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Alternative perspectives If you are beginning to form an opinion that all of this ration- alism is either all right in theory but wouldn’t work in practice, is really little more than old wine in new bottles, or, to put it more kindly, it’s a bit of ‘vu jade’, then you are still with us. We have nothing against ‘how to’ books, but, to repeat our take on these matters, ‘life ain’t that simple’. We have already intro- duced the three other lenses in Chapter 5, which offer a fresh perspective on the answers to the HR strategy question. They also help point out the strengths and weaknesses of the design school and some of the new developments in architecture and segmentation. Evolutionary perspectives, the focus on markets and the ‘new deal in employment’ As we suggested earlier, evolutionary perspectives rest on ass- umptions that all markets in the long run are perfect, with few or no significant barriers to entry; also that these all-powerful markets can select out the fittest companies for survival in com- petitive market environments. What such markets need is a ready supply of firms willing to enter the selection process to drive the forces of competition to a point where they become overpopulated. Only those who have managed to achieve a fit with the competitive dynamics of the industry by maximizing profits and minimizing costs will survive in the long run. The dot.com boom in the 1990s and ‘dot.bomb’ decline in the early part of this current decade illustrates this point quite well. It is also likely that many of the numerous firms entering the rapidly expanding e-business and e-trading markets in the USA, Asia and Europe will also suffer the same fate – Yahoo!, Amazon, e-Bay are exceptions that prove this rule. As a result, strategy doesn’t matter in such competitive cir- cumstances, especially HR strategy! Moreover, they have little faith in the capacity of managers and leadership to do other than contain costs for short-term competitive advantage and ensure their firms are flexible enough to respond to rapidly 214 Corporate Reputations, Branding and People Management changing market circumstances. Consequently, this has not been promising ground for HRM scholars and practitioners. This evolutionary view is worth taking seriously because it exp- lains the reactions by many organizations to difficult market circumstances (i.e. when barriers to entry are low) and provides a rationale for HR cost-cutting, even while simultaneously clai- ming ‘people are our most important assets’. The case of Agilent in Chapter 3 is a good example of a firm with a once proud record for job security having to operate in changed market circumstances of increased competition; and, we are sure, you can name many more. One of the few HR thought-leaders to embrace such a position is Peter Cappelli (1999). He pointed to evidence of change in the American economy during the last decade including changed work organization to empowered teams and reduced hierarchy, downsizing and delayering, lower levels of training, decreased employment security and lower employee expectations of jobs and conventional careers, reduced job tenure, increased out- sourcing and a higher incidence of contingent pay. These trends, he argued, had a serious message for firms that tried to deny the logic of market circumstances, often cast in the form of a proposition – ‘change-or-die’. Gone were the days of relational contracts and job security; instead he proposed that firms would have to renegotiate changes in psychological contracts to transactional/exchange-based contracts. Of course, such changes were not without costs, especially when labour mar- kets became tight, as they did in the late 1990s. Employees had learned the lessons of new deals only too well and began to exhibit much less commitment to employers and to traditional careers. Coupled with the increased evidence of new organiza- tional forms, such as the so-called flexible firm based on a sharp distinction between core and peripheral employees, project organizations, networked and cellular organizations, some com- mentators were forecasting the ‘end of career’ thesis. Managing HR in such circumstances had fundamentally different impli- cations than in the past, with employers offering and employ- ees seeking new deals based on employability – training and development for the next job (Martin et al., 1998). There is little doubt that Cappelli’s argument has been influ- ential, and downsizing has been one of the trends over the past Chapter 6 HR strategy and the employment relationship 215 decade or more that has caught on not only in its natural home, the USA, but also in the UK and continental Europe. In December 2005, Angela Merkel was elected as the first woman Chancellor of Germany, partly on a ticket reminiscent of Margaret Thatcher to restructure German industry by reducing guaran- tees of job security. Moreover, HR has largely bought the mes- sage by looking to technology in ever-increasing doses to reduce its costs and its own headcount (Martin et al., forthcoming). What Cappelli may have failed to take into account were the rather different circumstances of the knowledge economy and creative class, which has made the management of talent, par- ticularly knowledge workers so critical and difficult; critical because they are essential to the longer-term reputations and brands of companies, especially in innovative organizations; difficult because they refuse to be managed in the patronizing ways of traditional HRM. This is the message of Gratton’s demo- cratic enterprise; it is also the message of Thomas Davenport (2005), who has argued that knowledge workers need to be managed in very different ways from traditional workers, e.g. from overseeing work to doing it; from organizing in hierarchies to organizing in communities, from hiring and firing to recruit- ing and retaining talent, from evaluating visible job perform- ance to assessing invisible knowledge achievements; and from supporting the bureaucracy to fending it off (see Chapter 9). Wayne Cascio (2005) has been researching into downsizing for more than a decade. He began his studies in a paper published in 1993 by concluding that ‘the presumed economic benefits of employment downsizing, such as lower expense ratio, higher profits, increased return on investment, and boosted stock prices, often fail to materialize’ (p. 171). Neither, he argued, did over- heads decline proportionately; nor was there evidence of greater innovation and productivity. Revisiting the evidence in 2005, he has seen little to change his mind, though, he admits downsizing does work in certain circumstances. These are when employees are let go as part of a systematic business planning process, rather than a reaction to short-term market signals. Part of the reasoning underlying the failure to realize bene- fits from downsizing is the effect on talent: those people who remain often bear the brunt of increased workload but also show less commitment and lower morale than previously; talent 216 Corporate Reputations, Branding and People Management ‘walking out of the door’ also reduces the extent of existing net- works, the quality of relationships with customers, business for- gone and potential innovation. These outcomes have a negative effect on reputations and brands, but if that were not enough, downsizing also affects the ability of organizations to recruit talented people in the future, as we shall see in Chapter 8. Yet, despite this evidence, even organizations with the best of intentions and long histories of best practice HR, including guar- antees on job security, cannot avoid the imperatives of markets, especially if they are caught up in the ineluctable logic of manu- facturing decline among developed countries. The Economist reported the statistic, as at September 2005, of only 9% of the US workforce employed in the manufacturing sector, with the UK likely to reach such low levels in the near future. Such logic makes segmentation strategies more necessary but, as companies such as Agilent have found out, more difficult to implement. Processual approaches, the focus on change and HRM Processual approaches take a contrary view of the power of mar- kets to determine how organizations succeed and question the notion that, in practice, organizations pursue unitary goals. Processual approaches are also united in the belief that a ratio- nal planning approach to strategy that is realized as intended is a rare occurrence in an increasingly chaotic and unknowable world. Griffin and Stacey (2005), for example, have set out eight conditions for strategic control concerning the capacity of managers for rational action. Most importantly, these include: (1) that set goals remain stable over time, (2) that managers are capable of setting specific and clear goals, (3) that these goals are anchored in some future reality, (4) that managers share the same goals and (5) that they have the necessary fore- sight to plan in advance the actions necessary to achieve future states. Of course, put like this, there are few situations in mod- ern industry where such conditions are likely to apply. For processualists, strategic planning, organizational and HR strategy are little more than a good story that helps managers Chapter 6 HR strategy and the employment relationship 217 make retrospective and plausible sense of a series of previous, usually unplanned and sometimes random actions (Weick, 2001; Kinnie et al., 2005). What is important about such strate- gic sense-making is that managers are able to provide accounts to themselves and to others that are socially acceptable and credible (an important insight into some recent CSR initiatives by organizations?). After all, senior managers are supposed to be the organizational architects, planning our way into action through their unique foresight; it is exactly those functions that we are conditioned to expect from leadership in the western world and it is how enormous salary differentials between sen- ior managers and average employees are often justified. Instead of employing this, rather different use of an archi- tectural metaphor, Weick calls for improvised design in organi- zations. This is quite distinct from the conventional and linear design, planning and implementation process rooted in the architectural metaphor, both in explanation and in prescription. Improvisation, according to Weick, is a focus on the process of continuous craft-like activity, in which the responsibility for redesign is distributed throughout the organization and is based on the notion of resourceful humans (to be invested in) rather than human resources (to be cut). Thus, from Weick’s perspective, planning as part of the improvisation process performs a num- ber of roles, the first of which is to help managers interpret and justify past behaviours, hopefully so that they can learn to make sound judgements from these actions. Second, he argues that the planning process and strategic ‘maps’ are useful only to the extent that they help energize and galvanize people into future public and irrevocable actions, because it is through a commit- ment to action that future sense-making and improvisation can take place. Tom Peters’ old quote of ‘ready, aim, fire’ is an attempt to popularize this idea (not surprisingly, since he cites Weick as one of his greatest influences). Third, such improvisation becomes more plausible when we assume that people act their way into meaning rather than mean their way into acting. When people improvise and then look back over their action to see what they might have meant, they often discover decisions that they apparently made, although they didn’t realize it at the time … Thus action is decision-interpreted, 218 Corporate Reputations, Branding and People Management not decision-driven. Actions are crucial because they constrain meaning and structure and organizational form. It is these constraints that people seem to lose sight of when they assume decisions affect action. (Weick, 2001, p. 77) So, acting your way incrementally into strategy is preferred because it leads to learning (and to the basis for rationalizing incremental changes as a strategic campaign after the event). Critics of incrementalism have pointed to the limited usefulness of small-scale changes, arguing that radical transformations in culture and human resource management are sometimes req- uired for organizational survival (Stace and Dunphy, 2001). However, as Morgan (1993) has pointed out, incrementalism can produce quantum change through constant iterations. Indeed, he goes further by arguing that transformational change is only possible through incrementalism. Drawing on a number of cases, he has shown how successful ‘quantum’ change unfolds through a series of highly leveraged 15% initiatives (small-scale, targeted changes) that create ‘new contexts in which radically new things can happen’. Each new context provided a decision point at which managers could either learn and go forward, or unlearn and return to previous states (http://www.imaginiz.com/ provocative/change/success.html). Thus processualists focus on the internal complexity of organ- izations, the limited capacity of managers for rational action, satisficing, the importance of micro-politics in shaping action and small-scale decisions during action. The emphasis in this literature is on organizational coalitions, bargaining and learn- ing as a means of producing strategic change. Some of the seminal work on the role of HRM from this perspective was the research by Pettigrew and Whipp (1991). Their longitudinal case research pointed to the importance of managing the processes of change and the role of intense communications, learning and the layering down of competences over many years in producing long-term competitive success, including building reputations for competence. Other writers from this perspective have also evidenced the messy and accidental nature of changes and human resource management actions that are subsequently rationalized as ‘strategic’ rather than opportunistic (Dawson, 2003). Chapter 6 HR strategy and the employment relationship 219 The positive message on learning underlying the processual perspective has been most notably taken up by the RBV writers on HRM because they reject the dominance of markets and the ease with which human resources can be bought and sold in the marketplace. Instead, resource-based theorists have focused on the importance of intangible assets and their long-term development as the real source of competitive advantage. The key message of this processual school for reputation management and HR is that strategic implementation matters! Multiple goals and plural reputations are the natural order of things and HR must learn to manage the politics of changing rep- utations and understand that reputations and brands are built through continuously leveraged, small-scale changes made during the course of action. It also highlights the problems of top-down programmes of reputation and brand management. A number of years ago, Michael Beer and his colleagues (1990) wrote a well-known paper on why change programmes did not produce change, which was largely put down to their top-down, big-bang nature. Senior managers in their study attempted to change struc- tures, systems and abstract notions such as culture, instead of mak- ing ad hoc and relatively small-scale changes to concrete business problems that have immediate payoff. This was one of the mes- sages we tried to put forward in the AT&T case in Chapter 1, and it is certainly a message worth bearing in mind for those responsi- ble for brand management and reputation management. The embedded systems perspective We have already made much of the idea that strategy is essen- tially local, often in geographical terms, and that leaders and managers are deeply embedded in the densely interwoven business system and institutions of their home country. Even among companies that claim multinational status, evidence suggests that they generate their revenues from one dominant location. As Greenwald and Kahn (2005b) wisely counsel: For all the talk of the convergence of global consumer demand, separate local environments are still characterized … by 220 Corporate Reputations, Branding and People Management different tastes, different government rules, different business practices, and different cultural norms … The more local a company’s strategies are, the better the execution tends to be. (p. 103) As a result, such companies and their managers are embed- ded in a relatively local network of institutional characteristics, social relations, professional and educational backgrounds, ethnic backgrounds, cultural norms and value systems. These historically embedded institutional differences among countries (Whitley, 1999), point to strategy and HRM being institutionally and culturally specific phenomena. Institutions refer to the social, political, economic, business and labour mar- ket features of a country or region that have historically inter- acted to create distinctive national business systems. So, for example, we often talk about a distinctive American business system or an Asian business system. The idea of unique national business systems has become influential in the management literature since the 1990s. It encompasses the idea of differing national cultures but is a much broader concept and has focused on the difficulties in borrowing and diffusing best practices from overseas coun- tries. Though competition among national business systems at the international level has led to borrowing and copying of practices, this process of diffusion does not necessarily result in convergence because the embedding of such practices has to occur in pre-existing and nationally distinctive configurations of business practices. The consequences of this line of thinking for organizations seeking to export their values and practices are threefold: (1) they need to be aware of the historical and institutional configuration of the business system in which they seek to operate; (2) they are likely to meet with institutional resistance to such ‘foreign’ practices; (3) even if companies are initially successful in implanting their home-grown practices, they can never be sure how these transferred practices will interact with the existing systems to produce anything like the originally intended outcomes. We have already met a number of examples of this, the first being the case of AT&T in Chapter 1; but because it is so import- ant to the corporate reputation and branding debate, we devote Chapter 6 HR strategy and the employment relationship 221 Chapter 7 to it. For the moment, however, read the short case in Box 6.3 of the world’s largest retailer, and some of the mistakes it made in entering the German market, to get an idea of just how important embedded systems are to the debate on strategy, HRM and reputation management. 222 Corporate Reputations, Branding and People Management Box 6.3 Wal-Mart and Overseas Expansion in Germany Traditionally, retailers are not very good at going abroad. Wal-Mart is no exception. It has done well in America’s border countries. It has been successful in Canada, for instance, and in Mexico, where Wal- Mart is the biggest private employer. It has also done quite well in the UK with its takeover of ASDA. But, in Germany, Wal-Mart ended up with ‘egg on its face’. Wal-Mart entered Germany, the third-biggest retail market after America and Japan, in 1997–98 by buying two local retail chains, Wertkauf and Interspar, for $1.6 billion. Whereas Wertkauf was well known and prof- itable, Interspar was weak and operated mostly run-down stores. Wal- Mart has lost money in Germany ever since. Problems have included price controls preventing below-cost selling, rigid labour laws and tough zoning regulations that make it extremely difficult to build big stores. Wal-Mart also faced well-established rivals in Germany, such as Metro, and hard discounters such as Aldi and Lidl, already comfort- able with razor-thin profit margins. Many retailers in Germany are owned by wealthy families whose business priorities are not always the maximization of shareholder value. But there was more to it than that. Wal-Mart’s entry was ‘nothing short of a fiasco’, according to the authors of a 2003 study at the University of Bremen. At first, Wal-Mart’s expatriate managers suffered from a massive clash of cultures, not helped by their refusal to learn to speak German. The company has come to be seen as an unattractive one to work for, adds the study. In part, this is because of relatively low pay and an ultra- frugal policy on managers’ business expenses. As we suggested, this contrasts with Wal-Mart’s much smoother expan- sion into Britain, where it bought ASDA for $10.7 billion in 1999. ASDA already had a strong business competing on price, and it has since over- taken struggling Sainsbury to become the second-biggest supermarket chain after Tesco. But that may say more about Sainsbury’s difficulties in Conclusions We began this book by examining the case for a corporate agenda but have now come to accept that there are limitations on this process arising from the notion that context matters! These limitations have important implications for our discussion of reputations and branding. So strategy, understood as what is really important about a business, is, to all intents and purposes, local. This idea is reflected in the notion of the strategic turn to a focus on activity systems, customer segmentation and other local concepts introduced in this chapter. It is also reflected in the increasingly sophisticated attempts to segment HR strat- egies, which we have discussed and applied to a case. However, none of this is particularly new, but has become more in vogue because technology and knowledge about segments has made the business case for understanding employees more affordable; we seem to live in an age when HR strategy reflects marketing strategy in enjoying the epithet of mass customization. That said, there are important qualifications about HR strat- egy, whether it matters and how we should best implement it, Chapter 6 HR strategy and the employment relationship 223 overcoming its problems than ASDA’s successes. Unlike Tesco, Sainsbury was slow in responding to Wal-Mart’s expected arrival in the British mar- ket. In particular, it was late in expanding into non-food goods, the source of much of Tesco’s growth. Wal-Mart’s growth ambitions beyond its natural home in the south–central region of the USA have been accompanied by a historical decline in relative profitability since the 1980s, like all US grocery retail- ers (Greenwald and Kahn, 2005b). Although noted for its purchasing power advantages and logistical advantages based on technology, these did not travel to Germany, which demonstrates the limited impact of operating advantages and the local nature of strategic success. Questions for reflection: 1 What institutional features of the German system have prevented Wal-Mart from making a successful entry into that country? 2 What could they have done to overcome these problems? . debate on strategy, HRM and reputation management. 222 Corporate Reputations, Branding and People Management Box 6.3 Wal-Mart and Overseas Expansion in. decision-interpreted, 218 Corporate Reputations, Branding and People Management not decision-driven. Actions are crucial because they constrain meaning and structure and organizational