Strategic Human Resources Planning [7 ed.] 9780176798086, 9780176856809, 0176798080

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HRM

SEVENTH EDITION

BELCOURT I PODOLSKY

NELSON SERIES IN HUMAN RESOURCES MANAGEMENT

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MONICA BELCOURT SCHOOL OF HUMAN RESOURCE MANAGEMENT, FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES, YORK UNIVERSITY

MARK PODOLSKY SCHOOL OF HUMAN RESOURCE MANAGEMENT, FACULTY OF LIBERAL ARTS AND PROFESSIONAL STUDIES, YORK UNIVERSITY

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NELSON Strategic Human Resources Planning, Seventh Edition by Monica Belcourt and Mark Podolsky

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Belcourt, Monica, author Strategic human resources planning I Mon ica Belcourt, Mark Podolsky. - Seventh edition. Issued in print and electronic formats. ISBN 978-0-17-679808-6 (hardcover).- ISBN 978-017-685680-9 (PDF) 1. Manpower plann ing-Textbooks. 2. Personnel managementTextbooks. 3. Strateg ic planning-Textbooks. 4. Textbooks. I. Podolsky, Mark, author II. Tit le. HF5549.5.M3B45 2018 658.3'01 C2018-901919-0 C2018-901920-4 ISBN-13: 978-0-17-679808-6 ISBN-10: 0-17-679808-0

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To Zabeen Hi1ji,formerly Executive Vice-President and ChiefHuman Resources Officer, RB C and currently Global Advisor, Future of Work, Deloittefor her strategic work in H RM. M.B. To Mary Jo, Jackson, and Claire, for the joy thatyou bring to my life. M.P.

Copyright 2019 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.

Copyright 2019 Nelson Education Ltd. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Nelson Education reserves the right to remove additional content at any time if subsequent rights restrictions require it.

BRIEF CONTENTS About the Series xxi About the Authors xxii Preface xxiii Acknowledgments xxix

Chapter 1

Strategic Management 1

Chapter 2

Aligning HR with Strategy 29

Chapter 3

Environmental Influences on HRM 55

Chapter4

The HR Forecasting Process 80

Chapter S

Determining HR Demand 103

Chapter6

Ascertaining HR Supply 135

Chapter 7

Succession Management 165

Chapter 8

Information Technology for HR Planning 198

Chapter~

Change Management 220

Chapter 10

Downsizing and Restructuring 253

Chapter 11

Strategic International HRM 287

Chapter 12

Mergers and Acquisitions 315

Chapter 13

Outsourcing 345

Chapter 14

HR Assessment and Analytics 367

Glossary 4 07 Index 412

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••

VII

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CONTENTS About the Series xxi About the Authors xxii Preface xxiii • Acknowledgments XXlX Chapter 1

Strategic Management 1

Chapter Learning Outcomes 1 Strategic Management at The Bay 2 A Need for Strategic HRM 2

Strategy 3 Strategic Types 6

Corporate Strategies 6 Business Strategies 10 The Strategic Planning Process 11

1. 2. 3. 4.

Establish the Mission, Vision, and Values 11 Develop Objectives 14 Analyze the External Environment 15 IdentifY the Competitive Advantage l 5 5. Determine the Competitive Position 18 6. Implement the Strategy 19 7. Evaluate the Peiformance 19 Benefits ofStrategy Formulation 20

Summary 21 Key Terms 22 Discussion Qyestions 22 Exercises 23 Case Study: Loblaw Companies Ltd. 23 References 26

Chapter 2

Aligning HR with Strategy 2 9

Chapter Learning Outcomes 29 HR Structure at Johnson and Johnson 30 NEL

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ix

Strategic HRM 30 Theories of the Strategic Management of Human Resources 31

HRM Making Strategic Contributions 3 l The Contingency Perspective 32 Behavioural Theory 34 Strategic HR Planning 35 The Importance ofStrategic HR Planning 36 Improved Goal Attainment 36 Linlcing HR Processes to Strategy 37

Corporate Strategy Leads to HR Strategy 38 HR Competencies Lead to Business Strategy 43 Reciprocal Interdependency Between HR Strategy and Business Strategy 43 HR Becomes a Business Partner 43 Strategic Partnering 44 Becoming More Strategic 45 HR Strategy Differentiation 46

Characteristics ofan Effective HRM Strategy 46 Focus on Results 48 Summary 49 Key Terms 49 Discussion Qiestions 4 9 Exercises 4 9 Case Study: Linking HR Practices to Performance 50 References 51

Chapter 3

Environmental Influences on HRM 55

Chapter Learning Outcomes 55 Environmental Scanning at GM 56 Introduction 56 Environmental Scanning Sources and Methods 57

Sources ofInformation 58 Methods of Forecasting 61

Competitive Intelligence 6 l Challenges in Environmental Scanning 62

Isolating the Criticalfrom the Insignificant 62 x

CONTENTS

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Environmental Factors 62

Economic Climate 63 Globalization 64 Political and Legislative Factors 65 Technological Factors 65 Demographic Factors 67 Social and Cultural Factors 69 Stakeholders 70 Responding to External Factors 72 A Proactive Approach 73 Summary 76 Key Terms 76 Discussion Qyestions 76 Exercises: Scenario Planning 76 Case Study: Worl

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the firm "Ennotville Eateries"). 24 These HR budgets, prepared by the HR staff in conjunction with line managers, take into consideration information from historical company staffin g trends, competitor staffing practices, industry and professional associations, and Statistics Canada. The HR budget process produces a staffing table, which contains information related to a specific set of operational assumptions or levels of activity (e.g., maintain the current organization structure, increase the sales level by 5 percent over last year's level). The staffing table presents the total HR demand requirement, laid out in terms of the number of people required by level (e.g., vice-presidents) and function (e.g., marketing). In this way, HR planners can determine short-run future demand requirements for subunits and the organization as a whole. This enables budgeting processes to incorporate changes in compensation costs linked to the level of future human capital demand.

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11 COMBINING QUANTITATIVE AND QUALITATIVE METHODS Qiantitative and qualitative methods are not exclusive methods where the forecaster decides to use one method at the expense of the other. These two basic methods can both be used in order to test the reliability of the forecast. If both methods arrive at similar forecasts, then planners can be more certain of the results. However, if one method leads to dramatically different results from the other, then it would be reasonable to question the assumptions of both methods to try to understand where differences in assumptions lead to discrepancies in the forecasts. HR Planning Notebook 5.4 demonstrates that the different types of information that quantitative and qualitative methods use as inputs to the forecast can arrive at complementary findings. By using both methods of analysis, planners can arrive at a richer, more detailed understanding of the demand for labour, and how the factors that affect demand can change those estimates. In addition to using both quantitative and qualitative methods in parallel, as discussed above, these methods can be combined to form a very powerful method of forecasting known as simulation.

HR PLANNING NOTEBOOK

5.4

DIFFERENCES BETWEEN QUALITATIVE AND QUANTITATIVE FORECASTING DATA Quantitative and qualitative analyses can provide information that complement one another. The kinds of data that are used for each type of analysis are different, and these differences lead to different perspectives on issues. Ideally, both qualitative and quantitative analyses should suggest similar demand forecasts. When this occurs, planners can have more confidence in their processes. However, when

the two methods offer very different solutions, planners should investigate where these differences are coming from in their data, and seek to resolve the differences. In general, quantitative and qualitative methods can be compared based on the types of data that are used for each method, and the kinds of resu lts that each method tends to produce.

TYPE OF DATA Quantitative Economic Outlook Labour-force growth Labour-force projections Industry projections Occupational projections

Qualitative Economic Outlook Demographics Political and regulatory environment Technological change Societal change

TYPE OF RESULTS Quantitative Detailed, numeric estimates

Qualitative More specific information that can easily be used to produce HR system development plans

Source: Adapted from Bartlett, K.R., Johnson, K.R., & Schneider, I.E. (2016). "Comparing strategic human resource development approaches for tourism and hospitality workforce planning," Journal of Human Resources in Hospitality and Tourism, 15(4), 440-461.

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SIMULATION Simulation is a powerful blend of quantitative and qualitative analysis. It is based on the creation of a set of assumptions around the variables or inputs that are expected to affect demand followed by a quantitative representation of those assumptions and their interactions. These assumptions start at the macro level (e.g., the economy, changes in technology, political or legislative outcomes, or demographics), and then incorporate organizational variables th at could also influence demand such as the impact of technology or process changes in production. Simulation can be used to model both demand and supply, so models can also include supply-related variables such as the amount of time required for training to become competent at a job level, and seniority levels of employees in th e job. The assumptions that are used to build a simulation model employ mathematical algorithms that reflect how variables are expected to react dynamically with the other variables in the model. For example, the stock of employees in a job may not accurately represent th e level of skilled employees in that job at any given point in time. If a job requires a lengthy training or mentoring period, then the flow of employees may be suitable, but stocks of suitably skilled employees may be low or high for th e firm's needs depending on where employees are in the training cycle. These types of delays and accumulation processes lead to relationships with other demand characteristics such as revenues or production th at are not linear. Simulation can model these non linear dependencies, and so simulation has an advantage over regression and trend-based models for these types of applications. The simulation process can be broken down into several steps:

Simulation A blend of qualitative and quantitative modelling that incorporates a set of assumptions about relationships among variables in a mathematical algorithm. Simulation can simultaneously model demand and supply, and is very useful for testing the impact of assumptions on the outcome of the model

1. Using qualitative methods, collect the relevant variables. This process can use interviews, focus groups, Delphi, or NGT to collect th e information. 2. Describe how these variables interact together to by developing a process model to map the relationships between variables. Line managers who have direct experience with the manner and ways in which the demand for human capital changes over time and with sales are in an excellent position to provide insights to this process. 3. Use simulation software and develop the algorithms to estimate the model. The range of assumptions developed qualitatively are used to run the simulation several thousand times. The output of the simulation presents a range of outcomes that occur most of the time. This range of outcomes represents the envelope of estimates over which a demand estimate is likely to occur given the current set of assumptions. 4. Test the model using historical data to validate the assumptions used in its development. 5. Different assumptions can be easily tested in th e model by inputting new scenarios and re-running the simulation. The main benefit of simulation in forecasting demand (and supply) is not in arriving at a more accurate forecast, but in developing a better understanding of what factors influence demand and supply, and what processes may be causing bottlenecks in the flow of human capital. In this sense simulation is considered to be more descriptive of processes than prescriptive. 25 The advantage of simulation is in providing knowledge around how demand estimates might react to changes in environmental factors, in customer characteristics, in the training or skills requirements of employees, or in any of the assumptions

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that are used to build the simulation model. While simulation forecasting is relatively new to the HR field, it has been used for a decade or more in the areas of operations and finance. HR practitioners in large organizations might be able to team with operations and/ or the finance department to develop integrated simulation models that incorporate product demand with manufacturing constraints and human capital demand and supply to streamline the flow of resources across the firm. This kind of integration between customer needs and organizational resources can lead to faster response times for organizations to provide services or products to customers, which has the potential to provide a source of competitive advantage through human capital planning, as discussed in HR Planning Today 5.4.

HR PLANNING TODAY

5.4

SIMULATION IN THE SKILLED SERVICES INDUSTRIES Industries such as electric power utilities, home and industrial heating and cooling, electrical, and plumbing all require highly skilled workers, and all involve unpredictable and volatile demand. When the Quebec ice storm of 1998 downed over 1000 electrical transmission towers, it left over a million Canadians without heat and water for days, and presented a large threat to the Canadian dairy industry, which was unable to feed or milk cows. Shocks such as these may be rare, but the industries that deal with such events must be able to provide the services necessary to recover quickly. Planning must include scenarios for these rare occurrences.At a smaller scale, service providers for those services that we consider to be necessary, such as heating and air conditioning, are in a better position to service their customers when they have skilled technicians available whenever their customers have a need. However, the more ready a company is with technicians, the higher the potential for lost revenues from a surplus of technicians when demand is not at its peak. Therefore, having the right number of technicians available is a complex capability that could act as a source of strategic competitive advantage. In the home heating/cooling industry in Canada, the demand for services is growing at a relatively stable rate, as demand is a function of the number of homes. However, the time required to develop a skilled technician to the point of being available for active service can be quite long, when considering the time to recruit and provide basic

and on-the-job training. Lead times can extend beyond 24 months for some jobs for highly skilled technicians. Modelling the demand for such jobs must therefore account for not only the stock of technicians, but also the flow of technicians from recruitment to the point of being fu lly active in the job. A simulation model will include variables such as the recruitment rate (the number of technicians being hired), the number of employees taking basic training as well as the number of active employees working as trainers, the number of employees in the on-the-job training phase, the number of active employees, and the time it takes for employees to move from one phase to the next. Additional complications to this model include estimating the number of employees lost at each point of the cycle, as well as the number of trainers who must be removed from active service to perform basic training. As the demand for employees increases, the demand for trainers will increase to respond to the need to train the increased numbers of employees in basic training. Each phase of this model will have a mathematical equation that is intended to simulate changes in the variables over time, and their relation to other variables in the model. Simulation models require skills in mathematics and logistics to develop the algorithms used, but the conceptual basis of the model and the assumptions around the building of the model require as much involvement from HR and the business line.

Source: Adapted from Grassier, A., and Zack, A. (2010). "Supporting long-term workforce planning with a dynamic aging chain model: A case study from the service industry," Human Resource Management, 49, pp. 829-848.

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II SUMMARY While demand forecasts will never be exact, the dramatic increase in the kinds of data available to HR planners today offers the potential to increase the precision (and complexity) of quantitative demand models. In this chapter, we examined various quantitative, qualitative, and blended techniques that organizations use to forecast future requirements for HR demand. Qialitative methods range from a single manager's estimate to methods that challenge current assumptions like scenario planning, to models that increase the validity and reliability of expert judgments such as Delphi technique and nominal group technique. Delphi and NGT are versatile methods that can also be used to help groups brainstorm or achieve consensus. HR practitioners should consider using these methods not only for planning but also to gather the kinds of information that could otherwise be collected using focus groups or surveys. Demand forecasts are imperfect. HR planners must understand the assumptions that form the basis of their forecasts and the sensitivity of the forecast to deviations from these assumptions. Ideally, deviations from the forecast can be managed by HR practices such as flexible work arrangements, part-time workers, contract workers etc. However, when the assumptions are incorrect by a significant amount, contingency forecasts and plans must be put in place. Good planning involves the development of contingency plans, the ability to detect as early as possible when the current forecast can no longer satisfy actual demand using current HR practices, and when a contingency plan must be put into action.

KEY TERMS Delphi technique p. 121 HR budgets p. 124 nominal group technique (NGT) p. 123 ratio analysis p. 106 regression analysis p. 109 scenario planning p. 119 simulation p. 127 staffing table p. 125 structural equation modelling (SEM) p. 117 trend analysis p. 106

DISCUSSION QUESTIONS 1. Imagine that you have a friend who owns and runs a family restaurant that specializes in plant-based whole foods. At capacity, the restaurant requires four wait staff to wait on all the tables. While the restaurant has been getting busier and busier, your friend has found it challenging to have the right number of wait staff working. Sometimes when only one person is working, he or she is overwhelmed, and other times the three or four people working stare into a mostly empty restaurant. When staff aren't working, the restaurant is losing money, and the wait staff aren't earning tips. Without a full income from waiting tables, the better wait staff move to busier jobs, so the quality of workers is suffering from this poor scheduling. Using what

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you know about forecasting demand, what advice would you offer to solve this scheduling issue? 2. The Delphi technique and the nominal group technique (NGT) are often used to facilitate creative and innovative solutions to HR demand issues. What are the similarities and differences between the two methods? List the conditions associated with successful employment of each of these two demand forecasting techniques. 3. Ratio or trend analysis can be a very effective method for determining HR demand. Identify a wide variety of relevant indices that can be used for this demand-forecasting technique in different organizational contexts, including public not-for-profit organizations, as well as in diverse industrial settings in the private sector.

EXERCISE: SCENARIO PLANNING The question: Will undergraduate university courses in Canada move more toward online course offerings in the next five years, or will there be a gradual reduction in online courses? a. On your own, or in groups of 4-5 people, write down all the factors that you can think of that might influence the move toward increasing or decreasing the use of online courses. Write each factor on a separate sticky note. Think of how political, economic, environmental, social, technological, demographic, and legal/regulatory issues could influence the move toward or away from online courses over the next five years. Write each factor down as you think of it, and do not critically examine the factors yet. b. Look at your factors, and move the sticky notes into groups of factors that form natural clusters. Give each cluster a title. c. Select the two clusters that you think have the potential to have the most impact on the decision to increase online course offerings and that are also unpredictable. d. Now stretch these two clusters out. Place the two extremes of the first cluster at either end of the horizontal axis, and the two extremes of the second cluster at each end of the vertical axis. This will leave you with four quadrants: the top right quadrant will represent a world in which both clusters are at the extreme positive end of their scales. The bottom right quadrant will represent a world in which the horizontally placed cluster is at the top end of its scale, but the vertically placed cluster is at the negative end of its scale, and so on. e. Look at the world that is represented by each quadrant, and describe what each world would be like. How does online education fit into this world? Give each world its own representative name. f. Describe the types of strategies, resources, and activities that would be necessary for a university course to be successful in each of these worlds. g. Look at the strategies, resources, and activities that are common to all four worlds. Any attributes that are common to all four worlds are likely to lead to success in any outcome that is close to what your scenario planning model presents. Therefore, these are the attributes that universities should

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be focusing on today so that they can be successful in presen ting strong programs and class environments to students in the n ear future. h . Discuss your fin dings with other groups or individuals. How are they similar, and how do they differ? What were th e critical differences in your assumption s that affected the outcomes?

CASE STUDY

ONTARIO POWER GENERATION

Ontario Power Generation is a very large North American power company, with a generating capacity of more than 16 000 m egawatts. OPG provides power to m ore than half of all Ontario hom es and busin esses. With just over 10 000 employees, 0 PG produces electricity using a combin ation of hydroelectric, thermal, nuclear, biom ass, an d wind-powered stations. Roughly 95 percent of the power produced by OPG in 20 13 came from hydroelectric and nuclear sources, which produce zero emissions that contribute to smog and climate change. The power-producing industry is characterized as having fairly stable demand, although the regulatory and social environment in which power companies operate is going through a period of change. For example, OPG is ahead of the Ontario Ministry of Energy-man dated schedule to close its coal-fired gen erating stations. These stations have been shuttered, but n ot sold, and may on e day be converted to natural gas-fired stations. OPG's Pickering n uclear power stations will be shut down by 2020, while phasing in greater use of wind, solar, bio-energy, an d hydroelectric power over roughly the same period. Consumer deman d for power is dyn amic, with daily, weekly, and monthly peaks, as well as seasonal differences in demand. OPG m ust anticipate power demand and determine how to satisfy its total power demand with power from different stations. Each typ e of power station has its own unique operating requirements for technicians, and so th e HR dem and for technicians depends not only on total power needs, but also the mix of power station s in use at any given time. Because the company has varying skill requirem ents for its technicians, OPG seeks to hire technicians with the basic engineering skills qualifications, and then provides extensive training. The training period lasts up to five years, which in dicates how strategically important technicians are to OPG. The forecasting of demand for technicians must account for these cyclical differences in p ower deman d in order to preven t over- or understaffing. In addition to these deman d requirements, the utility must plan for future requirements given the expected growth in the deman d for electricity over time, and its own strategic initiative to reduce total full-time employment levels by roughly 20 percent from its 2011 levels over a five-year period. Organization al planners have many years of prior sales and consumption data from which to draw forecasts. The utility also has a m anagement team that has deep knowledge of the regulatory and political lan dscape, the energy sector in general, and the electricity market in th e province. Other attributes that may in fluen ce the demand for energy an d therefore the dem and for technicians include the extent to which third-party (consultant) services are utilized, the total capital budget of the company, the total n umber of kilowatt hours generated, the kilowatt hours produced by each station, the type of power station s available for use, an d sales reven ues. (continued)

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QUESTIONS 1. Assuming that 0 PG wishes to improve its HR demand forecasts for technicians over a three-year period, do you think that 0 PG should use a quantitative or qualitative type of model to assess its demand for technicians? 2. What specific form of quantitative or qualitative model do you think 0 PG should use? Sources: OPG Annual Report 2013; OPG employment website; Meehan, R.H., and Ahmed, S.B. (1990).

II REFERENCES 1. Elbo, R. November 15, 2000. "In the Workplace: Competing with Poaching Employers." Businessworld, l-3; Cascio, W.F. 1991. Applied Psychology in Personnel Management (4th ed.). Englewood Cliffs, NJ: Prentice Hall; Ward, D. 1996. "Workforce Demand Forecasting Techniques." Human Resource Planning, Vol. 19, No. 1: 54-55. 2. Al-Harbi, K. 2000. "Optimization of Staff Numbers in the Process Industries: An Application of DEA." International journal ofManpower, Vol. 21, No. 1: 47-55; Meehan, R., and B.S. Ahmed. 1990. "Forecasting Human Resources Requirements: A Demand Model." Human Resource Planning, Vol. 13, No. 4: 297-307. 3. Positive and negative distances from the line can cancel one another out. Regression therefore squares the distances from the line so that all distances are pos1t1ve. 4. Meehan, R.H., and S.B. Ahmed. 1990. 5. When comparing the relative strength of predictors that are based in different units of measurement, it is best to standardize the predictors. 6. Ward. 1996. 7. Cooper, J., and S. Jackson. 2017. Workforce Planning Practices in Canada: Human Resources Trends and Metrics (4th ed.). The Conference Board of Canada. 8. Tetlock, P. 2005. Expert Politicaljudgment: How Good Is It? How Can We Know? New Jersey: Princeton University Press. 9. Surowiecki, J. 2005. The Wisdom of Crowds. Toronto: Random House. 10. Anonymous. 2005. "Tool Forecasts Labour Needs." On-Site, Vol. 49, No. 6: 10-11; Gatewood, R.D., and E.J. Gatewood. 19 83. "The Use of Expert Data in Human Resource Planning: Guidelines from Strategic Forecasting." Human Resource Planning, Vol. 6, No. 2 CTune): 83-94. 11. Korte, R.F., and T.J. Chermack. 2006. "Changing Organizational Culture with Scenario Planning." Futures, Vol. 39: 645-656.

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12. Passmore, D., E. Cebeci, and R. Baker. 2005. "Market-based Information for Decision Support in Human Resource Development." Human Resource Development Review, Vol. 4, No. 1: 33-49; Luthans, F. 1992. Organizational Behavior (6th ed.). New York: McGraw-Hill. 13. Helmer, 0., cited in Bramwell, L., and E. Hykawy. 1999. "The Delphi Technique: A Possible Tool for Predicting Future Events in Nursing Education." Canadian journal ofNursing Research, Vol. 30, No. 4: 47-58. 14. Passmore et al. 2005; Fusfeld, A.R., and R.N. Foster. 1971. "The Delphi Technique: Survey and Comment." Business Horizons, Vol. 14, No. 3 CTune): 63-74. 15. Loo, R., and K. Thorpe. 2003. "A Delphi Study Forecasting Management Training and Development for First-Line Nurse Managers." The journal of Management Development, Vol. 22, No. 9: 10, 824-825; Hampton, D.R., C.E. Summer, and R.A. Webber. 1987. Organizational Behavior and the Practice ofManagement (5th ed.). Glenview, IL: Scott Foresman; Milkovich, G., A. Annoni, and T. Mahoney. 1972. "The Use of Delphi Procedures in Manpower Forecasting." Management Science, Vol. 19, No. 4 (December): 381-388; Milkovich, G.T., and T.A. Mahoney. 1978. "Human Resource Planning Models: A Perspective." Human Resource Planning, Vol. 1, No. 1 (1978): 19-30. 16. Bramwell, L., and E. Hykawy. 1999. "The Delphi Technique: A Possible Tool for Predicting Future Events in Nursing Education." Canadian journal of Nursing Research, Vol. 30, No. 4: 47-58. 17. Loo, R., and K. Thorpe. 2004. "Making Female First-Line Nurse Managers More Effective: A Delphi Study of Occupational Stress." Women in Management Review, Bradford, Vol. 19, No. 1/2; Chan, C., and K. McBey et al. 2004. "Nursing Crisis: Retention Strategies for Hospital Administrators." Research and Practice in Human Resource Management, Vol. 12, No. 2: 31-56; Meehan and Ahmed. 1990. 18. Bramwell and Hykawym. 1999. 19. Sobaih, E.E., C. Ritchie, and E. Jones. 2012. "Consulting the Oracle? Applications of Modified Delphi Technique to Qyalitative Research in the Hospitality Industry." International journal of Contemporary Hospitality Management, Vol. 24, No. 6: 886-906. 20. Fraser, C., and A. Fraser. 2000. "Measuring the Performance of Retail Managers in Australia and Singapore." International journal ofRetail & Distribution Management, Vol. 28, No. 6: 228-243; Van de Ven, A.H. 1974. Group Decision-making Effectiveness. Kent, OH: Kent State University Center for Business and Economic Research Press. 21. Rohrbaugh, J. 1981. "Improving the Qyality of Group Judgement: Social Judgement Analysis and the Nominal Group Technique." Organizational Behavior and Human Performance (October): 272-288. 22. Fraser, C. 2000. "The Influence of Personal Characteristics on Effectiveness of Construction Site Managers." Construction Management & Economics, Vol. 18, No. 1: 29-36; Delbecq, A.L., A.H. Van de Ven, and D.H. Gustafson.

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1975. Group Techniques for Program Planning. Glenview, IL: Scott Foresman; Green, T.B. 1975. "An Empirical Analysis of Nominal and Interacting Groups." Academy ofManagement journal (March): 63-73. 23. Roeden, J.M., M.A. Maaskant, and L.M. Curfs. 2012. "The Nominal Group Technique as an Evaluation Tool for Solution-focused Coaching." journal of Applied Research in Intellectual Disabilities, Vol. 25: 588-593. 24. McBeath, G. 1992. The Handbook ofHuman Resource Planning: Practical Manpower Analysis Techniques for HR Professionals. Oxford: Blackwell. 25. Grossler, A., and A. Zock. 2010. Supporting Long-Term Workforce Planning with a Dynamic Aging Chain Model: A Case Study from the Service Industry. Human Resource Management, Vol. 49: 829-848.

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ASCERTAINING HR SUPPLY

CHAPTER LEARNING OUTCOMES AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO: • Understand the relationship between demand and supply forecasting techniques in the HR planning process. • Recognize the importance of effectively m anaging the supply of human capital. • Compreh end the importance of segmenting human capital to better understand where human capital plays a critical role in implementing strategy and how to manage the supply of that human capital. • Discuss and evaluate the advantages and disadvantages of the following specific methods of determining extern al and internal supply: a. Skills an d man agement inventories b. Human capital segmentation c. Markov models d. Linear programming an d simulation e. Movement analysis f. Vacancy/ renewal models • Recognize when an HR gap may be filled through substitution strategies such as automation, or when the gap may be attributable mostly to the bullwhip effect.

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Economists who analyze labour supply will often look at unemployment rates by province, by occupation, and by designated group. These numbers give them an idea of where potential supplies of labour exist. Canada's Aboriginal population is the fastest growing population in Canada, which means it is a potential source of labour now and in the decades to follow. However, in 2006 Aboriginal people had an unemployment rate of nearly 15 percent compared to about 6 percent in the general population. This high rate of unemployment is due to particularly low levels of education and a younger demographic. And yet, nearly 80 percent of employers believe that the employment of Aboriginal people is necessary to deal with labour shortages. What can employers do to attract and retain this pool of labour? PTI Group worked with Aboriginal communities in Alberta to identify barriers to employment. One barrier was the lack of transportation, which PTI solved by providing buses to drive employees between the reserves and the

work sites. PTI also created a training program at the camp, consisting of classes and practical experience. All the trainees in the first cohort are now employed by the company. To address problems of low literacy, lack of work experience, and weak technical skills, employers such as Alberta-Pacific Forest Industries offer job placement and apprenticeship programs that provide practical training and mentorships. Retention of this demographic is aided by workplace programs such as extended leaves during the traditional hunting season. All employees take a cultural training program, Aboriginal 101, to decrease stereotyping and racism on the job. Al-Pac states that these programs work and reports a very low 5 percent turnover among this group. Sources: Aboriginal Peoples in Canada, Designated Group Profiles 2006: www. labour.gc.ca/eng/standards: Retrieved 29/07/2014; Silliker, A. "Aboriginals key to tackling labour shortage" Canadian HR Reporter, 25, 19, Nov 5, 2012, p. 11; and Klie, S. "Aboriginals a strategic imperative," Canadian HR Reporter, 24, 8, April 25, 201 1, pp. 1, 8.

11 INTRODUCTION Internal supply Existing employees who can be retrained, promoted, transferred, or otherwise redeployed to fill anticipated future HR requirements External supply Members of the workforce not currently employed by the firm, who are currently undergoing training, working for competitors, members of unions or professional associations, in a transitional stage, between jobs, or unemployed

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In the preceding chapter, we examined a variety of methods used to forecast HR demand. Many of these procedures (e.g., trend analysis, simulation, the Delphi technique, and NGT) can also be used to determine the supply of human capital. Human capital must be obtained from a source that is either internal to the organization (current employees) or external (individuals currently not employed by the organization), or, more commonly, some combination of these. Many organizations give preference to internal supply, because selecting these individuals for training and development, and subsequent promotion, enables the organization to reinforce employee loyalty and performance. Other reasons for giving preferential consideration to your own workforce to fill job openings include the following: 1. Current employees are already socialized to the norms, rules, and procedures of your organization, and so organizational fit is ensured. 2. The employer possesses detailed knowledge (as listed on its HRMS skill inventories) of the employees' performance and KSAs over time (e.g., work history and experience). 3. Internal labour m arkets provide employees some protection from economic downturns, as employees can move from one job type to others.

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11 SEGMENTING THE INTERNAL SUPPLY OF HUMAN CAPITAL With the popularity of news headlines focusing on the skills gap for highly skilled workers, and the forecasted labour shortage issues in Canada in the coming decade, it is clear that organizations can benefit from placing increased importance on the management and internal supply of human capital. What this implies is that rather than focusing solely on recruitment when a need is identified, firms should start looking at the kinds of human capital skills or competencies that are critical to solving organizational problems or that are key to implementing the firm's strategy, and implement policies that aim to retain and develop these critical skills. However, employees working in the same job, who hold similar sets of skills, may have very different objectives when it comes to how the current job fits into their own career objectives. When different groups of employees work in the same job but have different work or career preferences, it may be possible to retain or develop more than one of these employee segments with HR programs. Consider a salesperson working on the floor at one of the major clothing sales chains such as The Gap, or J. Crew. Some of these employees are there for the long haul; they love the company, its products, its values, and the experience that it provides for its customers. These employees would love to work for the company for as long as they can imagine, and possibly even manage their own store one day, or buy their own franchise. But there are several other segments of employees working the floor as well. Some employees are using the job to help pay their way through school, and intend to move into a different field once they graduate. Other employees don't want a full-time job, and enjoy the casual nature of their work as well as the opportunity to be flexible with the number of hours they work per week and when they work those hours. Still other employees might be retired, and are looking for part-time work that provides a social experience and the opportunity to be active. Each of these groups of employees can be segmented based on its unique combinations of preferences for the employment contract at the firm. All these employee segments add value to the firm, and excellent workers can be found in all segments. However, if the company is recruiting for, selecting, providing benefits, and rewarding only the segment that strongly identifies with the firm for the long haul, then it is ignoring the needs and desires of all the other existing human capital segments. If the firm only hired sales staff from the long haul segment who want to work full time and progress through the company, then it is creating a host of unforeseen problems relating to finding people to work part-time or odd hours, and career development problems, as there is no way to provide developmental opportunities and career progress for all the sales staff. John Boudreau suggests that firms should understand each of the employee segments that comprise their human capital contingent, and provide HR practices that appeal to each of these segments in unique ways. 1 That way firms can influence the supply of human capital from each of these segments in ways that ensure a strong supply of human capital. Boudreau proposes three questions to understand and influence supply:

Employee segmentation The grouping of employees based on characteristics that are relevant to the employee experience such as career preferences, demographics, work-life preferences, or benefits

1. What are the critical human capital segments?2 In order to answer this question HR practitioners must have a clear understanding of the organizational activities that bring value to the customer. These activities are what the firm does to differentiate itself in the market, and the employees who are involved in

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the performance of those activities and the delivery of that value are critical to firm success. HR planners should determine the most relevant attributes to use as a basis for segmenting critical human capital; these attributes could take many forms, including differences in preferences for benefits, flexible work options, or differences in reasons for working at the firm. Knowing how to appeal to different segments of critical human capital will lead to a stronger applicant pool and help the firm design policies that appeal to each employee segment as needed. The second question that Boudreau proposes that firms ask in order to influence the supply of its human capital is 2. What response do we needfrom each ofthese segments?3 Let's take for example a firm that expects the demand for HR managers to increase along with expected organizational growth. After graduating from college or university, it might take an HR professional five years or more working within the HR function to develop the skills to become an HR manager. Another path to becoming an HR manager in the firm might be to work for five years within one of the business lines of the firm, formalize one's HR knowledge in an HR-focused Master's degree program, and then move into the HR manager role. This path might take five to seven years. By segmenting these human capital requirements by demographics, the firm can understand how to influence the supply of HR managers over the next decade by determining what proportion of existing HR managers may be considering retirement, how many recent graduates are entering the HR function, and what proportion of HR managers are coming from the business lines with an advanced HR degree. With an estimate of demand for HR managers, the firm can model whether and how to meet that demand from internal sources. For example, if policies were put in place to persuade 25 percent of HR managers who are contemplating retirement to remain in the job for an extra two to five years, and if policies were used to increase the proportion of millennials in the applicant pool by 10 percent, and if managers outside the HR function who were interested in working in HR were offered a subsidy to help pay for an advanced HR degree part-time while working, how would the supply of HR managers change over the next five years? The final question to ask when considering how to influence the supply of human capital is 3. Whatfeatures of the employment deal create the best response at the lowest cost? 4 Looking at our example of influencing the supply of HR managers by segmenting along demographics, we see that there are different costs associated with each of our options. We should include among those options external hiring, where we seek to hire candidates who already possess all the skills or competencies needed to fill the HR manager job. The costs associated with each of these options can be calculated, and the question becomes a relatively simple optimization problem of reducing the risk of running low on HR managers by combining our options to arrive at the lowest cost and lowest risk solution. While the HR manager job was segmented by demographic, the salesperson job at the clothing store discussed earlier was segmented by other features of the employment contract. By segmenting along preferences for organizational identification and commitment, the clothing store can optimize its supply of full-time, part-time, and

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occasional workers to balance scheduling needs. Segmenting workers along unique sets of attributes that make the employment contract attractive in order to influence the supply of human capital allows forecasters to better understand and model h ow to influence the supply of each employee segment. Policies such as recruitment and retention strategies that appeal to these unique segments provide the means through which planners can influence the supply of human capital. When firms do not have the policies in place or the resources to provide an adequate supply of human capital from within, adequate supply must be found outside the firm. When supply is inadequate, the result could be due to a labour sh ortage, where there simply are not enough workers for the number of jobs available, or due to a skills gap, where there are insufficient numbers of workers who possess the skills necessary to perform the job (see HR Planning Today 6.1). We now turn to an examination of some of the mechanisms th at influence the external supply of human capital.

Canadian news stories about the skills gap lead us to believe that there is a shortage in the supply of high skilled Canadian labour. A 2016 survey for the Canadian Internet Registration Authority found that despite having competitive recruitment and selection practices, almost 50 percent of the IT companies surveyed claimed they had trouble fill ing IT positions in the last year. Few organizations have the capability to measure the cost of not hiring a worker for a year, and if they could, they might take stronger steps to avoid these kinds of gaps. Are skills gaps real, and if so, what are the causes and cures? Some research suggests that the skills gap is limited to particular geographic regions or knowledge sectors. For example, the insurance industry lacks sufficient numbers of claims managers, claims handlers, and actuaries, and some skilled trades such as boilermakers, machinists, and heavy equipment handlers currently face a skills gap. However, for many jobs, research suggests that a large portion of the gap may be brought on by organizations. Firms that do not have a development pipeline, that spend little on training, and that are dependent on external hiring for most skilled workers are especially at risk for not being able to hire adequate numbers. Another

Skills gap A situation in which the supply of a particular form of human capital available to the firm is inadequate to address the demand

contributing factor to an inflated gap is in the recruitment and hiring practices popular in fi rms today. Rather than selecting based on knowledge, skills, abilities, and aptitudes derived from on job analysis, many firms prioritize work experience as a minimum qualification. When an organization is looking for an applicant with three to five years of experience in the job, how realistic is it to expect that an employee who has been working the same job but in another organization for three to five years will be willing to forego their firm-specific human capital to go work for roughly the same pay in a different organization? If firms want to pay the market rate or lower for an employee with several years of experience at the job, it is not surprising that the job advertisement yields an applicant pool that does not match its requirements. Firms that want to avoid unfi lled jobs over the long term need to align their strategic activities with their critical talent segments, and incorporate training, development, and retention strategies to reduce their need for external hiring. Firms need to appeal to their critical talent segments with HR practices that draw a larger applicant pool, and should consider paying above market wages for the talent segments that are critical to implementing firm strategy.

Sources: Adapted from Cappelli, P. (2012). Why good people can't get jobs: The skills gap and what companies can do about it. Wharton Digital Press: Philadelphia; Anonymous, June 2016. "From broadband access to smart economies: Technology, skills and Canada's future." Canadian Internet Registration Authority; and https://cira.ca/sites/default/files/public/Broadband-lnternet-access-across-Canada-en.pdf

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11 HR SUPPLY PROGRAMS THE ROLE CIF EMPLOYERS IN INFLUENCING SUPPLY If employers cannot find a sufficient supply of labour for certain jobs, they can either change the nature of the job, train workers themselves, or look at other labour pools. Jobs that are difficult to fill can be made more attractive. In one country, locals were unwilling to apply for construction jobs because they saw the work as dangerous, difficult, and dirty, in an unsafe and uncomfortable environment. Where possible, companies could try to either change the work conditions or change the perceptions of these jobs. Alternatively, managers could train the types of workers that they need. For example, a group of manufacturers, the Ontario Manufacturing Learning Consortium, are hiring young unskilled people and training them (with both classroom and on-the-job experiences) for jobs such as machinists. 5 However, Canadian organizations have a relatively poor track record in training employees, compared to other countries. According to a survey of executives in 27 countries, only 38 percent of Canadian businesses offer training to teach technical skills to employees in the highly desirable STEM areas (science, technology, engineering, and math), compared to 51 percent in the United States and even more in Columbia and Malaysia. According to Canadian executives, the problem is that they don't know what skills the workforce will need to remain competitive in the near future. 6

OTHER LABOUR POOLS This chapter opened with examples of companies hiring Aboriginal people in the workforce. Organizations facing shortages could make targeted efforts to recruit from the labour pools of the four designated groups, or other stigmatized groups. Home Depot Canada

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11 DIFFERENT SOLUTIONS FOR DIFFERENT NEEDS IT can be leveraged to better manage several activities involved in HR planning. For instance, available information on employees' participation in training, their competencies, and their performance levels may help determine the most competent employee for a position. Easy access to data may also help management identify areas where available talent is lacking for adequate succession. Moreover, technology can be leveraged

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CHAPTER 8 Information Technology for HR Planning

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to gauge client satisfaction with the service levels provided by the HRM department, and electronic surveys are increasingly used to conduct climate or engagement surveys. As a result, IT can support the different steps of the strategic HR planning process. There is an amazing diversity of software solutions for HRM and HR planning. Organizations may favour a comprehensive human resource information system (HRIS) or a specialty product focused on a single area, such as applicant tracking. Within these two broad categories, th e marketplace offers a range from low-cost, to mid-market, to costly h igh-end systems. HR Planning Notebook 8.1 discusses the stages of adoption of HR technology in organizations. In this section, we review these options, and also enterprise solutions such as th ose offered by SAP, BambooHR, Kronos, and APS.

HRIS Human resources information system (HRIS) A comprehensive across-the-board software system for HRM that includes subsystems or modules

The human resources infor111ation system (URIS) offers an integral solution for th e HR department. It includes the software, hardware, support functions, and system policies and procedures used to gather, store, and report human resources data. The system collects, stores, maintains data, and retrieves information about employees and their jobs. The HRIS provides access to a large database through a variety of modules that automate diverse functions. As such, the HRIS is an integrated solution that includes several subsystems or modules such as recruitment and selection, time and attendance management, payroll, training and development, pension administration, and so on. The HRIS thereby covers most of the important subsystems of HRM. It is the primary transaction processor, editor, record keeper, and functional application system that lies at the heart of most computerized HR management work.

Organizations seem to go through various stages as they decide to use technology to help manage the workforce. These are briefly described: Stage 1: At this initial phase, companies simply codify employee data such as name, job, compensation, etc. Stage 2: The basic data is supplemented by data pulled from other sources, such as performance ratings and training outcomes. Stage 3: In this stage, employees are given access to their data and can update or edit their profiles. They

can also access career trajectories, and indicate their career preferences. Stage 4: This is the data mining stage, where organizations use statistics, such as turnover data by occupation to predict employee behaviour, and link it to organizational outcomes.

These talent management systems (and new integrated HRMS systems) input performance history, education, job assignments, tests taken (so these systems are extremely useful understanding what drives performance, engagement, and other desirable outcomes.

Source: Robb, D. "Sizing up Talent," HR Magazine, 56, 4, April 2011, 77-79. Retrieved November 8, 2014, from http://www.linkedin.com/today/post/ article/20131028062534-131079-the-datafication-of-human-resources.

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SPECIALTY PRODUCTS Numerous specialty products are available that enable the automation of discrete tasks and responsibilities. They have the ability to address specific needs as they are focused on a single area of HRM. They thereby offer the advantage of going in-depth into a particular business activity. Some examples of specialty products include compensation planning, workforce scheduling, managing training and e-learning, and applicant tracking. Examples are provided throughout this chapter. Such specialty products may be easily acquired off-the-shelf by smaller companies as less costly solutions for addressing specific challenges. They are also likely to interface with a company's more comprehensive HRIS or ERP base system.

Specialty products Software solutions for specific specialized applications that may or may not interface with the main database

ENTERPRISE SOLUTIONS Enterprise resource planning (ERP) solutions are based on software that integrates data from diverse applications into a common database. They cover the fullest range of organizational activities and processes, including finance, logistics, production, accounting, and HRM. ERP computer systems are used by large corporations around the world, adopted with the aim of achieving substantial cost savings and improved access to "tried and tested" solutions, new releases, and an opportunity to update procedures and align them with the so-called "best practices." The ERP approach promotes the use of a single, shared relational database for critical information across the organization. This fosters the enforcement of consistent processes and procedures throughout the organization and ensures that administrative units can easily share information and communicate with one another. For HR, the enterprise-wide solution provides a platform for a better integration of HR and finance in the management of payroll. 7 When HR finds it difficult to obtain budget approval for investments in an HRIS solution, the enterprise-wide solution offers an opportunity for automation along with other administrative functions. HR professionals may also gain credibility as a result of their effective involvement in an ERP implementation. The ERP approach, however, is often quite costly with a lengthy implementation, as it involves significant organizational and contextual change. 8 HR may get sidelined in the process of integrating a whole range of functions across the organization. Also, because ERP systems are built with "generic users" in mind, they may not be well adapted to the specific practices and requirements of the HR user group in any given company. This may create tensions regarding the organization's unique identity. 9

Enterprise resource planning (ERP) Commercial software systems that automate and integrate many or most of a firm's business processes Relational database A database that can share information across multiple tables or files, which allows the same information to exist in multiple files simultaneously

II BIG DATA Big data ultimately refers to the integration of digitized data from all the corporate functions, including marketing, operations, finance, and HR. It even extends to customer information such as customer satisfaction, buying habits, and preferences, as well as information from social media sources such as Facebook, Linkedln, and more. Big data may comprise large, unstructured and unrelated data sets that can be difficult to analyze. 10 Big data is commonly measured in petabytes or larger measures, where one petabyte is the equivalent of 1,000 terabytes. And Big data is getting bigger all the time; some suggest that the world's available data is doubling every two years. 11

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Big data The integration of digitized data from multiple sources and in multiple formats, including structured and unstructured data

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Big data represents the integration and analysis of many different types of data from a wide variety of data sources.

How big is Big data? Recent estimates show that Walmart collects roughly 2.5 petabytes of customer data every hour, and the expectation is that as the ability to collect different types of data, store data, an d use it to develop customer insights grows, so too will the am ount of data. 12

TYPES OF BIG DATA Big d ata is based o n many different forms, which can b e classified into two basic categories: 1. Structured data. Th ese are the kinds of data with which businesses are most familiar. Structured data are essen tially any form of data that can b e organized into columns and rows. When HR practition ers enter employee data into the HRIS system, or when finance employees enter organizational finan cial data, th ey usually go into a spreadsheet or database that is organized into columns and rows. Other types of structured data include sensor data (e.g., from swipe cards or from monitorin g movement). 2. Unstructured data. These forms of data in clude the various kinds of files you might h ave on your computer. Text documents, email or text messages, audio, presentations, geotags, images, or videos are all unstructured data because th ey do n ot conform to a p re-established structure. Unstru ctured data may be searchable, but can be difficult to include with other types of data for analysis. These two basic types of data can include data that are produced internally, or that originate outside the organ ization. External data can origin ate from suppliers, customers, or social media sources, and are becoming increasingly useful in Big data applications, as organizations try to understand h ow their strategy affects and is affected by customers, competitors, and their supply network.

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THE FIVE PILLARS OF BIG DATA When attempting to assess an organization's readiness for Big data, the five pillars of Big data give some indication of the resources required to extract value from the investment required to collect, store, and analyze Big data. These five pillars refer to the attributes of volume, velocity, variety, veracity, and value. 13 Let's take a closer look at each of these attributes: 1. Volume. As we have already discussed, the volume of data that organizations can collect today is staggering. As people's choices and preferences become issues of public record through social media, and as the Internet of things proliferates, making the usage of many common everyday items measurable, the volume of data available for capture is rapidly expanding. 14 Cisco estimates that the number of networked devices (including things such as televisions, thermostats, security cameras etc.) will increase from 17 billion in 2016 to 27 billion by 2021. 15 The first resource requirement for organizations considering trying to make use of Big data is having the capacity to store the potentially overwhelming volume of data. 2. Velocity. This refers to the requirement to be able to transfer large amounts of data in a reasonable period of time. 16 It might be possible to warehouse large amounts of video data, but if they cannot be accessed and searched in a reasonable period of time, it becomes increasingly difficult to integrate those data into any kind of analysis or to combine them with other data in a meaningful manner. 3. 1ftiriety. Big data can come in many formats, as suggested by the possible types of unstructured data. Organizations must have the ability to deal with a wide variety of data types to make the most use of Big data. 4. Veracity. As the variety and volume of data increase, the old saying garbage in, garbage out becomes even more relevant. When considering the way that unstructured data might be error prone (e.g., the metadata might be incorrect for photo files, or object recognition from video files might be error prone), and the reduced ability to verify the accuracy of external data, the potential for error in the data leading to incorrect inferences from the data becomes greater, and the ability to detect and reduce those errors becomes more difficult. 5. 1ftilue. With the ability to capture data from so many sources, how do organizations determine what data is of value and what to ignore? More valuable data can be given greater attention so that it is gathered with less error. This is one area where artificial intelligence can help to determine how data can be arranged and analyzed, and consequently what data is more useful. The five pillars demonstrate that harnessing the power of Big data presents significant challenges and a large investment of knowledge, skills, and technological capital. Given the large increase in the uncertainty of the accuracy of unstructured and external data as well as the complexities of making associations among these disparate forms of data, the use of artificial intelligence to manage these tasks has become an important aspect of using Big data.

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ARTIFICIAL lNTELLIGENCE AND MACHINE LEARNING Artificial intelligence in general refers to the ability of a piece of software to learn. This learning can take several forms that range from a reward-based method to unsupervised, predictive learning. 17 Reinforcement learning, like the kind used on people and animals, is also used with machines. By giving the software a clear objective, but without the system developers knowing how to achieve that objective, the machine attempts millions of self-directed simulations until it achieves an appropriate outcome. 18 This is how IBM taught Deep Blue, its chess computer, to beat world champion chess masters. As artificial intelligence matures, it will become increasingly efficient at helping to sift through Big data for relevant insights. However, Big data and artificial intelligence pose problems for organizations beyond the challenges of developing the technology and providing the resources to enable it. The issues around Big data quickly move from how machines learn to how to manage the security of the data, the privacy of individuals, and the ethics around decisions made by machines. Data security is an ever-growing concern, particularly as the volume of data stored increases. The Equifax data breach in 2017 demonstrated that individuals are not completely in control of their own data, and companies with which we have no direct contact can be the source of leaking highly personal and confidential data such as social insurance numbers, addresses, and dates of birth. Individual privacy goes beyond data security. As Big data becomes more capable of predicting consumer preferences and employee behaviours, organizations can learn, and potentially share aspects about our lives that we prefer to keep private (see HR Planning Today 8.2 about how one father learned that his daughter was pregnant). The ethics issues surrounding Big data pose many questions that will need to be answered before organizations can fully grasp Big data and artificial intelligence present new questions for HR the risks involved in using artificial intelligence to aid in professionals around data security, individual privacy issues, and ethics. decision making. Artificial intelligence A software-based ability to demonstrate learning and decision making

ETHICS AND BIG DATA A strength of artificial intelligence (AI) is that we can teach it how to make decisions using historical examples, and then let it use that guided learning as a launch point for experimenting with new ways of applying what it has been taught. This is particularly useful for helping humans to make sense of large sets of data that have many possible combinations of variables that are coded in multiple formats. However, artificial intelligence lacks transparency around the decision rules that it develops. It cannot explain the decisions that it arrives at, which is the point at which ethical issues around the use of AI begin to surface. Who becomes liable for the decisions and predictions that are made using AI? 19 Can we hold the company that developed the software responsible? What happens when decisions are made using data that have errors, and that lead to costly mistakes? For HRIS vendors, the software either works as expected or has a flaw that the vendor is responsible for correcting. But when AI makes a costly decision or analysis, what are the conditions under which this can be called a bug? And what happens if the software stops working? Imagine that the department

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Have you ever shopped on a website like Amazon and noticed that the site makes several suggestions for similar or complementary products to the one you are initially interested in purchasing? Organizations are constantly trying to develop a better understanding of their customers' desires and purchasing behaviours and, thanks to Big data, they are finally getting somewhere. Target made big news in 2012 when it mailed coupons for products that would be of interest to pregnant and new mothers to a teenage girl. The girl's father was outraged by the targeted mailer until he learned that his daughter actually was pregnant. How did Target know she was pregnant before her father did? Target collected data about customers based on their past purchases using their credit card, email address, or other form of unique identifier. Target set a specific business challenge of trying to appeal to pregnant women who were relatively early on in their pregnancy. Target believed that their strategy of providing a single stop for all shopping needs was particularly

appealing to new parents, and that if they could make women aware of Target's value proposition early in pregnancy, it might help to solidify new shopping habits. Target's research revealed that pregnant women tended to buy a set of 25 particular items, and so when shoppers bought several items from among these 25, Target would send them coupons that would be of interest to pregnant women. The case that made Target news is just a single example of the kinds of efforts that firms are making to segment customers by their preferences and then try to determine how to predict the interests and needs of those specific segments. HR can use Big data in similar ways; for example, HR can segment its employees by their preferences, and learn how to predict turnover for each of these employee groups. Or HR could use Big data to develop a better understanding of how employees should be combined from these groups in order to predict higher team performance.

Adapted from Kashmir Hill, 2012, "How Target Figured Out a Teen Girl Was Pregnant Before Her Father Did," Forbes, https://www.forbes.com/sites/ kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/#1802e0966668, retrieved March 16, 2018; C. Duhig, February 16, 2012, "How Companies Learn Your Secrets," New York Times Magazine, http://www.nytimes.com/2012/02/19/magazine/shopping-habits. html?pagewanted=1&_r=1 , retrieved March 16, 2018.

of HR analysts has been replaced by software th at suddenly fails. What operational risk does the organization face in such a circumstance? Qiestions like these help to demonstrate the kinds of risks and issues that organizations face when considering implementing Big data and AI. HR Planning Today 8.3 further explores the potential limitations of Big data to transform the HR function in the near future. Until many of these questions can b e answered, the primary tools used by the HR function will be the HRIS system and its associated databases, spreadsh eets such as Excel, and statistical analysis p ackages. These tools may be used in isolation or combined to form a workforce metrics dashboard.

11 HR METRICS AND WORKFORCE ANALYTICS HR metrics and workforce analytics applications address the ch allenge of getting business intelligence for strategic decision making. As a subset of business intelligence, HR metrics use statistical modelling and software to gather information about employees and work in order to optimize the use of human resources in the organization. The best applications provide on-demand access to workforce performance through dashboards

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Business intelligence The applications and technologies for gathering, storing, analyzing, and providing access to data to help users make better business decisions HR metrics Summary measures of HRoutcomes that are relevant to the performance of the HR function. Example metrics include the cost of recruitment, timeto-hire, and turnover rate

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Google began a Big data HR project in 2008 called Project Oxygen. This project sought to discover the attributes of a good manager at Google by looking at past performance reviews, surveys, nominations for best manager awards, and other sources of data that could be used to uncover the habits, behaviours, or attributes of a great manager. After years of study, Google determined eight habits of great managers, but the results almost seemed anti-climactic. Each of the eight habits was uncovered some time ago, and so the results of the study appeared more confirmatory and sensible than ground breaking. Some researchers suggest that Big data and Al have the potential to have a large impact on aspects of the

business that deal with less sensitive and private data and where there are millions of data points, such as millions of customer transactions or inventory transactions. But the scope for Big data and Al to have a large impact on the business through HR is limited by the degree to which private employee data can be used and shared, and by the fact that even very large organizations count their employees in the tens of thousands rather than millions. Big data will certainly lead to new ways in which HR connects with other functional areas of the business to solve organizational challenges. What is uncertain is the extent to which Big data and Al will transform the HR function.

Adapted from: Bryant, A. (March 12, 2011 }, Google's Quest to Build a Better Boss. New York Times, http://www.nytimes.com/201 1/03/13/ business/13hire.html?smid=pl-share, retrieved March 6, 2018; Cappelli, P. (June 2, 2017), "There's No Such Thing as Big Data in HR," HBR.org

that place information such as turnover rate, comparisons of pay rates between groups, and other summary information at the manager's fingertips. The purpose of HR dashboards is to organize key pieces of HR information and present data in ways that are simple to understand. The role of workforce analytics can be placed into one or more of three categories: descriptive analytics, which describe what happened; predictive analytics, which make inferences based on existing data to describe what could happen; and prescriptive analytics, which describe what should happen. 20 While workforce analytics span all three of these domains, HR metrics function largely within the first domain of descriptive analytics. Workforce analytics is still in its infancy. To date, there are very few studies on HR analytics, and it is estimated that roughly 15 percent of firms are using HR analytics (see HR Planning Notebook 8.2 for more discussion on the current state of HR analytics in organizations). 21 While this low number may seem surprising given today's focus on measuring the impact of HR practices, the reason for this surprise may be attributable to the ambiguity in what workforce analytics actually is, and how it differs from HR metrics. The primary distinction between these two aspects of measurement is that HR metrics generally refer to a narrower set of measures that tend to be restricted to measuring HR outcomes such as the cost of recruitment from various sources, the time taken for selection, or turnover rates by department, whereas HR analytics attempt to place HR in the broader context of the organization and its other functions, systems, or strategy (see HR Planning Today 8.4 for an example of the use of HR analytics to connect HR policies with organization strategy). 22 HR analytics has been defined as an "HR practice enabled by information technology that uses descriptive, visual, and statistical analyses of data related to HR processes, human capital, organizational performance, and external economic benchmarks to establish business impact and enable

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Some uses of workforce analytics include • predicting the probable success of a candidate; • identifying and quantifying the physical risks to employees; • identifying workforce characteristics that contribute to fraud; • measuring employee engagement and predicting turnover;

• identifying obsolete departments and or positions. Despite the power of data to inform decisions, only about 10 to 15 percent of companies use workforce analytics, although two-thirds indicated that they intended to do so in the next two years. This "datafication" of HR is a major business trend.

Sources: Margaret Rouse, "Workforce Analytics," http://searchfinancialapplications.techtarget.com/definition/workforce-analytics, retrieved November 4, 2014; Visier, "How Is Talent Driving Business Success?" http://www.visier.com/lp/harvard-business-review-hr-joins-the-analyticsrevolution, retrieved March 6, 2018; Giller, J. "HR Analytics," HRPATODAY, September 2014, pp. 31-32.

HR PLANNING TODAY

8.4

HR ANALYTICS AND STRATEGY AT LOWES In 2007, Lowes began a project to understand how HR initiatives were impacting bottom-line performance. The project was initiated by the frustration over the fact that human capital, the single largest operating expense, was also one of the least measured. Lowes partnered with a third-party organization to help with the development and analysis of the project. The scope of the project included human capital metrics, operating metrics, marketing information, customer data, and financial performance data so that Lowes could find connections not only within the HR function, but also how each of these areas of the business combine to affect broad business problems. The project team included experts from the HR department, the operations department, and statistical analysts from the third-party organization. When projects involve connections between human capital and other aspects of the firm, it is very important to include HR experts at a high level in the project. The process of developing a model that predicts how human capital influences business processes requires experts with knowledge of theory relating to psychology and sociology, and how these theories are relevant to and used in the study of organizational behaviour, and

so it is very important to include HR experts in the model development and interpretation processes. At Lowes the project unfolded in the following manner:

1. Establishing senior management buy-in. Projects that attempt to connect human capital with other business functions and processes require cross-functional support. They also involve making particular assumptions; for example, what bottom-line performance metrics are of particular interest to the firm? What aspects of customer behaviour are important to strategy? Or, how does the organization define strategic activity? The success of HR analytics depends on buy-in and cooperation from across the firm as well as agreement around the assumptions made about what activities, behaviours, and measures are important to the firm. 2. The discovery process. This stage involves two related process: theorizing what the model should look like, and understanding what data is available for use in the project. In the case of Lowes, the business challenge was trying to develop a model to connect (Continued)

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human capital to bottom-line performance in the firm. Once the model has been developed, project planners must ensure that the data is available, and that the data has been audited for errors. If data collection is necessary, then this must be undertaken before proceeding with the project. For example, if the project team theorizes that employee perceptions of a climate for customer service is an important driver of profits, but no measure of customer service climate has been surveyed, then the team must develop this survey and capture employee perceptions of service climate. 3. Gaining executive buy-in of the model and the variables. HR analytics involve assumptions. For example, employee perceptions of a customer service climate might lead employees in a work team to demonstrate more helping behaviours toward customers. In order for this to be a strategic benefit for the firm, executives must agree that these helping behaviours are in line with the firm's value proposition. If the firm strategy is to process customers as quickly as possible, then helping behaviours might actually run contrary to what executives consider to be strategic behaviours. Thus, the assumptions made around the model must be in line with what senior management believes to be consistent with the firm's strategy. 4. Communicate results and take action. Once the resu lts of the analysis are available, management must have a communication plan in place to interpret the results for all functions in the organization. HR analytics generally connect with multiple functions

within the organization, and consequently can have impact well beyond the HR function. How the resu lts impact each function differently is a critical aspect of the interpretation and communication of the results. Management must also have a plan to communicate what action will be taken as a result of the analytics project. 5. Use the results to theorize and improve the model. As discussed in Chapter 5, action planning involves constantly moving from analysis to theory. As results from one analysis become available, it is important to learn from the process, improve the model, and move into analysis again. This implies constant change and learning, as we discuss in Chapter 9. As a resu lt of their HR analytics initiative, Lowes learned that engaged employees increase store-level performance by increasing average sales per customer. Engaged employees help customers with their purchases and provide suggestions for completing projects, thereby increasing the average customer basket size per visit. Stores with overall higher employee engagement had significantly higher yearly sales. While prior research has demonstrated that employee engagement relates to firm performance, Lowes was able to model the process through which engagement relates to performance in their stores. This knowledge can be used to implement HR initiatives aimed at motivating all employees to perform the kinds of behaviours that are strategically relevant to store performance, and to hire job applicants who are more likely to demonstrate the behaviours of engaged employees.

Adapted from C. Coco, F. Jamison, and H. Black, 2011 . "Connecting People Investments and Business Outcomes at Lowe's: Using Value Linkage Analytics to Link Employee Engagement to Business Performance," People and Strategy, 34(2), 28-33.

data-driven decision-making." 23 This definition is more in line with the objectives of Big data and AI, and so it is not surprising that while many organizations are using HR m etrics, few are at the point of using HR an alytics.

HR dashboard An aggregation of useful or relevant HR metrics or performance indicators that provide a summary snapshot of performance

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DASHBOARDS An HR dashboard is simply an aggregation, in electronic format, of useful or relevant HR m etrics or performance indicators. The convenience of a dash board is that it should be able to incorporate data from multiple information sources, and that it provides

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real-time summaries of performance. Popular measures for inclusion in dashboards are ratios of the most recent performance period that captures turnover rate, employee survey results, time to hire, cost per hire, and hiring rates based on recruitment source. The kinds of key performance indicators (KPis) that appear on dashboards include indicators of operationally important or strategic activities such as product delivery times, sales targets, or sales growth. 24 The purpose of dashboards is to provide managers with a quick understanding of key performance indicators in their business. Rather than looking through multiple spreadsheets and conducting hourly, daily, or weekly analyses of the updated data, dashboards focus managers' attention on the most recent and up-to-date information. A criticism of dashboards is that they can focus too much attention on summary measures, and so, rather than contributing to higher performance, they can distract managers from the real underlying causes of the measures. Dashboards can also serve very specific uses. For example, organizations can track the amount of communication between team or group members to map the flow of communication and transfer of information across groups. 25 As these types of communications data flow on practically a constant basis, a dashboard visualization of the flow of information can suggest what group members are more engaged with the team, and uncover informal group hierarchies and processes.

KEY PERFORMANCE INDICATORS The purpose of an HR dashboard is to acquire a snapshot of system performance at a given point in time. In order to capture this snapshot, management must give some thought as to what aspects of performance are the most suitable to monitor. These performance measures are known as key perfor111ance indicators (KPls) . The KPis can be used at the individual level to monitor the alignment of individual performance with functional and organizational objectives, as you will see in an HR scorecard in Chapter 14, or at the functional level where the purpose is to gauge the alignment of the overall functional area with the firm's strategy. The KPis that are best to include in an HR dashboard are those that demonstrate the extent to which the HR function is addressing strategic needs, and are improving service quality and efficiency. Sysco is one of the largest food services companies in North America, providing food products to health care, restaurant, and educational facilities as well as the hospitality industry. 26 Using HR metrics, Sysco learned that survey measures of truck driver quality-of-life scores and consequently organizational turnover were affected by a transition to a new compensation plan that provided pay incentives to drivers who made more deliveries with better safety records and lower error rates. These measures also predicted customer satisfaction, thereby increasing organizational performance. Three KPis that could monitor this system leading to performance include truck driver climate survey measures, customer satisfaction, and driver turnover rates. Changes to either organizational climate scores or driver turnover rates could signal a coming change in customer satisfaction, and pre-emptive HR actions could be put in place to prevent the erosion to customer satisfaction from this source. Thus, a few carefully selected KPis can represent much more than simply the performance of the variables that they measure; they can summarize an entire system or process. That is, a few well selected KPis represent the performance of a range of important variables or relationships that are not directly measured, and changes to the KPis indicate when changes to other unmeasured aspects of performance are in order. 27

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Key performance indicators (KPls) A snapshot measure of system performance that demonstrates the success of strategy implementation in terms of cost, quality, or time

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To summarize, HR dashboards are visual aggregations of summary snapshots of the p erformance of the HR fun ction, based on HR metrics. The metrics to be included in a dashboard should provide information about processes that relate to strategically relevant activities and outcomes of those activities. By doing so, the HR dashboard provides a real-time glimpse of th e exten t to which the HR function is successful in contributing to organizational performan ce.

11 OTHER ASPECTS OF IT FOR HR PLANNING WORKFORCE MANAGEMENT AND SCHEDULING The logistics of workforce man agement and scheduling are often quite complex. Workforce scheduling and optimization software provides applications for deploying employees most effectively. In a call centre, for example, th e planning process might involve accurately forecasting call volumes, han dle times, and overhead to determine staffing and scheduling requirements. Once these forecasts are available, the software application could quickly create schedules that take into account work rules, call volumes, agent preferences, and training/meeting times. Then managers could make scheduling adjustments as call volumes and other variables change .

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Trade shows are an effective way to learn about new HR technologies.

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FORENSIC REPORTING Forensic reporting can be used to monitor employees, for the good of the organization and for the benefit of employees. HR departmen ts normally have the responsibility for complian ce with policies. Software can audit employees to en sure they comply with policies such as safety inspections or overtime p ayments. Forensics can also identify at-risk employees. For example, Canadians rep ort exp erien cing h igh levels of stress, and the first signs of burnout may be higher levels of absen teeism, turnover, or acciden ts. Group ed together, these factors migh t offer an early signal of decreases in productivity. If the stress continues, the organization may face higher workers' comp ensation rates, higher recruitment and selection costs, and increases in the demand for overtime. The need to schedule the rem aining workforce will become increasingly im portant.28

ENSURING DATA SECURITY Employers have an obligation to protect employees' personal records, medical records, and employm ent tests. Legislation in Canada requires that personal information used for an administrative purpose be as accurate, up to date, and complete as p ossible. With regard to the collection of personal information, only that information which relates directly to a busin ess should be collected an d maintain ed in the H RIS. There must be a proper balance between what an individual is expected to divulge and what information employment and management decisions require. This legislation also sets boundaries for the use of personal information. Such information should be used only for the purpose for which it was obtained or compiled, or for a use consistent with that purpose. Another golden rule is th at on ly authorized person s should h ave access to employee data. Some security features that restrict access in clude login security, rowlevel security (record security), and field-leve l security (data field). 29 Procedures to further p rotect data include the usage of PINs an d passwords; th e usage of encryption devices or software when sending sensitive email; smart cards or tokens; provision of regular, ongoing education and reinforcement of clearly defi ned organ izational policies; and turning off systems wh en they . are not 1n use. System security furth er protects sensitive data. Secure operating systems an d depen dable computer programs are, of course, important. Another key to security is limiting access to com puter resources. Company policies, for instance, can physically limit access to computers to only those who will not compromise security. This might involve restricting en trance to a property, a building, or Organizations need systems to protect corporate data. a room.

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11 EVALUATING HR TECHNOLOGY Technology acceptance Extent to which users intend or actually use technology as a regular part of their job

User satisfaction and system usage are important indicators of HRIS success. 30 Drawing from the technology acceptance and user satisfaction streams of research, a study found that attitudes toward IT are influenced by behavioural beliefs about technology usefulness and ease of use. 31 These beliefs, in turn, are influenced by information satisfaction and system satisfaction, which result from information quality and system quality. An audit that includes the different measures laid out in HR Planning Notebook 8.3 may provide useful insights into HR technology effectiveness.

CONDUCT A NEEDS ANALYSIS Needs regarding HR technology are constantly evolving. Nevertheless, writes James G. Meade, "You are best off if you define those needs, at least in outline form, and plan for software that will meet the needs as they evolve." 32 A systematic needs analysis will involve collecting information about the organization (e.g., size, industry demands), its technical environment (e.g., hardware, operating systems, network environment, database, installed software, telecommunications, possible application service providers), and the needs of its HR department. With regard to such needs, Meade suggests exploring areas in which the HR department is not accessing critical information in an accurate

HR PLANNING NOTEBOOK

8.3

SAMPLE TECHNOLOGY EFFECTIVENESS ITEMS • Attitude: - Using this HR technology is very enjoyable. • Usefulness: - Using this HR technology enhances my effectiveness on the job. • Information satisfaction: - I am very satisfied with the information I receive from this HR technology. • System satisfaction: - Overall, my interaction with this HR technology is very satisfying. • Information quality: - This HR technology produces comprehensive information (completeness). - The information provided by this HR technology is well laid out (format).

- There are few errors in the information I obtain from this HR technology (accuracy). - The information provided by this HR technology is always up to date (currency). • System quality: - This HR technology operates reliably (reliability). - This HR technology makes information very accessible (accessibility). - This HR technology can be adapted to meet a variety of needs (flexibility). - This HR technology effectively integrates data from different areas of the company (integration). - This HR technology provides information in a timely fashion (timeliness).

Source: Robb, D. "Sizing up talent," HR Magazine, 56, 4, April 2011, pp. 77-79; http://www.linkedin.com/today/post/article/20131028062534131079-the-datafication-of-human-resources. Retrieved November 8, 2014.

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• Are there too many data security risks involved with manual processing?

• Will we be able to keep up with company growth? • Are we managing our human capital as a strategic asset? • Are we maintaining too much redundant information?

• Is the current human resources management system obsolete?

• Which requests for information is the human resources department unable to respond to?

• Are we able to ensure an adequate follow-up of health and safety incidents?

• Would it be more efficient to integrate our different legacy systems into a single database?

• Is the human resources department spending too much time on manual processing?

• Are we being responsive to current business priorities?

or timely manner. For instance, if benefits enrollment takes almost two months, this wait time might be considered a problem. Some of the questions that may help identify such gaps are presented in HR Planning Notebook 8.4. It is also helpful to consider what information requests the HR department responds to, what reports and documents it uses, what information passes through the HR unit, and what manual records are maintained-in short, the information processing needs of the HR function. When needs are clearly determined, it is possible to then measure whether those needs have been addressed by the technology.

II SUMMARY This chapter presented an overview of HR technology and its potential impact on the HR function. IT is becoming increasingly integrated across the HR function, the entire organization, and even beyond the organization. As data from different sources and in different formats become more available and accessible, the methods for dealing with the increasing complexity are becoming more reliant on computers and artificial intelligence. In addition to the implications for Big data and artificial intelligence in the development of better HR metrics and HR analytics, the HR function will have to develop policies around issues such as privacy, security, and ethics.

KEY TERMS artificial intelligence p. 206 Big data p. 203 business intelligence p. 207 enterprise portals p. 201 enterprise resource planning (ERP) p. 203

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HR dashboard p. 210 HR metrics p. 207 human resources information system (HRIS) p. 202 information technology p. 199 key performance indicators (KPis) p. 211 relational database p. 203 self-service p. 201 specialty products p. 203 technology acceptance p. 214

DISCUSSION QUESTIONS 1. In Canada, air traffic control is managed by NAY Canada, which has an international reputation for the management of air traffic controllers. If you were a manager, what data would you find useful to schedule the shifts for air traffic controllers? 2. Databases used for HR management and planning contain a wide variety of personal and sensitive data that require the organization to set security, privacy, and usage policies. What legislative and ethical requirements of data security need to be considered? 3. Big data include structured and unstructured types of data. Unstructured data can include information from photo or video files, email etc. Structured data can be anything that can be easily coded to include in a database or spreadsheet, including temperature measures and movement counters. List some of the data that companies might have captured about you as a customer or an employee over the past few days.

EXERCISES 1. You are the head of HR at major clothing retailer. At the latest strategy meeting, the head of marketing has proposed that company profits can be increased by 75 percent if customers can be convinced to purchase more than one item at a time when visiting stores. The marketing department is proposing to study how advertising and store layout can be used to increase customer purchases. How can HR contribute to this study, and what types of employee measures would be useful to incorporate in the study? 2. You have been asked to create a list of HR metrics for use in an HR dashboard. Describe the process you would use to determine what measures to include. You do not need to list the measures; just describe the steps you would take in order to determine what metrics to include.

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CASE STUDY

SUSTAINING TALENT WITH STRATEGIC WORKFORCE PLANNING SOFTWARE AT THE ENERGY RESOURCES CONSERVATION BOARD

At the Energy Resources Conservation Board (ERCB), an independent and quasijudicial agency of the Government of Alberta, a key challenge for this not-for-profit organization includes recruiting and retaining talent. The ERCB regulates approximately 1500 oil and gas companies and manages a budget of approximately $175 million. Given the demographic profile of the ERCB's approximately 1000 employees, the ERCB expects th e departure of 300 employees due to retirements alon e in the next five years. In addition, the ERCB has an estimated average loss of 80 people per year for other reason s. To address th e looming labour sh ortage, the ERCB un dertook a strategic workforce planning (SWP) initiative. According to Susan Cassidy, Manager of Human Resources at ERCB, "SWP is about determining actions we n eed to take today to provide the workforce we n eed for tom orrow. It is taking the steps today to ensure we have th e right people, in the right job, with th e right skills, at the right time." Part of ensuring the ERCB can meet workforce requirem ents of th e future includes going through a process of SWP and analyzing how technology can assist in th at process in a strategic way, a challenge often faced by HR departments. 33 As Cassidy indicates, "Data collection is an essential component of workforce planning. Collecting data and turning it into m anagement information that can be acted upon is the essen ce of SWP." Acquiring the appropriate software was a n ecessary step to achieve this level of data collection. The ERCB solicited request for proposals from potential outside providers and settled on Aruspex, a niche provider of SWP. Costing about $85 000 annually, Aruspex software works to collect relevant data, creating scenarios and gen erating reports to help address development plans and sustainability strategies. Essentially, Aruspex "provides more than anecdotal eviden ce-it provides good inform ation that is creditable." The adoption of strategic workforce planning suggests a shift from "manpower planning," which includes headcounts and forecasting used for budgetary purposes, to strategic planning, which looks at replacement and succession from a holistic perspective-using technology as a leveraging tool. As Cassidy indicates, "Technology has gone beyond Excel spreadsheets which were associated with 'm anpower planning' and we realized more was n eeded." Source: Correspondence with Susan Cassidy, Manager, Resources, at Energy Resource Conservation Board and Former Chair of the Board of the Human Resources Calgary, Jun e 2011 .

QUESTION 1. Strategic workforce planning is one example of how the HR function might be improved by information technology. In this case we see that software assists with the ERCB being able to meet the needs of the future. How might IT be leveraged in other areas of HR for the ERCB and perhaps other organizations?

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11 REFERENCES 1. Adapted from Frauenh eim, E. 2006. "Software Products Aim to Streamline Succession Planning," Workforce Management Online, www.workforce.com, Janu ary 2006, MediaTec. All rights reserved. Used by permission and protected by the Copyrigh t Laws of the United States. The printing, copying, redistribution, or retransmission of this Content without the express written permission is prohibited. 2. HRfocus. 2007. "HRIT 'Report Card': Trends for 2008 Plans." HRfocus, December, Vol. 84, No. 12: 1, 11-15. 3. Ulrich, D., and W. Brockbank. 2005. The HR Value Proposition. Boston, MA: Harvard Business School Press. 4. Frauenheim, E. 2007. "Keeping Score with Analytics Software." Workforce Management, Vol. 86, No. 10: 6-7. 5. Gueutal, H.G., and C.M. Falbe. 2005. "eHR: Trends in Delivery Methods." In H.G. Gueutal and D.L. Stone, eds., The Brave New World ofeHR: Human Resources Management in the Digital Age, pp. 190-225. San Francisco: J ossey-Bass. 6. Gueutal and Falbe. 2005. pp. 190-225. 7. Newman, M., and C. Westrup. 2005. "Making ERPs Work: Accountants and the Introduction of ERP Systems." European journal ofInformation Systems, Vol. 14: 258-272. 8. Mabert, V.A., A. Soni, and M.A. Venkataraman. 2001. "Enterprise Resource Planning: Common Myths versus Evolving Reality." Business Horizons, May/ June: 71-78. 9. Pollock, N., and J. Cornford. 2004. "ERP Systems and the University as a 'Unique' Organization." Information Technology & People, Vol. 17, No. 1: 31-52. 10. Shah, N., Z. Irani, and A. Sharif. 2017. "Big Data in an HR Context: Exploring Organizational Change Readiness, Employee Attitudes and Behaviors." journal ofBusiness Research, 70: 366-378. 11. EMC Digital Universe Study: With Research and Analysis by JDC. http://www. emc.com/leadership/ digital-universe/index.htm. Retrieved March 7, 2018. 12. Erevelles, S., N. Fukawa, and L. Swayne. 2016. "Big Data Consumer Analytics and Transformation of Marketing.journal ofBusiness Research, 69: 897-904. 13. Ibid. 14. Ibid. 15. https://www.cisco.com/c/dam/m/en_us/solutions/service-provider/vniforecast-highlights/pdf/Global_Device_Growth_Traffic_Profiles.pdf. Retrieved March 6, 2018). 16. Malik, P. 2013. "Governing Big Data: Principles and practices." IBM journal ofResearch and Development:> 57, 1-13. 17. Anthes, G. 2017. "Artificial Intelligence Poised to Ride a New Wave." Communications ofthe ACM, Vol. 60, No. 7: 19-21.

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18. Ibid. 19. Sumser, J. 2017. "Artificial Intelligence: Ethics, Liability, Ownership, and HR." Workforce Solutions Review, July-September. 20. Lipkin, J. 2015. "Sieving Through the Data to Find the Person : HR's Imperative for Balancing Big Data with People Centricity." Cornell HR Review: 1-5. 21. Marler, J., and J. Boudreau. 2016. "An Evidence-based Review of HR Analytics." Internationaljournal ofHuman Resource Management, Vol. 28, No. 1: 3-26. 22. Ibid. 23. Ibid. 24. D utta, D., an d L. Bose. 2015. "Managing a Big Data Project: The Case of Ramco Cements Limited." International journal ofProduction Economics, Vol. 165: 293-306. 25. Pentland, A. 2012. "The New Science of Building Great Teams." Harvard Business Review: 62-70. 26. http://www.sysco.com 27. Stricker, N., F. Echsler Minguillon, an d G. Lanza. 2017. "Selecting Key Performan ce Indicators for Production with a Linear Programming Approach." International journal ofProduction Research, Vol. 55, No. 19: 5537-5549. 28. Matwichuk, D. 2011. "HRIS an Early Warning System for Employee Burnout." Canadian HR Reporter, Vol. 24, No. 8 (April 25): 23. 29. Ashbaugh, S., and R. Miran da. 2002. "Technology for H uman Resources Management: Seven Qiestions and Answers." Public Personnel Management, Vol. 31, No. 1: 7-20. 30. Haines, V.Y., III, and A. Petit. 1997. "Condition s for Successful Human Resource Information Systems." Human Resource Management journal, Vol. 36, No. 2: 261-275. 31. Wixom, B.H., and P.A. Todd. 2005. "A Theoretical Integration of User Satisfaction and Techn ology Acceptan ce." Information Systems Research, Vol. 16, No. 1: 85-102. 32. Meade. 2003. p. 84. 33. Lawler, E., and J. Boudreau. 2009. "What Makes HR a Strategic Partner?" People and Strategy, Vol. 32, No. 1: 14-22.

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CHANGE MANAGEMENT

CHAPTER LEARNING OUTCOMES AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO: • Un derstand the importan ce of organizational change. • Discuss the role of change as part of organizational planning. • Discuss the steps of a generic change project. • Define and discuss the process of planned change. • Un derstand how emergent change occurs. • Un derstand the principles of a learning organization. • Discuss how the principles of a learning organization are important to both planned and emergent change.

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Change often affects the entire organization, and almost always extends beyond the HR function. Because it affects so many jobs and functions within the firm, it must include participation from all employees who are influenced by the change process. This means that change must be embedded deeply within the organization; if it is left to a single department or individual to ensure that change occurs, it is bound to fail. This raises a question around the role of HR and HR professionals in being agents of change. Both the Human Resources ProfessionalsAssociation (HRPA) in Canada and the Society for Human Resource Management (SHRM) in the United States identify change management as a requisite competency for the practice of HR, but what does HR do to initiate and perpetuate change? Understanding the role of the HR function or the HR professional in bringing about change can be difficu lt. As we will see throughout this chapter, successful change requires an organizational culture that is open to constant learning, empowering employees to question processes, and to experiment with new ways of thinking about how things get done. Some researchers suspect that because the HR function is often viewed as a gatekeeping function and a bureaucracy, it is infrequently a leader in promoting change. Another impediment to acting as an agent for change is the fact that the HR function often plays a supporting role in the organization. HR advises the business line, but rarely leads it. This makes it difficu lt for the HR function to guide the organization through change. In order to lead change, researchers suggest that HR professionals should possess a specific set of competencies, including the following:

•

Strategic positioner--to be able to identify the activities, outcomes, and human capital necessary for a business to succeed in its market.

•

Credible activist-to be a trustworthy partner to the business in helping to understand how to solve business challenges.

•

Paradox navigator-to be able to understand and work from different points of view, and different mental models. For example, to be able to bring together a top-down view of competencies with a bottom-up view of KSAOs from job analysis.

•

Communicator-to be able to create an environment in which employees feel that they can speak up about what is working and what needs to be improved, and believe that they can have an impact on the organization. •

Systems thinker-- to be able to understand all aspects of the business, including what customers value about the fi rm's products or services. This will enable the HR function to understand the interactions between all aspects of the fi rm so that as one aspect changes, it is possible to envision how it will affect the system as a whole.

Adapted from: Power, B. (November 16, 2011). "Why Doesn't HR Lead Change?" Harvard Business Review Digital Article; Ulrich, D., M. Kryscynski, and M. Ulrich. (2017). "Competencies for HR Professionals Who Deliver Outcomes," Employment Relations Today, 44(2), 37-44; Anderson, C. (April 2, 2015). "There's a Good Reason Why HR Should Lead Change Initiatives." Talent Management and HR, tint.com

11 WHY IS ORGANIZATIONAL CHANGE IMPORTANT? Organizational change lies at the heart of the planning process. Organizations are dynamic entities, constantly growing or contracting, and responding to internal and external changes, some of which are within the control of the firm and others beyond its control. The planning process anticipates organizational resource requirements in response to organizational change using a variety of methods to forecast demand and

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supply, and by connecting resource requirem ents with strategic and operating imperatives. In order to effectively plan for and anticipate resource requirements, organ izational planners must have a strong understanding of organizational change. Chapter 1 introduced the roots of organizational planning and change in firm strategy. In that chapter we learn ed that strategy is a plan for establishing and maintaining a competitive advantage in the market, and that th e firm's strategy provides the ideological context within which organizational change takes place. Later chapters cover specific change initiatives such as downsizing and restructuring, outsourcing, and mergers and acquisitions. In this chapter we span the gap between change at th e level of conceptualizing strategy and change at the level of sp ecific initiatives by examining the change process itself.

THE INCREA-SING PACE OF CHANGE Innovations like the World Wide Web connect people and ideas across the boundaries of time and space to enable change in ways th at we are only beginning to grasp. Crowdfunding, open-source software development, collaborative knowledge repositories such as wikis and shared folders, mass customization, the shared economy, and other communication-enabled advancements are changing the way businesses operate, an d now connect innovators with each other, their competitors, and customers to bring about dramatically faster product developm ents. These changes are occurring amid unprecedented levels of economic, political, and environmental uncertainty. In response to these levels of change and uncertainty, organizations are moving toward systems that enable faster response and adaptation to change. Flatter organizational structures, more fluid job roles, greater employee autonomy, an d team-based learning and decision m aking are all efforts that can facilitate organizational knowledge acquisition an d action based on that learning. Given the quickening pace of change an d higher levels of un certainty in today's business environment, firm s that are able to manage ch ange effectively are in a position to outperform their slower, less change-capable competitors. The ability to manage change is such an important organizational competen cy th at some scholars believe that it is the only form of sustainable competitive advantage. 1 Where other forms of competitive advantage are susceptible to erosion through imitation, competition, or changing con sum er needs, firms th at are able to adapt to th eir environment faster maintain the ability to stay ahead of their competition . Accordingly, the most important aspects of the job of a gen eral manager include creating and directing strategy, and managing change. 2

11 SOCIETAL, INDUSTRIAL, AND ORGANIZATIONAL LEVELS OF CHANGE Organizational change occurs in response to societal, industrial, and firm-level developments. At the societal level, economic and environmental issues can be strong drivers of change. For example, after the 2008 recession, big-box stores such as Best Buy, Walmart, Target, and Home Depot found that revenues were dropping in their large-format stores. Several of the big-box stores have even begun to close their large stores, while others have found that the big-box form at is either restricting growth by not allowing the format to serve smaller communities, or that the number of useful locations for these large shopping outlets is becoming saturated. Furthermore, as people turn increasingly to online shopping, the big-box format is becoming less relevant to shoppers. Big-box retailers are now developing smaller versions of their stores in an attempt to adapt to these societal changes.

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At the industrial level, change typically follows an S-curve pattern in which sales of a new product or service begin slowly as demand builds, followed by rapid growth as the market for the product or service becomes mature, which leads to a tapering as consumer demands develop and change. The market for tablet computing devices showed a slow start as the computer industry struggled to put together all th e attributes of size, weight, ergonomics, and technological capabilities that make a successful tablet device. Apple found a winning design in iPad, and the market took off, leading to successful designs from competitors as well. As sales of the original iPad began to peak and competition increased from other firms and devices such as smartphones with larger screens, Apple brought out a smaller version at a different price point and with slightly different features, and also began actively pursuing new markets for the tablet through partnerships like its alliance with IBM to bring iPad to the corporate market. Firm-level developments occur largely as a result of demands from stakeh olders. Shareholders, a particularly powerful group of stakeholders, might demand higher return on equity, new leadership might prefer a different strategic direction, or internal resource constraints might lead to strategic change. Large firms like GE, with multiple business units in different industries, might develop interesting opportunities in multiple industries, but resource constraints such as managerial capabilities or financial resources might lead to difficult decisions resulting in changes to th e decisions around the projects that are approved and th e projects that are downsized or shelved. Thus, decision making based on internal, firm-level choices can be a strong source of organizational ch ange. Given the multiple levels from which the need for organizational change can arrive, it is no surprise that firms experience an ongoing state of change. However, organizations do not always change when they should, and even when they do ch ange, they often experience failure. Research suggests that up to 70 percent of organizational change efforts fail. 3 We will examine several models of organizational ch ange that attempt to model, understand, and mitigate these reasons for failure.

11 MODELS OF ORGANIZATIONAL CHANGE There are many models of organizational change. In this section we will examine the view of organizations as open systems, and how this view impacts our understanding of organizational change through three basic models that form the basis of most models of change. The first is a generic model of change th at demonstrates the attributes th at are common to the many models of organizational change. The other two models include a model of planned change, followed by a model of emergent change.

ORGANIZATIONS AS OPEN SYSTEMS The term system refers to a set or arrangement of interrelated parts that interact to form a whole. 4 Organizations are systems that comprise multiple subsystems. A corporate functional group, such as the marketing department or the HR department, can be considered a subsystem within the organization, as can the retail division of th e firm. These subsystems interact in complex ways. An open-system perspective views the organization not from the point of view of an individual subsystem or even groups of subsystems, but from the perspective of the organization as a whole, and its interaction with its environment. Organizations are open systems because they interact with their

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Open systems A system that receives inputs from its external environment

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external environment, and because the internal subsystems interact with one another. 5 Organizations impact and are impacted by their external environment and by the other subsystems working within them. The unpredictable and interconnected nature of these open system dependencies are primary reasons that organizational change can be so difficult, and so prone to failure.

THE IMPORTANCE OF FEEDBACK Open systems are input-throughput-output systems in that they take or receive inputs from their environment, transform or convert those inputs, and then output the finished products or services back to the environment. The factor that defines the structure of an open system is its purpose; goals are used as indicators of whether the system is functioning according to its purpose. The objective of an open system approach in organizations is to structure and coordinate all the subsystems in a manner that ensures that the firm is collectively pursuing its overall purpose. 6 Therefore, organizations must use feedback to determine whether or not they are achieving their goals, and ultimately their strategic purpose. Two basic forms of feedback are positive and negative feedback. Negative feedback is the kind of information that tells whether the system is achieving its goal. For example, the thermometer in your room operates through negative feedback; the set temperature is its goal, and it will operate the heater until the room temperature rises to the set temperature before shutting off. If an organization determines that it needs to produce 1,000 pairs of shoes every month, it will use negative feedback to determine if its daily production is on track. Positive feedback, on the other hand, is the kind of information that a system uses to determine if its purpose is suited for its environment. Positive feedback helps the organization to determine if it should be producing 1,000 pairs of shoes a month, or what styles of shoe it should be producing. Organizational change implementations must take into account the potential effect of changes on other subsystems and on the environment, and all models of organizational change incorporate methods for utilizing negative and positive feedback into the design and decision-making processes around change. However, benefitting from feedback implies learning. Organizations must also have systems in place for learning in order to use feedback, and different methods of learning are required to access negative and positive feedback. Chris Argyris, a thought leader and noted researcher in the area of organizational behaviour referred to these methods of learning as single-loop and double-loop learning. 7

SINGLE-LOOP LEARNING Single-loop learning The attempt to solve a problem using a single strategy, without examining the validity of the problem itself

224

This type of learning is more related to problem solving in the form of identifying and correcting errors. Single-loop learning is the type of learning around negative feedback, and essentially seeks to learn how to achieve a set goal within the current set of governing variables. Single-loop learning permits the organization or the individual to proceed according to the status quo, and can impede change implementations, especially when the change requires new and different goals. HR Planning Notebook 9.1 discusses strategies for overcoming the tendencies to reinforce single-loop learning.

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Single-loop learning can prevent the learner from developing an understanding of underlying or root issues. It is typified by the following values: 1. The desire to remain in unilateral control.

Predetermined goals and existing methods of achieving those goals provide a sense of control. It is generally easier to change the things that fall within our direct control than to change things that are not. For example, when asked to find ways to increase profits, managers often seek to cut costs, which are known and within the control of managers, than to increase revenues, which are less certain. One way to reduce the tendency to want to remain in unilateral control includes allowing more democratic and inclusive methods of decision making by pushing decision making to groups or giving individuals greater autonomy in decision making.

2. Afocus on maximizing winning and minimizing losing.

Success is important, and failure is difficult to accept. Organizations can increase their learning abilities by encouraging experimentation, and allowing members to make mistakes. Individuals and groups can move beyond defensive routines when they accept their mistakes, and learn from mistakes from a more objective frame of mind. 3. Leaving potentially threatening or embarrassing facts

out of the decision-making process. This tendency relates strongly to the previous point about the importance of encouraging experimentation. When errors can be career limiting or when they can negatively impact performance appraisals, it is only rational to want to ignore them. However, by accepting errors or misfires as part of the risk-taking process of creativity and innovation, learning can be enhanced.

Sources: C. Argyris, "Teaching Smart People How to Learn," Harvard Business Review, 3 (1991): 99-109; and C. Argyris, R. Putnam, and D.M. Smith, Action Science, San Francisco: Jossey-Bass, 1985.

DOUBLE-LOOP LEARNING Double-loop learning involves questioning the tacit assumptions an d attributions that people have around their decision making. In organizational settings, this involves questioning the extent to which the strategy itself, and the systems and structures that implement th e strategy, support th e underlying purpose of the organization. When managers and employees examine the assumptions they have used to arrive at a point of view, they are using double-loop learning that enables them to bypass the assumptions that may be locking them into a particular frame of mind, and preventing them from viewing the problem from a different perspective. Double-loop learning is typified by en couraging participation in decision making and open expression of conflicting views, using valid information, and widespread and open testing of evaluations. The success of organization al change is therefore depen dent on the m ethods of feedback that organizations use, the validity of information that is gathered and shared, the alignment of goals to the organization's purpose and to the change implementation, and the extent to which double-loop learning is fostered. Models of change must allow for these factors to be considered, and differences between models of change often come down to issues relating to the scale of the change or method in which these variables are taken into account.

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Double-loop learning A method of learning that involves questioning current assumptions, examining a problem from different perspectives, and questioning the valid ity of the problem

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11 THE GENERIC MODEL OF CHANGE Many models recognize that the process comprises several critical periods of change as shown in Figure 9 .1. 8 This figure represents an overview of th e change process, and incorporates the need for con stant review of the change process as well as the need to mon itor and adapt to the internal and external changes that may be affecting or caused by the change process.

RECOGNIZING THE NEED FOR CHANGE AND STARTING THE PROCESS This is on e of the most difficult stages in the change process. Change requires not only that a need to change is identified, but that the n eed is broadly felt among all participants involved in the change process. Without full buy-in from all stakeholders, change efforts are likely to fail. Once the need for change has been identified, the m otivation for that change must be spread throughout the firm. This motivation can come in the form of incentives tied to organizational goals that are aligned to the desired outcomes of the change, or in the form of a high-involvement/high-commitment strategy that aligns employee values with organizational values. 9 Successful change initiatives tend to involve management and employees in the process of discovering the problems and developing the solutions, as this inclusive style tends to promote a shared understanding of the issues.

DIAGNOSING WHAT NEEDS TO BE CHANGED Organizational change is complex, involving multiple stakeholders, unpredictable outcom es, and unexpected consequences. Models of organizational change tend to deal with the diagnosis of what needs to change by examining the leadership of the change process, the overall purpose of the change, an d th e degree of planning involved in th e change process. Will leadership be a top-down style in which management determ ines what n eeds to change and comm unicates goals down through the organization, or a bottom-up approach in which all levels of employees share in determ ining what needs to change an d teams are charged with developing plans of action? Is the purpose of the change to maxim ize the economic value of the firm by focusing on shareholder

FIGURE 9.1 ADAPTATION OF HAYES' GENERIC MODEL OF CHANGE

Source: Adapted from J . Hayes, The Theory and Practice of Change Management (3rd ed.), (New York: Palgrave MacMillan, 2010).

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value-in which case a top-down approach may be utilized-or is the purpose to develop the human capability to implement the firm's strategy, where a bottom-up approach may be a better choice? Is the level of planning detailed, with firm goals and a timeline outlined from the beginning, or is the planning loose, with a general direction and plenty of room for experimentation? All these manifestations of change planning can be successful, but they must be implemented in suitable situations. Change models help the strategic planner to understand how to use these methods.

PLANNING AND PREPARING FOR CHANGE The type of change intervention that will be most successful will depend on the organization culture, leadership, timeline available for the change to be implemented, and the purpose of the change. Organizations commonly take implementation approaches that vary in the degree to which organizational members are involved in the change, and the scope of the implementation, ranging from change based on the identification of a specific problem to change based on changing the entire system, as shown in Figure 9.2. For example, changes based on a specific identified problem such as the adoption of a new HR information systems (HRIS) technology platform might have the potential to affect a broad population within the organization; however, this type of change initiative might be addressed using a top-down managerial approach. Senior managers within HR might request an RFP from several prominent HRIS providers, make a decision using feedback from business unit-level HR managers, and roll out training along with the new system to the broader organization upon implementation. This example of a narrow level of involvement for a broad implementation can be contrasted against change implementations that seek to involve a much broader group of stakeholders. The proliferation of high-involvement (often referred to as high-performance) work practices in recent years suggests that firms are moving more FIGURE 9.2 COMMON CHANGE IMPLEMENTATION STYLES LEVEL OF INVOLVEMENT CONSULTANTS OR TOP-DOWN MANAGEMENT TEAMS

ALL EMPLOYEES

System-wide change

Tight structure. Top-down, planned change initiative.

Loosest structure. Emergent change, or combination of emergent and planned approach.

Change to solve a specific problem

Tightest structure. The problem, proposed solution, and implementation plan come from management. Incremental change intended to bring localized improvement.

Tight or loose structure, depending on organization culture and management approach to the problem.

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toward greater levels of employee involvement in organizational decision making and change implementation . An example of a high-involvement work practice is a gainsharing compensation plan, where employees are rewarded for reducing production costs and increasing organizational efficiencies. Such a plan motivates employees to think creatively about developing and implementing new ways to be more efficient. More tightly structured and larger-scale changes will require many changes to organizational systems and processes, while loosely structured changes will require deep organizational learning around the firm's vision and values. As organizations seek to involve more constituents in the process of developing and implementing change, the structures that guide the change process, including goals, levels of autonomy in decision making, and feedback systems tend to be broader and more loosely controlled. According to John Kotter, good leaders tend to focus on setting direction rather than plan; align people to a common purpose rather than organize them; and motivate people to move in a particular direction rather than problem solve around the systems and processes used to push people in a particular direction. 10 This view of leadership suggests that any change process should begin with the establishment of a clear understanding of the firm's overall vision and direction. When anchored around a common understanding of the firm's vision, highly structured change implementations can be constructed such that all the goals, processes, and practices that are intended to move the organization in the direction of the change are internally aligned. A common understanding of the firm's vision is even more important to loosely structured change initiatives, where leadership tends to express very loose goals around which organizational processes and practices emerge. For example, Bob Galvin, CEO of Motorola, in 1983 helped to transform the company by challenging his executives to "renew the organization." 11 Such a challenge would lack impact or even meaning without a strong understanding of the firm's broader purpose.

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IMPLEMENTING THE CHANGE Implementing change demands particular skills from both the change leaders and those involved in the change. Successful change leaders rely on their ability to make use of the complex social networks that connect people within organizations, and their political skills, which can be defined as the ability to persuade, manipulate, and negotiate to achieve a particular outcome. 12 Social networks in organizations are rarely reflected by the formal reporting structures. These networks are instead based on the extent to which people routinely communicate with one another and whom people turn to for information relating to getting their work done. Social networks in organizations can be complex and very difficult to observe, and employees who become influential members of a social network are often those with high levels of firm-specific human capital in that they are instrumental to getting work done or helping others to get work done better or faster. An influential role in a social network can therefore be a very important tool in helping to achieve buy-in from others around the importance of the change initiative and in bringing about shared mental models of the firm's vision and purpose. Political skills are also important in achieving widespread buy-in for a change initiative. Persuading others is rarely done using a single, convincing argument. Rather, persuasion is a process that involves listening to others, learning about the positions and perspectives of others, and incorporating those views into an argument (see HR Planning Notebook 9.2 for tips on how to increase persuasiveness). Persuasive skills are quite similar to the dimensions of political skills, which include social astuteness, interpersonal influence, networking ability, and apparent sincerity. 13 Leaders involved in a change process must to be able to exercise political and persuasive skills, and to draw from social networks in order to ensure the success of the change implementation.

The ability to persuade others is an important skill not only for managing change but also as a general leadership skill. A good argument requires support and understanding from others, and those who are better able to supplement a strong argument with persuasive skills are more likely to find that support. One model of persuasion suggests that there are four steps to persuading others: 1. Establishing credibility with the audience by demon-

strating expertise and gaining trust. People are less likely to follow those whom they do not trust. An important first step is to help others to see how your position is informed through expertise, and that you are a trustworthy source. 2. Framing your position in a way that will appeal to the audience by emphasizing the advantages. The way in which people respond to ideas is partly dependent on the way the information is presented, or framed.

Social networks The networks of ties that an individual has with other individuals

This is done in politics, of course, where politicians choose words carefully to elicit an emotional response that frames an issue in a preferred manner. For example, referring to the US Patient Protection and Affordable Care Act (otherwise known as Obamacare) as socialized medicine or as health insurance reform frames the act in very different ways that produce potentially different responses. Strong persuasive skills involve framing an argument in a manner that the audience will be able to relate to and find appealing.

3. Providing evidence through the use of supporting data and appealing stories, metaphors, or analogies to help the audience visualize your position. Metaphor is an excellent tool for communicating something new or different by relating it to something with which people (continued)

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are already familiar. For example, children who are not equipped with language to describe sensations like a foot falling asleep will communicate the odd feeling using a metaphor such as "a hundred bees are buzzing on my foot." People skilled in persuasion help others to understand their position by creating shared mental models to describe unique, novel, or abstract ideas.

4. Connecting emotionally by matching the emotional state of the audience. To do this, good persuaders require emotional intelligence. Emotional intelligence involves an ability to be aware of and capitalize on one's own emotions and the emotions of others. Effective persuasion requires an emotional appeal in addition to a rational argument.

Source: J.A. Conger, "The Necessary Art of Persuasion," Harvard Business Review, 76 (1998): 84-95.

SUSTAINING THE CHANGE Implementing organizational change also requires a firm-wide approach to enable the change process, regardless of its scope. Change initiatives that are of a narrow, more focused approach may make use of a new business process, with a commensurate level of training around the new process, whereas large-scale change initiatives may involve many unknowns that cannot be completely anticipated. Such changes require organizational learning and experimentation in order to plot a successful change path. We will cover two prototypical models of organizational change in the next section that address how organizational change can be implemented. Once change has been implemented, steps must be taken to ensure that the organization does not slip back into its pre-change mode. While new methods or processes can be put into place, these methods will likely not endure if they do not fit with the firm's culture, or if they are not incorporated into existing mental models of how things work within the organization. For example, despite the potential benefits of merging to both Daimler and Chrysler in terms of expected market development and resource sharing, and despite all the systems put in place to merge these two firms, the inattention to integrating the cultures of these two very different firms ultimately led to one of the most notable merger failures in the auto industry. 14 Sustaining change usually involves a set of measures to provide feedback to the organization that indicate when goals that relate to successful change are being met, and systems that can lead to the development of adaptations when those goals are not being met. HR Planning Today 9 .1 provides an example of how an organization uses mental models and its ability to adapt to navigate through a rapidly changing market.

You.i is a young Canadian high-technology firm based in Ottawa, Ontario. Change in the high-technology industry is constant and fast paced, especially in small firms that are in the process of developing a market niche (i.e., a portion of the market that contributes value to the consumer, and is not currently being served, or is underserved). Jason

Flick, co-founder and Chief Executive at You.i, explains that the vision behind the firm is "to bring the best user experience to all screens." This vision is focused on the video market space, and is further enlivened by the guiding principles of having well-designed workflow, cross-platform capability (i.e., it works on all hardware platforms including (continued)

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smartphones, tablets, and computers of all major brands), and high performance (such as quick video rendering, fast loading and response, etc.). You.i seeks to keep its vision at the forefront of employees' minds by making the vision a focal point during product meetings. You.i conducts several employee retreats every year in which all employees are brought together to discuss and have input on what the vision means at You.i and how it impacts their work. Flick further explains that the company's vision is communicated to both employees and customers through the creation of prototype software. The software is only for demonstration purposes, and shows how You.i envisions the future blending of art and science in the world of video streaming. Its purpose is to not only give potential customers an idea of what You.i can do, but also help to affirm the aspirations of the employees at You.i, and give them the opportunity to bring You.i's current vision to life, to give it substance. In a recent example of change, You.i was working on a video streaming solution that was intended to extract the highest video performance from smart devices that did not have a built-in graphics chip. However, rapid advancements in the hardware configurations of smart devices led the team at You.i to realize that the market was moving toward a widespread use of graphics chips in these devices. You.i had to make a major change in its organizational activities. Management decided to abandon some of their high-priority projects relating to maximizing video performance without using the graphics chip; but this shift in focus remained true to the overall vision and the guiding principles of You.i. As a result, much of the learning that went into the abandoned projects served as a springboard to guide the resulting projects, ultimately

leading to a rethinking of You.i's rendering engine, and a subsequent breakthrough in the speed of its video rendering software. The speed of You.i's rendering software is a critical aspect of one of the guiding principles, and is a strong differentiating feature of You.i's product in the marketplace. In this change incident, You.i quickly realized that the mental models it was using around how to implement its vision of bringing "the best user experience to all screens" were no longer relevant due to changing environmental conditions, and adapted new mental models around how to deliver its vision. When organizations are focused on a clear understanding of a future vision, and carry the ability to adapt and learn, environmental changes can bring opportunities where other firms may see a dead-end.

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13. Ibid. 14. Appelbaum, S.H., J . Roberts, an d B.T. Shapiro. 2009. "Cultural Strategies in M&As: Investigating Ten Case Studies." journal ofExecutive Education, 8: 33-58. 15. Burnes, B. 2004. "Kurt Lewin and the Planned Approach to Change: A Re-Appraisal." journal ofManagement Studies, 41: 977- 1002. 16. Dickens, L., and K. Watkins. 1999. "Action Research: Rethinking Lewin." Management Learning, 30(2): 127-140. 17. Clausen, K.W. 2014. "Action Research: Not Just for the Classroom." Canadian journal ofAction Research, 15: 1-2. 18. Beaulieu, R.J. 2013. "Action Research: Trends and Variations." Canadian journal ofAction Research, 14: 29-39. 19. Burnes. 2004. 20. Flood, R.L., and E.R. Carson. 1993. Dealing with Complexity: An Introduction to the Theory and Application of Systems Science. New York: Plenum Press. 21. Hultman , K.E. 199 5. "Scaling the Wall of Resistance." Training and Development, 49: 15-28. 22. Schein, E.H. 1999. The Corporate Culture Survival Guide. San Francisco, CA: J ossey-Bass. 23. Argyris, C. 1991. "Teaching Smart People How to Learn." Harvard Business Review, 3: 99-109. 24. Kotter, J.P. 2007. "Leading Change: Why Transformation Efforts Fail." Harvard Business Review, 85: 96-103. 25. Ibid. 26. Tetenbaum, 1998. 27. Senge, P.M. 2000. "The Puzzles and Paradoxes of How Living Companies Create Wealth: Why Single-valued Objective Functions Are Not Qiite Enough." In M. Beer and N. Nohria, eds., Breaking the Code of Change, pp. 59-82. Boston: Harvard Business School Press. 28. Tetenbaum. 1998. 29. Ibid. 30. Levy, D. 1994. "Chaos Theory an d Strategy: Theory, Application, and Managerial Implications." Strategic Management journal, 15: 167-178. 31. Ibid. 32. Hock, D. 2000. "Birth of Chaordic Change." Executive Excellence, 17: 6-8. 33. Tetenbaum. 1998. 34. Ibid. 35. Reynolds Engineering & Design. (n .d.). Boids. http://www.red3d.com/cwr/ boids. 36. Tetenbaum. 1998. 37. Senge, P.M. 1990. The Fifth Discipline: The Art and Practice ofthe Learning Organization. New York: Doubleday. 38. Senge. 2000.

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39. Ibid. 40. Senge. 1990. 41. Ibid. 42. Ibid. 43. Mathieu, J.E. et al. 2000. "The Influence of Shared Mental Models on Team Process and Performance. journal ofApplied Psychology, 85: 273-283. 44. Gauffroy, C., and P. Barrouillet. 2009. "Heuristic and Analytic Processes in Mental Models for Conditionals: An Integrative Developmental Theory." Developmental Review, 29: 249-282. 45. Smith-Jentsch, K.A., J.E. Mathieu, and K. Kraiger. 2005. "Investigating Linear and Interactive Effects of Shared Mental Models on Safety and Efficiency in a Field Setting." journal ofApplied Psychology, 90: 523-535; Burtscher, M.J., M. Kolbe, J. Wacker, and T. Manser. 201 1. "Interactions of Team Mental Models and Monitoring Behaviors Predict Team Performance in Simulated Anesthesia Inductions." journal ofExperimental Psychology, 17: 257-269. 46. Argyris, C. 1991. "Teaching Smart People How to Learn." Harvard Business Review, 3: 99-109. 47. Chermack, T.J., and R.A. Swanson. 2008. "Scenario Planning: Human Resource Development's Strategic Learning Tool." Advances in Developing Human Resources, 10: 129-146. 48. Senge. 1990. 49. Ashforth , B.E., S.H. Harrison, and K.G. Corley. 2008. "Identification in Organizations: An Examination of Four Fundamental Qiestions." journal of Management, 34: 325-374; Fujita, K., Trope, Y., Liberman, N., and M. Levin-Sagi. 2006. "Construal Levels and Self-Control." journal of Personality and Social Psychology, 90(3): 351-367. 50. Conger, J .A. 1991. "Inspiring Others: Th e Language of Leadership." Academy ofManagement Executive, 5: 31-4 5. 51. Wikipedia. n.d. "NeXT." Retrieved from h ttp://en.wikipedia.org/wiki/NeXT. 52. Conger, J .A. 1991. "Inspiring Others: Th e Language of Leadership." Academy ofManagement Executive, 5: 31-45. 53. Senge. 1990. 54. Ibid. 55. Ibid. 56. Ibid. 57. Alfes, K., C. Truss, and J . Gill. 2010. "The HR Manager as Change Agent: Evidence from th e Public Sector." journal of Change Management, 10(1): 109-127. 58. Ledford, G.E., and S.A. Mohrman. 1993. Self-Design for High Involvement: A Large-Scale Organizational Change." Human Relations, 46: 143-173. 59. Robertson, K., and R. Marranca. 2000. "TD Bank Financial Group Responds to Minister of Finance Decision on Acquisition of CT Financial Services Inc." CTanuary 31).

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DOWNSIZING AND RESTRUCTURING This chapter was written by Professor Terry H. Wagar, Department of Management, Sobey School of Business, Saint Mary's University, Halifax, Nova Scotia.

CHAPTER LEARNING OUTCOMES AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO: • Appreciate the importance of defining "downsizing" and understand why organizations may decide to downsize. • Be familiar with issues relating to artificial intelligence and job loss. • Recognize the need to address concerns of both the victims and survivors of downsizing. • Know the ethical issues and consequences of downsizing. • Understand what downsizing strategies are effective in enhancing organizational performance. • Comprehend the concept of the "psychological contract." • Develop an awareness of the importance of HRM in managing the downsizing process.

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"Loblaw Layoffs Will Affect 500 Office Workers." "Bell Radio Confirms Local Radio and TV Layoffs." "Up to 225 Workers to be Laid Off at St. Catharines, Ont. GM Facility. " 1 No, these are not old headlines from the downsizing era of the 1990s. They are a small sample of employee cutbacks and business closures announced in 2017. Around the globe, we are still seeing massive job cuts by both private- and public-sector employers. Consider the case of Hewlett-Packard (HP). In 2012, HP announced plans to lay off 27,000 employees. That number was increased to 50,000 in June 2014, and in October 2017, a further 5,000 employees were informed that they would

be laid off. Not surprisingly, morale has dropped, and about two-thirds of employees indicated that they would leave HP if they got another job offer. According to Professor Wayne Cascio, an expert on downsizing, cutting jobs in knowledge-based firms is particularly harmful, because "each departure disrupts the social networks where ideas are generated and work gets done." Sources: Adapted from Bart, J. "HP Increases Layoffs AGAINto 55,000, and More Cuts Are Likely." October 6, 2014. http://www.businessinsider.com; Nichols, S., "What's HPE Next? Now it's Unemployment for 'Thousands' of Staff," www.theregister.co.uk, October 24, 2017; and Galagan, P. "The Biggest Losers: The Perils of Extreme Downsizing" T&D, 64(11).

11 THE DOWNSIZING PHENOMENON

Survivors Employees remaining with an organization after a downsizing Downsizing strategy Strategy to improve an organization's efficiency by reducing the workforce, redesigning the work, or chang ing the systems of the organization

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In the 1990s, organizations became obsessed with reducing the workforce and operating in a "lean and mean" fashion. Th is was followed by an extended period where the focus was on employee retention and winning the war for talent. However, downsizing returned with a flourish beginning around 2008 with the global financial crisis. The continuing impact of sluggish economic growth, huge debt burdens facing governments around the world, and rapid changes in technology (such as artificial intelligence and digitization) suggest that cost cutting and downsizing are unlikely to disappear in the near future. 2 There is growing evidence that firms can become too "lean," and downsizing may cut into the muscle of the organization. Furthermore, a number of the reductions have been characterized as "mean"-destroying the lives of victims of cutbacks and leaving a demoralized and frightened group of survivors of downsizing. In today's environment, downsizing and restructuring are critical components of HR planning. Historically, the focus of many organizations was on growth or the "bigger is better" syndrome. As a result, managers responsible for developing a downsizing strategy often had little experience in effectively managing the HR planning process and very little guidance from the management literature. Although the past 25 years have seen a considerable volume of articles on downsizing and restructuring, the suggestions they contain often are based on a single experience, are not supported by research, and frequently are in conflict. For instance, should cuts be targeted or across the board? Will the firm's stock price increase or decrease when the firm announces a major layoff or restructuring? Should an employer carry out all of the cuts at once or stage them over a period of time? Does downsizing improve organizational performance? Downsizing is not just a Canadian phenomenon. Organizations around the world are striving to improve their competitive position and respond to the challenges of a

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global economy. For example, Microsoft announced in July 2017 that it was cutting thousands of jobs, largely in its sales division. Cutbacks were expected to affect almost 10 percent of the sales workforce, with about three-quarters of the layoffs involving non-U.S. employees. According to Microsoft, "we evaluate our business on a regular basis. This can result in increased investment in some places and, from time-to-time, re-deployment in others." 3 Government policy can also have a major impact on downsizing. For instance, Britain's exit from the European common market is expected to result in the shifting of about 10,000 financial sector jobs out of London, England. 4 In Quebec, the effects of the U.S. softwood lumber dispute are being felt with Resolute Forest Products cutting shifts at seven mills and delaying the commencement of forest operations (affecting almost 1,300 employees). Daniel LeBlond, Local Union President for Unifor, stated that "these families are devastated, just like if they were struck by a hurricane." 5

DEFINING DOWNSIZING AND RESTRUCTURING It is important to clarify what is meant by downsizing. Managers and academics use the word to mean a number of different activities; for a summary of words used to describe downsizing, see HR Planning Notebook 10.1. Obviously, it is difficult to understand the effect of downsizing if we do not understand clearly what it means. Kim Cameron, a leading scholar in the area of organizational change, has defined downsizing as follows: Downsizing is a set of activities undertaken on the part of management and designed to improve organizational efficiency, productivity, and/ or competitiveness. It represents a strategy implemented by managers that affects the size of the firm's workforce, the costs, and the work processes. 6 Note that the Cameron definition is not the only one. Some definitions are much narrower or broader. For example, Datta, Guthrie, Basuil, and Pandey defined employee downsizing as "a planned set of organizational policies and practices aimed at workforce reduction with the goal of improving firm performance," while Sheaffer, Carmeli, Steiner-Revive, and Zionit refer to downsizing as "a selective reduction in organizational resources, including different combinations of reductions in physical, financial, organizational and human resources." 7 Cameron identifies three types of downsizing strategies :8 • Workforce reduction: Typically a short-term strategy aimed at cutting the number of employees through programs such as attrition, early retirement or voluntary severance packages, and layoffs or terminations. While a number of these approaches allow for a relatively quick reduction of the workforce, the problem is that their impact is often short term, and in many instances the organization loses valuable human resources.

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Downsizing Activities undertaken to improve organizational efficiency, productivity, and/or competitiveness that affect the size of the firm's workforce, its costs, and its work processes Workforce reduction A short-term strategy to cut the number of employees through attrition, early retirement or voluntary severance packages, and layoffs or terminations

Laying off employees is a quick, but temporary, option for workforce reduction.

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HR PLANNING NOTEBOOK

10.1

EXAMPLES OF WORDS USED TO DESCRIBE DOWNSIZING axed compressed degrown de recruitment dismantled downsized personnel surplus reduction reallocated redesigned re-engineered resized retrenched slimmed workforce imbalance correction

building down consolidated dehired destaffed displaced fired ratcheted down rebalanced reduction-in-force reorganized resource allocation RIF'd slivered

chopped declining de massed disemployed downsh ifted involuntarily separated rationalized redeployed redundancy elimination reshaped restructured rightsized streamlined

Sources: Various, including K. Cameron, "Strategies for Successful Organizational Downsizing," Human Resource Management, Vol. 33 (1994): 189-211; M. Moore, Downsize This (New York: Harper Perennial, 1996); L. Ryan and K. Macky, "Downsizing Organizations: Uses, Outcomes and Strategies," Asia Pacific Journal of Human Resources, Vol. 36 (1998): 29-45; and C. Tsai and Y. Yen, "A Model to Explore the Mystery Between Organizations' Downsizing Strategy and Firm Performance," Journal of Organizational Change Management, Vol. 21 (2008): 367-384.

Work redesign A medium-term strategy in which organizations focus on work processes and assess whether specific functions, products, and/ or services should be eliminated Systematic change A long-term strategy that changes the organization's culture and attitudes, and employees' values, with the goals of reducing costs and enhancing quality

• Work redesign: Often a medium-term strategy in which organizations focus on work processes and assess whether specific functions, products, and/ or services should be changed or eliminated. This strategy, which is frequently combined with workforce reduction, includes things such as the elimination of functions, groups, or divisions; the reduction of bureaucracy; and the redesign of the tasks that employees perform. Because some planning is required, this strategy takes somewhat longer to implement and gets away from the problem of the organization simply doing what it always has done but with fewer people. • Systematic change: A long-term strategy characterized by changing the organization's culture and the attitudes and values of employees with the ongoing goal of reducing costs and enhancing quality. By its very nature, this strategy takes considerable time to implement. The thrust of the strategy is to consider downsizing as an evolutionary part of an organization's life with the goal of continuous improvement: Employees assume responsibility for cutting costs and searching for improved methods and practices. Because of the human and financial commitment required for strategy, the impact on the organization's bottom line is rarely immediate, and consequently the approach is less than appealing to firms that focus on short-term profits or budget goals. 9 Although some downsizing efforts were limited to reducing the size of the workforce, many employers discovered that merely cutting back the number of people in the organization was insufficient to achieve organizational goals. Consequently, some firms began giving more attention to "restructuring" the workplace.

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There are three types of "restructuring": (1) portfolio restructuring, which involves changes to the organization's business portfolio (changes in the mix and/ or percentage makeup of the organization's businesses, including divestures and acquisitions); (2) financial restructuring, which may include financial changes such as reducing cash flow or increasing levels of debt; and (3) organizational restructuring, which is "any major reconfiguration of internal administrative structure that is associated with an intentional management change program." 10 While portfolio and financial restructuring are important, the emphasis in this chapter will be on organizational restructuring. It is necessary, when considering downsizing, to distinguish an approach involving a reduction in the number of employees with one based on a strategically-oriented organizational redesign or restructuring. 11 In order to provide more information on the extent to which employers are restructuring the workplace and introducing organizational change, the results of two surveys conducted in 2007 were merged; the findings are shown in Figure 10.1. Overall, about 32 percent of Canadian organizations were involved in an extensive restructuring program. The most common activities included redesigning jobs, eliminating unnecessary tasks, and contracting out. However, there is considerable variation across organizations with respect to restructuring and change efforts.

WHY DO ORGANIZATIONS DOWNSIZE? There are several reasons organizations decide to downsize the workforce. Some of the factors most commonly mentioned are as follows: • Declining profit • Business downturn or increased pressure from competitors • Merging with another organization, resulting in duplication of efforts • Introduction of new technology • The need to reduce operating costs

FIGURE 10.1 RESTRUCTURING AND ORGANIZATIONAL CHANGE Use of part-time employees Workplace restructuring

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• The desire to decrease levels of management • Getting rid of employee "deadwood" Simply put, many organizations engage in downsizing because managers perceive that cutting people will result in reduced costs (costs being more predictable than future revenues) and improved financial performance. In addition, labour costs are often seen as easier to adjust relative to other expenditures (such as capital investment). Still, there is considerable evidence that workforce reduction programs often fail to meet their objectives, as has been observed by Pfeffer:

Layoffs don't even reliably cut costs. When a layoffis announced, several things happen. First people headfor the door-and it is often the bestpeopk (who haven't been laid off) who are the most capable offinding alternative work. Second, companies often lose people they don't want to lose. Managers also underestimate the extent to which layoffs reduce morale and increase fear in the workplace. 12 Some organizations drastically reduce the workforce and employ a severe reduction strategy despite stable or increasing demand and a favourable competitive environment.13 This development, which has been mentioned by HR managers in personal interviews, may be due to a variety of reasons including a decision to follow the lead of other firms engaging in cutback management and an increasing desire to operate in a "lean and mean" fashion. At other times, the decision to lay people off or close a business may be unavoidable:

Kellys Luggage, which began operating in Halifax as a harness maker in the late 1800s, shut its doors at the end of2014. Kellys was believed to be North America's oldest luggage and leather shop. In addition to increasing competition from the big-box stores and online retailers, vice-president Brian Hobrecker also noted that ''younger shoppers have different tastes and shopping habits. We've seen our sales erode over the last 12years, at least. It's been challenging. 14 Santana, Valle, and Galan argue that while organizations frequently resort to layoffs and terminations during a period of decline, it is important to consider the underlying causes or sources of the decline. For employers experiencing "firm-based decline" (due to factors such as financial performance, governance issues, and HR policies and investment), a "flexibility-oriented" human resource strategy is preferable. However, if the decline is attributable to "industry contraction-based decline" (such as economic, technological, legal, social and competition changes), a more "efficiencyoriented" human resource strategy is recommended. If an employer is experiencing both types of decline, a "niche-oriented" human resource strategy is desirable. 15

THE DOWNSIZING DECISION AND THE SEARS CLOSURE Going through a downsizing can be a very painful and difficult experience. However, some senior executives believe that reducing the workforce is just part of the job. One executive, when discussing his role in a cost-cutting plan at a previous company, stated, "I don't get frustrated anymore. I just fire people." 16 Too often, organizations embark on a downsizing program without careful consideration of whether there are feasible alternatives to downsizing. Study after study reveals that many downsizings are not well planned, frequently ignore the linkage between downsizing and the strategic direction of the organization, and underestimate the impact of downsizing on the

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organization and its human resources. Proactive organizations plan for downsizing by careful planning. Examining the closure of the legendary retailer Sears is particularly instructive. In June 2017, Sears (once the largest and most successful department store in the country) announced that it would close 59 of its 255 stores and lay off about 2,900 employees (17 percent of the workforce). In early July, the company announced that it would not pay severance pay to laid-off workers, some of whom had worked for the company for more than 40 years. 17 Employees were angered even more when they heard that the company was planning to pay $9 .2 million in bonuses to keep executives and staff members employed as the company went through restructuring. According to Marinella Gonzalez, who worked as a planner at Sears' head office for 18 years but will not get severance, "This situation happened because of mismanagement, and it should not be the workers that have to pay for that. I think our government needs to step in." 18 About four months later, Sears was given court approval to liquidate all of its remaining stores in Canada. The last 20 years at Sears was characterized by mismanagement of online retailing, a failure to effectively position its brand, and board of director decisions aimed at treating the stores as a cash cow and failing to invest capital back into the business. Since 2005, more than $2. 9 billion was paid out in dividends while the amount invested in the company dropped from $86 million in 2007 to under $27 million the past year. David Tawil, President ofMaglan Capital stated "it's been neglect-massive amounts of neglect" and marketing executive Arthur Fleischmann reported, "They were the original e-commerce company. They could have been Amazon, but they failed to stay relevant in their product offering." 19 A recent article by Sarah Dobson20 identified some key learning points from the Sears experience. While retention bonuses are common during major restructuring or company sale, the optics at Sears were terrible and there was minimal communication to employees explaining the rationale behind such bonuses. In addition, the decision to not pay severance to employees resulted in a public relations nightmare. As one expert said, "There's such a disparity between the two actions. People say there is money, you're just not choosing to allocate it to these other people." Although Sears ultimately established a $500,000 hardship fund, it was viewed as crumbs on the table and in no way represented fair severance. One expert said it was like having employees "beg for their supper" and the amount of the fund paled in comparison to the $70 million employee trust fund set up by Target Canada, which had been in Canada for less than three years when it closed down. Several experts emphasized the importance of communication during the restructuring process and it appears that Sears was woefully inadequate in Sears closure provides insight into managing the downsizing providing clear and consistent messages to its workforce. process.

ALTERNATIVES TO DOWNSIZfNG Downsizing can be a costly strategy for organizations to pursue, and, as a result, it is desirable to investigate whether alternatives to downsizing exist. In a number of instances, organizations discover that pursuing different alternatives to downsizing may eliminate the need to reduce the workforce or allow for a less severe downsizing strategy. Different approaches are summarized in HR Planning Notebook 10.2.

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HR PLANNING NOTEBOOK

10.2

ALTERNATIVES TO EMPLOYEE CUTBACKS: SOME HR STRATEGIES Several alternatives are available to organizations faced with the challenge of cutting costs. These include Medium-Term Cost Adjustments

• Extending reductions in salary • Voluntary sabbaticals

Short-Term=Gost Adjustments

• Hiring freeze • Mandatory vacation • Reducing the workweek • Reducing overtime • Reducing salaries

• Lending employees

• Short-term facil ity shutdowns

• Exit incentives

• Obtaining cost-reduction ideas from employees Sources: Adapted from F. Gandolfi, "HR Strategies That Can Take the Sting Out of Downsizing-Related Layoffs," Ivey Business Journal Online, July/August, 2008. Also see W. Martin and A. Davis, "Alternatives to Downsizing: An Organizational Innovation Approach," International Journal of Business and Social Research, July 2013, pp. 19-27.

11 THE FUTURE OF WORK Jobs are being dramatically altered due to several factors such as artificial intelligence and computerization. A number of recent reports suggest that the current view of work will be changed markedly and a number of occupations are at risk of being eliminated due to technological advancements.

ARTIFICIAL INTELLIGENCE AND jQB LOSS Senior Deputy Governor of the Bank of Canada Carolyn Wilkins asserted that while technological progress should lead to increased productivity in countries such as Canada, job losses and greater income equality are also likely. According to Wilkins, "Blaming the machines is not the way forward. Innovation is always a process of creative destruction, with some jobs being destroyed and, over time, even more jobs being created." 21 An often-quoted 2013 study by Oxford University researchers Frey and Osborne involved the examination of several hundred occupations. The authors concluded that about 47 percent of total U.S. employment is at risk of being replaced by computerization. However, the probability of computerization was negatively associated with both wages and educational attainment. 22 Similarly, a 2016 report by the Brookfield Institute for Innovation+ Entrepreneurship suggested that about 42 percent of Canadian jobs are at risk of being lost due to automation, while the Organisation for Economic Co-operation and Development's projection was 38 percent and the C.D. Howe's estimate was 35 percent. 23 According to the Brookfield Institute report, the five occupations most at risk (as measured by the number of people employed) were retail salesperson, administrative assistant, food

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counter attendant, cashier, and transport truck driver. Sean Mullin, Executive Director of the Brookfield Institute, stated that "we don't believe all of these jobs will be lost. Many will be restructured, and new jobs will be created as the nature of occupations change due to the impact of technology and computerization." Jobs with a lower risk of disappearing include those in management, teaching, science, technology, engineering and math. 24 According to futurist Martin Ford, highly routine jobs like telemarketing and tax preparation have about a 99 percent chance of being automated, while food preparation jobs in the fast-food industry have about an 80 percent probability of being replaced by robots (such as Flippy which is already b eing employed at CaliBurger restaurants). 25 New technologies, such as the self-scanner, are radically changing the retail sector at bricks and mortar locations. In Fall 2017, Walmart introduced the self-scanner in 22 Canadian stores; customers carry the scanners with th em while th ey shop and just stop by the checkout to pay. While Walmart states that its objective is not to reduce employment, it is expected that close to 1 million retail sales and cashier jobs will be lost to automation over the next 10 to 20 years. 26 A recent report, The Intelligence Revolution: FutureProofing Canada's Workforce, noted a number of major forces of change including (1) robotic process automation, (2) artificial intelligence, and (3) human enhancement technologies such as devices and wearables aimed at overcoming limitations or improving h uman capabilities. 27 The report also identified five important factors resulting from the intelligence resolution. These factors are presented in HR How will artificial intelligence and robotics change the future Planning Notebook 10.3. of work?

HR PLANNING NOTEBOOK

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10.3

FACTORS DISTINGUISHING THE INTELLIGENCE REVOLUTION Several factors have been identified as shaping the future of work: • The concept of a job has been fundamentally changed-traditional notions of work are often not applicable in the world of work that is . emerging. • Machines are learning faster than humansmachines now have the capability to learn and upgrade their skills and capabilities. • New opportunities for people and machines are emerging as technologies converge-artificial

intelligence, motion sensors, and advanced cameras are being integrated. • Impact of technological change will result in wide and deep disruption-for instance, even fields such as law and medicine (which have historically been largely unaffected by automation) are being changed dramatically. • New workforce is emerging-a growing number of employees are freelancers or consultants who are employed for a specific project and then move on to another job with a different employer.

Source: Adapted from The Intelligence Revolution: Future-proofing Canada's Workforce. 2017. Deloitte and Human Resources Professional Association of Canada.

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THE AMAZON EFFECT Th e retail sector is being revolutionized by what has become known as the "Amazon effect." To give an example of how jobs are changing, consider a warehouse worker at Amazon whose previous job was to stack small bins weighing up to 11 kilograms during a 10-h our shift. Now the worker is employed by th e company to monitor several robots in th e warehouse and troublesh oot when problem s arise; the objective of using robotics was to avoid people having to perform mon otonous tasks an d to reduce the amount of walking around by employees, leaving workers to do jobs that engage them mentally. 28 Also consider the massive changes within the grocery industry. In 2009, Sobeys made the strategic m ove to replace employees with robots, and currently op erates with four robotic distribution centres. According to Eric Seguin, senior vice-president of Distribution and Logistics for Sobeys, "On e robot does the work of four employees. The robots don't get tired. Th ey always show up in the morn ing after the Stanley Cup fin al." 29 lnplacement Reabsorbing excess or inappropriately placed workers into a restructured organization Outplacement Providing a program of counselling and job search assistance for workers who have been term inated

11 INPLACEMENT AND OUTPLACEMENT ISSUES In exam ining the downsizing decision, it is necessary to consider both inplacement and outplacement issues. 30 Inplacement refers to a career managem ent approach aim ed at reabsorbing excess or in appropriately placed workers into a restructured organization , while outplacement focuses on the provision of a p rogram of counselling and job search assistance for workers wh o have been terminated. In a survey of Canadian man ufacturing firms, organizations that had gone through downsizing were asked to report on th e benefits they provided to displaced workers. Th ese results are provided in Figure 10.2. The most common benefits were severance

27

Retraining assistance Family counselling Job referral service

46

Job search support

55

Extended notice

61

Outplacement counselling

62

72

Benefits continuation

83

Severance pay 0

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20 30 40 50 60 70 0 /o of Employe rs providi ng benefits

80

90

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pay, continuation of employee benefits, outplacement counselling, and an extended notice period. A minority of firms provided retraining assistance or family counselling. We are also seeing innovative approaches to assisting workers who have suffered job loss:

As a result ofthe phasing out ofcoal-fired electricity, the NDP government in Alberta has launched the Coal Workforce Transition Fund to assist laid-offworkers. A major objective of the fund is to supplement employment insurance and assist employees in the coal industry as they transition into new jobs or retirement. The province's Department ofLabour will also provide additional supportfor laid-off workers in the form oftraining, education and career counselling. 31

SOME ETHICAL CONSIDERAT~ONS Consider the experience of one female manager who was downsized.

I actually did the rounds and said goodbye to a few key people. And the thing that was really upsetting was that I went in to see senior people such as the chief executive officer; I went into his office and he just came out and saw me talking to his secretary and said, "What is wrong?" Because he saw my face. And I said "I've just been retrenched." And he was shocked because he didn't know, because it was his second in command who handled operational issues. So he basically said "I'm really sorry" . .. butyou know, ''See you later. There's nothing I can do. "32 Is it unethical to downsize? Downsizing is, in most circumstances, perfectly legal. Of course, there may be contractual provisions (such as terms of a collective agreement) and legal restrictions (such as human rights legislation, labour or employment standards, or the common law of wrongful dismissal) that restrict how an employer may engage in downsizing. For example, labour standards codes often require that an employer provide a specified period of notice before engaging in a mass layoff. Assuming that a downsizing is legal, can it still be unethical? There is evidence that downsizing may have negative impacts on laid-off employees, survivor employees, and the downsizers. When confronted with the need to make decisions about downsizing, managers may use economic, accounting, and ethically based rationales. 33 A number of downsizings may infringe on principles of distributive, procedural, and interactional justice (see "Perceptions of Justice" later in this chapter). Moreover, comm unication during a downsizing may be mismanaged, and managers may use and abuse information as a source of power. For instance, organizations may choose to conceal information from employees (such as failing to inform employees about impending job loss) or distort information concerning the financial status of the business. 34 What about ethical decisions by employees facing job insecurity? One study found that job insecurity may lead to emotional exhaustion, which impairs the ability of some employees to self-regulate, resulting in unethical behaviour. While highly adaptable employees frequently have the skills and abilities to cope with job insecurity, employees who face challenges adapting to major change are more likely to engage in unethical behaviour at the workplace. 35 Downsizing may be considered a breach of the psychological contract that exists between an employer and an employee (i.e., an individual worker's perception of the agreement he or she has with the employer). In addition , downsizing may also involve the violation of social contracts; an organization is a mem ber of different local communities, and a failure to adhere to certain values and mores (an ethical floor or

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basic standards of ethics) would result in the organization being considered a "poor" corporate c1t1zen. One employee, after being informed by his boss that his employment with the company had been terminated, stated the following:

As I say, the relationship between my boss and myselfwas pretty intense, and I think (the meeting) ends up with something like him saying, "Well Ben, this is very unfortunate. I do wish you all the very best in yourfuture and hope everything will work out," something to that effect. And I responded with, "Look Chris, let's not mess around. You hate my guts, and I can assure you that I hate yours. "36

PLANNING FOR DOWNSIZING Assuming the organization has decided to embark on a downsizing strategy, planning is essential. Some key issues include the following: • Determining how many people will lose their jobs. • Determining who will be let go. For example, will the decision be made on the basis of seniority, performance, or potential? • Determining how the reduction will be carried out. For example, to what extent will the organization use attrition, early retirement or voluntary severance programs, and layoffs or termination? The approaches to workforce reduction vary in terms of the degree of protection to employees and the time it takes to implement them. • Determining the legal consequences. For example, organizations often ignore or are unaware of legal requirements when downsizing the workforce. Some areas of law to consider include the law of wrongful dismissal, employment standards legislation, trade union law, existing collective agreement provisions, and human rights legislation. • Designing current and future work plans. This issue represents a key challenge for the organization and is frequently neglected. • Implementing the decision. Implementation includes elements such as the communication of the termination decision, the timing of the decision, security issues, severance payments, outplacement counselling, and communications with remaining employees. • Performing follow-up evaluation and assessment of the downsizing efforts. Although this step is critical, it is often ignored in many organizations. 37

ADJUSTINGIO JOB LOSS Workers who have lost their job frequently experience tremendous pain. As well, job loss can be very difficult for family members. Furthermore, many downsized employees are very bitter and angry with their former employer. A U.S. study of downsized workers revealed that 67 percent would never work for their former company again, 54 percent would not recommend that others purchase the organization's products or services, and 11 percent considered going to the media and talking about their layoff experiences. 38 As indicated in HR Planning Today 10.1, losing a job may have benefits for some employees.

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Still, for most employees, job loss is a traumatic experience. Consider the responses from two victims of downsizing: 3 9

Victim 1: Money was limited. I felt very un- . .. I didn't like to go out in the day. I remember my wife said to me, ''W'l.7y don't you go and mow the lawn?" And I didn't want to go out there because, it's interesting, you just felt that people are watchingyou. Andyou have thisfeeling oj "He can't even support hisfamily." Look at him. He is failing. Victim 2: I was out ofwork for seven months. I was trying very hard to get a job. That did have a dramatic effect on me and my family. My kids were going to private school. I'd paid a wholeyear up front. But it affected them. My kids said at one point, and this really cut me up, they said "Daddy, ifwe haven't got any money, we don't have to have Christmas this year." And that really upset me.

While job loss is not typically considered a favourable experience, a study of 30 men and women who lost their job and were using an outplacement firm revealed that losing a job may have some positive aspects. Some of the benefits resu lting from job loss identified by participants were • The opportunity to reflect on their careers and a chance to think about what they really want to do. • A chance to get out of a job they didn't like. A number of the participants, upon reflection,

concluded that they weren't satisfied with what they had been doing. • More time for family and a better work-life balance. Although some participants felt considerable stress and anxiety associated with job loss, others felt relief. More positive views tended to occur as time passed. Still, individuals with young fami lies felt considerable pressure to get back into the workforce.

Source: Adapted from S. Klie, "The Upside of Job Loss," Canadian HR Reporter, October 22, 2007, 1-2.

If a single organization acting alon e decides to engage in workforce cutbacks, the employees have the option of seeking alternative employment; however, in an economy in which several firms are downsizing, frustrated employees have few alternative employmen t opportunities. 40 Still, firms that have not treated employees well may encounter difficulties in attracting and keeping quality employees wh en the demand for workers is high. A poll of almost 7000 employees indicated that 84 percent would search for a new job if they heard that their company was planning layoffs. 41 A number of organizational interventions and practices have been identified as helping previously employed workers adj ust to job loss and secure new employment. 42 They include the following: • Advance notification of layoffs, which gives employees time to deal with the reality of job loss and seek future employment • Severance pay and extended ben efits, which provide an economic safety net • Education and retraining programs, which give individuals time to acquire marketable skills

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• Outplacement assistance to inform employees of new job opportunities and to improve their ability to "market" themselves • Clear, direct, and empathetic announcement of layoff decisions • Consideration of HR planning practices that represent alternatives to large-scale layoffs Still, organizations don't always manage the process properly. As one employee observed:

You know, they ffermer employees] were told that their positions were being eliminated, they were given counselling-financial and counselling about their package ... but then they were actually ushered right out the door and I think that is despicable. People that had been with the companyfor 20years that had been very good employees are made to think that they've done something wrong ... very, very demeaning. 43 There is growing evidence that many individuals are staying out of the workforce. The labour force participation rate, which is slightly under 66 percent, 44 is the lowest it has been in the past decade and there is particular concern about the threat of unstable jobs. According to McMaster University professor Wayne Lewchuk: "It's a brutal world out there if you're a firm .... So we've seen a movement of firms to protect a core of employees and surrounding that with a periphery of less permanent employees or tasks that are contracted out." 45 HR Planning Today 10.2 summarizes research examining employment status and suicide risk.

HR PLANNING TODAY

10.2

EXAMINING EMPLOYMENT STATUS AND SUICIDE RISK Is losing a job associated with a greater risk of suicide? What about being unemployed for a long period of time? Tim Classen and Richard Dunn examine these questions using U.S. panel data over a 10-year period. Their major findings include the following: • Recent job loss (unemployed less than five weeks) was not associated with a difference in suicide risk . 1n men versus women.

• A narrower measure of recent job loss (based on mass-layoff events) was positively associated with the suicide rate for both men and women. The authors estimate one additional suicide for every 4,200 men who became unemployed as part of a mass layoff and one additional suicide for every 7, 100 women who were part of a mass layoff. • Suicide risk increases for both men and women who experience long periods of unemployment.

Source: Adapted from T. Classen and R. Dunn, "The Effect of Job Loss and Unemployment Duration on Suicide Risk in the United States: A New Look Using Mass-Layoffs and Unemployment Duration," Health Economics, Vol. 21 (March 2012): 338-350.

11 THE ''SURVIVORS'' OF DOWNSIZING While we see media accounts of people rebounding from downsizing and starting a new life for themselves, the reality is that for many individuals, the pain of being downsized is very severe. The impact on family life, career plans, and personal esteem are devastating and the social costs can be enormous.

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What about the survivors of a downsizing? How do employees who remain with an organization react? Here is a description of a typical response, also known as survivor syndrome :46

The initial anger andpain are oftenfollowed byfear and cynicism. Stress, bred of uncertainty and the necessity ofdoing more with less, skyrockets. Trust in the company and its management plummets. Employees who remain spend their days juggling more work and avoiding anything that approaches risk taking or innovation. Surviving a downsizing can be traumatic and there is growing evidence that perceptions of job insecurity (even in the absence of a downsizing) may be associated with negative consequences for employees and employers (see HR Planning Today 10.3). Job insecurity has been defined as "an individual's expectations about continuity in a job situation" or "overall concern about the future existence of a job."47 In other words, even employees in organizations that have not downsized the workforce may have perceptions of job insecurity, which has been related to impaired well-being, increased stress, higher levels of burnout, mental distress, and lower work and supervisor satisfaction. 48

HR PLANNING TODAY

10.3

ORGANIZATIONAL DOWNSIZING AND ALCOHOL USE It is readily acknowledged that surviving a downsizing is associated with a stressful work environment. However, are survivors more likely to use alcohol? Recently, Michael Frone explored this issue using data from almost 2,300 U.S. workers. Among the most important findings were the following: • Being exposed to a downsizing was associated with increased frequency of drinking alcohol, number of drinks consumed per drinking occasion,

and both binge drinking and drinking to the point of intoxication. • Excessive alcohol use following a downsizing was significantly associated with younger downsizing survivors (40 years of age or younger) but the relationship between downsizing and alcohol use was not statistically significant for workers over 40 years of age.

Source: Adapted from M. Frone, "Organizational Downsizing and Alcohol Use: A National Study of U.S. Workers During the Great Recession," Addictive Behaviors, Vol. 77 (February 2018): 107-113.

PERCEPTIONS OF JUSTICE Perceptions of fairness and equity play a key role in understanding how survivors of a downsizing react to the experience. In examining the survivors of downsizing, three types of justice warrant consideration: 49 • Procedural justice: The procedures (or "decision rules") used to determine which employees will leave or remain with the organization. • Interactional justice: The type of interpersonal treatment employees receive during the implementation of the downsizing decision. • Distributive justice: The fairness of the downsizing decision. For example, responses from employees may include feelings of guilt after seeing co-workers lose their jobs, support for the downsizing decision as necessary for the firm, or feelings of unfairness and concern that further layoffs may put their own job in jeopardy.

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Procedural justice Procedures or rules used to determine which employees will be downsized lnteractional justice The interpersonal treatment employees receive during the implementation of the downsizing decision Distributive justice The fairness of the downsizing decision

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Consider the response of one disgruntled employee who was laid off from a chemical company and sabotaged the computer system, resulting in more than $20 million in damages. In a letter to the company president, he wrote:

I have been loyal to the company in good and bad times for 30 years. I was expecting a member oftop management to come down from his ivory tower to face us with the layoff announcement, rather than sending the kitchen supervisor with guards to escort us off the premises like criminals. You will pay for your senseless behaviour. so HR Planning Today 10.4 addresses the issue of fairness and commitment to the organization after downsizing.

HR PLANNING TODAY

10.4

FAIRNESS AND COMMITMENT AFTER DOWNSIZING What is the relationship between downsizing and affective organizational commitment (the level of emotional attachment to, identification with, and involvement in the organization)? Do the perceptions of survivors and victims differ? The results of a recent study indicate that

• Procedural fai rness was more important than distributive fairness for downsizing survivors.

• Fairness was correlated with higher organizational commitment when considering the responses of both survivors and victims of downsizing.

• Fairness is more important if the downsizing was undertaken in order to maximize profits rather than out of economic necessity.

• The impact of fairness is greater in countries with a more individualistic culture (rather than a collectivistic culture).

Source: D. van Dierendonck and G. Jacobs, "Survivors and Victims, a Meta-analytical Review of Fairness and Organizational Commitment After Downsizing," British Journal of Management, 2010: 96-109.

SURVIVOR REACTIONS There is considerable evidence that downsizing may produce a number of dysfunctional behaviours among the employees who remain with the organization. Some of these impacts are discussed below: 51

• Negative attitudes and behaviours: In a number of downsizings, employees who retain their jobs report increased job insecurity, fear, stress, and burnout. They may also experience lower self-confidence and self-esteem, reduced job satisfaction, and lower commitment to the organization. Not surprisingly, these factors may lead to increased turnover, absenteeism, and lateness. • Reduced performance capabilities: There is growing evidence that it is not necessarily the poor performers who leave the downsized organization. Of particular concern is the fear that the best employees will leave, because quality workers are more attractive to oth er firms. This result undermines the HR activities of the organization. • Lower organizational productivity: Negative employee attitudes and behaviour, in conjunction with lower performance capabilities, may destroy or markedly harm team activities and result in lower productivity (see HR Planning Today 10.4).

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One study examined various forms of downsizing and the perceptions of almost 14,000 employees. The major findings included the following: • Survivors of layoffs reported lower perceived organizational performance, lower job security, reduced attachment to the organization, and a higher intention to quit their job compared with employees who had not experienced downsizing. • Survivors of offshoring (moving work to foreign entities outside the company) perceived th at th eir em ployer's organizational performance was lower, manager fairness was lower, and com mitment to the organization was n ot as high com pared to respon dents wh o had not been downsized. However, survivors of outsourcing (moving work to outside en tities such as contractors or consultan ts, resulting in job loss) did not differ significantly in their attitudes relative to employees who had not been downsized. sz

IMPACT ON THE "DOWNSIZERS'' Although there has been a fair bit of research on the survivors of downsizing, what about the individuals who carry out the downsizing and actually terminate members of the workforce? In one study, detailed interviews were con ducted with 10 managers responsible for implementing the down sizing. The results showed that participating in the downsizing process was very difficult for a number of man agers. Of particular note was the experien ce of social and organization al isolation, a decline in personal health and well-being, and an increase in family-related problems. s3 Another study revealed that having to carry out the downsizing (being the "executioner") is em otionally taxing an d the downsizers develop mechanisms to distan ce themselves emotionally, physically, and cognitively from the task. Experienced downsizers were more able to develop coping mechanisms and an emotional numbn ess to the task. s4 Downsizers may begin speaking in less person al terms to describe their job-for instance, a workforce reduction may be described as a realignment or "revectoring." While the involvement of som e downsizers may be restricted to behind-the-scenes administrative tasks (such as blocking employee access to computers), others h ave a more direct role in cluding identifying the people to be laid off, carrying out the actual layoffs, an d dealing with employees immediately after th e layoff decision:

People stare at you funny, they won't even say ''Hello" to you. You know, they think you made the personal decision yourself . . . What was my name for it? A grim reaper.SS There is often extreme emotion on the part of the downsizer:

A manager I dealt with here, broke down and cried. Cried during the training sessions. Got too emotional herself Cried during the delivery of the message. I felt that the person did not display the managerial or directorial responsibilities that they have to the company. Got too emotional and too personal.S6

11 FINANCIAL PERFORMANCE AND DOWNSIZING Do organizations that have reduced their workforces perform better than other firms? This is an important question . Organizations engaging in downsizing anticipate that their financial performan ce will thereby improve.

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How does the stock market react to downsizing announcements? While some analysts suggest that downsizing will improve the value of a firm's stock, investors generally respond negatively to the announcement of a layoff, particularly if the reduction is due to financial factors or involves a large-scale, permanent cutback of employees. One study indicated that downsizing had a negative impact on stock market returns, and this was even more pronounced for larger downsizings. However, the negative effects associated with downsizing were reduced or eliminated when the firm adopted a strategy in which specific units and functions were targeted for layoffs; targeted cuts allow the firm to retain the most valuable human resources, whereas across-the-board cutbacks result in the loss of quality employees. If engaging in a large downsizing is inevitable, firms with disengagement incentives/strategies (incentives to leave) are viewed more favourably by the stock market relative to firms without such incentives/strategies. 57 Another study revealed that the decision to use a press release to announce a downsizing was associated with more negative reactions by investors. 58 When we look at financial performance outcomes, academic research does not paint a very clear picture; some studies suggest downsizing is linked to increased profitability while others indicate it is linked to poorer financial performance. Why the conflicting results? In examining the various studies, it is difficult to make comparisons, because authors don't use similar measures of performance, and each defines downsizing somewhat differently. In addition, the research tends to look at workforce reduction behaviour without considering the overall downsizing strategy. However, there is some U.S. evidence supporting the position that improved return on assets and common stock might be related, at least in part, to the downsizing strategy employed by the organization. 59 Firms following a "pure employment" downsizing (a workforce cutback of at least 5 percent but little change in plant and equipment expenditure) did not outperform other firms in their industry. However, "asset downsizers" (firms that cut at least 5 percent of the workforce accompanied by a decline of at least 5 percent in expenditures on plant and equipment) generated higher returns relative to industry competitors. In addition, a study of Fortune 500 companies revealed that firms that had downsized their workforce had substantially poorer financial results up to two years later. However, these results began to dissipate by the third year. The findings were particularly negative for employers reducing 10 percent or more of the workforce. In addition, there was modest evidence that the use of more frequent (ongoing) layoffs was associated with poorer performance. 60 It appears that the link between organizational performance and downsizing is complex, and that the likelihood of a successful downsizing might be associated with a number of factors surrounding the downsizing. A study of large firms over an 18-year period indicated that downsizing is more likely to be successful (as measured by better financial performance) when firms have higher levels of slack (excess resources, which can include inventory, working capital, and people), the downsizing is broadly based (i.e., the focus not only is on reducing the number of people but also involves organizational redesign), and the approach to downsizing is proactive (planned out rather than in response to declining performance). 61 In addition, financial performance may also vary depending on whether the rationale for the downsizing was excused-based or justification-based. 62 These findings support a number of suggestions provided earlier in the chapter. 63

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CONSEQUENCES OF DOWNSIZING Many downsizing efforts fall well short of meeting organizational objectives, and are carried out with little strategic planning or consideration of the costs to the individuals and the employer. 64 More often, job cuts represent a short-term reaction to a much more complex problem. While senior executives often focus on financial issues during a reorganization, the benefits of restructuring frequently fail to transpire if HR issues are not carefully thought out and resolved appropriately.

HR PLANNING TODAY

10.5

ARE EMPLOYEES IN A DOWNSIZED ORGANIZATION MORE LIKELY TO QUIT? What are the implications for employee quit behaviour if an organization downsizes? Does investment in human resources management practices moderate the quit rate? These questions were addressed in a study by Trevor and Nyberg. Among their major findings were the following : • Downsizing was associated with a higher quit rate. This finding has implications for an organization that may lose more people than desired, because the downsizing in turn impacts on the quit rate. As well, higher performers may be among those who decide to voluntarily leave the organization. • Higher quits are frequently associated with negative consequences, compounding the negative

effect of the downsizing. The authors found that if just 1 percent of the workforce is downsized, post-downsizing voluntary turnover rates increase by about 31 percent. • If downsizing is unavoidable, adopting practices such as job embeddedness (e.g., flextime, on-site child care, and defined-benefit plans) and procedural justice prior to the downsizing may reduce the consequences of downsizing resulting from higher voluntary turnover, induce the least valuable employees to leave, and encourage the most valuable employees to stay.

Source: Adapted from C. Trevor and A. Nyberg, "Keeping Your Headcount When All About You Are Losing Theirs: Downsizing, Voluntary Turnover Rates, and the Moderating Role of HR Practices," Academy of Management Journal, Vol. 51, (2008): 259-276.

Despite the guilt associated with permanently reducing the workforce, a growing number of firms are willing to downsize and are discovering that workforce reduction can lead to many unwanted consequences. 65 Some of these consequences include the high human costs, psych ological trauma experienced by both those let go and the survivors, reduced employee commitment, lower performance among employees due to job insecurity, greater attention by management to the downsizing process while ignoring customer and client needs, a shift from innovation to protection of one's turf, lower morale, potential litigation by employees wh o believe that they are victims of discrimination, and a loss of valuable employees (see HR Planning Today 10.5). One study examined "serial downsizers" (i.e., firms that had downsized th e workforce both when th e study began and five years later). The serial downsizers had the poorest scores when considering changes in employee satisfaction (e.g., poorer morale, quality of work life, commitment to the organization). While the "late downsizers" (those organizations that had downsized only recently) also had negative scores on

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the employee satisfaction measures, the "early downsizers" did not significantly differ from those employers that did not downsize throughout the period of the study. In other words, it appears that the negative people consequences associated with the early downsizing had dissipated over the five-year period. 66 One issue that has received little attention is the effect of downsizing on the organization's reputation for corporate social performance (RCSP). Reputation for corporate social performance can be defined as "the firm's reputation for principles, processes and outcomes related to the social impact of the firm's operations." 67 An organization's RCSP is one of the most important intangible assets of a business and an important source of competitive advantage. In addition, it may be critical to attracting and retaining quality employees. Although considered an acceptable business practice, there is evidence that downsizing has a negative impact on an organization's RCSP and is even more pronounced for organizations that had high financial performance prior to the downsizing. 68 Still, some organizations make a concerted effort to assist displaced employees:

In late November 201 I: Sobeys reported that 800 employees were losing their jobs in an effort to reduce costs and build an e-commerce presence. In an effort to soften the blow, the company indicated that it had established the Sobeys Support Program for displaced workers at the Stellarton, Nova Scotia location. Among thefeatures ofthe program are 100% tuition coverage for any Nova Scotia Community College program and loan guarantees of up to $300,000 for employees starting up their own business. 69 In a systematic review of articles exam1n1ng downsizing and corporate social responsibility (CSR) over a 30-year period, Ahlstrand and Rydell noted that half of the articles addressed how companies acted in a socially responsible manner by assisting employees coping with job loss and helping them transition to new job opportunities and about 30 percent of the research examined corporate social responsibility and business strategy (with firms often employing a number of management strategies and tactics). They concluded that the reasons firms use a CSR approach were not clearly identified and the outcomes from using CSR often neglected key social and economic effects. 70 Another issue beginning to attract attention is the relationship between downsizing and employee safety. The research evidence suggests that downsizing creates job insecurity, which is strongly associated with low levels of job satisfaction. Low job satisfaction, in turn, is related to safety motivation (the incentive to work safely) and safety knowledge (an understanding of safe operating procedures). When safety motivation is low, employees are less likely to engage in "safety compliance," that is, comply with safety procedures and carry out their work in a safe manner. Finally, lower levels of safety compliance are associated with more workplace accidents. It is suggested that during a downsizing, employees concerned with keeping their jobs view productivity as more important than safety. However, in downsizings in which employees perceived the safety climate as positive and the organization viewed safety as very important, the negative outcomes associated with job insecurity were not seen. 71 Recent research suggests that employee perceptions of job insecurity are associated with both a greater likelihood of experiencing an accident and a reduced probability of reporting an accident to company personnel. 72 In addition, the prevalence of workplace injuries has been linked with both job insecurity and a hostile work environment. 73

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DOWNSIZING STRATEGIES If an organization is n ot "lean and mean" enough, downsizing might be an appropriate strategic response. However, cutting the n umber of people in an organization is not a quick fix; prior to embarking on any workforce reduction effort, firms should carefully consider the consequences. Considerable care and planning m ust go in to the decision, and th e reasons for the reduction m ust be effectively com municated to employees. In addition, managers frequently have little experien ce or train ing with regard to downsizing and restructuring. From a strategic perspective, an imp ortan t decision involves answerin g question s such as: Should we downsize? When sh ould we do it? How should we do it? The focus should be on rightsizing, which in volves establishing a shared vision of th e organization and a clearly stated strategy supported by management, understood by em ployees, an d involving a sense of "ownership" by members of th e firm .74 It is critical that the H R dep artment play a very active role in the early stages of formulating a d ownsizing strategy. There is eviden ce that negative outcomes associated with d ownsizing m igh t be mitigated by in creased com mun ication an d employee participation and systematic analysis (in advance) of tasks an d personnel requiremen ts. 75 In addition, senior m anagement has to take an aggressive, visible, and interactive role in formulating the downsizing strategy. However, the iden tification, d evelopm ent, and implementation p rocedures should involve the employees. In many in stances, the identification of inefficien cies an d areas where improvements are possible is best left to employees, who typically are in a better position to make such judgments.

STRATEGIC DOWNSIZING Why do so many workforce reduction program s fail to meet expectations? Many organizations engaging in downsizing had n o policies or programs to address problems associated with cuttin g human resources, and several organizations failed to anticipate the dram atic imp acts workforce reduction has on the work environmen t, employees, customers, an d clients. Furthermore, a number of downsizing efforts were not integrated as part of the organization's overall strategic plan. 76 An effective downsizing depen ds on comprehensive planning for change; proper communication of the plan; credibility of the organization with employees, customers, suppliers, an d other stakeholders; and consideration and compassion both for employees wh o are termin ated and those remaining. 77 Moreover, firms en gaging in downsizing typically focus on ly on workforce reduction aspects of the strategy and ignore the more time-consuming but critical strategies of redesignin g the organization and developing a systematic strategy predicated on m assive cultural change within the firm . Research in both Canada and th e U n ited States indicates th at wh ile almost all organizations engaging in downsizing focus on the first component (workforce reduction), only about on e-half make some attemp t at work redesign an d less than one-th ird implement a systematic change strategy. One study com pared the effect of the three downsizing strategies (workforce reduction, organization al redesign, and systematic change) on two perform ance outcome measures (cost reduction an d quality improvement). 78 It found that the workforce reduction strategy was negatively related to organizational p erformance, while th e organizational red esign and systematic ch ange strategies were associated with improved p erformance. Moreover, m utual trust between employees an d senior management plays an important role in th e success of organizational redesign an d systematic ch ange strategies.

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EFFECTIVE AND INEFFECTIVE APPROACHES A number of studies have pointed out downsizing strategies and practices that do not work. For instance, Cameron, Freeman, and Mishra developed a list of six best practices in downsizing firms: 79 1. Downsizing should be initiated from the top but requires hands-on involvement from all employees. 2. Workforce reduction must be selective in application and long term in emphasis. 3. Special attention should be paid both to those who lose their jobs and to the survivors who remain with the organization. 4. Decision makers should identify precisely where redundancies, excess costs, and inefficiencies exist and attack those specific areas. 5. Downsizing should result in the formation of small, semi-autonomous organizations within the broader organization. 6. Downsizing must be a proactive strategy focused on increasing performance. 80 Although the importance of communication is widely acknowledged, it appears that communication during downsizing is particularly difficult because of the negative effect on the informal communication networks in an organization. It is important to (1) attend to rumours, (2) provide survivors with available information on the downsizing, (3) ensure that survivors are aware of the new organizational goals, (4) make expectations clear, (5) tell survivors that they are valued, and (6) allow time for grieving. 81

11 THE ''NEW DEAL'' IN EMPLOYMENT AND THE PSYCHOLOGICAL CONTRACT You're expendable. We don't want to fire you but we will ifwe have to. Competition is brutal so we must redesign the way we work to do more with less. Sorry, that's just the way it is. And one more thing-you're invaluable. ... We're depending on you to be innovative, risk-taking, and committed to our goals. 82

Psychological contract An unwritten commitment between employers and their employees that historically guaranteed job security and rewards for loyal service

274

What does this mean for employees? In many organizations, we have moved away from the expectation of lifetime employment. 83 Rather, workers should prepare for a "multiorganizational career" and recognize that it is highly unlikely that they will remain with the same organization throughout their working lives. An important part of the employment relationship is the psychological contract (those unwritten commitments between employers and employees). Over the past three decades, the psychological contract between employers and employees has changed dramatically. Historical notions of job security and rewards for loyal and long service to the organization have, in many instances, been replaced by ongoing change, uncertainty, and considerable shedding of employees. Associated with such developments are the considerable pain, stress, and hardship inflicted on employees, including both workers who have lost jobs and survivors who remain with an organization (see HR Planning Today 10.6).

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HR PLANNING TODAY

10.6

LOSING A JOB AND SOCIAL WITHDRAWAL What is the impact on your social life of losing your job? Using data from high school graduates tracked over a 45-year period, one study revealed that being laid off once made people approximately 30 to 35 percent less likely to join a social organization. Study author Jennie Brand indicated, "We found that workers who were displaced were less likely to participate in arranged activities, whether church groups and church attendance, charitable organizations-a big one was youth groups and community

groups-and even social gatherings with friends or country club organizations." It should also be noted that individuals who were downsized only once were less likely to engage in social activities than those who had been laid off more frequently. It was speculated that individuals working in jobs with low job security become more accustomed to downsizing and are not as negatively affected by the experience as those who are downsized for the first time.

Source: Adapted from "Layoffs Lead to Social Withdrawal," Vancouver Sun, September 2, 2008, C7. Material reprinted with the express permission of: "CANWEST NEWS SERVICE," a CanWest Partnership.

A number of organizations try, as part of their HR planning and development activities, to hire from within the firm (where possible). Such organizations develop internal labour markets in which new employees are hired at specific "ports of entry," and other positions are filled through internal transfers and promotions. Historically, employers and employees often had an implicit contract based on the notion that there was a mutual commitment by both employers and workers to long-term employment, and job hirings were viewed as "implicit contracts" in which employees are given certain assurances regarding security of wages and employment. However, such contracts have been radically altered or have ceased to exist in many . . organ1zat1ons. Does it really matter if the psychological contract is breached (i.e., the perception is that that one party has failed to live up to its obligations)? In one study, employees who perceived that their employer breached the psychological contract were more likely to report lower levels of trust in the employer, reduced performance, increased use of sick leave, and a greater intention of leaving the organization. 84 Human resources experts have a considerable role to play in downsizing and restructuring. Some considerations are as follows :85 • Advising on restructuring the organization (work groups, teams, departments, and so on) to maximize productivity and retain quality performers • Developing skill inventories and planning charts to evaluate the impact of a downsizing on HR needs and projected capabilities • Communicating the downsizing decision effectively • Evaluating the downsizing program after completion. This includes an assessment of who left the organization and who remains. Some key issues include job design and redesign, worker adjustment to change, the need for employee counselling, organizational communication, and a review of the appropriateness of HRM policies and programs (training, compensation and benefits, orientation of employees into the "new" organization, etc.). 86

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LABOUR RELATIONS ISSUES Practitioners in unionized organizations often face additional challenges when participating in the restructuring process. In any downsizing involving a union, it is critical that management representatives read the collective agreement. While this should go without saying, in many instances practitioners do not follow this advice. The collective agreement often outlines the procedures to be followed in the event of a reduction of bargaining unit employees. Of particular relevance are clauses addressing notice-period requirements in th e event of a layoff and provisions dealing with seniority. There has been a movement in labour relations toward greater cooperation between labour and management and the emergence of new employment relationships. However, changes in managerial attitudes and behaviours are n ecessary if cooperation between labour and man agement will succeed; unfortun ately, many downsizing programs have destroyed positive labour relations programs. O n e study of workforce reduction in the unionized environment revealed that labour-management climate was lower (the quality of the labour-management relationship was more adversarial) for those bargaining units that experienced a reduction of the workforce. Of note was that this result was consistent when considering both employer respondents and union officials. 87 A secon d study explored the adoption of high-performance work practices in unionized environments and the role of employment security. The results indicated that the use of high-perform ance work practices declined as union representation increased. However, this fin ding was affected by the employer's commitment to job security. Among companies with a low commitment to job security, the use of high-performance work practices declin ed markedly as the percentage of the workforce represented by a union in creased. However, where commitm ent to job security was high, th e use of high-perform ance work practices rose modestly as union ization increased. In other words, providing employment security appears to tem per the effect of unionization on the adoption of high-perform ance work practices. 88 Should unions participate in m anagement-initiated restructuring efforts? One case study documented the experiences of three union locals involved in the process of restructuring. Each union local negotiated with the employer over the issue of workplace restructuring, but the substance of the bargaining as well as the level of involvement by the union and its members varied noticeably. However, it is possible to identify two distinct union responses. The interventionist response was characterized by early involvement in the restructuring process and the involvement of a broad cross-section of the union membership in the development and implementation of the new form of work organization. On the other hand, the pragmatic response was one in which the union relied on the employer to m ake workplace changes and then negotiated with m anagement over the impact of such changes. While this response is not surprising, the study results indicate that it m ay not be the optimal response-in redesigning the work, management has limited information about the work itself an d workplace norms, the change does not proceed through a series of steps in which union input is sought, and the lack of involvement in the process leads to lower commitment to change on the part of the union and its members. 89 It remains to be seen how tru e cooperation can exist when th e job security of employees is threatened. By way of example, un ion leaders fre quently report that joint com mittees an d employee involvement programs are designed to get workers to make suggestion s that increase productivity at the cost of job security. Although a positive labour climate is often associated with favourable organ ization al outcom es, achieving such a climate is very difficult, and good relationships have been destroyed wh en firms embarked on a program of cutting jobs.

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II SUMMARY HR planning plays an important role in the development and implementation of an effective downsizing strategy. The "job for life" approach has been radically changed in the past decade, resulting in a number of new challenges for both employees and employers. It does not appear that the downsizing phenomenon is over, and consequently HR professionals must have a solid understanding of how to manage the downsizing process. There is considerable evidence that many downsizings fell far short of achieving the goals that senior management expected. In a number of organizations, downsizing was followed by lower morale, greater conflict, reduced employee commitment, and poorer financial performance. Moreover, many downsizings were carried out without considering the strategic objectives of the organization, and many employers failed to assess how downsizing would affect its victims, surviving employees, the organization, customers, or society. Managing human resources in a time of cutback management presents several unique challenges to the HRM professional.

KEY TERMS distributive justice p. 267 downsizing p. 255 downsizing strategy p. 254 inplacement p. 262 interactional justice p. 267 outplacement p. 262 procedural justice p. 267 psychological contract p. 274 survivors (of downsizing) p. 254 systematic change p. 256 work redesign p. 256 workforce reduction p. 255

DISCUSSION QUESTIONS 1. What can managers embarking on an organizational downsizing do to minimize the impact of the process on the "survivors" of downsizing? 2. Discuss the effect of the "Amazon Effect" on the workplace of the future. 3. "It is a lot harder downsizing unionized employees." Do you agree with this statement? Discuss some of the challenges associated with downsizing in a union . environment. 4. What is the "psychological contract"? Why has it changed over the past 25 years? When considering the next 10 years, what changes to the psychological contract do you envision?

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EXERCISES 1. Discuss the following statement: "Artificial intelligence (AI) will have a major change on the jobs of the future and employers that want to survive and prosper will need to engage in organizational restructuring." 2. Interview three employees who are survivors of a downsizing. Ask them to discuss how the downsizing was conducted and its effects on them personally and on the . . organ1zat1on. 3. Meet with an HRM professional or a senior management official whose organization has gone through a downsizing. Ask the individual to describe the downsizing strategy employed by his or her organization. Consider Cameron's three downsizing strategies of workforce reduction, work redesign, and systematic change. To what extent did the organization use any or all of these strategies?

CASE STUDY

A DOWNSIZING DECISION AT THE DEPARTMENT OF PUBLIC WORKS

Kathleen Pool is a human resources officer with a municipal government in a town of just over 25 000 people. A well-known consulting firm, in cooperation with senior government officials, recently completed a detailed audit of government operations. As a result of the audit, selected government departments (including the Department of Public Works) were targeted for restructuring. The consultants made it clear in their report that they believed that the budget allocation for the Department of Public Works was "adequate" and recommended that the department receive a 1.5 percent annual increase in funding for the next two years. Note that operating costs for the department are projected to increase at a rate of about 3.5 percent annually. Kathleen has been given the responsibility of managing the restructuring at the Department of Public Works. Rather than directing the department to cut a specific number of jobs, Kathleen has been asked to develop a restructuring strategy that will meet the town's mission of "providing quality service to its residents in a cost-effective manner." She is currently reviewing the operating policies at the Department of Public Works. The Department of Public Works is responsible for tasks such as garbage collection, basic sidewalk and road maintenance, city parks and arenas, installation of street signs and parking meters, and snow removal. At the present time, employees work in one of three subunits: garbage collection, parks and recreation, or city maintenance. Each of the subunits is housed in a separate building, and has its own equipment, supplies, and operating budget. As well, while employees can formally apply to transfer to a different subunit, the managers of the subunits involved and the Director of Public Works (who is responsible for the overall operation of the Department) must all agree. Unless a vacancy at one of the subunits arises, it is rare that any employee transfer will be approved. In 2012, the Department of Public Works underwent a considerable downsizing and 4 percent of its permanent positions were cut. In addition, the department stopped its practice of hiring summer students from local high schools and

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universities in an effort to cut costs. Prior to this, students were employed over the summer to help with special projects and to cover vacation periods for full-time employees. In 2015, a smaller cutback of 2 percent of the workforce took place. In 2016, the municipality brought back the practice of hiring summer students. This decision was welcomed by the full-time employees at the Department of Public Works, in particular because it allows the employees much more flexibility in selecting their vacation time. From 2012 to 2015, management put considerable restrictions on when employees could go on vacation; employees with 10 or more years of service could have a maximum of one week's vacation in July or August while employees with less than 10 years of service were not permitted to go on vacation during these two months. Under the collective agreement, management has the right to determine the vacation schedule of unionized employees. In reviewing turnover data for the Department of Public Works, Kathleen found that very few full-time employees quit their jobs to pursue other employment opportunities. In addition, dismissals for cause were rare; over the past 10 years, only two employees were terminated for cause. In both cases, the union lost the discharge grievance at an arbitration hearing. Since the early 2000s, the municipality has had a local consulting firm conduct surveys of both municipal employees and the users of government services. A summary of the findings from the employee survey (for Department of Public Works employees only) is contained in Table 10.1. Note that each of the items (such as employee morale) is measured on a 5-point scale (1 = very low; 5 =very high). Similarly, Table 10.2 contains summary information from the survey of municipal residents concerning the performance of the Department of Public Works. Again, respondents were asked to reply using a 5-point scale (1 =very low; 5 =very high). Note that on both the employee survey and the users of government services survey, there were only minor differences in the results when the data were broken down by subunit (garbage collection, parks and recreation, or city maintenance).

TABLE 10.1 SUMMARY RESULTS FROM A SURVEY OF PUBLIC WORKS EMPLOYEES EMPLOYEE MORALE

EMPLOYEE COMMITMENT TO DEPARTMENT

OVERALL EMPLOYEE JOB SATISFACTION

INTENTION TO STAY WITH THE MUNICIPALITY

2011

3.89

3.72

4.02

4.77

2012

2.21

1.99

2.34

4.11

2013

2.36

2.22

2.87

3.77

2014

2.65

2.62

3.22

3.99

2015

2.38

2.33

2.66

4.44

2016

2.88

3.01

2.99

4.5

2017

3.54

3.52

3.88

4.72

YEAR

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TABLE 10.2 SUMMARY RESULTS FROM A SURVEY OF MUNICIPAL RESIDENTS YEAR

LEVEL OF SATISFACTION WITH THE BOARD OF PUBLIC WORKS

QUALITY OF SERVICE PROVIDED BY THE BOARD OF PUBLIC WORKS

2011

3.95

3.88

2012

3.22

3.01

2013

3.34

3.24

2014

3.65

3.66

2015

3.56

3.49

2016

3.78

3.72

2017

4.01

3.98

QUESTIONS 1. Outline the issues that Kathleen should consider prior to designing a restructuring strategy. 2. Design a strategy to restructure the Department of Public Works. Be sure to provide support for the decisions/recommendations you propose. 3. A recent newspaper editorial suggested that the town contract out the collection of garbage. What are the advantages/ disadvantages of contracting out services that had been provided by government?

II REFERENCES 1. The sources of these headlines are "Loblaw Layoffs Will Affect 500 Office Workers," HujfPost, www.huffingtonpost.ca, October 16, 2017; "Bell Media Confirms Local Radio and TV Layoffs," CBC News, www.cbc.ca, November 20, 2017; and "Up to 225 Workers to be Laid Off at St. Catharines, Ont. GM Facility," Toronto Star, www.thestar.com, September 21, 2017. 2. Gordon, S. 2014. "Your Job Is As Safe As It Has Ever Been. Probably Safer." Maclean's, January 8. 3. Vanian, J. 2017. "Microsoft Expected to Cut 'Thousands' of Jobs." July 6. http://www.fortune.com. 4. "Brexit to Affect About 10,000 London Finance Jobs, Survey Finds." 2017. The Globe and Mail, September 19, p. B9. 5. "Qiebec Lumber Workers Among the First to Feel Pain of Layoffs from U.S. Softwood Lumber Dispute. 2017. Financial Post. http://business.financialpost.com, May 15.

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6. Cameron, K. 1994. "Strategies for Successful Organizational Downsizing." Human Resource Management, Vol. 33: 189-211. 7. Datta, D., J. Guthrie, D. Basuil, and A. Pandey. 2010. "Causes and Effects of Employee Downsizing: A Review and Synthesis." journal ofManagement, Vol. 36: 282; Sheaffer, Z., A. Carmeli, M. Steiner-Revive, and S. Zionit. 2009. "Downsizing Strategies and Organizational Performance." Management Decision, Vol. 47: 951. 8. Cameron, K. 1994. "Strategies for Successful Organizational Downsizing." Human Resource Management Vol. 33: 189-211. 9. Ibid. 10. McKinley, W., and A. Scherer. 2000. "Some Unanticipated Consequences of Organizational Restructuring." Academy ofManagement Review, Vol. 25: 735-752. 11. Kane, B. 2000. "Downsizing, TQM, Re-engineering, Learning Organizations and HRM Strategy." Asia Pacific journal ofHuman Resources, Vol. 38: 26-49. 12. Pfeffer, J. 2010. "Lay off the Layoffs." Newsweek, February 15, p. 12. 13. Love, E., and N. Nohria. 2006. "Reducing Slack: The Performance Consequences of Large Industrial Firms, 1977-93." Strategic Management journal, Vol. 26: 1087-1108. 14. JoAnn Alberstat, "Kelly's Packs it in After 138 Years," December 2, 2014, the Chronicle Herald. Republished with permission from the Chronicle Herald. 15. Santana, M., R. Valle, and J. Galan. 2017. "Turnaround Strategies for Companies in Crisis: Watch Out the Causes of Decline Before Firing People." Business Research Quarterly, Vol. 20: 206-211. 16. Financial Post, June 30, 2001, p. C2. 17. Strauss, M. 2017. "No Severance Pay for Sears Canada Staff." The Globe and Mail, June 24, p. Bl. 18. Bickis, I. 2017. "Retention Bonuses Spark Outcry." Chronicle Herald. July 15, p. B8. 19. Strauss, M. 2017. "Who Killed Sears." The Globe and Mail, October 21, p. B9-12. 20. Dobson, S. 2017. "Sears Provides Lessons for HR." Canadian HR Reporter, September 18: 1, 6. 21. Blatchford, A. 2017. "Bank of Canada Warns Automation Will Lead to Job Losses." The Globe and Mail, April 18. 22. Frey, C., and M. Osborne. 2013. The Future ofEmployment. Oxford Martin Programme on Technology and Employment. 23. See Lamb, C. 2016. The Talented Robot-The Impact ofAutomation on Canada's Workforce. The Brookfield Institute for Innovation, June; Arntz, M., T. Gregory and U. Zierahn. 2016. The Risk ofAutomation for jobs in OECD Countries: A Comparative Analysis. OECD Social Employment and Migration Working Papers, No. 189, OECD; Oschinski, M., and R. Wyonch.

Future Shock? The Impact ofAutomation on Canada's Labour Market. C.D. Howe Institute.

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24. "420/o of Canadian Jobs at High Risk of Being Affected by Automation, New Study Suggests. 2016. CBC News. www.cbc.ca/news. June 15. 25. Mahdawi, A. 2017. "What Jobs Will Still Be Around in 20 Years? Read This to Prepare Your Future." The Guardian, June 26. 26. Sagan, A. 2017. "Retail Jobs Being Put at Risk, Experts Say." Chronicle Herald, October 25, p. B4. 27. See The Intelligence Revolution: Future-proofing Canada's Workforce. Deloitte and Human Resources Professional Association of Canada, 2017. 28. Wingfield, N. 2017. "As Amazon Pivots Toward Automation, Workers Assume More "Engaging' Roles. The Globe and Mail, September 18. 29. Nguyen, L. 2017. "Sobeys Gains Robots, Productivity." Chronicle Herald, June 16, pp. Bl, B4. 30. Latack, J. 1990. "Organizational Restructuring and Career Management: From Outplacement and Survival to Inplacement." In G. Ferris and K. Rowland, eds., Research in Personnel and Human Resources Management, pp. 109-139. Greenwich, CT:JAI Press. 31. Clancy, C. "NDP Launches Fund to Support Unemployed Coal Workers," Edmonton journal, November 11, 2017, http://edmontonjournal.com/news/ politics/ndp-launches-fund-to-support-to-unemployed-coal-workers. 32. Vickers, M. 2009. "Journeys into Grief: Exploring Redundancy for a New Understanding of Workplace Grief," journal ofLoss and Trauma, Vol. 14: 412. 33. See Arce, D., and S. Xin Lee. 2011. "Profits, Layoffs and Priorities." journal of Business Ethics, Vol. 101: 49-60. 34. See Rosenblatt, Z., and Z. Schaeffer. 2000. "Ethical Problems in Downsizing." In R. Burke and C. Cooper, eds., The Organization in Crisis: Downsizing, Restructuring and Privatization, pp. 132-150. Malden, MA: Blackwell. 35. Lawrence, E., and K Kacmar. 2017. "Exploring the Impact of Job Insecurity on Employees' Unethical Behaviour. Business Ethics Quarterly, Vol. 27: 39-70. 36. Vickers. 2009: 410. 37. Amundson, N., W. Borgen, S. Jordan, and A. Erlebach. 2004. "Survivors of Downsizing: Helpful and Hindering Experiences." The Career Development Quarterly, Vol. 52: 256-271, 260. Also see "Downsizing with Dignity." 2017. www.thebalance.com, February 15. 38. "If You Must Lay Off." 2002. Canadian HR Reporter, April: 4. 39. These quotes are taken from Parris, M., and M. Vickers. 2010. "'Look at Him .... He's Failing': Male Executives' Experiences of Redundancy." Employee Responsibilities and Rights journal, Vol. 22: 350. 40. Cappelli, P. 1995. "Rethinking Employment." British journal ofIndustrial Relations, Vol. 33: 563-602. 41. Immen, W. 2008. "When Flames of Fear Lick at Your Feet." The Globe and Mail, May 7, p. Cl.

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42. Feldman, D., and C. Leana. 1994. "Better Practices in Managing Layoff." Human Resource Management, Vol. 33: 239-260. 43. Amundson, N., W. Borgen, S. Jordan, and A. Erlebach. 2004. "Survivors of Downsizing: Helpful and Hindering Experiences," The Career Development Quarterly Review, Vol. 52: 256-271, 260. 44. The Labour Force Participation Rate was 65.70/o in November 2017 (see www.tradingeconomics.com). 45. See Grant, T. 2014. "Labour Force Participation Rate Stuck at 13-Year Low." The Globe and Mail, December 6, p. B6; Grant, T. 2014. "The 15-Hour Work Week: Canada's Part-Time Problem." The Globe and Mail, October 4, pp. B6, B7. 46. Lee, C. 1992. "After the Cuts." Training, Vol. 29: 17-23. 47. See Davy, J., A. Kinicki, and C. Scheck. 1997. "A Test ofJob Security's Direct and Mediated Effects on Withdrawal Cognitions." journal of Organizational Behavior, Vol. 18: 323-349; Rosenblatt, Z., and A. Ruvio. 1996. "A Test of a Multidimensional Model ofJob Insecurity: The Case of Israeli Teachers." journal of Organizational Behavior, Vol. 17: 587-605. 48. Sverke, M., and J. Hellgren. 2002. "The Nature ofJob Insecurity: Understanding Employment Uncertainty on the Brink of a New Millennium." Applied Psychology: An International Review, Vol. 51: 23-42; Jiang, J and T. Probst. "The Moderating Effect of Trust in Management on Consequences of Job Insecurity." Economic and Industrial Democracy, forthcoming. 49. Armstrong-Stassen, M. 1993. "Survivors' Reactions to a Workforce Reduction: A Comparison of Blue-Collar Workers and Their Supervisors." Canadian journal ofAdministrative Sciences, Vol. 10: 334-343. 50. See Malinsky, A., and J. Margolis. 2006. "The Emotional Tightrope of Downsizing: Hidden Challenges for Leaders and their Organizations." Organizational Dynamics, Vol. 35: 145-159, 146. 51. Mone, M. 1994. "Relationships between Self-Concepts, Aspirations, Emotional Responses, and Intent to Leave a Downsizing Organization," Human Resource Management, Vol. 33: 281-298. 52. Maertz, C., J. Wiley, C. LeRouge, and M. Campion. 2010. "Downsizing Effects on Survivors: Layoffs, Offshoring and Outsourcing." Industrial Relations, Vol. 49: 275-285. 53. Wright, B., and J. Barling. 1998. "The Executioner's Song: Listening to Downsizers Reflect on their Experiences." Canadian journal ofAdministrative Sciences, Vol. 15, 339-355. 54. Gandolfi, F. 2009. "Executing Downsizing: The Experience of Executioners." Contemporary Management Research, Vol. 5: 185-200. 55. Clair, J., and R. Dufresne. 2004. "Playing the Grim Reaper: How Employees Experience Carrying Out a Downsizing." Human Relations, Vol. 57, No. 12: 1608. 56. See A. Malinsky, A., and J. Margolis. 2006. "The Emotional Tightrope of Downsizing: Hidden Challenges for Leaders and Their Organizations." Organizational Dynamics, Vol. 35: 145-159, 152.

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57. Nixon, R., M. Hitt, H. Lee, and E. Jeong. 2004. "Market Reactions to Announcements of Corporate Downsizing Actions and Implementation Strategies." Strategic Management journal, Vol. 25: 1121-1129. 58. Negre, E., M. Verdier, C. Cho, and D. Patten. 2017. "Disclosure Strategies and Investor Reactions to Downsizing Announcements: A Legitimacy Perspective." journal ofAccounting and Public Policy, Vol. 36: 239-257. 59. Cascio, W., C. Young, and J. Morris. 1997. "Financial Consequences of Employment-Change Decisions in Major U.S. Corporations." Academy of Managementjournal, Vol. 40: 1175-1189. 60. DeMeuse, K., T. Bergmann, P. Vanderheiden, and C. Roraff. 2004. "New Evidence Regarding Organizational Downsizing and a Firm's Financial Analysis." journal ofManagement Inquiry, Vol. 16: 155-177. 61. Love and Nohria. 2006. 62. Chhinzer, N. and E. Currie. 2014. "Assessing Longitudinal Relationships Between Financial Performance and Downsizing." Management Decision, Vol. 52: 1474-1490. Also see Brauer, M. and T. Laamanen. 2014. "Workforce Downsizing and Firm Performance: An Organizational Routine Perspective." journal ofManagement Studies, Vol. 51: 1311-1333. 63. An excellent review of the relationship between downsizing and both employer and employee outcome measures is provided in Datta, D., J. Guthrie, D. Basuil, and A. Pandey. 2010. "Causes and Effects of Employee Downsizing: A Review and Synthesis." journal ofManagement, Vol. 36: 281-348. 64. Cascio, W. 2002. Responsible Restructuring: Creative and Responsible Alternatives to Layoffs. San Francisco: Berrett-Koehler. 65. Tomasko, R. 1990. Downsizing: Reshaping the Corporation ofthe Future (2nd ed.). New York: AMACON. 66. Wagar, T., and K. Rondeau. 2002. "Repeated Downsizing, Organizational Restructuring and Performance: Evidence from a Longitudinal Study."

Proceedings ofthe Administrative Sciences Association of Canada (HRM Division). Winnipeg. For a study with similar results based on data from New Zealand see Gilson, C., F. Hurd, and T. Wagar. 2004. "Creating a Concession Climate: The Case of the Serial Downsizers." International journal ofHuman Resource Management, Vol. 15: 1056-1068. 67. Zyglidopoulos, S. 2004. "The Impact of Downsizing on the Corporate Reputation for Social Performance." journal ofPublic Affairs, Vol. 4: 13. 68. Ibid: 11-25. Also see Bergstrom, 0., and A. Diedrich. 2011. "Exercising Social Responsibility in Downsizing: Enrolling and Mobilizing Actors in a Swedish High-Tech Company." Organization Studies, Vol. 32: 897-919. 69. See R. Taylor, "Sobeys Works to Soften Blow," the Chronicle Herald, Saturday, November 25, 2017, p. Bl; "Sobey Launches Job Retraining Program," the Chronicle Herald, Tuesday, November 28, 2017, p. B4. 70. Ahlstrand, R., and A. Rydell. 2017. "Corporate Social Responsibility in Connection with Business Closures and Downsizing: A Literature Review. Contemporary Management Research, Vol. 13: 53-78.

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71. For an interesting review of the safety-job insecurity issue, see Probst, T. 2004. "Job Insecurity: Exploring a New Threat to Employee Safety." In J. Barling and M. Frone, eds. 2004. The Psychology of Workplace Safety. Washington: APA, pp. 63-80. 72. Probst, T., C. Barbaranelli, and L. Petitta. 2013. "The Relationship Between Job Insecurity and Accident Under-reporting: A Test in Two Countries. Work and Stress, Vol. 27: 383-402. 73. Farnacio, Y., M. Pratt, E. Marshall, and J. Graber. 2017. "Are Workplace Psychosocial Factors Associated with Work-Related Injury in the US Workplace?" journal of Occupational and Environmental Medicine, Vol. 59: 164-171. 74. Hitt, M., B. Keats, H. Harback, and R. Nixon. 1994. "Rightsizing: Building and Maintaining Strategic Leadership and Long-Term Competitiveness." Organizational Dynamics, Vol. 23: 18-32; Lamarsh,]. 2009. "How Companies Reduce the Downside of Downsizing." Global Business and Organizational Excellence, November/December: 7-16. 75. Cameron, K. 1994. "Strategies for Successful Organizational Downsizing." Human Resource Management, Vol. 33: 189-211. Also see Chadwick, C., L. Hunter, and S. Walston. 2004. "Effects of Downsizing Practices on the Performance of Hospitals." Strategic Management journal, Vol. 25: 405-427. 76. Galagan. 2010. 77. Kammeyer-Mueller, ]., H. Liao, and R. Arvey. 2001. "Downsizing and Organizational Performance: A Review of the Literature from a Stakeholder Perspective." In G. Ferris, ed., Research in Personnel and Human Resource Management. Amsterdam: JAI Press, pp. 269-329. 78. Mishra, A., and K. Mishra. 1994. "The Role of Mutual Trust in Effective Downsizing Strategies." Human Resource Management, Vol. 33: 261-279. 79. Cameron, K., S. Freeman, and A. Mishra. 1991. "Best Practices in White Collar Downsizing: Managing Contradictions," Academy ofManagement Executive, Vol. 5: 57-73. 80. Ibid. 81. Dunlap,]. 1994. "Surviving Layoffs: A Qialitative Study of Factors Affecting Retained Employees After Downsizing." Performance Improvement Quarterly, Vol. 7: 89-113. 82. O'Reilly, B. 1994. "The New Deal: What Companies and Employees Owe One Another." Fortune, June 13, pp. 44-52. 83. Cappelli, P. 1995. "Rethinking Employment." British journal ofIndustrial Relations, Vol. 33: 563-602. 84. Rust, K., W. McKinley, G. Moon-Kyungpook, and]. Edwards. 2005. "Ideological Foundations of Perceived Contract Breach Associated with Downsizing: An Empirical Investigation." journal ofLeadership and Organizational Studies, Vol. 12: 37-52. 85. Mone, M. 1994. "Relationships between Self-Concepts, Aspirations, Emotional Responses, and Intent to Leave a Downsizing Organization," Human Resource Management 33: 281-298.

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86. Ibid. 87. Wagar, T. 2001. "Consequences of Work Force Reduction: Some Employer and Union Evidence." journal ofLabor Research, Vol. 22: 851-862. 88. Liu, W., ]. Guthrie, P. Flood, and S. MacCurtain. 2009. "Unions and the Adoption of High Performance Work Systems: Does Employment Security Play a Role?" Industrial and Labor Relations Review, Vol. 63: 109-127. 89. Frost, A. 2001. "Reconceptualizing Local Union Responses to Workplace Restructuring in North America." British journal ofIndustrial Relations, Vol. 39: 539-564.

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STRATEGIC INTERNATIONAL HRM Portions of this chapter are based on a previous edition chapter written by Dr. Stefan Grosch/, ESSEC Business School, France.

CHAPTER LEARNING OUTCOMES AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO: • Identify key challenges influencing human resources (HR) practices and processes within an international context. • Identify key characteristics of strategic international HRM (SIHRM). • Understand the relationship between different approaches of SIHRM and corporate business strategy options. • Understand the impact of globalization and internationalization on HR planning.

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When Linda Myers accepted a human resources position at SK Telecom in South Korea, she thought it was the opportunity she'd long been working toward.... For someone who'd spent years consulting on expatriate transitions, this seemed like a dream job ... Myers had never heard of SK when a recruiter e-mailed her, in July 2007. "Dear Mr. Myers," the e-mail began. "They assumed I was a man," she recalls. It was an innocent mistake, but it foreshadowed the misunderstandings to come . ... The recruiter's initial e-mail marked the start of a six-month interview process, including trips to New York and Santa Clara, California... . "I was working with a young man who spoke enough English to be the liaison for his boss, who spoke a little bit less English," Myers recalls. That was to be expected in negotiations with a Korean company for a job in Korea, but the two-language game of telephone sometimes led to confusion. Still, she pressed ahead. In October, SK Telecom formally offered her a job .... On the ground in Seoul, ... one early shock was the homogeneity of not only her office but also the city: Government estimates indicate that foreigners account for 2.4 percent of the population .... Another surprise was her inability to communicate effectively.. .. She recalls having to ask for an interpreter at her first meetings at SK. And even with an assistant and colleagues who spoke English, she found it difficult to get the information she

needed. As she saw it, even diplomatic inquiries could be construed as confrontational and critical. She was also unprepared for the company's rigid hierarchy.... Moreover, she was constantly aware of being female. Aside from secretaries, she was almost always the only woman in the room. In spite of these challenges, Myers advanced at SK. Four months after her arrival, she moved on to be head of Global Talent at SK Holdings. But leadership shakeups changed the tenor of this role. Myers felt increasingly left out of key meetings and conversations, in part because language was still a problem, even though, according to SK, she by then had a mostly bilingual team, including three non-Koreans. Although Myers saw her role as that of a change agent, she struggled to implement new practices and policies. "At the lower and middle levels, I think that people were very excited, very eager for change," she explains. "But at the top, most of the leadership was nervous." ... By early 2009, Myers could tell she was on her way out. "My team leaders would barely speak to me," she says. Finally, her boss called her into his office and explained that although they had extended her contract once, they would not do so again. Source: Reprinted by permission of Harvard Business Review. From "The Would-be pioneer" by S. Green, April 2011 . Copyright © 2012 by Harvard Business School Publishing Corporation; all rights reserved.

11 INTRODUCTION Struggling to fit in is a key challenge for managers in their overseas assignments, and one of many critical HR aspects in the internationalization of Canadian companies and their employees. Fast-growing economies such as Brazil, Russia, India, China, and South Africa represent significant business opportunities and require Canadian companies to expand beyond their national boundaries. Despite the weakened global economy, Canada h as remained one of the top 10 home economies with the highest outflow of foreign direct investments. According to th e 2014 World Investment Report, in 2012, Canadian companies invested Cdn. $43 billion abroad. 1 Yet entering growing economies and new markets means not only greater business opportunities for Canadian firms, but also a wide range of strategic and operational HR challenges.

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11 KEY CHALLENGES INFLUENCING HR PRACTICES AND PROCESSES WITHIN AN INTERNATIONAL CONTEXT When entering new markets, organizations are confronted with a wide range of challenges mostly related to socioeconomic, political, and technological aspects. Following is a brief discussion of some of the key issues HR managers face when their organizations expand across national borders.

WORKFORCE DIVERSITY Many articles in academic journals and the popular press have documented Canada's growing workforce diversity. While the different dimensions of diversity provide Canadian organizations with many opportunities, Canada's workforce diversity also produces a wide range of HR-related challenges, including the integration and accommodation of an increased number of older workers and employees with disabilities, diverse gender identities, and aspects related to ethnic and cultural differences among employees. Human resource management systems must consider and accommodate the needs of an increasingly diverse labour force and tailor international HR policies and practices accordingly.

EMPLOYMENT LEGISLATION HR managers of organizations operating across Canada are faced with a complex provincial and federal employment legislation framework. When crossing national borders, Canadian HR managers encounter additional host-country employment legislation and in the case of a European Union (EU) member state being the host country, employment laws and regulations of the host country and the EU. This wide range of home and host-country employment legislation represents a key challenge to HR managers and the development and implementation of employment policies, processes, and practices in Canadian organizations operating internationally.

SECURITY While Afghanistan and Iraq have been known for many years for their unsafe business environments, recent terrorist attacks in Pakistan and India; violent societal upheavals in Egypt, Bahrain, Tunisia, Algeria, Libya, and Syria; and organized crime and increased kidnappings in Venezuela, Mexico, Honduras, Nigeria, Somalia, and Sudan2 have raised serious concerns among internationally operating businesses for their expatriate employees' security. Sophisticated HR support structures in areas of employee security and safety including risk assessment processes, precautionary actions and procedures, and contingency planning are critical aspects in ensuring that employees and their families deployed in dangerous or troublesome parts of the world always return home safely. Establishing close relationships with Canadian governmental overseas representatives

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(Canadian embassies, chambers of commerce, consulates, high commissions) in countries in which employee security is a concern to foreign businesses is only one of many proactive security measures. 3

11 STRATEGIC INTERNATIONAL HUMAN RESOURCES MANAGEMENT

Strategic international HR planning Projecting global competence supply, forecasting global competence needs, and developing a blueprint to establish global competence pools within . companies

The UPS example in HR Planning Today 11.1 illustrates the size, geographical distribution, and level of internationalization of many multinational enterprises, highlighting the need for the methodical and careful planning of a strategic international HR approach. Strategic international HR planning typically involves projecting global competence supply, forecasting global competence needs, and developing a blueprint to establish global competence pools within companies so that the supply of global managers worldwide will be sufficient to coincide with the multinational corporation's (MNC) global strategies. Attracting and retaining managers who are competent to represent the company in a global arena have been rated as the most critical goals of international HRM by multinational corporations (MNCs). 4 Moreover, international HR planning needs to fit with both the internal factors, such as a firm's strategies, competencies, and existing HR systems, and the external factors including local economic, political, social, cultural, legal, and HR systems. Studies show that MNCs globalize HR practices issues such as pay systems, management development, or employee benefits. With other issues, such as wage determination, hours of work, forms of job contract, and redundancy procedures that are subject to local laws and convention, MN Cs tend to follow the local practices, although the extent to which SIHRM practices fit with the local environment or with home headquarters varies from company to company and from country to country. 7

In 2014, the $55 billion multinational company UPS employed more than 395,000 people in 200 countries and territories. For the core business, 13 regional directors had a total of 72 district managers reporting to them. And each of those 72 district managers ran an operation the size of a Fortune 1000 company. Besides its core business, UPS managed several other business units with revenues in excess of $1 billion. 5 The size and geographical distribution of UPS creates a wide range of HR implications and challenges: respecting and adjusting to 200 or more different employment and human rights legislations, and industrial relations; selecting the right level or mix of centralizing and decentralizing UPS's HR

function across countries, companies, and business units; creating HR structures and reporting systems supporting UPS's HR strategic role and operational responsibilities in a proactive and flexible way; and responding to the wide range of different cultural value systems in UPS's decision-making process about the level of standardization or adaptation of HR policies, processes, and practices. Failing to address these challenges can lead to a wide range of costly implications for UPS-from employment lawsuits due to, for example, lacking awareness of local employment practices, to labour relations disputes and strikes, and in the worst-case scenario, to surrendering and retreating from a foreign market. 6

Source: J. Kirby, "Reinvention with Respect," Harvard Business Review(November 2001): 117.

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Strategic thinking is needed for SIHRM to project HR supply and to forecast HR needs for the foreign subsidiaries. Therefore, strategic international HRM is defined as "human resource management issues, functions, and policies and practices that result from the strategic activities of multinational enterprises and that impact the international concerns and goals of those enterprises." 8

THE DOMESTIC STAGE AND STRATEGY Organizations applying a domestic strategy become international by exporting goods abroad as a means of seeking new markets, focusing on domestic markets, and exporting their products without altering the products for foreign markets. Because this is an initial step of going international and there is no subsidiary in foreign countries, there is very little demand for the HR department to alter its existing domestic HR practices. Usually, an export manager is appointed by headquarters to take charge of the exporting business.

Strategic international HRM Human resources management issues, functions, policies, and practices that result from the strategic activities of multinational enterprises and that affect the international concerns and goals of those enterprises Domestic strategy Internationalizing by exporting goods abroad as a means of seeking new markets

THE MULTIDOMESTIC STAGE AND STRATEGY As the firm develops expertise in the international market and as the foreign market grows in importance for the success of the organization, a subsidiary is typically set up, reflecting a multidomestic strategy.9 Management at this stage realizes that there are "many good ways" to do business and that cultural sensitivity is important to be successful in the local market. A polycentric perspective is a trademark of this stage, and firms use the multidomestic strategy to develop culturally appropriate products for local markets. In line with this polycentric business strategy, the company's SIHRM system will apply an adaptive IHRM approach, adopting local HR practices in the host country's subsidiaries. French lodging giant ACCOR is taking this approach, and has adopted many local HRM practices in its U.S. subsidiaries in order to attract and retain local employees. Following an adaptive IHRM approach, a local executive is usually hired to take charge of the subsidiaries' HR management. The advantage of this method is that the local HR manager for the subsidiaries is familiar with local issues, and there is no language barrier between the HR manager, local partners, and employees. Hiring a local HR manager can also guarantee the consistency of the HR practices with the local legal system and environment. One disadvantage is if the local HR manager does not know the corporate culture well enough to reflect the overall corporate strategies and the corporate principles in the subsidiary HR system. Nevertheless, because HRM is very sensitive to local legal and economic systems, compared to other business functions, such as finance and manufacturing, HRM has mostly adhered to local practices in many multinational corporations. 10

THE MULTINATIONAL STAGE ~ND STRATEGY When more and more MN Cs enter the same market, the competition from other multinationals forces management to shift its strategy, resulting in the standardization of its products and services around the world to gain efficiency. Such a multinational strategy promotes a price-sensitive perspective with limited emphasis on cultural differences. 11 Following the company's multinational business strategy, HR systems will be standardized across its subsidiaries all over the world. Numerous MNCs, such as Ernst & Young, have adopted such an exportiYe IHRM approach to reduce transaction costs,

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Mu ltidomestic strategy A strategy that concentrates on the development of foreign markets by selling to foreign nationals Adaptive IHRM approach HRM systems for foreign subsidiaries that will be consistent with the local economic, political , and legal environment

Multinational strategy Standardizing the products and services around the world to gain efficiency Exportive IHRM approach Transferring home HRM systems to foreign subsidiaries without modifying or adapting to the local environment

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ensure the consistency of their corporate policies all over the world, and gain control over their subsidiaries. 12 The advantage of this approach is that the HR managers at headquarters have a tried-and-true HR system and can readily implement it efficiently in subsidiaries in other countries. The disadvantage is that the local environment will not have been considered in the HR system, and the fit with the local system will be missing, which might cause problems for the subsidiaries' management.

THE GLOBAL STAGE Global strategy Introducing culturally sensitive products in chosen countries with the least amount of cost Integrative IHRM approach Combining home HR practices with local practices and selecting the most qualified people for the appropriate positions no matter where these candidates come from

Companies adopting a global strategy are striving to introduce culturally sensitive products with the least amount of cost. To accomplish this, resources and materials within regional branches are reallocated globally to make quality products at the lowest cost. A geocentric perspective is taken by the company management at this stage. Fitting this global business strategy is an integrative IHRM approach combining home HR practices with local practices. The best HR policies and practices will be chosen for the foreign subsidiaries. For example, some Japanese companies have transferred some of their HR practices, such as job flexibility, intensive on-the-job training, teamwork, and cooperative relations between management and employees, to North America, but abandoned other practices, such as the use of uniforms. 13 With this approach, not only can the best context-free HR practices be transferred to subsidiaries but also sound foreign practices can be learned and transferred to headquarters. The decision making regarding HR policies and practices will be jointly in the hands of headquarters and foreign subsidiaries. Therefore, this approach usually goes along with the global strategy and is recommended for the purpose of mutual learning between headquarters and subsidiaries. The challenge of using this approach is that the HR managers at headquarters need to have a geocentric or global perspective, be culturally sensitive, and be able to strategically move HR resources around the subsidiaries and headquarters, as illustrated by Four Seasons' Golden Rule policy outlined in HR Planning Today 11.2.

While Four Seasons recognizes and responds to local differences at the same time, the Canadian hotels and resorts company thrives for global integration through globally uniform standards. Within the HR context, for example, Four Seasons' key standard has been the "Golden Rule": Human resource management at Four Seasons starts and ends with "The Golden Rule, " which stipulated that one should treat others as one would wish to be treated. "The Golden Rule is the key to the success of the firm," founder and CEO [Isadore] Sharp emphasized, "and it's

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appreciated in every village, town, and city around the world. "14 While Sharp promotes the Golden Rule as a successful global HR tool at Four Seasons, BP's manager of HR global operations for Europe considers the Golden Rule inappropriate for his human resources management philosophy. He argues that managers and employees should not treat each other the way they themselves wish to be treated, but the way the other wishes to be treated. 15 These two rather contrasting views show how companies can use different employee relations philosophies in recognizing and responding successfully to global standardization and to local differences.

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Compan ies may n ot practise on e of th e above corporate strategies exclusively at any on e time; rather, they m igh t simultaneously implemen t the four strategies for different produ cts at the same time. Of the three different IHRM approaches, it is not difficult to see that the adaptive approach has the high est external fit, th e exp ortive approach has the high est in ternal fit, and th e in tegrative approach has the maximum fit b oth internally and externally. The in tegrative approach is highly recommen ded, because, as men tion ed above, b oth internal factors an d external factors are important to successfully implement corporate international strategies.

11 KEY HR PRACTICES AND PROCESSES WITHIN AN INTERNATIONAL CONTEXT Th e global expan sion of organizations particularly in fluences th e managemen t of their human resources. While during the econom ic crisis some Can adian companies announced cuttings of their exp atriate assignments, in the 20 13 Employee Relocation Policy Survey by the Can adian Employee Relocation Council the majority of Canadian companies expected the numb er of foreign assignm ents an d relocations (including shortterm, long-term and perm anent relocations) to continue to increase. 16

INTERNATIONAL ASSIGNMENTS When considering workforce planning from an international perspective, the country of origin of the employee becom es a new category to con sider in the dem and and supply equation. When organizations begin operations in a n ew coun try, they typically staff the strategic jobs with exp atriate employees, and fill out the remaining jobs with a blen d of temporary homecountry workers an d permanent host-country workers. For example, when Life Time Athletic moved into the Canadian m arket from the Un ited States, it did so in cremen tally by opening just a few location s in Canada, and by bringing many of its long-term U.S. em ployees to teach fitness classes, run programs, and perform admin istrative duties in its facilities. Life Time gradually increased the number of locally hired employees over the course of several years, beginn ing with the jobs that are m ore easily trained, and ending with the jobs that are more strategic to the success of the company and that h ave greater responsibility to customers. By doing so, Life Time was able to ensure that the company culture had a chance to take root in the new location, while also minimizing its dependence on th e local supply of talent. If the host country is n ot able to supply adequate numbers of job applicants with the requisite skills, th e success of the in ternational expansion can be threatened. A major telecom com pany learned this lesson when it expanded into H ungary, only to learn that it was unable to hire the required number of skilled employees to fulfil its op erational needs. 17 This h uman capital plan ning failure forced the company to retreat from Hungary.

PURPOSES OF INTERNATIONAL ASSIGNMENTS International assignmen ts that involve placing h ome-country nationals in the h ost country for a period of tim e may b e p ut in to p lace for a variety of reason s. In general, there are two categories of international assignments identified in th e literature: 18 1. Strategic control. This category of assignmen t is intended to retain the culture, structure, and decision processes of the home-country firm.

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2. Transfer of kn owledge and skills. As described earlier in th e Life Time Fitness example, the firm uses this type of assignment to bring necessary skills to the host-country firm. The research on expatriate assignments demonstrates that the costs associated with long-term expatriate assignments can be significant, not only in terms of financial costs to th e organization , but also in terms of career and family costs to the employee. 19 While it is possible to view an exten ded international assignment as a career developmen t opportunity, employees considering this type of assignment must carefully weigh the ben efits to the costs to other family members, such as the spouse's career, or the children's education and social environment. The firm must also have system s in place to ensure a career path for those who embark on lengthy international assignments.

TYPES OF INTERNATIONAL ASSIGNMENTS Partly because of the costs and risks associated with long-term internation al assignments to employees and organizations, many different forms of international assignments have emerged, based on th e duration of time spent away from the home country. The following types of arrangemen ts represent a continuum that ranges from frequent visitors to the host-country location to becoming a perman ent employee in th e host location .

FREQUENT FLYERS This typ e of assignment is for the employee who takes more than th e occasional business trip. While the employee may make frequent trips to th e host country, he or she does not relocate to that coun try. 20

INTERNATIONAL COMMUTERS International commuters work in the host country, but continue to live in th e home country. 2 1 Rather than uprooting the en tire family, these commuters travel on a weekly or m ulti-day basis, an d travel home for the weekend or for longer periods of time off work. Frequent flyers and international commuters comprise a substantial p ortion of international travellers. In France, for example, just 5 percent of the population travels roughly 50 percent of the distance travelled by the en tire French population .22 While society ten ds to glamorize frequent long-distan ce travellers by admiring their extended networks and cultural savvy, this type of travel comes with its own set of consequences ranging from jet lag to fewer opportunities for physical exercise and a h ealthy diet, to an increased sen se of isolation and loneliness. 23

SHORT-TERM ASSIGNMENT This type of assignm ent describes any relocation assignment lasting less than a year. 24 Th e employee lives in th e host country, an d may or may n ot brin g h er or his fam ily for the duration of the assignment.

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EXPATRIATE ASSIGNMENT This is one of the more familiar forms of international assignment, where the employee is relocated for a period of time usually in excess of a year.25 Because of the long-term nature of the assignment, employees are usually accompanied by their spouse and children, and plan to work in the host country for three to five years. These types of long-term assignments are becoming less popular, as companies appear to be replacing assignments lasting more than one year with shorter-term assignments lasting six months or less. 26

PERMANENT TRANSFER The final type of international assignment is when the employee is permanently moved from the home country to the host country. 27 When planning for the demand and supply of employees for global operations, organizations must balance the costs with the strategic requirement for home-country employees to be present in the new location, as well as the duration over which to situate employees in the new location. Long-term assignments can become much more costly to the organization than short-term assignments or local hires. The HR function must also consider the local supply of human capital when expanding internationally, as the costs associated with relocating an adequate supply of skilled human capital may become prohibitive. In the next section, we will examine the factors that are involved in understanding issues of human capital demand and supply in a global context.

11 INTERNATIONAL HUMAN CAPITAL DEMAND AND SUPPLY Workforce planning in an international context is not all that different from planning in a local context. Planners must forecast the demand for human capital as well as the supply of human capital, calculate the gap, and put HR practices in place to ensure that the firm has an adequate supply of human capital to operate. The international context adds complexities in the areas of understanding the environment, issues of demand and supply that are different from the local setting, and the integration of expatriate assignments to the supply question. For example, when looking at the environment, we know from studying strategic analysis that we look at the political, economic, social, legal, and regulatory issues that may be relevant to the business. These environmental aspects must be taken into account in the international context because they could have significant impact on the way jobs must be structured or how employee time may be used. This influences not just the supply of human capital in the host country, but also potentially the demand for human capital, as it may not be possible to structure a job in the host country as it would be structured in the home country. HR Planning Today 11.3 shows how one company deals with the challenges associated with demand and supply in an international context. Forecasting the demand for labour in an international setting presents unique challenges. The first major challenge is to develop an understanding of the labour market. Labour market data may be difficult or impossible to obtain, or the labour market

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HR PLANNING TODAY

11.3

INTERNATIONAL PLANNING AT FLEET COMPLETE Fleet Complete is a Canadian-based global company that is in the business of connecting vehicles or other business assets within a centralized information hub. Fleet Complete makes the hardware and software that allows companies to centrally monitor and connect all their delivery or service vehicles so that the firm can collect data on the location and trajectory of its vehicles, driving behaviours, and ultimately even the repair and maintenance status of the vehicles. It is a fast-growing company in an industry that is expanding globally and changing rapidly due to changes in technology. Fleet Complete has roughly 500 employees worldwide, with 250 employees in Canada. The business operates in Canada, the United States, and Mexico, as well as in Australia, Germany, Austria, and the Scandinavian and Baltic countries. Fleet Complete follows two methods of expanding internationally: through the acquisition of companies operating in its industry, and through greenfield expansion, where Fleet Complete builds its own local operations from the ground up. Larry Indovina, EVP HR at Fleet Complete, acknowledges that human capital is its most important resource, and so the human capital component is the single most important operational requirement when expanding into a new country. The company places human capital at the forefront of its global expansion planning in different ways depending on the method of expansion. When expanding through acquisitions, Fleet Complete sends its senior HR representative to the host country to interview employees in the firm that it is considering acquiring. These interviews span the hierarchy of the firm, from the CEO to senior management, to line managers, and line workers. The purpose of these interviews is not only to assess whether the firm has the requisite human capital to perform the necessary post-acquisition tasks, but also to discover what the firm is doing well, and what it can improve. Interviews provide Fleet Complete with a local perspective on issues relating to the competitive market to local employment standards and regulations, and the extent to which the existing human capital matches its needs.

Greenfield expansion for Fleet Complete involves setting up business from an organic perspective, in an area where business partners are already operating or where a business opportunity presents itself in an existing market. The company takes advantage of its social networks to establish its human capital demand and supply. For example, when moving into Germany, Fleet Complete partnered with Deutsche Telekom, and then partnered with a recruiter who used to work at Deutsche Telekom to assist in the local hiring of the initial sales force. The recruiter worked in the industry and was well aware of the needs of both Fleet Complete and its telecom partner, and so was in a good position to understand their supply needs. As the sales force created a demand for Fleet Complete's business, the HR demand grew organically, and the supply channels were in place to provide the needed levels of human capital. To date, the lessons for Fleet Complete in determining its human capital demand and supply when growing internationally include the following:

1. Make use of social networks. 2. Build trust within your networks and with employees. 3. Listen to local partners and potential acquisitions. They probably know more than you do about the local market, its political and regulatory environment, and the culture. 4. Pay attention to culture. Even when partners agree, there may be differences in what buy-in to a project looks like in terms of processes and outcomes. Understanding the source of potential differences can build higher levels of consensus around objectives, leading to much more efficient use of human capital.

5. Keep communicating. Developing a presence in a new market involves a high degree of risk and uncertainty. As situations change, differences in assumptions and expectations emerge. It is extremely important to keep all parties informed.

Source: Based on an Interview with Larry Indovina, EVP HR, Fleet Complete (January, 2018).

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data that is available might have sources of error that make it difficult to interpret. For example, job titles might not be consistent within the data, or might encompass a larger variety of job types than the category implies, which can lead to significant underestimates or over estimates of available workers. Employment statistics produced by local governments might be based on assumptions that are not clear or obvious. These unfamiliar sources of information can lead to conclusions about the availability of workers with the necessary skills that could be wildly inaccurate. When expanding into an existing market, a firm often joins an existing supply chain that brings value to its customers. For example, a cell phone maker that wishes to move into a country in which it currently does not have any business will need to create its own retail and marketing network, or join an existing retail network. It will also need to partner with an existing telecom provider to be able to connect its products to a cellular network. In this case, the cellular network provider is a supplier in the value chain, and if the firm decides to partner with an existing retailer, the retailer will be a buyer in the value chain. For a company moving into a new country, it will have to ensure that its value chain partners have the human capital necessary to do what the firm requires in order to fulfil its value proposition to its customers. In order to ensure that partner firms have the necessary human capital, and to avoid any shocks relating to inaccurate or incorrectly interpreted local labour market data, it is extremely important for companies to make use of trusted partners in the area, such as companies that they have already dealt with, and to visit the locale to develop an understanding of the environment and local labour market. The Conference Board of Canada has identified four major areas of focus for workforce planning in an international context: understanding and interpreting local labour market data, issues relating to external human capital demand and supply, the environment, and flexible labour practices. 28

1. LABOUR MARKET DATA With the proliferation of data and its increased availability, it is tempting for planners to make inferences about foreign labour markets by seeking out data sources to confirm whether or not the local labour market can support the firm's operational needs. Organizations such as Gapminder and the International Labour Organization that collect data and make it available to consumers for little or no cost can be incredibly valuable resources. Many governments also collect and report labour market information. The Canadian Government collects data about the Canadian workforce in general and produces reports that relate to labour supply and demand broken down by industry, job skill levels, age categories, identified groups, and many other attributes of the workforce that may be relevant to employers. For more detailed analyses, the Federal Government produces the National Occupation Classification, which is a listing of jobs, analyzed using Functional Job Analysis, that contains the major duties and tasks of most of the benchmark jobs that comprise the Canadian economy. Governments produce these types of analyses to help foreign and domestic businesses, as well as the countries' citizens to understand where issues of demand and supply are leading to gaps or surpluses, and to make policies to ensure a strong labour market. A reliance on foreign government labour statistics can be problematic for business planning, as the assumptions around how data is collected, what jobs are included in job categories, what skills levels represent in terms of applicable skills, or other grouping assumptions that could lead to costly mistakes in forecast estimates of human capital

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demand or supply. Governments may also be interested in encouraging foreign investment, and may therefore be biased toward presenting their country's labour market to the rest of the world in the most favourable manner possible. As a result, the safest strategy for making determinations about foreign labour markets is to use several sources of information, examine the assumptions used to compile the data, make use of trusted networks that have experience in the foreign market, and send a company representative to get first-hand experience with the industry and the labour pool.

2. EXTERNAL HUMAN CAPITAL DEMAND AND SUPPLY Assumptions made about the labour market can mean the difference between business success and failure. If a company assumes that it can access adequate numbers of employees with certain technical skills, but finds that those skills are not actually available in the location that the company decides to place its offices, it might have to incur unexpected costs to help draw applicants from further afield. It might even be the case that the necessary technical skills are simply not available in the new location. Some of the manufacturing firms in Mississauga, Ontario, found that it was becoming increasingly difficult to find job applicants, and that many of the applicants who wished to work at the firms were coming from the nearby city of Brampton. However, public transit between Brampton and Mississauga was not at all convenient, and these companies began running shuttle buses to facilitate transit. These sorts of issues can present unexpected and significant problems in an international context. Some of these issues can be addressed through an expatriate strategy, where the firm brings in the necessary human capital, and those employees train newly hired local employees and model the firm's desired culture. The mix of home and host-country employees will be determined by the balance between the strategic needs of the firm, the availability of host-country human capital, and the costs associated with providing home-country employees when host-country human capital is not available.

3. THE ENVIRONMENT Deciding where to locate a business in a foreign country is determined by the availability of the necessary resources and the proximity to customers. Because labour is often 40 percent to 80 percent of a firm's operating costs, it is one of the largest resources to consider in this decision. The tools used to perform strategic analysis come in useful for this type of decision as well. The PESTDL analysis is a variation of SWOT (see Chapter 1), in which planners consider the strengths, weakness, opportunities, and threats that are presented to the organization through the local political, economic, social, technological, demographic, and legal/regulatory environment, and how these environmental issues can affect how the management of human capital may be different between the home country and the host country.

4. FLEXIBLE LABOUR STRATEGIES Flexible labour strategies include the types of working relationships that the firm can have with its employees, such as telecommuting, flexible work hours, job sharing, parttime, contract, and other arrangements. These types of strategies can provide increased

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work opportunities to job applicants who may not be able to take on full-time, centrally located employment. These arrangements also provide the firm with increased operating leverage by allowing the firm to shed some of its labour force when revenues are lower, and increase the size of its labour force when revenues are higher. Local labour regulations and customs can have an impact on the types of flexible arrangements that firms can make use of, and so the full range of possible local options should be explored and understood before incorporating them into HR practices.

11 INTERNATIONAL RECRUITMENT AND SELECTION RECRUll=MENT In the domestic context, one of the key strategic decisions in recruitment is internal recruitment versus external recruitment. This two-option decision has a three-option parallel in the international domain and includes recruitment opportunities such as home-country nationals (HCNs), parent-country nationals (PCNs), and third-country nationals (l'CNs) . HCNs are individuals from the subsidiary country who know the foreign cultural environment well. PCNs are individuals from headquarters who are highly familiar with the firm's products and services, as well as with its corporate culture. TCNs are individuals from a third country who have intensive international experience and know the corporate culture from previous working experience with the corporate branches in the third country.

Home-country nationals (HCNs) Individuals from the subsidiary country who know the foreign cultural environment well Parent-country nationals (PCNs) Individuals from headquarters who are highly fam iliar with the firm s products and services, as well as with its corporate culture Third-country nationals (TCNs) Individuals from a third country who have intensive international experience and know the corporate culture from previous working experience with corporate branches in a third country 1

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While each recruitment option has its strategic advantages and disadvantages (see HR Planning Notebook 11.1), it is crucial that any staffing decisions be based on the MN C's short- and long-term strategies and follow best recruitment practices. The latter include the development of a job analysis to identify job specifications and provide the basis for job descriptions. Each specific assignment might have different job descriptions and require different knowledge, skills, and abilities (KSAOs). However, general KSAOs are also required to carry out these assignments in a foreign context. Caligiuri and Di Santo's 2 9 empirical

HR PLANNING NOTEBOOK

11.1

STRATEGIC ADVANTAGES AND DISADVANTAGES OF KEY RECRUITMENT OPTIONS

PCNs

ADVANTAGES

DISADVANTAGES

SIHRM

• Well versed in company's needs and norms

• Potential unfamiliarity with the cultural norms of the host country (including norms of supervision)

Strong exportive SHRM approach

• Possible blocking of HCNs' career progression within the firm • Considerable costs of relocating abroad HCNs • Familiarity with the host-country culture

• Limited familiarity with firm's own operations

Strong adaptive SHRM approach

• PCNs at headquarters may lack sufficient understanding of the subsidiary's needs, and corporate strategy for the subsidiary may suffer as a result TCNs

• Greater familiarity with the hostcountry culture than PCNs (if, that is, the TCNs come from a proximal nation) but loyalty will be to the firm (rather than to the host country per se) • Relocation costs lower than for PCNs • Enhanced career development opportunities by allowing employees from the various subsidiaries to move to other subsidiaries • Improved understanding of the subsidiaries' needs by the corporation and vice versa through greater interaction between TCNs positioned in regional or corporate headquarters and PCNs

300

• Some cross-cultural preparation may still be required • Potentially suffering from a lack of knowledge of the corporate culture

Mixture of exportive and adoptive SIHRM approach

• Use of TCNs is often part of a strategy that entails the use of employees from many nationalities (including HCNs and PCNs), increasing the overhead for expatriate relocation across the entire firm considerably • Using TCNs to the exclusion of HCNs may create the same problem of blocked career advancement that occurs when PCNs are used in this manner

Strategic Human Resources Planning

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study identified a list of abilities, knowledge, and personality characteristics essential for global managers with different positions in diverse cultures. Once the international assignment needs have been identified and the appropriate recruitment pool has been chosen, the right candidates must be selected.

SELECTION Selecting the right candidates for global assignments is crucial for the long-term success of both the MNC and the individual managers. While companies may wish to invest in better selection and preparation of their expatriates, surveys show a different picture (see HR Planning Today 11.4). Many factors relating to successful cross-cultural adjustment have been identified in the literature, including cultural knowledge, stress-management skills, conflict resolution skills, communication skills, and cognitive flexibility. 30 Several authors have simplified the above lengthy list into the following three dimensions of cross-cultural competencies: 31 • Self-maintenance competencies, which refer to the capability to substitute sources of reinforcement when necessary and deal with alienation and isolation • Relationship competencies, which refer to the capability to develop and maintain relationships with home-country nationals (HCNs)

HR PLANNING TODAY

11.4

INTERNATIONAL SELECTION AND PREPARATION Many companies responding to the 2012 Global Relocation Trends Survey planned to invest in better selecting and preparing their managers for their foreign assignments and beyond. However, only 20 percent of respondents use formal selection tools. Among the international assignees, those most likely to be sent on assignment were male (80 percent), aged 40-49 (34 percent), and married (60 percent). Less than half (43 percent) had children accompanying them, an all-time low. According to the report, about 80 percent of companies provided cross-cultural preparation and only 28 percent had a career management program for their assignees. The key challenges facing companies were managing costs and finding the right employee. According to the 2013 Employee Mobility Survey (conducted in 24 countries

with 13 000 respondents) only 2 in 10 people, in general, would move to a new country for employment purposes. But 24 percent of employees working for companies would move. Employees would be more likely to accept an international assignment if the employer would offer • A guaranteed job at the end of the assignment • Airline tickets for fam ily vacations • A paid trip to visit the country before the assignment • Immigration assistance for their partner And the top reasons for failed assignments (about 7 percent of assignees return early, not completing the assignment) continue to be family issues and the employability of the spouse.

Source: Brookfield GRS, "The 2012 Global Relocation Trends Survey," http://espritgloballearning.com/wp-content/uploads/2011 /03/2012Brookfield-Global-Relocations-Trends-Survey.pdf. Retrieved November 17, 2014. https://c.ymcdn.com/sites/www.cerc.ca/resource/resmgr/ research/employee_mobility_survey_rep.pdf, retrieved November 23, 2014.

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• Perceptual competencies, which refer to the capacity to understand why foreigners behave the way they do, to make correct attributions about the reasons or causes of H CNs' behaviour, and to correct those attributions when they prove incorrect Selecting candidates on the basis of their true potential, using the above criteria, means choosing global managers for their personality, trainability, interpersonal skills, and attitudes, regardless of whether they are PCNs, HCNs, or TCNs. A capable global manager should be able to work in different countries to successfully implement his or her headquarters' strategies. This is usually the integrative approach, which seeks, for the most part, to place the best-qualified person in the position, regardless of the nationality of that person. In order to select the best person, managers should start by identifying the best potential global managers, then put them through training and help them develop their global careers.

11 PRE-ASSIGNMENT TRAINING The well-being of these expatriates and their families in the local country depends largely on how well they were prepared for the global assignment. Cross-cultural training for global managers and their accompanying relatives plays a crucial role in this pre-assignment process. Studies have consistently found that cross-cultural training positively influences expatriate self-development, interpersonal skills, and cross-cultural perception. Training was also found to have a major impact on the adjustment and effectiveness of expatriate managers. 32 Researchers have been calling for firms to conduct more formalized CCT for years. 33 However, in reality, many firms still fail to heed this call.34 Aside from the economic pressures and challenges, reasons for the limited investment in CCT could be a lack of coordination with HR planning activities. Many firms select their expatriates too quickly, which precludes a lengthy training process. According to the Canadian Employee Relocation Council (CERC)'s 2011 employee relocation policy survey, only one-third of the survey's responding companies give more than two months' notice of an impending assignment.3 5 Because of the improper usage of expatriate training, many companies have not benefited from the training. 36 Strategic HR planning is needed for training in order to meet the goals of career development for global managers m E and to focus on the develop~ ment of global competencies as ~ c:: defined previously. Ptak et al. t::: a: interviewed professionals who m E were experienced in expatriate ..c:: @ .__~~~~~~~~~~training and asked them to sugCross-cultural and language training increases assignment gest some useful guidelines for success. overseas training. 37 (/)

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The researchers found that effective training should emphasize five points: 1. Assess and evaluate the needs of training for expatriates. 2. Clarify the purpose and goals of training that are relevant and applicable to participants' daily activities. 3. Plan and design th e training programs to meet training goals. 4. Implement the training plan. 5. Use several techniques to increase the effectiveness of training programs. HR Planning Notebook 11.2 outlines four steps for guiding the effective training.

Training planning: Assess and evaluate the needs of training for every selected potential global manager. Clarify the purpose and goals of training that are relevant and applicable to global managers' daily activities. Plan and design the training programs to meet training goals. Training contents: Training can cover many areas depending on the needs of individual managers, ranging from technical training and managerial training to interpersonal skills training and cultural training. Typically, cultural training involves the following aspects: (1) area studies programs that include environmental briefings and cultural orientations; (2) culture assimilators-essentially multiple-choice questions about cultural characteristics; (3) language training; (4) sensitivity training (which could include role-playing exercises and behavioural modelling videos designed to raise awareness of cultural differences in behaviour); and (5) field experiences, such as visits to the restaurants of the target nationality or actual visits to the host country itself. These cultural training activities are not only useful for the global managers but also helpful for their spouses and children. Training approaches: Several training approaches have been used in reality, ranging from (1) an informationgiving approach (such as lecture-based area briefings), to (2) behavioural modelling videos or case studies that offer vicarious learning, to (3) the most experiential forms (e.g., training based on role-playing and immersion in the form of fie ld experiences). These three methods should be

encompassed in the training plan according to the training needs. An information-giving approach will increase the knowledge competency of the global managers; the other two approaches will increase the trainees' other skills, such as interpersonal and analytical skills. All methods will be effective if they are planned properly to meet the training needs of the global managers, but the experiential methods are usually considered more "rigorous" (i.e., as having a greater degree of trainee involvement). Treating the international assignment as on-thejob training: Global experience has been found to be the best way to help employees gain global competence. For example, Warner-Lambert has its Global LeadershipAssociates Program (GLAP), which is designed to rotate potential global managers through various foreign Warner-Lambert businesses. By gaining experience in different cultures and functions, these managers will acquire the skills, ability, and knowledge to lead anywhere in the world. This requires, however, mentoring at the host-country site by, for example, other expatriates at the host-country site or by HCNs. Moreover, to fully regard the international assignment as part of a long-term career development process, a plan must be in place for the expatriate's return to the home country (presuming, that is, that the PCN is to remain a PCN or to become a TCN). This, unfortunately, is where a lot of organizations fall short, and it has led to what has become known as the "repatriation issue."

Sources: R.L. Tung, "Selecting and Training of Personnel for Overseas Assignments," Columbia Journal of World Business, Vol. 16 (1981): 68-78; S. Black and M.E. Mendenhall, "Cross-Cultural Training Effectiveness: A Review and a Theoretical Framework for Future Research," Academy of Management Review, Vol. 15, No. 1 (1990): 113-136; R.L. Tung, "Selection and Training Procedures of U.S., European, and Japanese Multinationals," California Management Review, Vol. 25, No. 1 (1982): 57-71; P. Caligiuri and V. Di Santo, "Global Competence: What Is It, and Can It Be Developed Through Global Assignments?" Human Resource Planning, Vol. 24, No. 3 (2001): 27-35; and J.P. Katz and D.M. Seifer, "It's a Different World Out There: Planning for Expatriate Success Through Selection, Pre-Departure Training, and On-Site Socialization," Human Resources Planning, Vol. 19, No. 2 (1996): 32-4 7.

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11 POST-ASSIGNMENT ACTIVITIES REPATRIATION Repatriation The process of PCNs, TCNs, or even HCNs returning to their home headquarters or home subsidiaries

Repatriation usually means that the PCNs, TCNs, or even HCNs (working in headquarters as part of a career development plan) finish their overseas assignment and come back to their home headquarters or home subsidiaries. It is somehow expected that one will encounter culture shock when moving to another country; however, that one might experience culture shock upon return from abroad is usually not considered. Yet research 38 indicates that the cross-cultural adjustment process is not just a U-curve process (i.e., the high of the post-arrival honeymoon, the low of the cultural shock experience, and the eventual regained high of adjustment and mastery), but rather a W-curve process, with the last "V" of the "W" happening in the form of reverse culture shock on return to the home country. 3 9 It has been argued that reverse culture shock upon repatriation leads to several serious consequences for the employee and the organization; for example:

• Prior to the return home, the employee may become anxious at the thought of having no appropriate position to return to; this anxiety can affect productivity abroad and work adjustment shortly after repatriation. 40 • The employee may become dissatisfied with his or her standard of living upon return, having become accustomed to the special status that accompanied the expatriate position. 41 • Co-workers may not be interested in hearing about the repatriate's experiences; lots of things have gone on in their own lives over the last few years, and they've had their own preoccupations and focus. 42 • The repatriate's job may not make as much use of internationally acquired KSAOs as it could. 43 In this case, "out of sight, out of mind" is the operative phrase. 44 Despite the negative consequences of not having well-developed repatriation processes for their international assignees, companies continue to pay little attention to the return of their expatriate employees. (See HR Planning Today 11.5.)

According to surveys, about 25 percent of repatriates left the company within the first year. Explanations for repatriate turnover included: • "Most expatriates leave to pursue other expatriate assignments that they view as beneficial to their careers." • "Expatriates anticipate a lack of attractive positions to return to in the home country and seek out

better opportunities outside their company". Indeed three months after returning to their home country, one-third of repatriates were still in temporary positions, and of those who had a job, 75 percent felt it was a demotion. These findings have been confirmed by a study by CIGNA International Expatriate Benefits, the National Foreign Trade Council (NFTC), and WorldatWork, suggesting (Continued)

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that a major problem of repatriation was the employees' status upon return and the lack of commitment to have a job for the employees upon their return. Considering the fi nancial and nonfinancial resources (e.g., training and development) companies invest in their international assignees, it comes as a big surprise that com panies do not keep track of expatriate attrition rates and, indirectly, their return of investment. Losing international assignees because of a lack of employment or career opportunities in home-country operations is not only a great monetary loss but also, most significantly, a nonmonetary loss (knowledge and skills transfer, management development, relationship and network building, and so on), and might also have a negative impact on other can didates for overseas assignments.

It is important for HR professionals to have arranged with the expatriate prior to his departure clear career objectives, and to communicate with the expatriate on a regular basis while he or she is on assignment to discuss any potential career path changes, and to better prepare him or her and the fam ily for a potential reverse culture shock upon their return home. As mentioned earlier, it seems that for many companies the support and preparation for an international assignee stops with his or her departure to the host country. Yet, as we can see from the study results above, company and HR responsibili ti es for an expatriate need to be more comprehensive, including all stages of an international assignment-in particular, the repatriation of the em ployee and his or her family.

Sources: http://www.iorworld.com/leveraging-your-talent-investment-through-repatriation-pages-271.php, retrieved March 13, 2018; GMAC-Global Relocation Services, U.S. National Foreign Trade Council and SHRM Global Forum, Global Relocation Trends 2002 Survey Report (2002); 2004 Survey Report, and 2006 Survey Report. These reports are available from the GMAC Global Relocation Services website, www.gmacglobalrelocation.com/ survey.html, and J. Handel, "Out of Sight, Out of Mind," Workspan (June 2001): 54-58.

Clearly, a career development plan for global managers will minimize these negative consequences; the MNC can also make the most of the repatriate's internationally developed KSAOs by treating them as candidates for global managers. The career planning for repatriates will also let the soon-to-be-repatriated individual have a clearer idea of what's in store, which will go a long way toward minimizing these negative consequences.

CAREER DEVELOPMENT Two issues are of great importance for the long-term career development of global managers. The first is to regard the international assignment as merely one step in an overall career development plan. The second is to ensure th at the next step (i.e., the candidate's subsequent assignment) makes good use of th e KSAOs developed internationally, as these will serve as a source of competitive advantage to the firm. There are a number of ways to incorporate KSAOs acquired internationally into the repatriates' subsequent career development. Th e repatriate could serve as a mentor or formal trainer to future expatriates or provide input into the CCT process by recounting critical incidents experienced abroad. Alternatively (or as well), the repatriate can apply h is or her understanding of the subordinate's n eeds by eventually serving as a long-distance supervisor to other expatriates. HR Planning Today 11.6 provides anecdotal evidence of how consideration of the repatriation issue proved to be effective for Colgate-Palmolive. Anoth er option is for the expatriate n ot to be repatriated but instead to join the pool of global managers and remain an international employee for the duration of his or h er career, rotating from subsidiary to subsidiary, as outlined in HR Planning Today 11.7.

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Colgate-Palmolive Co. recognized the wealth of information it already had on expatriate skills-in a system not originally designed for that purpose. Coleen Smith, New York-based vice-president for global people development, says that the company began putting together a global succession-planning database almost 10 years ago. "It has taken a variety of forms over the years," she says. While Colgate-Palmolive's database is primarily for succession planning, it also contains data on each manager's experience with or awareness of particular cultures. The information is made available throughout the company's worldwide network. "Senior leaders," Smith says, "have come to expect a certain level of information, which we really manage through our global succession-planning database." The example of Colgate-Palmolive shows how a comprehensive global HR information system (HRIS) can

support multinational enterprises and their expatriates in making international assignments more successful. Including a manager's experience with or awareness of particular cultures in the HRIS can help companies to make more informative decisions in the selection of the right candidate for the overseas appointment. A global HRIS could also help companies to develop and communicate effectively clear and long-term career objectives and paths for its global managers, and better plan and prepare an expatriate's repatriation in terms of creating and providing appropriate employment opportunities that are in line with the returning manager's career objectives. While initially costly in their development, the long-term benefits of such HRIS should not be underestimated- in particular when considering the many failed expatriate assignments and heavy financial and nonfinancial losses associated with such failures.

Source: Originally published in R. O'Connor, "Plug the Expat Knowledge Drain," HR Magazine (October 2002), 101-107. Society for Human Resource Management, Alexandria, VA. Used with permission. All rights reserved.

HR PLANNING TODAY

11.7

INTERNATIONAL RELOCATION ACTIVITIES AND POLICIES OF COMPANIES OPERATING IN CANADA The Canadian Employee Relocation Council (CERC) conducts surveys of employee relocation policies and practices of organizations with operations in Canada. The 2013 survey confirmed that Canadian businesses remain very active in the global marketplace, with almost 50 percent relocating employees internationally. Of these companies, 27 percent expect short-term international relocations to increase over the next 12 months, and 31 percent of respondent companies anticipate that

long-term international transfers will increase over the same period. The key organizational challenges for successfully relocating international assignees include fam ily concerns, tax implications, and housing. The average cost of a permanent relocation for a homeowner is reported at $125,000. Most employers offer cost of living allowances, as well as other benefits such as language training and tuition for the children.

Source: Canadian Employee Relocation Council, 2013 Employee Relocation Policy Survey, July 2013, http://c.ymcdn.com/sites/www.cerc.ca/ resource/resmgr/Research/2013_Policy_Survey_Executive.pdf, retrieved November 22, 2014.

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11 LABOUR RELATIONS Knowledge of the types of unions that exist in a country (i.e., the union structure) and the rate of unionization in that country can be critical to international HR managers. This is because union activities can influence the HR practices that may be implemented and how implementation may proceed. At least four types of unions can be identified: 45 industrial, craft, conglomerate, and general. Industrial unions represent all grades of employees in an industry; craft unions are based on skilled occupations across industries; conglomerate unions represent members in more than one industry; and general unions are open to all employees in the country. This diversity of types of unions can be found to varying extents in different countries. 46 For example, Canada's union structure is industrial, craft, and conglomerate. In the United States, all four types of union structures exist, and it has white-collar unions as well. Germany's union structure is primarily industrial and whitecollar, and Norway's is both industrial and craft. Japan's union structure consists of company unions, which operate within the enterprise and have the employees of this enterprise as its members. In addition to the diversity in types of unions, nations vary in their rates of unionization. In 2013, the U.S. unionization rate was at 10.8 percent; Japan's rate was 17.8 percent, Germany's was 17.7 percent, and Canada's was 27 percent. Some of the highest rates of unionization exist in Scandinavian countries such as Sweden (68 percent) and Denmark (67 percent). 47 There is a global trend of union density decrease, and the reasons are manifold and often region-bound. For North America as a whole, the declining union density throughout the past decades has been caused by

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The rate of unionization varies greatly between countries.

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"institutional weakness (absence of sectoral employers' associations and comprehensive wage bargaining structures), [and] decentralization and fragmentation of union organizations and industrial relations." 48 The reasons for Canada's higher union density in comparison to the United States have been "the larger size of the public sector in Canada ... and the more positive public sentiment towards unionisation." 49 Awareness of practical differences in labour relations, while laudable, is by itself insufficient. International HR managers need to translate this awareness into practice. Labour relations activities can constrain MNCs' abilities to influence wage levels (perhaps even to the extent that labour costs become non-competitive). 50 Such activities may also limit the ability of MN Cs to vary employment levels at will, and may hinder or prevent global integration of the operations of the MNC. 51 Accordingly, international HR managers have to devise strategies to improve the fit between their labour relations activities and the external environment. Strategic compensation might be limited in countries with strong governmental or union wage interference. Firms operating in such countries may need to find other ways of maintaining low costs. Staffing may be affected in countries that limit the firm's ability to implement redundancy programs. 52 In such countries, worker retraining may be important because of the economic necessity to cross-train and retain workers to adapt to environmental and technological changes affecting the firm rather than lay off workers. 53 In short, the presence of unions need not be disastrous for the international firm; rather, the wise international HR manager will simply learn the constraints posed by the local union conditions and devise an effective strategy to plan accordingly.

II SUMMARY This chapter has addressed many of the strategic issues and decisions that have to be taken into consideration in the context of managing employees internationally. Organizations seeking to expand their businesses globally would do well to do the following: first, recognize the strategic decision issues inherent in managing the HR function in an international context; second, strive to make these decisions in ways that take into account their firm's strategic objectives and recognize the added complexity that the international context brings; and third, arrange the continuous career development of global managers starting from the point of expatriate selection, followed by ongoing training and career arrangement after repatriation. Overall, SIHRM practices and issues should be implemented in line with the firm's strategy.

KEY TERMS adaptive IHRM approach p. 2 91 domestic strategy p. 291 exportive IHRM approach p. 291 global strategy p. 292 home-country nationals (HCNs) p. 299 integrative IHRM approach p. 292 multidomestic strategy p. 291 multinational strategy p. 291 parent-country nationals (PCNs) p. 299

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repatriation p. 304 strategic international HR planning p. 290 strategic international HRM p. 291 third-country nationals (TCNs) p. 299

DISCUSSION QUESTIONS 1. Discuss with your family and/or friends all the reasons that might motivate you to accept an international assignment, and the reasons that would cause you to reject one. Compare your lists to those published in surveys (cited in this chapter). What incentives could an employer offer to encourage you to accept the assignment? 2. This chapter describes three stages that companies go through as they seek to expand internationally. Describe these stages, their corresponding strategies, and the HR implications of each strategy. 3. In this chapter we have discussed different forms of industrial relations. However, some countries where Canadian manufacturers outsource much work, such as Bangladesh, have no unions. Discuss the advantages and disadvantages of outsourcing manufacturing to a heavily unionized environment such as Denmark, compared to Bangladesh. 4. This chapter introduces four major areas of focus for international workforce planning. Discuss how planners might deal with each of these issues prior to finalizing a decision to operate in a foreign market.

EXERCISES 1. The global business environment has been hit by a number of regional events, such as terrorism and Ebola, that have had profound implications for the global and local strategies of MN Cs. Select a recent world event, identify the specific HR implications that might arise from it, and devise policies as to how these may be handled. 2. Despite its widely illustrated importance for preparing expatriates and their families for international assignments, little is done for immigrant families arriving in Canada through their own efforts. In your group, identify two or three students who have immigrated as teenagers or young adults. Interview them and then, as a group, discuss which cross-cultural aspects you would include in a CCT training program, how these aspects can be operationalized, and what kind of training methods you'd use. 3. Ask an employer for an interview with one of the company's expatriates who has recently returned home or arrange for a phone interview with an expatriate currently on an international assignment. Discuss his or her experiences, and how he or she was prepared and supported by the company during the different stages of an international assignment. How do the interviewee's views differ from the studies and findings discussed in this chapter? Why?

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CASE STUDY

DANGEROUS ASSIGNMENTS

O n June 24, 1998, Edward Leonard, of Creston, BC, a diamond driller working for Terramundo Drilling, was kidnapped by m embers of the Revolution ary Armed Forces of Colombia (FARC) in n ortheastern Colombia. Leonard's captors wanted to n egotiate a deal for gold m ining shares with Greystar Resources., a gold mining company from Vancouver and the owner of claims in Colombia's Santan der province for which Terramundo and Leonard were contracted to drill core samples. Leonard's boss, Terramundo's Norbert Reinhart, wanted to purchase his employee's freedom by paying $100 000 to the FARC guerrillas. O n October 6, 1998, in a meeting with the guerrillas, Reinhart and the ransom mon ey were exchanged with Leonard. While Rein hart was hoping to walk away with Leonard after the m oney exchange, the FARC realized that Reinhart was th e president of Terramundo and thought that in him they had an even better hostage. After 94 days of captivity, and complex n egotiations between the FARC, local contacts, and Canadian governmental and company officials, Reinhart was released on January 8, 1999. The case shows the dangers of frontier m ining (which has had a strong tradition in Can ada) an d illustrates some of the p otential ch allenges for employees on international assignments. At the same time, the case has started a strong debate about the responsibilities of compan ies operating in in dustries an d geographic regions dangerous to their employees, and the n ecessity for precautious actions and support structures protecting international assignees. (In the same year in which Reinhart was taken h ostage, m ore than 2100 people were kidnapped in Colombia, including at least 43 foreigners.) Source: T. Fennell and S. Tim mins, "Homecoming fo r a H ero," Maclean's CTanuary 25, Vol. 112, Issue 4, p.26-29' 1999).

QUESTIONS 1. Was it th e right decision in the first place for Terram undo to op erate in a region well known for being controlled by FARC guerrillas, an d in which kidn apping was a very common way to fund FARC activities? 2. Did Reinhart do the right thing to get involved in the way described and help his employee? What were Reinhart's alternatives an d options? 3. What can comp anies operating in industries such as th e mining or oil business do to protect th eir international assignees? What sh ould be the role of the HRM function? 4. When sen ding your employees into remote and dangerous geographic regions, should all employees (i.e., both h ome- and host-country employees) get the same employment support and workplace safety and security support? Does reality refl ect your response?

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II REFERENCES 1. United Nations Conference on Trade and Development. 2010. World Investment Report 2014, http://unctad.org/ en/PublicationsLibrary/ wir2014_overview_en.pdf_en.pdf. Retrieved November 20, 2014. 2. Beckett, D. 2011, February 21. "Why Kidnap and Ransom Insurance?" http://thecanadianexpat.com/index.php/2011/02/21/why-kidnap-ransominsurance. Retrieved June 20, 2011. 3. For a list of Canadian governmental representatives in different countries, go to http://www.voyage.gc.ca/ contact/ offices-list_liste-bureaux-eng.asp. 4. Cuthill, S. 2000. "Managing HR Across International Borders." Compensation and Benefits Management, Vol. 16, No. 3: 43-45. 5. Kirby, J. 2001. "Reinvention with Respect." Harvard Business Review, November: 117. 6. Ferner, A. 1997. "Country of Origin Effects and HRM in Multinational Companies." Human Resource Management journal, Vol. 7, No. 1: 19-37; Rosenzweig, P.M., and N. Nohria. 1994. "Influences on Human Resource Management Practices in Multinational Corporations." journal ofInternational Business Studies, Vol. 25: 229-251. http://www.ups.com/content/ca/en/ about/facts/worldwide.html. Retrieved November 19, 2014. 7. Ferner, A. 1997. "Country of Origin Effects and HRM in Multinational Companies." Human Resource Management journal, Vol. 7, No. 1: 19-37; Rosenzweig and Nohria. 1994. 8. Taylor, S., S. Beechler, and N. Napier. 1996. "Toward an Integrative Model of Strategic International Human Resource Management." Academy of Managementjournals, Vol. 21, No. 4: 959-985. 9. Dowling, P., M. Festing, and A. Engle. 2008. International Human Resources Management: Managing People in a Multinational Context. London, UK: Thomson Learning. 10. Rosenzweig and Nohria. 1994. 11. Harvey, M., C. Speier, and M.M. Novicevic. 2001. "Strategic Human Resource Staffing of Foreign Subsidiaries." Research and Practice in Human Resource Management, Vol. 9, No. 2: 27-56. 12. Bonache, J. 2000. "The International Transfer of an Idea Suggestion System." International Studies ofManagement and Organization, Vol. 29, No. 4: 24-44. 13. Beechler, S., and J. Yang. 1994. "The Transfer ofJapanese-Style Management to American Subsidiaries: Contingencies, Constraints, and Competencies." journal ofInternational Business Studies, Vol. 25: 467-491; Bonache. 2000. 14. Hallowell, R., D. Bowen, and C.I. Knoop. 2003. "Four Seasons Goes to Paris: 53 Properties, 24 Countries, 1 Philosophy." Harvard Business School, January 8. 15. Presentation by Michael Schmidt, Manager of HR Global Operations Europe, keynote speaker at the Bertelsmann Stiftung Conference. 2008. Synergie durch Vielfalt, Berlin, Germany.

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16. Canadian Employee Relocation Council. http://c.ymcdn.com/sites/www .cerc.ca/resource/resmgr/Research/2013_Policy_Survey_Executive.pdf. Retrieved November 18, 2014. 17. Young, M. 2012. Strategi,c Workforce Planning Across National Borders. The Conference Board of Canada. 18. Bartlett, C., and P. Beamish. 2011. Transnational Management: Text, Cases, and Readings in Cross Border Management, (6th ed.). Burr Ridge, IL: McGraw-Hill/ Irwin. 19. Prerera, H., E. Chew, and I. Nielsen. 2017. "A Psychological Contract Perspective of Expatriate Failure. Human Resource Management, 56(3): 479-499. 20. Mayerhofer, H., L. Hartmann, G. Michelitsch-Riedl, and I. Killnger. 2004. "Flexpatriate Assignments: A Neglected Issue in Global Staffing." International journal ofHuman Resource Management, Vol. 15, No. 8: 1371-1389. 21. Ibid. 22. Cohen, S., and S. Gossling. 2015. "A Darker Side of Hypermobility." Environment and Planning, Vol. 47: 1661-1679. 23. Ibid. 24. Mayerhofer, Hartmann, Michelitsch-Riedl, and Killnger. 2004. 25. Ibid. 26. https://www.eca-international.com/insights/articles/may-2016/the-declineof-the-traditional-expat. Retrieved March 13, 2018; Stevens, M. 2010. "Overseas Assignments Up, Costs Down." People Management (September 30): 8. 27. Meyskens, M., M. Von Glinow, W.B. Werther, Jr., and L. Clarke, L. 2009. "The Paradox of International Talent: Alternative Forms of International Assignments." International journal ofHuman Resource Management, Vol. 20, No. 6: 1439-1450. 28. Young, M. 2012. Strategi,c Workforce Planning Across National Borders. The Conference Board of Canada. 29. Caligiuri, P., and V. Di Santo. 2001. "Global Competence: What Is It, and Can It Be Developed Through Global Assignments?" Human Resource Planning, Vol. 24, No. 3: 27-35. 30. Mendenhall, M., and G. Oddou. 1985. "The Dimensions of Expatriate Acculturation." Academy ofManagement Review, Vol. 10: 39-47; Walton, S.J. 1990. "Stress Management Training for Overseas Effectiveness." International journal oflntercultural Relations, Vol. 14: 507-527; Black, J.S., and M. Mendenhall. 1990. "Cross-Cultural Training Effectiveness: A Review and a Theoretical Framework for Future Research." Academy of Management Review, Vol. 15, No. 1: 113-136; Abe, H., and R.L. Wiseman. 1983. "A Cross-Cultural Confirmation of the Dimensions of Intercultural Effectiveness." International journal oflntercultural Relations, Vol. 7: 53-67; Parker, B., and G.M. McEvoy. 1993. "Initial Examination of a Model of Intercultural Adjustment." International journal oflntercultural Relations, Vol. 17: 355-379.

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31. For example, Black, J.S., and M. Mendenhall. 1991. "The U-Curve Adjustment Hypothesis Revisited: A Review and Theoretical Fram ework." journal of International Business Studies, 2nd Qiarter: 225-247; Mendenhall an d Oddou. 1985. 32. For example, GMAC Global Relocation Services, National Foreign Trade Council, and the SHRM. 2004. "Global Forum Global Relocation Trends 2003/2004 Survey Report." http://www.nftc.org/default/hr/GRTSO/o 202003-4.pd£ Retrieved September 4, 2008; an d Grosch! et al. 2008. 33. Feldman, D. 1989. "Relocation Practices." Personnel, Vol. 66, No. 11: 22-25; McEnery, J., and G. Des Harnais. 1990. "Culture Shock." Training and Developmentjournal, Vol. 44, No. 4: 43-47. 34. Brookfield GRS. 2012. "The 2012 Global Relocation Trends Survey." http:// knowledge. brookfieldgrs.com/ content/insights_ideas-grts. Retrieved June 25, 2011. 35. Canadian Employee Relocation Council. 2011. "CERC Relocation Trends Survey 2011." http://www.cerc.ca/LinkClick.aspx?fileticket Y7rfVwX9bUgO/o 3d&tabid=135. Retrieved July 11, 201 1. 36. Black, S., and H.B. Gregersen. 1991. "When Yankee Comes Home: Factors Related to Expatriate and Spouse Repatriation Adjustment." journal of International Business Studies, Vol. 22, No. 4: 671-694; Thomas, D.C. 1998. "The Expatriate Experience: A Critical Review an d Synthesis." Advances in International Comparative Management, Vol. 12: 237-273; Tung, R.L. 1981. "Selecting and Train ing of Personnel for Overseas Assignments." Columbia journal of World Business, Vol. 16: 68-78. 37. Ptak, C.L., J. Cooper, and R. Brislin. 1995. "Cross Cultural Training Programs: Advice and Insights from Experienced Trainers." International journal oflntercultural Relations, Vol. 19, No. 3: 425-453. 38. For example, see Lazarova, M., and P. Caligiuri. 2001. "Retaining Repatriates: The Role of Organizational Support Practices." journal of World Business, Vol. 36, No. 4, 389-401; Suutari, V., and C. Brewster. 2003. "Repatriation : Empirical Evidence from a Longitudinal Study of Careers and Expectations Among Finnish Expatriates." International journal ofHuman Resource Management, Vol. 14, No. 7: 1132-1 151. 39. Black and Men denhall. 1991; see also Grosch! et al. 2008. 40. Black and Gregersen. 1991. 41. Ibid. 42. Harvey, M.G. 1982. "The Other Side of Foreign Assignments: Dealing with the Repatriation Dilemma." Columbia journal of World Business, Vol. 17, No. 1: 52-59. 43. Beck, J.E. 1988. "Expatriate Management Development: Realizing th e Learning Potential of the Overseas Assignment." In F. Hoy, ed., Best Papers Proceedings, Academy ofManagement 48th Annual Meeting, August 1988. Anaheim, CA: 112-116; Tung. 1988. 44. Handel, J. 2001. "Out of Sight, Out of Mind." Workspan, June: 54-58. 45. Grosch! et al. 2008.

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46. Katz, J.P., and S.W. Elsea. 1997. "A Framework for Assessing International Labor Relations: What Every HR Manager Needs to Know." Human Resource Planning, Vol. 20, No. 4: 16-25. 47. OECD. "Trade Union Density." http://stats.oecd.org/Index. aspx?DataSetCode=UN_DEN. Retrieved November 23, 2014. 48. Visser, J. 2006. "Union Membership Statistics in 24 Countries." Monthly Labor Review Online, Vol. 129, No. 1. http://www.bls.gov/opub/mlr/2006/01/ art3full.pdf. Retrieved September 23, 2008. 49. Visser. 2006. 50. Grosch! et al. 2008. 51. Ibid. 52. Katz and Elsea. 1997. 53. Ibid.

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MERGERS AND AC UISITIONS

CHAPTER LEARNING OUTCOMES AFTER READING THIS CHAPTER, YOU SHOULD BE ABLE TO: • Understand the various types of mergers and acquisitions. • Explain why organizations merge an d th e methods used to achieve a merger. • Identify th e financial and human impacts of mergers. • Describe the issues involved in blending cultures. • Discuss how a merger affects HR planning, selection, compensation, performance appraisal, training and development, and labour relations.

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In 2006, Rogers Communications, a Canadian communications and media company, bought 93 retail stores in order to integrate them with the company's existing Rogers Video and Fido stores, with the goal of providing a one-stop retail experience. Combined under one brand, Rogers Retail, the new operation would be among the 10 largest retail chains in Canada. Francois Chevallier, vice-president of retail systems for Rogers Retail, had four months to assure the successful integration of these stores into Rogers' culture and operations. The first step was to put together the transition team, and the two most important functional experts were the IT expert and the HR expert. The immediate HR task was to hire 9 managers

and 500 employers. The HR expert had to devise strategies to retain key employees, particularly the retail supervisors who tend to leave soon in the New Year, after receiving their year-end bonuses. As Francois noted, "The amount of communication involved in a transition like this is staggering." To cope with the deluge of email, Rogers set up an intranet site, which sent email advisories alerting employees to updates. After employees were hired, the training could not begin until the new operating systems were chosen and the new business rules for small stores were developed. Francois is very satisfied with the acquisition: "Just three months after the transition, the new stores are our best performers. "1

11 MERGERS AND ACQUISITIONS Mergers and acquisitions (M&As) play a critical part in a corporation's survival, growth, and profit strategies. Many great companies were built on a track record of mergers and acquisitions; they include GE, Thomson, Alcan, and Power Financial. A new record for mergers and acquisitions was set in 2015 2 ; therefore, HR professionals should add the ability to manage a merger as part of their skill set. 3 One in three employees will experience a merger or acquisition during the course of their working lives and about one-quarter of Canadian CEOs are planning a merger or acquisition. 4 Organizations are increasingly focused on M&A as a growth strategy, but sellers are reluctant, as valuations continue to rise and economic conditions improve. 5 About one-half are typically domestic deals-Canadian companies buying Canadian companies. 6 But in the world of mergers and acquisitions, Canadian companies are more often th e prey, not the hunters. Foreign companies have acquired Canadian companies, such as HBC, Canada's oldest organization, and our natural resource companies, such as Inco, the mining giant based in Sudbury. Henry Mintzberg, Canada's management guru, suggests that Canadians are less aggressive, being seen more as northern mice, rather than northern tigers. The result of this takeover activity is that we end up with shells, which means less work for head office specialists in advertising, law, financial services, and human resources.7 There are concerns about foreign takeovers that go beyond the loss of head office jobs, and this issue is discussed in HR Planning Today 12.1. Before we embark on a discussion of the motives for mergers, readers are encouraged to become familiar with the terms used to describe them.

11 DEFINITIONS A merger is a consolidation of two organizations into a single organization. 8 Within mergers, there are three categories: Horizontal merger The merging of two competitors

316

• A horizontal merger is the merging of two competitors, which combine to increase market power. These mergers typically are subject to review by regulators who fear monopoly power in the marketplace. HR Planning Today 12.2 describes a merger of two big competitors. Strategic Human Resources Planning

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HR PLANNING TODAY

12.1

ISSUE: FOREIGN OWNERSHIP OF CANADIAN COMPANIES One in five Canadian companies has a foreign owner. Critics of foreign ownership posit a number of reasons against foreigners controlling Canadian-based companies. They argue that CEOs based in Canada will make decisions that help the Canadian economy, such as keeping R&D in Canada, as well as other specialists in HR, marketing, law, etc. Profits will remain in Canada. Canadian companies will use Canadian suppliers, while foreign-owned ones will trust the relationships they have with suppliers in their home country.

However, the facts do not support all these allegations. Foreign firms that took over Canadian companies created as many jobs as they eliminated. They also created more head office jobs than Canadian firms during the same period. However, there is strong public opinion that foreign ownership should be restricted in certain sectors such as banking, telecommunications, and culture. Recently, the government blocked a deal by a foreign company to acquire Potash Inc., one of the first times the regulators have protected a natural resource.

Source: Adapted from Prasad, S. 2006. "The urge to merge," The Toronto Star, August, 6, 2009, p. 12.

One merger that attracted a great deal of attention was the multibillion-dollar merger of Chrysler and Daimler-Benz. There are always problems merging two cultures, but this merger posed additional problems because the rivals were also from two different countries. Behaviours based in national differences are very difficult to identify and describe. For example, the Daimler-Benz German culture is strong on formality, which the Americans judged as brutal and harsh, whereas to the Germans it meant respect. Likewise, the Germans saw the American informal or casual way of doing

business as "goofy" and "acting like a game show host." Added to this mix were the two fiercely competitive organization cultures with each "rival" trying to establish who was best at what. In the end, the merger did not work. After a decade of problems and billions of dollars lost, Daimler-Benz sold the ailing Chrysler division for a fraction of what the company had paid for it. Observers think that Daimler-Benz was so preoccupied with the Chrysler problems that its lack of attention to the Mercedes division caused it to lose its status as the number-one luxury car in the world.

Sources: L. Jack, "Oh Lord, Won't You Buy Me," Marketing Week, May 22, 2008, p. 2; and D. Brown, "Everything's Fine, and Then ... ," Canadian HR Reporter, October 22, 2001, p. 1.

• A vertical merger occurs when a buyer and a seller (or supplier) merge to achieve the synergies of controlling all factors affecting a company's success, from the production of raw goods to manufacturing to distribution and retail sales. A real estate agen cy might m erge with a real estate developer, for example. • A conglomerate merger occurs when one company merges with another but the two companies have no competitive or buyer- seller relationship. In other words, NEL

CHAPTER 12 Mergers and Acquisitions

Vertical merger The merger of a buyer and a seller or supplier Conglomerate merger The merger of two organizations competing in different markets

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they are in different businesses competing in different markets. Although Tata, the largest, most successful conglomerate (primarily a motor company) in India, achieved most growth organically, the company did buy VSNL (an international telecommunications company) to enter the telecommunications business.

Consolidation The joining of two or more organizations to form a new organization Takeover One company acquiring another company

An acquisition is the purchase of an entire company or a controlling interest in it. The purchase of Shoppers Drug Mart by Loblaws is a public example. A consolidation occurs when two or more companies join together and form an entirely new company. In this case, the assets and liabilities of both companies are taken on by the third company, usually after the original ones are dissolved. Burroughs and Sperry, two computer manufacturers, consolidated to form UNISYS. Three hospitals in Toronto-York Finch, Humber Memorial, and Northwestern General-merged in response to budget cutbacks. A takeover occurs when one company seeks to acquire another company. Usually, this term denotes a hostile transaction, but it can mean a friendly merger as well. A hostile takeover involves acquisition of a company against the wishes of its management. ClubLink, known for operating 18-hole golf courses, was the target of a hostile takeover bid from Tri-White Corp. The ClubLink management team campaigned successfully to win the support and votes of more than 50 percent of the outstanding shareholders, and the bid was unsuccessful. For the purposes of this chapter, M&As will be treated as one category, that of two or more companies joining together. The next section examines three motives for merging.

11 THE URGE TO MERGE Companies merge for three reasons: strategic benefits, financial benefits, and/or the needs of the CEO or managing team.

STRATEGIC BENEFITS

Operating synergy The cost reductions achieved by economies of scales produced by a merger or acquisition

318

Companies that have growth as a strategic objective can expand in many ways: leveraging current customers, opening new markets internationally, corporate venturing, and M&As. The first three are slower methods. Acquisitions of companies in different regions or serving different markets are much quicker than internal expansion. Compaq and HP both sell computers but target two different markets: home offices and home entertainment customers. Their merger created more sales than two single brands. Another strategic rationale that can be achieved through mergers and acquisitions is the strengthening of competitive position. Pfizer, a pharmaceutical company, took over its competitor, Warner-Lambert, in order to obtain the powerful cholesterol drug Lipitor. Companies may want to acquire competencies that make their core competency less imitable. 9 Companies may acquire or merge with others to achieve complementarities. Different types of synergies can be achieved through M&As. (Synergy, a term taken from the physical sciences, refers to the type of reactions that occur when two substances or factors combine to produce a greater effect together than would result from the sum of the two operating independently. More simply stated, synergy can be described as a state in which two plus two equals five.) Operating synergy, which usually is referred to as economies of scale (decreases in per-unit costs), is the cost reduction produced by

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a corporate combination. Compaq and HP can renegotiate contracts with suppliers for memory chips and hard drives to save a total of $3 billion annually. 10 The merger of Inco and Falconbridge resulted in savings of $350 million achieved through synergies. 11 These gains are achieved by the spreading of overhead, the increased specialization of labour and management, and the more efficient use of capital equipment. Closely related to the economies-of-scale benefit is the economy-ofscope advantage: the ability of a firm to use one set of inputs to produce a wider range of products and services. 12 Banks, for example, like to use their bank tellers (now called "financial consultants") to do not only banking but also mortgage financing, car loans, and so on. Another type of synergy may occur when the acquiring firm believes that it can manage the target firm better and could increase its value. For example, a small firm may benefit significantly by using the larger firm's distribution networks and experienced management. It is important that the majority of anticipated synergies be identified and captured in the first year of the deal to ensure success. 13 Companies may merge to gain access to new markets. For example, Canada's two satellite radio businesses, XM and SIRUS Canada, merged in 2011, a deal that quadrupled XM's revenue and customer base. 14 Diversification may be another strategic motive. A company may wish to reduce its dependency on a market that is cyclical in nature to capitalize on excess plant or employee capacity. For example, a ski resort might acquire a golf course in order to fill its hotel rooms and restaurants during the stagnant summer months. General Electric pursued this diversification strategy; not wanting to depend entirely on electronics, the company became a diversified conglomerate by acquiring insurance businesses, television stations, plastics manufacturing businesses, credit card businesses, and so on over a 10-year period. Companies may even wish to redefine their businesses through acquisitions. Nortel Networks made a series of acquisitions in the 1990s to move from being a supplier of

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Loblaws hopes to be able to cross sell with its acquisition of Shoppers Drug Mart.

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Vertical integration The merger or acquisition of two organizations that have a buyer-seller relationship Horizontal integration The merger or acquisition of rivals

switches for traditional voice networks to a supplier of technology for the Internet. Of course, this strategy is not always successful. Companies may also wish to achieve the benefits associated with vertical integration and horizontal integration. Vertical integration refers to the mergers or acquisitions of companies that have a buyer-seller relationship. Such a move may ensure either a dependable source of supply or control over quality of the service or product. PepsiCo acquired KFC, Taco Bell, and Pizza Hut and thus ensured the distribution of its products in these restaurant outlets. (However, Coke then convinced Wendy's and other fast-food chains that selling Pepsi in their outlets would indirectly benefit their competitors. 15) Horizontal integration refers to the increase in market share and market power that results from M&As of rivals. Western Canada's BC Telecom and TELUS merged to become a stronger regional telephone company that was better able to compete against Bell Canada's launch of a new national company. When acquisitions are impractical for organizations (perhaps because target companies are not for sale or too expensive) firms might turn to strategic alliances. For example, Cisco Systems is an active acquirer of small firms, but also engages in R&D alliances with Intel and other technology giants. 16

FINANCIAL BENEFITS Organizations look to M&As to achieve some financial advantages. The main reason is to reduce expenses by reducing headcount, factories, and/ or branches. Other financial goals include the following: • Organizations expect to reduce the variability of the cash flow of their own business. An organization lowers its risk by putting its "eggs in different baskets." However, a counterargument suggests that executives cannot manage unrelated businesses and must focus on and protect the core business from competitive and environmental pressures. The suggested wisdom is to put eggs in similar baskets. 17 • Organizations expect to use funds generated by their own mature (or cash cow) businesses to fund growing businesses. However, some experts argue that the advantages of using one division to fund another division might be risky in the long run. Labelling one business in the portfolio a "cash cow" and another a "star" has negative effects. Employees in the "mature" business might feel neglected, as resources are poured into the star, and may reduce those employees' commitment to production and innovation. Management might misjudge which businesses have potential for market share increases and which do not. For example, most industry observers viewed the piano market as having slow or no growth. However, Yamaha saw the industry quite differently: it looked worldwide for market share, saying, "Anyway, we are not in the piano business, we are in the keyboard business." 18 Sometimes slow-growth, highly competitive industries offer stable (not risky) returns. • There may be tax advantages to the takeover, which vary by country. Considerable tax losses in the acquired firm may offset the income of a parent company. • It is expensive to enter new markets and to develop new products. Acquisitions result in more rapid market entries than internal innovation and product development do. They provide speedy access to new markets and to new

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capabilities, as exemplified by pharmaceutical companies that purchase biotechnology companies for th eir scientists and patents. 19 • Astute corporations may analyze the financial statements of a company and decide that the company is undervalued. By acquiring the company, and sometimes by merging it with the administration already in place, a company can achieve fin ancial gains. However, the success of the valuation-driven acquisition depends on timing economic cycles. The overriding goal is to increase the shareholders' wealth.

MANAGEMENT NEEDS Some argue that corporate life is a game, and managers love to play it. The theory here is that managers seek to acquire firms for their own personal motives, an d economic gains are not the primary consideration.20 This hypothesis might help explain why some firms pay questionably high premiums for th eir takeover targets. One theory examines the "incen tives" or payoffs to the CEOs if they engage in acquisition behaviour. Managers may pursue their person al interests at th e expense of stockholders. For example, th ere is a positive correlation between the size of the firm and management compensation, and so CEOs can expect higher salaries for managing larger firms. 2 1 Other, more indirect incentives might include the prestige or status of owning larger firms or companies in fashionable sectors, such as entertain men t or sports. Another perspective examines the unconscious motives of CEOs. Robert Campeau's takeover of Allied Stores and Federated Department Stores has been subject to "armchair" analysis because he overpaid for his acquisitions and ultimately went bankrupt servicing the debt. Speculation on his motives ranges from the simple need to prove himself to complex theories espoused by psychoanalysts. But does the research support the theory that managers make decisions based on Freudian or unconscious motivators? Most of the work in this area analyzes the role that a manager's unconscious desires or neuroses play in formulating corporate strategy or decision making. 22 Some research is based on th e intensive analyses used by therapists to explore motives. A few studies attempt to link personality characteristics, such as the need for power, with growth strategies. 23 One study found that the greater the ego of the acquiring company's CEO-as reflected in the CEO's relative compensation and the amoun t of media attention given to that CEO-the high er the p remium the comp any is likely to pay. 24 However, few studies arrived at helpful conclusions th at would explain the behaviour of executives.

MERGER METHODS How do companies merge? The process, in a friendly environment, is relatively simple. The management of one company contacts the management of the target company. Sometimes an intermediary is used, such as an investment ban ker or, in smaller firms, a colleague who makes an introduction . During the first ten tative talks, the boards of directors are kept informed of the procedures, and ultimately, they approve the merger. Friendly deals can be completed quickly. Hostile takeovers become dramatic, with managemen t pushing for poison pills and seeking white knights to protect themselves. The term poison pills refers to the right of key players to purchase shares in the company at a discoun t-around 50 percent-that makes the takeover extremely expensive. "White knights" are buyers who

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will be more acceptable to the targeted company. There is even a "Pac-Man" defensive manoeuvre, by which the targeted company makes a counteroffer for the bidding firm.

THE SUCCESS RATE OF MERGERS Th ere are many examples of failed acquisitions and mergers. Microsoft wrote off 96 percent of th e value of the acquired Nokia; Google unloaded the Motorola han dset busin ess for about 25 percent of what it h ad p aid; News Corp sold MySpace for $35 million , after paying $580 million to acquire it 11 years earlier.25 How do we define merger success? In publicly own ed companies, the goal would be to increase sh areholder value (2 + 2 = 5). In private companies, the goal would be to increase ROI (return on invested capital). Many studies have established that only about 15 percent achieve the financial goals that were envisioned.26 Acquisitions of related businesses fare better than acquisitions of businesses unrelated to the parent busin ess. 27 The novice M&A management team does as poorly as the experienced team. Why? Perhaps because every m erger is different, with differen t synergies an d cultures. Not only is the merged firm at risk, but also the subsidiaries. There is some indication that a merger occupies so much management time, attention, and oth er resources that the original businesses are neglected. Executives of HP an d Comp aq spent more than one m illion person-hours planning for the integration .28 There are enorm ous challenges in joining two companies. The problems include integrating computer systems, eliminating duplication , re-evaluating supplier relationships, reassuring clients, advising employees, and reconfiguring work routines. The success rate may also vary by sector and by size. Th e manufacturing sector, for example, differs from the service sector. In the manufacturing sector, much more is fixed, with capital investmen ts already made, with techn ology controlling processes, and with lower job skills. Th e service sector, in contrast, relies on social-con trol mech anisms, which are highly subject to culture management. As such, th e risk is greater with acquisitions in the service sector. Size appears to influence success rates. A large firm can absorb a small firm in a relatively inconsequential fashion . The merger of two large firms generates more problems.

FINANCIAL IMPACT For m any reasons, the fin ancial returns are rarely those that were envision ed. Acquisitions, on average, resulted in increases of 25 percent for the target firms, an d zero economic profits for the bidding firms. 29 Sometimes, a premium price was paid, an d the company is unable to service the debt or recover the investmen t. At other times, the forecasted economies of scale or complementarities are not achieved. Th e m arket may have changed, resulting in revised forecasts. During th e merger of two healthcare facilities in the United States, chaos was created in the resulting company by the collapsing of 525 bran ches into 350, the attempt to standardize the two facilities' computer systems, the termination of a tenth of the workforce, an attempt at a second acquisition, and the need to defend the company against a barrage oflawsuits. 30 The result was that outstanding bills jumped 30 percent in one year, paym ent times increased from 109 days to 131 days, earnings were down substantially, revenues were less than those of previous years, and the stock price dropped.

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Overall, studies by consulting company McKinsey & Co. report that only 23 percent of mergers end up recovering the costs incurred in the deal, and about half of those analyzed by the American Management Association resulted in profit reductions. 31 Four out of five failed to produce any shareholder value and over half destroyed value. 32 Most devastating of all for merger maniacs was the analysis that demonstrated that non-acquiring companies (i.e., those that made no acquisitions) outperformed acquiring companies on Standard & Poor's industry indices. Many mergers fail because the buyer overextends itself financially. 33 The buyer borrows heavily and then must engage in cost cutting to service th e debt. Assets are spun off, employee numbers are reduced, and the new company is left in financial shambles. Even if the overall financial picture of the merged company appears rosy, there are indications that different functional areas suffer. For example, a firm that h as to use cash to pay for the debt incurred in acquiring another business now h as less to spend on certain projects that can be postponed, such as research and development. An overall summary of the reasons for failures is provided in HR Planning Notebook 12.1.

• Integration difficulties

• Managers overly focused on acquisitions

• Inadequate evaluation of target • Large or extraordinary debt • Inability to achieve synergy

• Too large an acquisition • Difficult to integrate different organization cultures • Reduced employee morale due to layoffs and relocations

• Too much diversification

Source: David, Fred R., Strategic Management: Concepts and Cases, 12th ed. (c) 2009, p. 169. Reprinted by permission of Pearson Education, Inc., New York, NY.

The specialists in post-integration mergers at PricewaterhouseCoopers have conducted research that compares the goals of mergers to th eir success rates (see HR Planning Notebook 12.2). As you will note, most of th e studies of mergers have examined U.S. mergers. One of the few studies to examine th e mergers of Canadian companies shows a different trend. From an analysis of all mergers between 1994 and 2000, two Canadian academics concluded that there are positive and significant returns to shareholders, in contrast to American studies, which show negative or insignificant returns. Why? One explanation is that Canadian capital markets, industries, and companies are much smaller. 34 However, there are some winners, namely the merger advisers. The Campeau-Federated Department Stores deal alone generated approximately US$500 million in fees for M&A advisory firms. 35 While experts easily list the reasons for failures of M&As, the methods to achieve success are harder to prescribe. Roger Martin, former Dean of the Rotman School of Business in Toronto, attempts to do so and his thoughts are summarized in HR Planning Notebook 12.3.

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HR PLANNING NOTEBOOK

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GO ALS OF MERGERS AND ACHIEVEMENT RATES GOALS

RATIONALE FOR DEAL (%)

RATE OF ACHIEVEMENT (%)

Access to new markets

76

74

Growth in market share Access to new products

74

60

54

72

Access to management/tech talent

47

51

Enhanced reputation

46 46

48

Access to distribution channels Access to new technologies

38

Reduction in number of competitors

26

60 63 80

Access to new brands

25

92

Reduction in operating expenses

39

26

Source: K. Frers and A. Chadha. 2000, "Why You Can't Create a Purple-Footed Booby," Canadian HR Reporter (November 20), p. 16. Reprinted by permission of Canadian HR Reporter. © Copyright Thomson Reuters Canada Ltd.

The key is for the company that is buying another company to bring something to the deal that will make the acquisition more competitive such as: • Being a smarter provider of growth capital. Tata Group fund smaller companies and grow successfully this way. • Providing better managerial oversight. GE Capital applied its better management systems

to improve the profits of Burger King and Tim Horton's. • Transferring valuable skills. PepsiCola transferred its direct store delivery logistics system to make Frito Lay (an acquired company) more successful. • Sharing valuable capabilities. Proctor & Gamble shared its customer team capability and media buying capability with their acquisitions.

Source: Martin, R. 2016, "M&A: the one thing you need to get right," Harvard Business Review, June 2016, pp. 42-48.

IMPACT ONJiUMAN RESOURCES The real costs of a merger may be hidden-that is, not evident when analyzing financial records. Takeovers result in human displacement, and the cost of losing the best sales rep, who either is anxious about his or her job or does not wish to work for the acquired company, cannot be measured in accounting terms. The time involved in replacing this employee with a new one represents a cost to the employer. Research has shown that

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that M&As cause increases in in security am ong em ployees, lower levels of satisfaction at work, less affective commitment, and a loss of trust in the firm and its top managers. Th is is particularly true in h ostile acquisition s. 36 An other study showed that nearly half of the senior executives in large acquisitions leave within a year of the takeover, and 75 percent leave within three years. 37 Add to this the thousands of jobs that are lost in the restructuring or downsizing of the merged companies. That is a national effect. The organizational effects are that it takes from 6 to 18 months for an organization to assim ilate the results of an M&A, an d the productivity loss is estimated to be 15 p ercen t. 38 The loss of employee productivity stems from many sources: • Employees go underground, afraid to make themselves visible or do anything that may p ut th eir jobs at risk. • Overt sabotage occurs wh en employees deeply resent the turmoil the merger is causing in their lives. • Self-interested survival tactics emerge, in cluding hiding information from team members to accumulate a degree of power (the employee feels that he or she is "the only on e who really knows how things work around here"). • A resign ed attitude appears, stemmin g from the belief that no amount of work will prevent on e from b eing fired. 3 9 • Employees spend at least one hour a day dealing with rumours an d misinformation, and/ or engaging in job-search activities. 40 But the real cost is to the thousands of employees who lose their jobs. Those who survive are affected in different ways; most experience stress and anxiety, ,_ a.. c: with a resultan t loss of productivity. ca ca c: To summarize, th e feeling among ca ~ c: those experienced in M&As is that, while ca c: ca mergers are forged for strategic and finan·5 cial reasons, they succeed or fail for human ....... s=. reasons. Experts estimate that employee a.. a.. issues are responsible for th e failure of @ one-third to one-half of mergers. 41 These After a merger, restructuring including the termination issues include the difficulty in blending . . . of employees often occurs. cultures, reduction 1n service levels, poor motivation, loss of key people and clients, and loss of focus on longer-term objectives. 42 The next section examines what many con sider to be the greatest challen ge of M&As-the blending of corporate cultures.