The Institutional Environment of the Workplace - Essay Example

Sl. No. Table of Content Page No. 1. Introduction 02 2. Institutional Theory 03 3. Institutional Theory and HRM 04 4. Institutional Theory of Downsizing 04 5. National Patterns of HRM 05 6. Country Differences: Role of Institutions and Culture 05 7. Training Effects 05 8. Competence appraisal effects on employees abilities 06 9. Performance based and merit based compensation effects 06 10. Positive effects of Internal Communication 07 11. Conclusion 08 12. References 09 Introduction Institutional Theory is a conceptual based theory bringing forward the requisite set of rules as per the institutional environmental of the work place. This theory has been restudied over a period of years and has been found quiet effective in influencing the HRM structure in different countries. The theory generally follows the local factors and cultures as a base for the setting of guidelines. It focuses more on the resilient features of social culture. In this project we make a study of the effect of institutional theory on the HRM structure of Finland, Russia and USA. Institutional Theory Institutional theory confirms a strong influence on the institutional environment to develop a formal structure in the organisation. The environmental feature adopts the innovative structure for the technical improvement at an early stage. Institutional theory focuses on deeper issues of social structure (Matveev and Nelson, 2004). This theory is not basically considered a collection of rules but is a consistent mechanism of restricting social behaviour. Institutional theory, also argued to be considered as open system theory impacts upon the input, output and transformation of organisations keeping the importance of organisation. So Institutional theory is basically considered the processes by which schemes, rules, norms and routines become an authoritative guideline for social behaviour. Regulative: This part of the theory is legally sanctioned indicating the rules and laws. The regulative aspect is logical and instrumental. Normative: The mechanism of this aspect is normative and its legitimacy is governing the rules morally. The logic is quiet appropriate and is followed by certification and accreditation. Cognitive Culture: this logic is considered orthodox and taken for granted. The legitimacy is conceptually correct and culturally supported. Institutional Theory and HRM With the institutional theory becoming so logical and applicable that MNC’s all across the globe are turning to the trend to follow the concept of institutional theory in their policies and attempts to carry out the objectives in attaining their goal. Organisations look towards attaining legitimacy and reorganisation by adopting structural practices as per their suitability to the work environment (Guest, 2001). The day to day changing business environment and continuous globalisation of large corporations has led to the awareness of importance of employees for global competence. Thus, institutional theory has helped MNC’s in adopting subsidiary HRM practise. Institutional theory has been used a theoretical lens which helps in studying the adoption and diffusion of organisational forms and practices. Institutional Theory of Downsizing Downsizing of the workforce has been one of the toughest strategies for the managerial level for all firms. The performance and effectiveness of this theory has been controversial over the years and has only led towards harming the employees and their families and also caused several social problems (Tsai, Wu, Wang and Huang, 2006). i. Influence of Institutional Downsizing Research over the years has shown that the organisational downsizing has been done due to declining economic factors. The social institutional forces motivate firms to follow organisational downsizing. These forces are constraining, cloning and learning. Managers consider the organisational downsizing as unavoidable action with legitimate reasoning and ethical acceptability. ii. Influence of Institutionalism on external behaviour and practices in Downsizing Carrying out of qualitative research upon 18 companies in Taiwan has brought forward that institutional factors bring forward the internal motivation for organisational downsizing. The research also confirms that the downsizing is also due to the combination of economic, institutional and socio-cognition factors. National Patterns of HRM The HRM policies and practices adapted by different MNC subsidiaries have proven that they are based on one country samples. So the effectiveness of HRM practices, from country to country, has been very difficult to identify. The human resource practices are likely to affect employees differently in different countries, like Finland, Russia and USA. The culture and pattern are different in all countries and the MNC’s are required to follow environmental changes as per the legitimacy and applicability of HRM practices in these countries. Country Differences: Role of Institutions and Culture A firm’s performance as per the country differences are followed by the institutional practices and its impact on HRM. Also the national culture perspective has a useful impact on HRM practices as it tries to link the different variance in the way organisation practices works to a systematic belief. The institutional theory brings a link between how the organisational practices and the choice of work together works in the institutional environment in the country where the organisation is embedded. Although the national culture has a strong effect on the HRM practices in some countries the institutional theory guides an acceptable rule of conduct which is reflected in laws, rules and mechanism and capital markets. This theory also gives into the fact that traditional values and practices are built in the country’s social and economic institutions. Institutional perception plays a pivotal role in influencing economic activities and motivation as per the environmental situations. The theory brings forward the fact that firms experience pressure to meet the norms of the environment to maintain the legitimacy in relation to the environment. The process of managing the foreign and local business to manage their operations depends largely on the institutions present in the country. These institutions include the social, economic and political bodies and also the socio-economic norms of those institutions. Training Effects Training is a very important aspect of HRM practices and it completely impacted by national differences. Western firms carrying out operations in Russia have reaped positive feedback through training in Russian subsidiaries. With the training of the employees, the firms are at open end to get better results by proving formal training for specific jobs. Different cultures look upon training differently and the Russians have always valued training so training is more likely to have a positive effect on employees in Russia than in Finland and USA. Competence appraisal effects on employees abilities Performance appraisal is likely to have a bigger effect on employee’s ability in Finland and USA as compared to Russia. The Russian employees are not accustomed to receive a great deal of feedback upon their work performance. Historically, during soviet times the focus was more on the quantity than on the quality of work accomplished (Fey, Pavlovskaya, and Tang, 2004). In depth performance appraisal is not followed largely and the managers are also not much trained in performing appraisal systems as compared to the western counterparts. Performance based and merit based compensation effects Performance based compensation is likely to benefit more in Russia as compared to USA and Finland. Due to the geographical size of Finland, the employees of Finland are more likely to work for a same company, with fewer alternatives to switch job and also the law which stops firing of employees than in USA and Russia. Therefore the risk of losing job is much higher is USA and Russia and the vacancies are to be filled by employees outside the firm and furthermore the Russian employees are more frequent in changing their jobs within a span of year or two. They consider a manager to be more useful and upcoming, who has changed job in four companies in the last three years against a disloyal employee. Also the tax structure is very high in Finland with a final personal income tax, whereas USA lies somewhere between Finland and Russia. Russia has a flat and low tax rate system as minimum as 13%. With higher tax structure there is a greater fixed incentive on salary. In a closed labour market, like Finland the vacancies are generally filled through promotion of existing staff. In open labour market, like Russia, is at extreme situation of switching jobs in different companies. These employees are less concerned about their internal promotion opportunities as they can easily find job opportunities in the outside market. Thus institutional theory focuses and tends to device a normative system of performance based compensation to manage HRM. Thus, merit based promotion system is likely to prove more efficient in Finland than in USA and Russia as the employees are more focussed in one job over as longer period of time. The job switching is USA lies somewhere in the middle of both the other countries. Positive effects of Internal Communication The internal communication of a firm is directly related to the power distance as a bigger distance results in less effective knowing to the employees about the other parts of the firm. Finland has a very low power distance and Russia the most. USA falls in between the two countries. Thus Finland is more likely for a positive response to extensive internal communication. Conclusion We strongly come across against features of institutional theory and its positive impact on human resource structuring in three different countries. This project brings forward some of the important impacts of institutional theory on different salient features of HRM. It focuses on the downsizing of employees and its success in some organisations. Different countries react to same situation differently. Business tends to perform more efficiently where there is a better institutional support. References Fey, C. F., Pavlovskaya, A, and Tang, J. (2004) ‘Does one shoe fit everyone? A comparison of human resource management in China, Russia, and Finland’, Organization Dynamics, 33(1): 79-97. Guest, D. (2001) ‘Human Resource Management: When Research Confronts Theory’, International Journal of Human Resource Management. Matveev, A.V. and Nelson, P.E. (2004) ‘Cross Cultural Communication Competence ad Multicultural Team Performance: Perceptions of American and Russian Managers’, International Journal of Cross Cultural Management 4(2): 253-270. Tsai, C.F., Wu, S.L., Wang, S.K., & Huang, I.C. (2006). An empirical research to institutional theory of downsizing: Evidence on MNC’s subsidiary companies in Taiwan. Total Quality management & Business Excellence, 17(5), 633 –654. Read More