Engineering Products in North America - Case Study Example

Engineering Products (Case Study) More Information Engineering Products is a long-established British engineering firm which for much of the 20th century produced fasteners for industrial clients. The table below shows the geographical distribution of sales and employment in 1996, Sales % Employment % UK 21 16 Continental Europe 49 69 USA 21 15 Rest of world 9 0 The company undertook substantial restructuring in the 1980's, selling off or closing many of its activities so that currently it has three business areas; automotive components, defence and industrial services. These business areas form international product divisions which are the primary axis of internal organisation, linking similar parts of the group across countries. The restructuring also involved expansion overseas to the point that half of the group's 33,000 employees work abroad; three quarters of these are in Western Europe and most of the remaining quarter in North America. The largest of the three business areas is automotive components, employing 60% of the group's workforce. The division is a first-tier supplier, dealing with several of the multinational final producers of cars, and is less concentrated in the UK than the company as a whole; Table 11.2 shows that only a small proportion of the division's sales are made in Britain, while an even smaller proportion of the workforce is employed there. Continental Europe is the base for a much larger proportions of sales and employment, with most of this being in Germany, France and Spain. The case study concentrates on this division of the multinational. In recent years the pressure from the automotive division's customers has become a central force in shaping how it manages its international operations in general and its international workforce in particular. The customers themselves have sought to standardise their methods of production and working practices through a process of sharing 'best practice' across sites. This has meant that, while the cars sold vary in minor respects between countries, they are produced in increasingly similar ways. One consequence has been that the components they purchase need to be of exactly the same specification in different countries. Since many of the first-tier suppliers in the motor industry are themselves multinational and in many cases supply the same companies in different countries, the effect has been to persuade the components manufacturers to standardise their own operations internationally. The Standardisation of Production across Borders The impetus for international integration in Engineering Products, therefore, came from the demands of its customers. Management at the HQ of the division have been faced with the task of integrating what had previously been disparate plants, serving customers in their own country and operating in a largely decentralised way. A key part of forging greater integration was to create management structures at the international level in order to bring together managers from different parts of the group, facilitating the exchange of information between them. In Engineering Products there are several such structures which serve this function. The division operates 'manufacturing councils' which periodically bring together senior manufacturing directors from the plants to examine the processes which are adopted in each of the plants. A different structure fulfilling a similar function is the 'International College of Engineering', located in Germany, at which engineers develop and learn about new manufacturing methods. A further way in which the HQ has sought to drive integration at the international level is through the creation of an international cadre of managers who are expected to spend time on assignments in countries other than their own. One element of this has been the creation of internal consultants; these are managers who have been responsible for pioneering a new practice and who are subsequently given a mission of roaming from plant to plant assisting in the adoption of this practice. In addition, the HR function has created its own mechanism designed to bring together managers from different sites to share 'best practice' and discuss common initiatives. This takes the form of regular meetings of HR specialists from different sites to discuss the implications of integration on personnel practice. These meetings have produced numerous instances of practices which have been standardised as a result, ranging from induction packages for graduates to problem-solving techniques. The evidence from the previous section suggests that, in creating international structures in the HR area, the company is typical of other MNCs. It was established in the previous section that the creation of international management structures will rarely be enough on its own to achieve such integration. Plant managers from a multinational that was previously decentralised may not be willing to participate in mechanisms which bind them together with plants in other countries if this involves curbs on their autonomy. At Engineering Products, the key way in which the HQ of the division ensured that plant managers engaged in the sharing of best practice was the operation of internal competition for orders. Customer orders for components are increasingly placed at the HQ rather than with each of the plants and the HQ then makes decisions about which of their plants will receive the orders. This gives the HQ an important source of leverage over actors at plant level, who are increasingly dependent on the HQ. Decisions as to which plants receive new orders were informed by systematic comparisons of the performance of the plants in terms of costs and quality. A manager at the HQ described this process in the following way: Decisions are made at the centre about sourcing to supply different customers so we will decide from which of our factories customers are going to be supplied. In the main, obviously, in the local market the local company supplies the local customer. But to an increasing degree we make decisions about sourcing which can entail moving production from one country to another for a variety of different reasons. Not only in terms of volumes but there is also influence over manufacturing processes now, so there is a greater coordination of manufacturing processes to make sure that the world's best practices are adopted across the organisation. On occasions, the move towards standardising production generated differences of opinion between HQ and plant managers about the merits of a particular initiative. One such example was performance-related pay (PRP); the HQ was anxious to establish the principle of PRP in all of the division's plants and had been successful in doing so. However, the way it operated varied following discussions with local managers and worker representatives, so that the measures of performance, the proportion of the workforce covered and the amount of their pay subject to the performance measure differed between plants. Differences of views were generally resolved through discussions, but at times the HQ was willing to use sanctions to impose its way. One HQ respondent described what happens in cases where managers at plant level refused to accept that a practice favoured by the HQ should be introduced: Well, if we believed they were wrong we would persuade them and then instruct them and eventually fire the chief executive. We don't get there too quickly but if they are refusing to learn the lessons that are available we take the action that is necessary to bring them into line. This doesn't happen too often because we employ very sensible chief executives, but we are directive to that extent. Internal competition, and the power it gives the HQ, was thus instrumental in the process of international integration in Engineering Products. It induced managers at plant level to participate in the sharing of best practice across sites and to comply with the wishes of HQ in terms of the nature of the production processes and the way in which labour is managed. These developments had a significant impact on the work of both managerial and non-managerial employees. Implications for Managers and Employees The central HR function at Engineering Products had unquestionably taken on a more active role following moves towards international integration. A key feature of the function was the creation of structures which facilitated regular contact between managers from different parts of the division, while another feature was the management of international assignments. Taking on these responsibilities represented an opportunity for the HR specialists at the HQ, since it had raised the profile of the function, allowing it to become involved in activities seen as 'strategic' rather than just those that were 'administrative'. One tension which the central HR function encountered was the balance between standardising practices and allowing variation between plants to reflect local factors. As we have seen, many elements of personnel practice were being standardised across borders, and the HQ was prepared to use sanctions to ensure that this occurred. However, in other areas, variations in the nature of the law, institutions and national cultures meant that differences in practices persisted. One example was the variations in the way performance-related pay operated; different arrangements reflected the expectations of both plant managers and employees concerning fairness. Another example was employee representation. In the American plants, there were no formal structures through which employees could be represented; the law did not oblige management to recognise unions and nor were unions influential enough to force management to recognise them. In the European plants, on the other hand, it would have been inconceivable for the company to avoid dealing with unions, given their well-established position in the plants and in some cases the legal support they enjoyed. Clearly, the central HR function had to balance the drive to standardise practice with adapting to local conditions. For managers, one key implication of the international integration of the activities of the multinational was that progress up the managerial hierarchy was no longer confined to particular countries. The division has moved away from filling senior managerial positions with nationals of the country where the plants are located, towards a geocentric approach in which such positions are filled on merit, with nationality being of little importance. This has meant that there are more opportunities for ambitious managers to progress beyond the plant towards senior positions in other countries and at the HQ, which is reflected in the increase in the number of managers working in countries other than their own and in the number of overseas nationals in the HQ. While this creates opportunities for progression, it simultaneously imposes obligations on managers to become more geographically mobile. It is now a requirement for senior managers to be willing to spend time on overseas assignments, something that may not suit everyone. A second implication for managers is that they are increasingly required to comply with the demands of the HQ and, hence, their autonomy is reduced. This was expressed by one manager in the following way: It's increasingly a strongly coordinated effort from the centre of the division which makes sure that all our operating companies are working together to the same standards making similar products often with the same level of prices. The result of this is that plant managers have less room for manoeuvre, something that some may resist. However, the existence of international policy-making bodies, such as the manufacturing councils, the International College of Engineering and specific structures in the personnel field such as regular meetings of personnel managers from different sites, means that managers at plant level have an input into the formation of policies and guidelines that operate at the international level. For non-managerial employees there are also important implications of the process of international integration. Uppermost among these is the increase in competition between plants which arguably reduces the degree of security of each plant and, therefore, also of job security. We have seen how the HQ of the division routinely uses comparisons across plants in order to bring pressure to bear on plants that operate successfully elsewhere within the group. These comparisons, and the ability of the HQ to move production from one site to another, reduce the bargaining power of employees in each individual plant, having the effect of eroding potential resistance from employees and trade unions to change. Crucially, coercive comparisons in general and, in some cases, the specific threat of closure weaken the hand of unions in pay negotiations, resulting in downward pressure on pay and conditions. Another implication for employees is that the process of integration has increased the extent to which they are exposed to working practices developed in a different country. Prior to the standardisation of production in Engineering Products, working practices were developed largely within each plant as opposed to elsewhere within the company and, consequently, were broadly typical of the country in question. While to some extent this remains the case, it has been eroded by the diffusion of best practice across borders. The key recent developments in work organisation have come from other plants, uppermost among these being a practice developed in one of the Spanish plants. The high productivity of the Spanish plant had led the HQ to investigate the working practices in place at the plant. Visits by engineers and HR staff from the HQ led to attention being focused on one particular practice, a form of cellular assembly. This involved the reorganisation of the assembly of the product from a linear production line into a U-shaped cell. Under this new form of work organisation, employees were required to undertake a wider range of tasks than before which created a need for multi-skilled operators who could work at any stage in the cells. Furthermore, under the cell structure, fewer people were needed for the same output, meaning that the workforce was contracting. The HQ staffs were convinced of the benefits which would arise from implementing this practice in all of the other plants in the division and gave managers at the Spanish plant a mission of roaming between the other plants, spreading information about cellular assembly. The practice has subsequently been adopted in all of the other plants. References Coller, X. (1996) 'Managing flexibility in the food and industry: a cross-national comparative case study of European multinational companies', European Journal of Industrial Relations, 2(2): 153-72. Dicken, P. (1992) Global Shift: The Internationalisation of Economic Activity. London: Paul Chapman. Dunning, J. (1993) Multinational Enterprises and the Global Economy. Wokingham: Addison Wesley. Edwards, P, Ferner, A. and Sisson, K. (1993) 'People and the process of management in the multinational company: a review and some illustrations', Warwick Papers in Industrial Relations, No 43. Ferner, A. (1994) 'Multinational companies and human resource management: an overview of research issues', Human Resource Management Journal, 7(l): 19-37. Ferner, A. (1997) 'Country of origin effects and HRM in multinational companies', Human Resource Management Journal, 7(l): 19-37. Ferner, A. and Edwards, P (1995) 'Power and the diffusion of organisational change within multinational corporations', European Journal of Industrial Relations, 1(2): 229-571. Ferner, A., Edwards, P. and Sisson, K. (1995) 'Coming unstuck In search of the corporate glue in an international professional service firm', Human Resource Management Journal, Autumn, pp. 343-61. Financial Times (1994) 'The difficult art of skills transfer', 18th November. Frenkel, S. (1994) 'Patterns of workplace relations in the global corporation: towards convergence' in Belanger, J., Edwards, P. and Haivan, L. (eds) Workplace Industrial Relations and the Global Challenge, lthaca, NY: ILR Press. Hirst, P and Thompson, P (1996) Globalisation in Question. Cambridge: Polity. Hofstede, G. (1984) Culture's Consequences: International Differences in Work-related Values. Beverley Hills, CA: Sage. Hu, Y. (1992) 'Global or stateless corporations are national firms with international operations', California Management Review, 34(2): 107-26. Kamoche, K. (1996) 'The integration-differentiation puzzle: a resource-capability perspective in international HRM , International Journal of Human Resource Management, 7(l): 206-29. Kim, W.C. and Mauborgne, R.A. (2000) 'Making global strategies work' in Bartlett, C. and Goshal, S. (eds) Transnational Management: Text, Cases and Readings in Cross Border Management. New York. McGraw-Hill. Marginson, P. and Sisson, K. (1994) 'The structure of transnational capital in Europe: the emerging Euro-company and its implications for industrial relations' in Hyman, R. and Ferner, A. (eds) New Frontiers in European Industrial Relations. Oxford: Blackwell. Marginson, P, Armstrong, P, Edwards, P. and Purcell, J. (1995) 'Managing labour in the global corporation: a survey-based analysis of multinationals operating in the UK', International Journal of Human Resource Management, 6(3): 702-19. Martinez, M. and Weston, S. (1994) 'New management practices in a multinational corporation: the restructuring of worker representation and rights', Industrial Relations Journal, 25(2): 110-21. Read More