Best Fit between Business and HR Strategies in the Complex Era of Inter-Organizational Relationships - Research Proposal Example

Proposal for a Masters Dissertation Getting the Best Fit between Business And HR Strategies in the Complex Era Of Inter-Organizational Relationships Introduction Businesses never faced the kind of challenges that they confront in today’s environment because of the turbulence and unpredictability created by technology, public policy, social and political upheavals, changing market behaviors and spiraling costs of labor and materials, among others. The new economy as reconfigured by globalization increased the business risks all the more as companies were forced to align through networks, alliances and partnerships in which operational and financial decisions interact heavily. In the global economy, the business risk factors go beyond the challenges of matching supply with demand; they include often unforeseen commodity price shocks, volatile exchange rates and sudden supply disruptions as a result of events beyond anybody’s control, such as natural disasters and terrorist attacks (Neuman, 2005). This proposed dissertation explores the feasible ways by which organizations with the interlocking relationships of the global economy can best respond to the challenges posed by increased business competition and complexity. It will focus on human resource management, which has assumed a new dimension because of the presence of a third party organization that can exercise control over employees of another firm. The paper will propose that in the multi-employer environment of business globalization, the best-fit or best practice objectives of HRM can be achieved by incorporating the inherent advantages of franchising in a company’s HR strategies, especially in the matter of pay and reward. Literature Review The present-day challenge of human resource development is to design HR practices that fit with the new business requirements or, in the words of Mohmann & Lawler (1999), to formulate practices that fit into a “dynamic, unpredictable corporation with a myriad of approaches to getting the work done.” In this concern, the franchising sector provides a microcosm of the difficulties being encountered by the human resource department in working out innovative assessment systems that will demonstrate their influence over the company’s bottom lines, which are profitability and shareholder value (Becker, et al., 2001). The reason is that franchise holders, especially those engaged in the sale and servicing of cars, have as many third-party partners as the existing number of automotive manufacturers who all demand a voice in deciding the franchisee’s HRM practices (Swart, et al., 2002). Franchising in effect typifies the inter-organizational dependency involving human resource management and the attendant dilemma on how the HR department of a franchisee firm can implement a strategic pay-and-reward system that promotes its long-term interest without alienating its network partners. Curran & Stanworth (1983) define franchising as “a business form essentially consisting of an organization with a market-tested product or service maintaining a contractual relationship with another organization to sell the brand.” In general, franchisees are self-financed and independently owned and managed small firms operating under the franchiser’s brand name to produce or market goods or services according to a format specified by the franchiser. Because of the subsequent growth of this sector, the franchising outlet was later redefined as “a legally separate business entity with its own capital base, set of employees, organizational structure and specific customer relations (Stanworth & Curran, 2003),” which indicate that franchisees have become analytically independent of their franchisers. On franchising as growth sector, Floyd & Fenwick (2003) note that this business sector now accounts for over one-third of retail sales in the US and 29 percent of those in UK, thus claiming a huge proportion of the workforce of either country. The largest number of franchisees is in the fast food sector, where franchising is business-based. In such lines of business as car distribution, franchising operation is product-based, which makes it a “quasi-form” of franchising (Truss, 2000). Business-based or product-based, the interlocking business relationships in the franchising sector increases the difficulty of determining for whom one really works for and owes loyalty (Felstead, 1993). The dynamics of franchising as a business proposition has been extensively discussed in economics and marketing literature but there is little mention of it in the HRM literature as an avenue for human resource strategies on performance-related pay and reward. In fact, there is a dearth of research on what the “spherical structure” in employment relations (Miles & Snow, 1999) means for human resource management and HR managers (Kelliher, et al., 2004). No HRM-oriented exploration is yet to be done on the organization and its broader external network, which shifts the role of the HR department from one focused inward to one looking outwards (Ulrich, 1997; Wright, et al., 1999). The mushrooming number of interlocking organizations can mean that employees in one company can be influenced by the HR policies and practices of another firm (Kelliher, et al., 2004). Among the issues raised by this condition are: 1) how to provide protection for employees through a legal framework that assumes a single employer; 2) the power and relevance of organizational commitment as goal within the relationship; 3) the applicability of the universal best practice approaches to employee management; 4) the link between skills and pay regarding employees doing the same job but receiving different pay levels; and 5) the complexity of performance management when the job appraiser may be distant and unconnected from the firm’s day-to-day operation (Rubery, et al., 2002). The primary task of HR managers is to create “good jobs” in an organization, and a good job in the HRM sense is one that is good for both employee and employer, and serves to increase organizational pride, reduce the incidence of absenteeism and resignation and increase productivity and profitability (Dyer & Reeves, 1995). Towards this end, a performance-related pay on individual basis is widely considered an HR best-practice strategy (Korzynski, 2002). So is the resource-based view (RBV), which argues that differences in performance among firms may be attributed to the fundamentally different “bundles” or portfolio of resources that they use to implement their strategies (Barney, 1991; Rumelt, 1984; Dierickx & Cool, 1989). The problem here is that while RBV explains how and why a firm’s resources provide it with competitive advantage, it does not illuminate the strategic process by which the firm manages the structure of its resource portfolio (Barney & Arikan, 2001). In this management aspect, the objective is to find the best fit between resources and organization that would enable the firm to achieve superior performance in the market in which it operates (Conner, 1991). This goal is likely to be affected by the complex and influential networks that extend beyond the traditional organizational boundaries (Kelliher, et al., 2004), in which the powers of the firm may be subordinated to the powers of the network partners (Ozanne & Hunt, 1971). The franchise systems can provide just the foundation for a better understanding the nature of this relationship (Brito, 2001). According to Ozanne & Hunt (1971) and Brito (2001), the power relations between franchiser and franchisee come in two distinct forms: coercive and non-coercive power. Power is coercive if the relationship includes the imposition of monitoring systems and financial control by the franchiser to ensure strict adherence to the franchise agreement. It is non-coercive if the support provided by the franchiser to the franchisee is more indirect and designed to manage by persuasion and example. While this power relationship is often tilted in favor of the franchiser, there are some conditions when the franchisee wields greater power (Truss, 2000), such as when a franchiser needs to rely on the franchisee for market-based innovations toward making both their organizations healthy and competitive (Hoy & Shane, 2003). In this case, the franchiser has limited access to the market that the franchisee serves daily so the former has to subordinate its power to the latter who perforce knows this market better (Felstead, 1993). Case Study Kelliher, et al. (2004), Truss (2000), Floyd & Fenwick (2003) and Felstead(1993) studied the franchising activities in the car distribution and manufacturing industries to gain an insight on how HRM practice is influenced by an external organization that the employing firm has some form of business relationship. The goals of the separate research were to find how HRM is enacted and practiced within the franchise relationship, what mechanisms are used by the franchiser to influence HRM within the franchisee and vice versa, and the broader implications for HRM concepts and discourse (Truss, 2000). The case study firm in the car distribution sector is Car Sellers and the automotive manufacturer is Euro Cars, both in UK. Car Sellers is one of the world’s largest car distributors and represents all major automotive manufacturers. As franchisers of Car Sellers, all of these car manufacturers have a voice in the staffing pattern of the franchisee, except for Prestige Cars, which limits its involvement in the recruitment and selection process. Nonetheless, Prestige Cars places 50-60 people a year at Car Sellers. Another manufacturer, Family Cars, was responsible for the recruitment of 95 percent of the apprentice technicians at the franchisee. Apart from recruitment and hiring, the other HRM area where the influence of the franchising manufacturers is most visible in the franchisee firm is training. Such training interventions range from the conduct of 3-year apprenticeship training for technicians, product-related training for the sales and technical staff, and management skills training for Car Sellers’ executives. The overall goal of these training programs is to tie the skills and capabilities of the dealer’s employees into the manufacturer’s brand. The extensive influence of manufacturers over the recruitment and training of the frontline employees of Car Sellers includes pay management and appraisals (Kelliher, et al., 2004). Family Cars, for example, provides a car subsidy scheme for technical and sales staff who excelled in product-related training, and Prestige Cars offers the same incentives to technicians who attended its courses. All HRM-related activities were never referred to Car Sellers’ HR department, which is unaware of what kind of training and skills development programs were providing its staff and how they were being appraised on performance ((Truss, 2001). This creates confusion in the minds of Car Sellers’ employees who can’t avoid asking: Where do their loyalties lie, with the car brand and its manufacturer or with the dealership? In the case of Euro Cars, the franchise relationship involves labor supply arranged with three employment agencies from the outside. The HR strategy was adopted in 2001 when the firm launched a new car model of which it was unsure of market success. So to manage this uncertainty and avoid previous experience of failures, Euro Cars resorted to the more flexible approach to labor management by signing a contract with employment agencies to provide it with employees for the critical body shell building, paint shot and vehicle assembly sections (Kelliher, et al., 2004). As demand for the new car model increased, so did the number of agency staff at Euro Cars such that at one point, there were 2,400 employees from supplier agencies working in tandem with 1,000 core workers of Euro Cars on a 3 shift, 7/7 schedule. In time, the employment agencies behaved as though they were business partners of Euro Car, not just the labor supply agencies that they were. Part of the labor supply deal is for the agencies to manage the HR activities for their own people at Euro Cars, which include maintaining employee records, administering payroll, providing staff uniforms, absence monitoring, and handling disciplinary and grievance matters. The first sign of disturbance was seen when the labor union of Euro Cars protested the arrangement in which the agency-supplied employees outnumber the firm’s permanent employees. For this paper, an independent case study will be conducted on a Volkswagen franchise dealership that is engaged in vehicle sales, servicing and repair. A series of semi-structured interviews will be held on selected staff of the sales and servicing departments, where performance-based pay is given. Team awards are reserved for high-performing employees in services, while individual awards await the good performers in sales. The Volkswagen franchisee adopted the performance-linked awards after the franchiser made it known that it would penalize the franchisee if it fails to reach the revenue target it had set or provide incentives if the performance regarding this target is praiseworthy. Methodology Research for the proposed dissertation will follow the example set by Truss (2000) and Kelliher, et al. (2004) in probing the HRM policies observed at the Volkswagen franchise dealership, which relied heavily on interviews with managers and employees of the case study firms. The interviews will likewise focus on the relationships between this dealer and its franchiser, such as to what extent does the franchiser influence the HRM policy and strategy at the franchise dealer and how the franchisee can implement its own HRM strategies as to pay and award in order to create “good jobs” in the organization. The questions will be so prepared so that the interviews may yield such data as the sentiments of the franchisee’s employees towards the franchise arrangement, in which their HR policy is managed by an external entity. Previous studies dwell only on the outward behavior of managers and employees against these inter-organizational relationships. Another specific concern of the research related to the Volkswagen franchisee is to formulate at least four methods of how the pay and reward strategy of human resource management can make the job more interesting and exciting for the franchisee employees. Most important, the research will evaluate which of the best-fit, best practice and resource-based view of human resource management is most appropriate in a franchise business. Conclusion Franchising has been shown as the best example of the interlocking relationships facilitated by globalization, which brought a new face to human resources management. HR policies and practices, which used to be confined within the parameters of the organization, are now carried out by third-party organizations such that an outside entity exercises control over the employees of one firm. Under a situation in which a company’s clients or suppliers define and determine its HR practices, the in-house HR department of a firm is at a loss on how to implement its own policies that would promote the well being of its employees and the company’s interests. 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