Mistakes of Human Resource Management at Mid Lancs Automotive - Case Study Example

Report Executive Summary The merger of Halecars and Mid Lancs Automotive to form Mid Lancashire Automotive Ltd comes at a time when the automotive industry is recovering from the recession and not performing at its best. The two automotive manufacturing companies have traditionally had sharply differing organisational structures and culture. A study of Halecars shows that most employees are low-skilled and earn slightly less above the legal minimum wage and have not joined the Transport and General Workers Union. Most significantly, there is a poor management structure without explicitly defined human resource management as well as health and safety policies. On the other hand, Mid Lancs Automotive was shown to be more successful, highly modernised and employed skilled workers. Further, the employees also receive in-house training to improve their skills. However, although there is a well-defined human resources management structure in place, the management is also known for not tolerating employees who may not observe the organisational culture. The management, like that of Halecars, also fails to recognise the Transport and General Workers Union. For the merger to be successful, these two companies with largely different cultures will need to implement and observe several changes in human resource management. This is based on the knowledge that the human resource is a company’s most important asset that provides competitive advantage. This report will analyse the human resource management structures of the two companies and recommend changes that must be implemented in order to come up with an appropriate human resource strategy for a successful merger. Table of Contents Introduction 4 Overview of Human Resource Management 5 Previous Mistakes of Human Resource Management at Halecars 7 Previous Mistakes of Human Resource Management at Mid Lancs Automotive 8 The Role of Human Resource Managers in Mergers 10 Human Resource Management in the Automotive Industry 10 Conclusion 12 Recommendations 13 References Report Introduction Halecars has been manufacturing cars for long on the environs of Liverpool. Prior to the automotive industry’s decline in the UK, the company specialised in British cars but was forced to shift to manufacturing for export under its new Indian ownership. However, a major problem at Halecars is the way in which the company is run. The managing director and his personal assistant are the ones responsible for the management of human resources and industrial relations. Most of the employees, who are hired on the basis of knowing someone rather than an official recruitment procedure, are low-skilled. Further, they are not members of the Transport and General Workers Union because the Indian owners of the company do not recognise the union. In the environment of recovering from the financial crisis, the management at Halecars did not pay particular attention to the automotive industry’s growing demands for highly skilled workers. The company is also characterised by a high employee turnover and the managing director has given the responsibility of managing people issues to the section managers. All the section managers were trained in-house while on the job. Typically, the human resource management strategy at Halecars is very unprofessional and requires changes in the merger. On the other hand, Mid Lancs Automotive was found to be more successful not only in terms of business but also in having a professional human resource management structure in place. Employees are well-paid, receive additional training while working and are also part of the company’s profit-sharing scheme. However, there are problems with industrial relations that led to employees walking out after the company refused to recognise the Transport and General Workers Union, of which half the employees are members. The merger essentially presents a case of two cultures merging and requiring adjustment in order to successfully accommodate each other. Mergers are traditionally known to fail due to economic and financial reasons, but human factors, which entail properly managing people, are claiming more responsibility in mergers in present-day businesses. This paper will research and prepare a report for the Board of Mid Lancashire Automotive Ltd, whereby advice will be given on the creation of an appropriate human resource management strategy. It will further outline what are considered to be the most significant issues of human resource practice that need to be addressed. Overview of Human Resource Management Human resource management works via systems of human resource that logically bring together human resource philosophies that describe the guiding principles and values adopted in managing people (Stewart & Tansley 2002, p. 109). For the automotive manufacturing industry, human resource is the most significant asset required to achieve competitive advantage. However, the industry’s human resource directors have apparently had insignificant influence in the shaping of how their companies make efficient use of their available resources, essentially resulting in unbudgeted overproduction. The management of human resources presents more challenges than may be expected from the management of capital and technology, which means that the merger between the two automotive manufacturers will need an effective human resource management system (Armstrong & Baron 2004, p. 69). Additionally, the system to be adopted will need to have the backing of sound human resource management practices. Ideally, human resource practices are in reference to the organisational activities that are aimed at managing the entire human resources as well as making sure that the employment of the resources targets to fulfil organisational goals (Wang 2005, p. 483). It is imperative for both employees and the management teams of the two companies merging to acknowledge that internal and external factors affect human resource management practices. For example, the automotive manufacturing industry has for long faced the challenge of skill shortages and retirements. Therefore, finding capable employees to fill up the gaps left by retiring employees has been a matter of concern for the human resource directors. However, the rate at which technology is advancing has changed the trend of lack of skilled workers and also brought in new standards for environmental safety and quality as well as fuel economy. Further, other variables such as the attitude of employees, the relation between employers and employees, the productivity of the employees and the financial performance of the company are also affected by the practice of human resource management (Merkle 2012, p. 93). For the new company, it must be recognised that human resources will be source of realising competitive advantage basing on its ability to convert other resource into products and services. Apart from human resources, the other resources refered to in the context of the new automotive manufacturer include capital, technology, processes and raw materials (Scarborough & Elias 2002, p. 53). While capital and technological resources may be imitated by competing organisations, it is important for the new company to acknowledge that its human resource will always remain unique. All the strategies that will be incorporated must be in consideration that people will be the most significant factor towards the provision of adaptability and flexibility of the new company (Caldwell 2004, p. 198). More importantly, since the merger is intended to realise more profits especially in the face of the recovery from the recession, it is critical that the management rather than the new company is recognised as the adaptive mechanism. This adaptive mechanism embedded in the management will determine the manner in which the new company responds to the competitive industry (Tan & Nasurdin 2010, p. 106). While it is acknowledged that it is more difficult to manage human resources than it is to manage capital or technology, designing strategies that manage people more appropriately provides a clear competitive advantage. It is recommended that the new company starts by motivating and developing the existing human resources because it takes much longer and is more costly and cumbersome to acquire and effectively deploy new human resources (Fadel & Petti 2007, p. 19). Previous Mistakes of Human Resource Management at Halecars Halecars failed to recognise that the practice of human resource management is an organisational function with a focus on recruiting, managing and the provision of direction for the people working for the company (Johnason 2009, p. 31). While it is an acceptable concept that section managers performed some of the roles of human resource management, it raises questions that not only the line managers but also the shop-floor labour force that they managed were not properly recruited. Essentially, such human resource management practice could not appropriately perform the function of dealing with issues that relate to employees such as hiring, motivation, training, performance management, compensation, safety, administration, communication and organisational development. It is only through effective human resource management practice that the manufacturer could enable its workforce to productively and effectively contribute towards the overall direction and achievement of organisational objectives and goals. On the contrary, Halecars stuck to the traditional transactional, administrative and personnel roles that are increasingly, in the modern competitive environment, presenting more need to be outsourced. In such traditional practice, Halecars could not add value to its strategic utilisation of its workforce. It was overlooked, at the expense of the company, that business is impacted in measurable ways by employee programs. As the company prepares for the merger, it must be recognised that in the modern competitive world of business, the role of human resource management entails strategic direction as measurements and metrics that are a demonstration of value (Chen & Huang 2009, p 34). What the management at Halecars lacked was an extensive knowledge of leadership, effective negotiation skills and industry characteristics. For instance, there was the lack of recognition of the Transport and General Workers Union by the Indian ownership, which was also reflected in the way the managing director, his personal assistant and the section mangers ran the company. This shows the lack of knowledge in effective negotiation skills. In the management of people affairs at Halecars, there were no job analyses conducted, personnel needs were not planned, there was no recruitment of the right staff for the relevant jobs and training was not provided. It is a requirement of human resource management that all these areas are addressed and, additionally, appropriate orientation, incentives, benefits as well as dispute resolving and performance evaluating strategies are put in place (Leonard & Waldman 2007, p. 39). Apart from managing salaries and wages, the management must consider how effective communication with all employees will be executed at all levels (Clutterbuck 2004, p. 82). The lack of performance appraisal at Halecars is not an indication of effective communication within the ranks of the company. It is only through the effective management of knowledge, which lacked at Halecars, that the positive relationship between administrative, training and process innovation can be enhanced. Previous Mistakes of Human Resource Management at Mid Lancs Automotive Unlike Halecars, Mid Lancs Automotive recognised that human resource management is an organisational function whose design is targeted at maximising the performance of employees in their service of the company’s strategic objective. This characteristic of the company’s management is evident in their primary concern with how employees are managed, with particular focus on systems and policies. This human resource practice should be carried into the merger, with enhanced attention the recruitment, training, orientation and development of employees. However, the management at Mid Lancs Automotive did not focus on developing and improving industrial relations, which led to the walk-out by workers in protest to the company’s refusal to recognise the Transport and General Workers Union. Essentially, this communicates the lack of balance between organisational practice and the regulations developed by governmental laws and collective bargaining. The lack of such balance shows that the management at Mid Lancs Automotive, which also had a human resource management structure in place, failed to recognise that there is a direct relationship between organisational innovation and human resource management practices (Smilansky 2005, p. 69). Further, it also shows that the indirect relationship between organisational innovation and human resource practices via the effectiveness of knowledge management was not recognised. Human resource management cannot be as effective as desired when the practice is not holistically conducted. For example, Mid Lancs Automotive invested in the development of technology to improve their products, processes and system as well as employee training and motivation. However, all these efforts were negated by the failure to recognise the right to or significance of collective bargaining powers by employees, hence the refusal to recognise the Transport and General Workers Union. Essentially, even with all the technological advances and employee development programs in place to contribute towards organisational innovation, Mid Lancs Automotive was still largely a product-based company rather than a knowledge-based one. It is recommended that the company carries into the merger the recognition that human resource management practices have a direct relationship with organisational innovation. Administrative, product and process innovation must be implemented alongside recruitment, training, reward systems, career management and performance appraisal (Akgun, Keskin, Byrne & Aren, S 2007, p. 9). On the contrary, denying employees access to unions, and hence collective bargaining power, is an indication that Mid Lancs Automotive did not acknowledge the positive effect human resource management has on organisational innovation. On one hand, it is true that the company offered on-the-job training to employees apart from their academic and professional qualifications. On the other hand, it is also true that the positive effects of effective knowledge management on administrative, process and product innovation were not recognised. The Role of Human Resource Managers in Mergers Human resource managers help organisations understand the human implications of mergers. The new human resource manager at the new company must consider corporate cultures and people issues. He will need to conduct cultural audits to make sure that the different teams from the two companies are compatible and serve common organisational objectives (Klerck 2009, p. 246). As the case study showed, there are discrepancies in the way the two human resources were managed and it is up to the new manager to recommend new organisational structures that will overcome the differences. This will best be informed if the manger-to-be evaluates the human resource structures of the two companies prior to the process of integration. This will help him identify and single out suitable employees to keep in the new organisation (Conaty & Charan 2011, p. 48). Human Resource Management in the Automotive Industry Traditionally, the failure of mergers has been blamed on economic and financial factors. However, the management of people in an industry that employs a large number of people such as the automotive manufacturing industry is a determining factor on whether a merger will fail or succeed (Collings & Wood 2009, p. 21). While some companies are successful at linking their models of production to patterns of employment and managing human resources, others do not have appropriate human resource management practices. In the case of Halecars and Mid Lancs Automotive merging to form Mid Lancashire Automotive Ltd, a strategic fit, cultural compatibility and the manner in which the process of integration will be managed will be vital to the operation’s success. In the automotive manufacturing industry, human resource management largely takes on two forms. First, more responsibility is placed on the line mangers to ensure that personnel policies and competitive strategies are appropriately aligned. Second, it is the mission of the personnel to set policies that will govern the manner in which their activities are implemented and developed so that they are more reciprocally reinforcing. In this industry, stakeholders should be interested in unions (unlike Halecars and Mid Lancs Automotive), government, employees and management. Organisational innovation has largely been focused on the creation of new behaviour and ideas in order to meet the expectations of the markets (Chuang 2005, p. 300). However, both Halecars and Mid Lancs Automotive failed to address the full range of innovation that entails policies, services, processes and administration. There was also a notable lack of the requirement of the competitive automotive industry to recognise the importance of organisational innovation on its degree of influence and its impact on the companies’ long term profitability (CFO Research Services 2003, p. 74). While Mid Lancs Automotive addressed technological innovation, it failed to pay attention to the administrative aspect of recognising the significance of its employees to join a trade union. More importantly and with potentially more adverse effects, Halecars not only failed to acknowledge the significance of joining trade unions but also failed to invest in technological advances. Instead, it paid more attention to satisfying the needs of external users and the general market, rather than starting by meeting the needs of those who make it possible to satisfy external needs. The automotive industry is characterised by undesirable fluctuations that are exhibited in workplace stress, lack of proper communication and manufacturing waste (Agarwala 2003, p. 178). All these attributes were found to exist at Halecars. On its part, while Mid Lancs Automotive identified and improved organisational processes, its human resource management process did not comply with the general provisions of the guidelines of collective bargaining. Effectively, this failed to provide employees with the necessary motivation and empowerment necessary in the manufacturing atmosphere. The automotive industry may also be characterised by highly qualified and affordable labour, but both Halecars and Mid Lancs Automotive Ltd did not appropriately take advantage of the opportunities presented by this mix. For example, while they both afforded the labour of their employees, they failed to appropriately address their personal needs that eventually resulted in the high annual employee turnover. As per the requirements of ISO 9001, it is necessary for the automotive manufacturing industry to determine the competence of employees that perform work directly affecting quality. Then, and more importantly, the employer should provide training and take any other action necessary to satisfy personal needs (Deloitte & Touche & Personnel Today 2005, p. 46). While this will be necessary for the newly merged company, it clearly lacked in each of the companies in their individual existence. The provision to satisfy personal needs by the ISO 9001 is an emphasis on the significance of recognising unions such as the Transport and General Workers Union. This ideally means that organisational processes must be divided into the process of management and value creation as well as, more importantly, employee supporting processes. Conclusion It can be concluded that the automotive industry has gone through difficult times especially after the financial crisis. In the case of Halecars and Mid Lancs Automotive Ltd, the two companies were found to be run differently and, in particular, the way their human resources were managed. While Halecars was found not to adhere to most of the basic human resource management, Mid Lancs Automotive was mainly lacking in the way it handled industrial relations. While the two organisations finalise their merging plans, the new human resource manager of the new company will need to address a number of human resource issues. This is in order to come up with strategies that will optimise business operations by making the best use of the available human resources. It is important to start with communication and ensure it continues even after the merger is complete. This needs to extend to the employees’ family members too in order to avoid negative attitudes that have negatives effects on job performance. Then, recruitment and hiring must follow professional standards and only the best qualified candidates should be employed. It is also highly recommended that the employees’ right to collective bargaining be recognised and employees be allowed to join a trade union. That is one way of improving industrial relations and motivating employees to perform better rather than feel oppressed. Recommendations It is recommended that as the two companies merge, the new management should use the human resource department to develop mutual interests, consider employee suggestions, enhance both internal and external communications and encourage employee participation in decision making (Becker & Ulrich 2007, p. 103). All these activities are aimed at synchronising the employees’ (who are internal customers) needs with the market’s and suppliers’ specifications. While it is acknowledged that human resource directors are not exclusively responsible for the negotiation of collectively bargained packages of wages and benefits, it is recognised that that participate in its administration. Therefore, the human resource directors at Mid Lancashire Automotive Ltd must prepare for the possibility of increased employee unionization and its consequences. It must be recognised that there is always the hazard that the concept of strategic human resource management can be a functional idea but also difficult to realise. Therefore, it is significant that the communication about the merger includes all aspects affecting employee performance (Hair, Anderson & Tatham 2006, 104). The human resource director of the newly formed company must understand that it is a stressful time for the employees coming from the two companies and must receive information through different means and several times before and after the merger takes place (Chew 2000, p. 106). It is imperative that they be creative with their communications and hold meetings with the employees, write submissions to corporate newsletters and also use the corporate intranet to deliver reassuring messages. Integration task groups should also be established from each of the merging entities. First, the formation of the task groups will help in making decisions for and by employees who are actually working within the process. Then, It also plays a critical role in achieving buy-in from the other ranks in the hierarchy when informed decisions are taken back to the workgroups. Integration planning should begin immediately, which means it should even be done before the start of due diligence (Sumita 2009, p. 83). When it comes to restaffing, evaluations should be carried out in order to select the best-suited candidates for any new positions. Ideally, it must be remembered that it is a wrong assumption that the best candidates will be from the larger firm or the one that was previously run by better strategies (Carter & Aston 2002, p. 383). It is recommended that the new human resource management takes time to establish the candidates with the best fit for the culture of the new organisation. All these should be done while still maintaining focus on the reality that mergers are not always perfect and mistakes will happen and obstacles arise (Paauwe & Boon 2009, p. 51). In such circumstances, it is imperative for the human resource management team to own the mistakes and communicate honestly with the employees. What most companies do wrong is ignoring the influence of family members of employees involved in a merger. For example, to increase their market presence and customer share in Kenya, East Africa, the motorcycle manufacturer, merged with automotive giants Toyota, which has a strong presence in the country (Shipton, Fay & Patterson 2005, p. 118). However, due to pressure from family members who viewed it as an acquisition by Toyota, most of the employees of Yamaha quit their jobs. This was because of the perception they had of Toyota, and their family members believed that they will be dominated over by the employees of Toyota. To avoid such a scenario, the new human resource management team must ensure that spouses and other family members of the employees of the two entities are involved in the communications (Brewster 2004, p. 365). It is further recommended that the new human resource management team does not repeat the mistakes made by Halecars of failing to recruit qualified production line workers, technicians, white-collar engineers and managers. The human resource management should then organise its available human resources in ways designed to sidestep costly procedures of production (Dobni 2006, p. 330). Given the new standards of environmental safety and quality and fuel economy, the new company must work towards being compliant with the regulatory requirements and make sure its employees participate in the campaign for a cleaner industry. 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