The Human Resources Challenges due to Companies' Internationalization - Case Study Example

Case study Story & Co: The people challenges of internationalization Introduction In today’s global environment, M&A is seen by organizations asa major strategy for quick growth. Story & Co is also looking at the same by planning to acquire Gittins & Edwards for entering the US market. However, the company faces major HR (Human Resource) issues on account of cultural and geographical differences. The acquisition is different from the rest so far as Storey is venturing into new grounds where it has no presence and experience. Human Resource risks in the acquisition Cultural differences have been found to be the most important factors that can lead to the failure of a merger. The top 4 factors identified are talent retention, effective communication, leadership retention and cultural integration (Stahl et al. 2004). Another important factor that has been seen to influence this acquisition negatively is the insecurity it induces in the acquired firm’s employees (Stahl and Bjorkman. 2006). This has direct implications on employee morale of the acquired firm. The uncertainty of the entire operation can lead to insecurities about their job in the minds of the acquired firm’s employees. We have seen that so far no communication has happened with regards to this acquisition. National cultures also play an important role in cross-border acquisitions. In our case also cultural integration holds the key to successful merger. Storey is used to a high handed culture where they impose their own practices over the acquired firm. For example, British people are more neutral in expressing their emotions at work place as compared to Americans (Hoecklin 1995). This means that American working style is more expressive and open than British. This can be seen in our case also as the owners of Gittins & Edwards propagated an informal culture while Storey had a very heavy handed acquisition experiences in the past. Hence, the heavy handed attitude of Storey can emanate negative responses from the more open and informal acquired company. (Bowen, Galang and Pillai 2002). The employees of Storey have been seen to exert their policies on to the new firm it acquires. This can lead to major attrition and loss of talent as there is a major cultural difference in the two firms’ operating styles. The environment within an organization is highly dependent on the attitudes and values of its present and past leaders (Bhattacharya 2010). This has implications for our case as well. The leaders at Gittins & Edwards show a very informal but commercial style, while the British communication style is very formal. Hence the employees of the acquired firm will not feel good about this formal communication style. Thus Graham will be faced with a challenge of preparing a communication plan which is acceptable to both the parties. Another difference in communication style which the two firms face is the difference between Data-oriented vs. dialogue oriented cultures. British are more data oriented as compared to Americans (fig 1). This implies that Storey would face challenges in communicating with the new employees, though this will be less difficult than with Eastern country employees. Language forms another important communication tool. British are not quick to attack and have understated meanings which might be difficult for Americans to understand (Lewis 2005). Americans are faster in speaking, more direct in communication and have many local slang words (Lewis 2005). Virtual working which has been suggested by the HR director also creates challenging issues. Language and cultural differences are even more prominent here as there is no face to face contact which can cause ambiguity to the employees of the acquired company. This will be further amplified by time zone differences, lack of non-verbal cues, lack of control and lack of relationship building due to inability of social contacts (Lee-Kelley and Sankey 2008). The employees will also lack in trust while working virtually. Steps for successful acquisition by Storey It may not be easy for Storey’s management to understand the importance of open culture of the US firm. Some sort of cultural training to employees of both companies is mandatory to make them understand the communication styles and other cultural preferences of the two countries. However, a clear communication plan for both the firms could solve some issues if not all. By excessive communication, Graham can propagate the message about the strategic advantages both firms have post merger. For example, Gittins & Edwards has employees who understand the US market well while Storey’s employees had a lot to gain from them about the same. This would be useful in retaining talent of the acquired firm. A good strategy for implementing the transition would be to use Expats for knowledge transfer of Storey’s HR policies and performance matrices. (Brewster et al. 2011). However, the HR needs to take into account the problems that the expats could face while working in the US. They could face people issues on account of resistance to change, communication problems and information sharing issues. The employees will not be open to sharing information due to lack of trust. Hence, the HR team needs to send those expats who have the capability of handling this situation. For using virtual teams, there needs to be clear performance metric, clear communication on role of each team member and team leader. Specific communication should be put in place about how these teams will work and what their objectives are. The organization also needs to upgrade its technology to facilitate different types of communications channels between the two teams like online chatting, conference calls and video conferencing. This will help in increasing the bond between the virtual team members. However, Jackson needs to convince the management about the importance of implementing a culture which takes into account the best practices of both. Conclusion Jackson needs to focus on people issues that will arise on account of the merger for achieving synergies. He needs to chalk out a plan to identify the right talent in the acquired company and then prepare a retention plan for them. He should also identify the right leadership which is the most critical element of this acquisition. He should ensure that there is a clear communication to the new employees and their insecurities are addressed through various interactions with them. He should also have specific strategies (as discussed above) for successfully using expats and virtual teams in facilitating knowledge transfer. Finally Jackson should be able to convince his top leaders about the need to create a culture which imbibes the best of both the firms. Case Study 2 - 2015: World trade woes hit Storey Introduction Downsizing and outsourcing have become the key contributors in affecting change in an organization in today’s competitive global environment. Storey & Co in our case study has also been influenced by the same viral effect. The company first resorted to major expansion drive to mitigate the impact of economic slowdown of 2008/09 and later reaped the benefits of the same until 2015 when the political crisis of Europe started reflecting on its bottom lines. They now feel that they have created overcapacity in Germany due to drying up of new orders. In the US they need to reduce costs on account of fee reduction pressure from clients there. As an IHRM manager Graham has been entrusted with the job of downsizing to reduce overcapacity in Germany and shift US operations to low cost countries for cost saving. Literature review on challenges facing Storey & Co The first challenge Storey faces is the loss of employee morale. As the news of downsizing spreads across the two countries of operations, the employees will start feeling insecure about their jobs. The result would be loss of talent as those who are able to find jobs elsewhere will be the ones who are more skilled than the others. This is far more pronounced in German operation because Germans belong to a collectivist society as compared to Americans on Fon Trompenaar’s five dimensions of culture (Hoecklin 1995). They are inclined to work better in groups and are associated with one group or the other at work. Hence, if some members of a group plan to leave the organization in any of the branches of Germany, they will have a high influence on the other members of the three branches. This can be seen from the fact that so far Graham has not been able to convince the local managers of the German operations to start working on downsizing proposals while the UK HR manager, Barry Stephens, was threatened of legal action if resorted to downsizing without prior discussions with the local staff. They also wanted some senior members of the management staff to come down for discussions and were not satisfied with Barry coming down alone. These responses are typical reactions of societies which fall under the high uncertainty avoidance and power distance dimensions of Hoefstede’s cultural values (Hoefstede 1994). Germans need clear rules and structures at work and are higher on uncertainty avoidance score compared to Americans (fig 2). They also have higher power distance scores than Americans (fig 2). This implies that Storey will be faced with major opposition if they try to be secretive about the entire operation. If they try to avoid involving German staff in the restructuring process, they will suffer immense backlash. Hence, Graham’s strategy for Germany should be to first identify the power nuclei of the German operations and form a team of senior managers to discuss issues with them. If they are able to convince the main leaders who have influence on majority of the staff, the restructuring process can be a smooth process. On the other hand Americans are highly individualistic and more inclined towards social equality as they have low power distance score (fig 2). Hence, if the HR tries to exert their policies on the American staff, they will face opposition and loss of talent. Americans are driven my profits and they understand monetary gain better than anything else (Schmidt 2001). Hence, the strategy for American operation should be to engage the staff in open dialogue irrespective of ranks. The HR should try to convince the staff there that outsourcing is a profitable strategy at this time and involve them in discussions for alternate solutions. They have to be convinced that management had no other option after having performed a due diligence of the entire operation (Palmer 2005). As Americans believe in an open culture, the HR should ensure that there is minimum secrecy in the entire deal by encouraging discussions at various platforms (O’Neill and Lenn 1995). Another important factor that comes into play is the meaning of fairness in both the cultures. An act of fairness has different connotation for both the cultures. Hoefstede’s dimensions also come into play in the perception of justice. People from low power distance like US are “more likely to see breach of trust” than the Germans (Landy and Conte 2009). Collectivist cultures define fairness on equality norm unlike the individualistic cultures who define it as equity norm (Landy and Conte 2009). Thus for Germans fairness represents equally sharing the rewards irrespective of the work put in by the individual while for Americans fairness means higher rewards for more work. Moreover Germans are very particular about abiding by the rules which is seen as a display of fairness. Hence, in Germany, Graham needs to ensure that prior works contracts are strictly adhered to while resorting to downsizing. Everyone is equally compensated based on their positions at the time of exit. In the US he needs to ensure that only low performers, who have not been able to achieve profitability targets or who are lowest performers in terms of justifying the cost to company, should be asked to leave. Their exit compensations should be commensurate with their work input to propagate a feeling of justice among the survivors. Graham should also look at appropriate downsizing strategy to ensure a smooth restructuring (fig 1). Since Germans are harder working and rule abiding people than Americans, it would be easy for him to retrain them on new processes if work redesign is implemented. In the US he should adopt a more systemic approach. This would entail involving employees at all levels through town meetings and other direct methods. Storey also needs to understand that they should implement a broad array of strategies for downsizing and not just laying off employees. The surviving employees, especially Germans who have a higher uncertainty avoidance score will have more insecurities than Americans. They will have their own doubts about future survival. The organization should also support these surviving employees by helping them adjust to the new environment through training, counseling and other means (Appelbaum et al. 1997). Conclusion It is important for Storey to perform due diligence on the actual need for layoff and outsourcing. If they feel that this is unavoidable, then they need to resort to a combination of strategies based on cultural backgrounds of the people. This change effort will only be successful if the organization is able to gather support for their strategies through intense communication and employee involvement and by viewing human capital as asset rather than liability. References (Case Study 1) Bhattacharya, DK., 2010. Cross cultural management: text and cases, PHI learning Bowen, DE., Galang, C. and Pillai, R., 2002. The Role of Human Resource Management: An Exploratory Study of Cross-Country Variance, Asia Pacific Journal of Human Resources, vol. 40, no. 1, pp. 123–45. Brewster, C., Sparrow, P., Vernon, G and Houldsworth, E., 2011. International Human Resource Management, CIPD, London. Hoecklin, LA., 1995. Manging Cultural Differences For Competitive Advantage, Universities Press, London. Lee-Kelley, L and Sankey, T., 2008. Global virtual teams for value creation and project success: A case study, International Journal of Project management, vol. 26, pp 51-62 Lewis, RD., 2005. When cultures collide: Leading across cultures, Nicholas Brealey Publishing Rouse, T and Frame, T., 2009. The 10 steps to successful M&A integration, Bains & Company, [Online] Available from: http://www.bain.com/publications/articles/10-steps-to-successful-ma-integration.aspx(Accessed on April 21, 2012) Stahl, GK and Bjorkman, S., 2006. Handbook of research in International Human Resource Management, Edward Elgar Publishing, London. Stahl, GK., Pucik, V., Evans, P and Mendenhall, ME., 2004. Human Resource Management in Cross-Border Mergers and Acquisitions, International Human Resource Management, SAGE Publications, London. References (Case Study 2) Appelbaum, SH, Delage, C, Labib, N and Gault, G., 1997. The survivor syndrome: aftermath of downsizing, Career Development International, vol. 2, no.6, pp 278-286 Cameron, KS.,1994. Strategies for successful organizational downsizing, Human Resource Management, Vol. 33(2), pp 189-211, John Wiley & Sons Hoecklin, LA., 1995. Manging Cultural Differences For Competitive Advantage, Universities Press, London. Hofstede, G.,1994. Management Scientists are Human, Management science, vol.40. no.1. Landy, FJ and Conte, JM., 2009. Work in the 21st century: An introduction to Industrial and Organizational Psychology, John Wiley and Sons O’Neill, HM and Lenn, DJ., 1995. Voices of Survivors: Words that downsizing CEOs should hear, Academy of Management Executive, vol. 9, no.4, pp 23-33 Palmer, K., 2005. Managing Organizational Change, Tata McGraw-Hill Education Schmidt, PL., 2001. Understanding American and German Business cultures: A manager’s guide to the cultural context in which American and German companies operate, Meridian World Press. Appendix (Case Study 1) Figure 1 Source: Lewis 2005 Appendix (Case Study 2) Figure 1 Source: Cameron 1994 Figure 2 Source: Hoefstede 1994 Read More