Human Resource Management in Western Europe - Essay Example

Human Resource Management in Western Europe: A Model of Competing Paradigms Introduction Human Resource Management policies and practices form the foundation of successful business enterprises. In today’s global business environment, traditional HRM functions no longer meet the needs of companies confronted with the multiple challenges of conducting business in the complex, knowledge-based environment of the 21st Century. Advanced telecommunications and internet technologies have created single global markets in many industries. International competition between private sector firms is unprecedented as multinational corporations (MNCs) jockey for position in emerging markets in countries such as Brazil, China, India and Indonesia. Human Resource Management is an important part of this global trend. Not too many years ago, M.B.A. graduates were simply required to have a basic level of understanding of a single HRM system located within their own country. Today, business leaders must deal with a complex international HRM environment where a company’s personnel practices are often shaped by the culture of the country, the corporate expectations of its citizens and the role that a country’s public sector agencies play in determining private sector outcomes (Briscoe &Schuler, 2008). A Conceptual Framework Much of the literature on HRM in European firms attempts to determine if HRM policies and practices across Western Europe are converging or diverging. Those who support the convergent approach argue that HRM systems in European democratic polities share much in common and that a European model of HRM has emerged particularly since the advent of the European Union. Proponents of the divergent approach contend that Europe is comprised of many different cultures, social and political institutions, languages and economic systems andd that a unitary model of HRM is impossible to achieve even within the context of the EU (Brewster, 2007). This convergent-divergent dichotomy serves as a useful theoretical framework for this paper. Through the examination of the recent literature on international HRM in European businesses, the paper argues that existing HRM practices in Europe tend to be more representative of the divergent end of the HRM policy continuum. It concludes with a discussion of some of the ramifications that a divergent HRM policy environment has for the future of economic prosperity in the European Union. In a 2009 comprehensive analysis of human resource practices in Europe, Mayrhoefer and Brewster developed an empirical model that allows for comparisons of HRM systems and practices within European countries. They examine European HRM policies and practices utilizing the following four categories; cultural factors, regulatory factors, institutional factors and factors affecting labour/management relations. The Cultural Environment It makes sense intuitively that cultural factors unique to a particular country or region of a country would play an important role in defining employer and employee expectations within an organization. Some researchers attempt to dismiss culture as a factor because they claim that it is impossible to define and measure from a scientific perspective. Perhaps this is so, but it does not diminish the importance that culture brings to defining strategic HRM policies in Western Europe (Brewster, 2007). One definition of culture that is particularly relevant in an HRM context was developed in 2001 by Hofstede. She described culture as the “software of the mind,” something that is learned, articulated and passed on from one generation to the next. In a study of comparative HRM practices in Europe, Meyer and Hammerschmid (2010) discovered that national culture and tradition play an important role in shaping HRM policies. Assuming that this is an accurate representation, there is strong evidence in examining the cultural variable that leads one to conclude that a convergent model of HRM in Europe is untenable. The reason that this is so is because there is no single “European culture.” Rather, there are multiple cultures that have, over many generations, shaped different philosophies about the relationship between the employer and the employee in private sector firms. In reviewing the literature on HRM from several European countries, one can conclude that there are, in fact, three dominant cultural models at play. The following classifications were developed for this paper: The technocratic model applies to countries like Germany, The social equity model applies to countries such as France, The market-oriented model developed in the United States applies to Great Britain. France, Germany and Britain are the three largest economies in Europe and have highly developed HRM systems and practices. It should be noted, however, that HRM policies and practices in all western European nations can be classified under one of the three models presented in this paper. These models represent three very different and oftentimes competing theoretical constructs of HRM. Reconciling these into a unitary European model of HRM seems difficult if not impossible to accomplish. The Regulatory Environment The German HRM system and practices are characterized in the literature as highly centralized. Private sector firms are very much constrained by statutory requirements in how they manage employees (Muller, 1999). This technocratic approach to HRM obviously works very well as German companies have a long history of high productivity and business success. The detailed regulatory environment under which businesses must operate, severely limits the autonomy and authority that senior managers have in managing the workforce. For example, German law requires the establishment of worker’s councils. These councils have significant power and are the focal point for most communication that takes place between management and the employees. Any changes to HRM policies or practices must be brought through the employee council for discussion and approval before implementation is considered (Gilson & Weiler, 2008). France also has HRM policies and practices that are governed by statute. However, the underlying philosophy governing HRM policy differs dramatically from the centralized system described under the technocratic model. Under the social equity model, HRM policy recognizes employee rights and quality-of-life issues and balances those against the company’s need to produce quality goods and services and to make a reasonable profit (Van Gestel & Nyberg, 2009). In a survey of over three hundred companies in France, Razouk and Bayad (2009) discovered that legal environment of HRM was not a major factor in assessing the strategic environment of HRM in France. In a 2003 study of HRM policies and procedures in all EU countries, Claus surveyed HRM professionals in businesses located throughout Europe and notes the following characteristics of HRM policies in France: Heavily influenced by a culture of egalitarianism and individual rights HRM is decentralized to local units with considerable discretionary authority placed with local mangers A high degree of private sector-public sector collaboration A pride in a “uniquely French” system A complex network of management-employee organizations but loosely structured Places considerable value in including employees in the decision-making process French workers view employment as an “acquired right.” The market-oriented model of HRM supports the view that market factors and private sector initiatives must dictate HRM policy. This model is dominant in the United Kingdom as well as in the United States. These two nations have many more similarities than they do differences particularly in the development and implementation of HRM policies and practices in the private sector. The economies of the U.K. and the U.S. are closely linked and multinational corporations conduct business in both countries in a seamless regulatory environment. Regulation supporting business growth and development has been part of government policy in the U.K. for decades and became a model for corporate success internationally during the Thatcher and Reagan administrations of the 1980s (Guest, 2007). Although statutes and court decisions prohibit employers from trampling on the rights of employees, the market-oriented framework, by definition, views the regulatory role of government as limited and supports the corporate goal of profit maximization. The Institutional Environment Institutional factors, refers to HRM policies governing compensation, employee benefits and performance management. Once again, significant differences in approaches to compensation and performance management are apparent when comparing the three models. In Germany, over eighty percent of business employees are covered under collective bargaining agreements where salaries, benefits, and performance management practices are highly standardized. There is little room for innovation or creativity. Moreover, industry-wide compensation policies are often developed with multiple employers. The HRM system is tightly governed by administrative procedures outlined in the collective bargaining agreements. Any concerns that employees might have about compensation or performance reviews are brought through the worker’s councils (Festing & Barzantry, 2008). The social equity approach to compensation and benefits is premised upon a strong connection between a work-life value system. Employees in France view their employee compensation and benefit programs as entitlements (Claus, 2003). Flexible work schedules and temporary employment practices are common in French companies. Benefit and retirement programs are considered as some of the most generous in Europe, although compensation on average tends to be less than the pay scales in Germany. Marin (2008) associates the distinctive philosophical approaches toward employee compensation and benefits policies with the different cultural and institutional characteristics inherent within each country. Market-oriented pay and benefit systems focus on rewarding individual performance excellence and a belief that market factors must play a role in determining salary differentials across employment categories. U.K. and U.S. companies have also engaged in employee ownership plans and employee profit-sharing compensation systems (Freeman, 2009). The Environment of Labour/Management Relations There are significant differences in the way that labour-management relations are defined across Western Europe. In the technocratic model, relations between labour and management are defined in statute and labour organizations play a critical role in HRM policy development. German HRM systems mandate what is known as multi-employer collective bargaining. Companies grouped by industry type are governed by a single collective bargaining agreement. This promotes standardization in HRM practices across entire industries and standardization is an important principle in the technocratic model. German companies are required under statute and collective bargaining agreements to provide a considerable amount of vocational training opportunities. These normally take the form of apprenticeship programs that combine on-the-job training with formal educational training. A rigorous national standardized testing procedure is in place to assure that those completing the programs have an appropriate skill set. German companies spend enormous sums of money on these vocational programs and the result is that they have one of the most highly developed skilled workforces in the world (Drew, 2008). Teulings and Hartog (2007) describe the theoretical foundation of labour relations in France as a corporatist philosophy rooted in the agrarian movement of the mid-1800s. Legislation governing labour practices and collective bargaining agreements are developed using a tripartite model of equal representation by corporate management, employee unions and government institutions. The authors indicate that the corporate model of labour relations under the social equity framework is in sharp contrast to the centralized systems inherent in the technocratic framework in countries like Germany. Tenure and seniority are an important part of the French HRM system. As noted earlier, union leadership and company employees view employment as a right. Indeed, French workers view their right to work as a fundamental premise of a society founded on the principles of social justice (Maurice and Sellier, 2009). Freeman (2009) argues that labour relations in the U.K. has changed dramatically from then traditional industrial relations model of he past. After examining levels of union membership and the number of strikes since the1980s, he concludes that union power in the U.K. has declined precipitously over the past three decades even though this has not been the case in other European countries. Freeman contends that the political support for labour has also diminished as the mainstream political parties in the U.K. distance themselves from labour organizations. In the market-oriented framework, governments believe that is their duty to intervene if the negotiations between labour and management fail. This is particularly evident in industries that are deemed vital to safeguarding the national interest of a competitive market economy. Government can mandate mediation or arbitration and have also been known to threaten to impose sanctions if union members vote to strike. Their rationale is simple. Strikes disrupt the market and the market drives the economy. Future Considerations As international markets continue to develop and multinational firms grow in their presence throughout Europe, the issue of fragmented HRM policies and practices across Western Europe may become an impediment to the effective operation of the private sector. The European Union was created in large part for economic reasons. The North American Free Trade Agreement created a market of 500 million and China and India each have domestic markets exceeding 1 billion. European countries simply could not successfully compete individually in the new global economy. The U.K. is the country that is best positioned to operate in the world of multinational corporations and, in fact, does so quite effectively now. British companies have a sustained and successful track record of adapting their HRM policies and practices within their international subsidiaries. One reason for this is the congruence between British HRM practices and those of North American businesses. Other European countries may face more difficult challenges given their significant differences in culture and HRM practices. This divergence of HRM systems may prove to be an impediment to their ability to compete in the global economy. Conclusion This paper examined HRM policies and practices in private sector firms located in three Western European countries. The paper developed an analytical framework that classified HRM systems as technocratic (Germany), market-oriented (United Kingdom) and grounded in social-equity (France). The argument was presented that all countries in Western Europe if into one of these three categories. The paper utilized the analytical framework to address a well developed theoretical model of HRM in Europe described as the divergent-convergent dichotomy. It is clear from the academic literature on HRM and from the policies and practices of the three models presented in this paper that a convergent or uniquely European model of HRM is not feasible. Only time will tell what ramifications this may have for the future economic development of countries within the European Union. Bibliography Blanpain, Roger. (2009). The Modernization of Labour Law and Industrial Relations in a Comparative Perspective. Netherlands: Kluwer Law International. Brewster, Chris (2007). Comparative HRM: European Views and Perspectives. The International Journal of Human Resource Management, 18, (5), 769-787. Briscoe, D. & Schuler, R. (2008). International Human Resource Management. London: Routledge. Claus, Lisbeth. (2003). Similarities and Differences in Human Resource Management in the European Union. 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