadre of international Managers

Developing a small cadre of international employees International Trainee-Programs (Bosch) Short-term and long-term development assignments International job rotation Externally provided training programs (INSEAD in France provides educational opportunities) Field trips to investigate business opportunities, international project work International meetings, teamwork, management seminars No career without having worked in an international subsidiary (Unilever)

Selection-DevelopmentAssignment-Process
Portfolios Training, Development of international skills and abilities Reassignment Repatriation International Assignment

Recruiting and Selection Process

Pool of employees for an international career

Personnel Planning / Vacancies

International Postings

Individual Profile

Specific Training Predeparture T.

Global Executive Development

Candidates backgrounds Family situations Brief candidates on all relocation policies Comprehensive training Provide a mentor Establish a repatriation program

HCN-Training is important
Why train the HCNs? Effects of training HCN Poaching of trained HCNs Inpatriation: HCNs as Expats

5.5. Summary
Expat Preparation: Training tools and instruments We saw a number of special purpose training methods Management and career development Global executive Development Building a pool of internationally experienced managers Why HCN is important

6. Compensation

Outline of Chapter 6
Incentives: Tools and components Strategy and Manager Compensation Long-Term-Incentives International Rewarding: Trends and Examples Expatriates Compensation: Objectives, Components, Methods, Taxation

After Studying This Chapter You Should Be Able To:

discuss the various incentives for employees and management discuss the pros and cons of short and longterm incentives describe the main trends regarding international compensation for executives explain why many incentive plans fail describe the main objectives, components and methods as well as the pros and cons of Expat-compensation approaches

6.1. Incentives: Tools and Components

Merit pay or a merit raise is any salary increase awarded an employee based on individual performance Usually granted exempt employees

Lump sum raises

Lump sum raises are not cumulative; traditional raise is Lump sum can be a bigger motivator

Lump sum award matrix based on individual and organization performance

The Annual Bonus

A bonus is aimed at motivating short term performance with three issues to consider when awarding them:
Eligibility based on job level and salary Fund size use a formula Individual awards based on performance

Incentives for Professionals

Determining this type of incentive is challenging Professionals are well-paid and driven Keep highly motivated professionals by using:
Stock options and profit sharing Improved pension plans More training and education Home offices

Gainsharing
Multiple measures: Productivity, cost savings, performance, product damage, customer complaints, shipping errors, safety, and attendance Committed managers and workers Employee involvement Straightforward formula Eight basic steps:

Establish plan Choose performance objectives UseMethod a funding measures for formula distributing share of gains

Payout must be large enough to of Choose form motivate bonus Decide payout Develop frequency an involvement system

6.2. Manager Compensation

1. When designing a compensation plan, first define strategic context: Meet unique company and strategic needs 2. Long-term incentives have a profound impact on strategic success 3. Shape components into balanced plan 4. Legal and tax effective 5. Install a review and evaluation process

Incentives for Managers and Executives (Example)

Incentives breakdown for a mature company
10% 15%

Salary Short term Long term Benefits

15%

60%

8% 21% 33%

Salary Short term Long term Benefits

38%

Incentives breakdown for a startup company

Types of Incentive Plans

Individual Team Employee group Profit sharing Variable pay Performance plans

Managers Performance Plan or Bonus

Split it with part based on individual performance rest on corporate performance Never give outstanding performers too little Never give poor performers normal or average awards Use a (performance) plan where executives do not prosper unless the company does Make executives have some risk to garner their reward a multiyear bonus

International Trend to Long Term Incentives (LTI)

Stock options Stock appreciation Phantom stock Performance plans Deferred plans

Stock Options
A stock option is the right to purchase a stated number of shares of a company stock at a preset price at some time in the future A restricted stock option is an option grant which has constraints on its use (e.g. realizing the option only after 3-5 years or only eligible when still working in the company)
Example: Manager gets today 10.000 options to buy the company stocks (at a price of $ 25 for one share in three years time). Price of the stock today: $ 22. After three years the stock price is $ 38. The manager realizes his options: He changes his 10.000 options into 10.000 shares by paying $250.000. He may sell the shares in exactly the same moment and gets the actual market price: 10.000 shares times $ 38 = $ 380.000. So the difference is his additional income: $130.000!

Implementing Incentive Plans (1)

Use common sense Incentive linked to strategy Effort linked to reward Easily understood Set effective standards Standard is a contract

Implementing Incentive Plans (2)

Get support Use accurate measurement Long and short view Consider corporate culture Comprehensive commitment oriented approach

Why Incentive Plans Can Fail

Performance pay cant replace good management You get what you pay for Pay is not a motivator Rewards undermine intrinsic motivation People work for more than money Rewards rupture relationships Rewards can unduly restrict performance Rewards may undermine responsiveness

6.3. Trends in international rewarding

Less Merit-Increases (incremental yearly increases) Trend towards variable performance-related reward More long-term Incentives Equity participation by stock options for managers Relative and absolute compensation differences between (Top-) Management and blue-collar workers widen Non-monetary Components (i.e. training, development) grow in importance (higher contribution to intrinsic motivation)

Incentive Plans in Practice - Insight

FedExs pay plan illustrates how firms use innovative incentive plans to boost quality and productivity Uses quarterly pay reviews Has a strong emphasis on pay for performance

Merit Program Superstar Pro Pay Profit sharing program

MBO/MIC and Bravo falcon Goldenzulu PBO/PIC voucher award

International Compensation: Group-Work (7)

7.A. Cash or Stock-Options? What is a better motivator? 7.B.What Compensation-package would motivate you to accept an international assignment? What would you tell or ask your employer? 7.C. What are the advantages and disadvantages of the going-rateapproach (you as an expat are paid like a local)? 7.D. What are the advantages and disadvantages of the balancesheet-approach (you as an expat are paid in a way that will allow you to keep your normal standard of living = principally you get what you earned in your home-country)

6.4 Expatriates Compensation

Outline

Objectives Key Components Compensation Strategies: -The Going Rate Approach -The Balance Sheet Approach Taxation Trends and Management Compensation

6.4.1. Objectives
Company Objectives
Consistency with the overall strategy, structure and business needs Attract and retain staff for international postings Facilitation of the transfer of international employees in the most effective manner Due consideration to equity and ease of administration Cost efficiency Plans must consider various factors: Tax treatment Regulatory environment Foreign exchange controls And the goals for the Employee?

Determining Equitable Wages

Lots of compensation data available Some companies rely on own surveys, especially for Cost-of-living allowance (COLA) Services: Organization Resource Counselors, Hay Consultants, Anderson Consulting, Lufthansa, Statistisches Bundesamt, Big-MacIndex (The Economist).

6.4.2. Key Components

Base Salary Foreign Service or Mobility Inducement Hardship Premium or Hardship allowances Other Allowances (COLA, Housing, Home leave, Education, Relocation) Benefits Non-monetary rewards

6.4.3. The Going (or Market-) Rate Approach

Based on local market rates Relies on survey comparisons -local nationals -Expatriates of same nationality -Expatriates of all nationalities -in the same industry or general labor market Compensation based on the selected survey comparison Base pay and benefits may be supplemented by additional payment for low-pay countries
Advantages? Disadvantages?

6.4.4. The Balance Sheet (or Build-up-) Approach

Maintenance of home-country living standard, plus financial inducement Home-country pay and benefits as benchmark Adjustments to home package to balance additional expenditure in host country Financial incentives added to make the package attractive

Balance Sheet Approach

60-80% of all MNEs use it Has 4 main home-country expense groups: Income taxes Housing Goods and services AdvantagesDisadvantages? Discretionary expenses Expatriate receives base pay + additional for each group

Sample balance sheet approach

Example for Balanced Sheet A.

Employee: Rainer Schn Position: Marketing Manager Country: Japan Reason for change: New Assignment Effective date of change: 1 June 2004 Item Amount Of this Paid in Amount local Paid in currency p.a. p.a. Yen p.a.
Base salary 100.000 Cost of living allowance 35.000 Overseas premium (20%) 20.000 Hardship allowance (30%) 30.000 Housing addition (15%) 15.000 Tax deduction (5%) -5.000 TOTAL 195.000 Cola Index = 150 Exchange Rate = 250 30.000 20.000 30.000 15.000 - 5.000 90.000 17.500.000 8.750.000

26.250.000

Authorised/Date

6.4.5. Other approaches

The better of home-or-host approach : The idea behind this is that no expatriate should have to live at a lower than a local or home level. The international approach tries to create an equitable system among all international employees. Its especially useful for highly placed executives who will be moving from location to location.

6.4.6. Taxation
Tax implications can be tricky May be responsible for both US and foreign taxes Tax Equalization: firms withhold an amount equal to the home-country tax obligation of the PCN, and pay all taxes in the host country Tax Protection: employee pays up to the amount of taxes he would pay on compensation in the home country Laissez-faire

6.5. Summary

Well done

Incentives influence short and long-term behavior Compensation plans should be based on strategy and clear objectives: Beware of pitfalls! Worldwide performance-related pay and long term incentives are gaining ground There are various Expat compensation approaches and some important key components

7. Business and Ethics

After Studying This Chapter You Should Be Able To:

describe some ethical topics in international business name some universal values and applications of these values describe managers role in ethical matters explain a company code of conduct recap fundamentals of the PUMA Ethical Concept write down important implications for the HR function

Outline of Chapter 7
What are the problems? Common universal values? International Agreements? Examples for Company Codes Grease and Bribery Implications for HR?

7.1. Ethics in Business

Public sensitivity to unethical behavior has increased. Why? Deciding on the correct ethical norms is difficult when legitimate interests are concerned Values in the culture influence ethical attitudes (e.g. workforce interest vs. stakeholder) Different cultures apply different criteria in making ethical decision What is a good corporate citizen?

Common universal values

Ethical Relativism Ethical Absolutism Ethical universalism
Core human values, shared between western and eastern philosophical traditions: Good citizenship Respect for human dignity Respect for basic human rights Fairness and Equity Disapproval of theft and bodily harm

Applications of core human values within MNEs ?

Adequate workplaces Health and safety standards Payment of basic living wages Equal employment opportunities No child labor Training and education Allowing workers to organize and forming unions

7.2. Managers role in ethical matters

Identifying the real ethical dilemmas staff encounter Stimulation discussion, including the views and problems of expatriate and HCN staff on dilemmas, possible solutions, standards, support.. Contributing to the development of ethical codes and setting appropriate examples Code communication and explanation

Corporate code of conduct

Public statement of the firms values and guiding principles. 90% of all US-Fortune 500 firms have codes of conduct. A common difficulty is their enforcement. In the USA ethics is seen more in terms of rules and laws universal approach, whistle-blowers (Japan: traitor!) enjoy legal protection. In Europe more skepticism about legal rules, company check lists, individual responsibility Which content? Pros and Cons?

Bribery
Most frequent ethical problem encountered by international managers B. involves the payment of agents to do things that are inconsistent with the purpose of their position or office in order to gain an unfair advantage How B. can be distinguished from so-called gifts or grease payments or extortions B. undermines public confidence in markets, adds to the cost of products and may affect the safety and economic well-being of the general public.

7.3. Example: Levi Strauss

1993 retreat from China because of human rights violation 1995 retreat from Myanmar (and threat to Bangladesh), between 30 and 50 thousand children were dismissed by (human unworthy) local clothing companies and then enslaved by small firms and families (Oxfam-Report 1995)

7.4.Example Puma AG

PUMA Code of Conduct

The Code of Conduct is the most important principle of PUMAs social policy as well as our most substantial instrument of control. PUMAs Code of Conduct is displayed and accessible at all of PUMAs production sites worldwide. We at PUMA AG declare our strict adherence to the respect of Human Rights. As such, we share with our partners a commitment to high ethical standards and guarantee the following Code of Conduct : No employment of minors. For this purpose, we consider a minor as one who is below 15 years of age, or the minimum age mandated by the applicable law, or the age for completing compulsory education, whichever of the three is higher. A workplace that promotes the health and safety of the workers as well as the protection and preservation of the environment. A normal workweek according to local labor law, up to a maximum of 48 hours, with a limit of 12 extra/overtime hours, including one day off for every seven days worked, as well as overtime compensation policies that are in accordance with local law. Compensation that is respectful of basic needs and all benefits mandated by law. Respect and equality, regardless of race, creed, age, sex, social origin, political views, sexual orientation, or position. A work place where there is dignity and respect, free from any form of forced labor, harassment, abuse or corporal punishment. Freedom of association and the right to join unions or other work or industry related associations as well as the right to collective bargaining in accordance with local law.

Audits with PUMA

The main tool to ensure that our stringent social standards are upheld is the S.A.F.E. Audit. Regular audits are conducted at all of PUMAs direct suppliers and licensees to ensure that the requirements of our Code of Conduct and our S.A.F.E. Manual are met. The S.A.F.E. Audits usually take place prior to production and involve standard questionnaires on social, environmental, health and safety issues; a review of relevant business documents such as payrolls, time records or personal files; a complete factory walk-through as well as interviews with randomly selected workers in a friendly atmosphere and in the absence of the factory management. Union representatives are invited to participate in this procedure where possible. By carrying out audits at all our direct suppliers, as well as documenting the audit results, we hold our manufacturers accountable for their social performance and at the same time evaluate the social footprint of PUMA.

The S.A.F.E.-Concept as an ongoing Process

Code of Conduct S.A.F.E. Manual Declaration of Principles

Continuous Improvement
Re-audit Audit Corrective Action Plan

Training

7.5. Implications for the HR function

Minimize the exposure of employees to corruption by appropriate codes of conduct Training programs and negotiation skills to handle problem situations Employees should understand the difference between corrupt bribery payments, gifts, and allowable facilitation payments Align performance appraisal, promotion and compensation systems Selecting staff operating across national borders who are best able to cope with the ethical dilemmas Appointment of an ethics ombudsperson to whom staff could apply for guidance

7.6. Summary
Corporate ethics is an increasing business Common global values How we can translate values into corporate regulations Corporate code of conduct Pumas S.A.F.E.-Concept Implications for HR-function and HRs responsibilities

Thank you for your attention!