- Email: [email protected]
Ideas that will shape the future of management practice
conditional clause on job security (even partnership) for employees who can contribute to financial performance in this new fast and flexible way of doing business.
REDISCOVERING HR AS SUSTAINABLE COMPETITIVE ADVANTAGE The importance of human resources has been given considerable lip service over the years. However, few companies are “walking the talk.” Real world organizations and their managements continue to give priority to-and do quite well with-the functional and technological sides of the organization. But the human side continues to be “downsized-in importance as well as head count. A major reason for this continued imbalance of things over people, a trend that started with the scientific management movement at the beginning of the century, may have a lot to do with complexity. Although on the surface, finance, marketing, technological processes, and information systems appear to be more complicated and challenging, recall the classic work of Kenneth Boulding on the hierarchy of systems complexity. Boulding points out that people and human organizations are one step below the ultimate of systems complexity in the entire universe. In his widely recognized scheme of things, cybernetic systems (today’s information systems) are below the cell (the simplest living organism). Then, in increasing complexity, come plants, animals, humans, and human organizations. The complexity culminates in transcendental systems (deities, time machines and the secrets of the universe). One implication is that academics or managers do not have to be apologetic or feel guilty for not solving all the problems, or having all the answers, when it comes to the human side of enterprise. By the same token, it seems not only wrong, but very short sighted, and even “chicken” if you wish, to simply give up on the human side and downsize our human resources out of practical existence. The fact of the matter is that human re8
ORGAhTZATIONAL
DYNAMICS
sources do make a difference. As successful real world organizations ranging from Chrysler to GE to Microsoft to the corner drugstore and start-up company have discovered, people may be the only sustainable competitive advantage that an organization has in our globalized, informationalized world. The importance of the various functions, technology, and information systems is a given. But these simply level the playing field in the competitive battles ahead. The people, their ideas, their productivity, their adaptability to change, and their capacity to learn-at all levels of the organization-are the competitive advantage, now and especially in the “four anys” (anybody, anyplace, anytime, anyway) environment of the future. Interestingly, at the same time that stories of downsizing fill the media, our knowledge of how to use human energy and talent continues to grow. Consider the following example.
The “High
Performance”
Advantage
A number of our editorial board members, including Wayne Cascio and Edwin Miller, cited “high performance work practices” as having potentially the greatest impact on human resource management-and on company performance. This term, as it is being used, covers an array of practices, including high wages, incentive pay, information sharing, empowerment, employee ownership, selectivity in recruiting, and employment security based on continued high performance. Cascio pointed to various studies showing the economic impact of these practices on turnover and productivity, as well as longterm measures of corporate financial performance. “This empirical support,” Cascio wrote, “provides welcome guidance as well as a continuing challenge of implementation, as managers seek to achieve sustained competitive advantage.” Both Cascio and Edwin Miller noted, specifically, the work of Jeffrey Pfeffer as a catalyst for bringing this research to the forefront. (For more information, see Pfeffer’s article, “When it Comes to ‘Best Practices’-Why Do Smart Organizations Occasionally Do Dumb Things?” in this issue.)
The Organizational Dynamics editors, with the help of the editorial board, continue the search for ideas and practices that will have the greatest impact on organizational effectiveness.
Ideas that Will Shapethe Future of Management Practice DON L. BOHL JOHN W SLOCUM, JR.
n the inaugural issue of Organizational Dysome 25 years ago, Editor William F. Dowling used his “Letter to Readers” to define a mission for the new journal. “Our sole purpose,” he wrote, “will be with ideas and practices that, under the right circumstances, will improve the effectiveness of your organization and the quality of your life.” Rather than reflect on the history of the journal, we decided to use Dowling’s words as a prompt for looking at the future. What ideas and practices, we wondered, would have the greatest value, in improving organizational effectiveness and quality of life, in the next decade? To broaden our perspective, we put this question to the members of our editorial board, asking them to draw on the entire scope of their reading, research, and experience. We supplemented these answers with interviews with other individuals whose research and writing we respect, then used the input, collectively, as stimulus for shaping our thinking about the question. (Board members also cited recent publications that would influence management. These are noted in the selective bibliography.) We are very much aware of futility involved in trying to predict anything. As one
I numics
FRED LUTHANS RICHARD M. HODGE’ITS
commentator put it, “Had there been a computer 100 years ago, it would have predicted that by now there would be so many horsedrawn carriages it would be impossible to clean away the manure.” Trends never move in predictable linear fashion. There is always point, counterpoint, and merger, or, as philosophers put it, thesis, antithesis, and synthesis. Our crystal ball, placed against the backdrop of the responses we received, reveals this kind of dynamic future. On the one hand, there will be continued change in what we label “the organization”virtual corporations, flatter hierarchies (pancakes, not pyramids), networks, boundaryless operations, federalist structures, and so on. As counterpoint to this development-and to the recent downsizing frenzy-we will see a more mature articulation of the importance of people as a firm’s only sustainable competitive advantage. This will come in the form of high-performance work systems, “insourcing” as opposed to “outsourcing,” and a “packaging” of employment practices and policies to align work with the needs of the business. What is called “the new employment contract” may even be amended to include a SUMMER1396
7
Our thanks to these Organizational Dynamics board members for contributing ideas to this discussion: Chris Argyris,
Harvard Business
Warner Burke, College
Columbia
Wayne Cascio,
University of Colorado,
Lester
Digman,
School
University Teachers Denver
University of Nebraska
Rob Hartz, Fidelity Investments Mark Martinko, Edwin
Florida State University
Miller,
University
Edgar Schein, Technology Randall
Schuler,
Kenneth
Downsizing:
of Michigan
Massachusetts
Institute
of
New York University
Thompson,
DePaul University
Point and Counterpoint
Board member Edwin Miller pinpointed issues that may well temper the recent obsession with downsizing. There is now enough experience with downsizing, Miller noted, to indicate that cost savings from head count reduction and/or the use of temporary workers tend to be short term. These savings not only dissipate after a few years, but the majority of “rightsized” firms find they are now worse off than when they started. The same sequence of events could be said for the other tentacle of downsizing: outsourcing. An increasing number of firms are discovering that the logic of oursourcing can (and should) be questioned. Outsourcing is now coming under scrutiny because more realistic cost-benefit analysis shines a light on fixed costs and the lack of direct control over quality. In some cases, firms find that they are even losing valued customers to their outsourcing partners. As a reaction to head count reduction and blind outsourcing, the buzzwords for the future may become “insourcing” and “employability.” For example, German companies such
as Volkswagen and Opel are backing off their layoff plans and canceling outsourcing contracts. These auto firms now allow their own factories and relevant units to bid against outsiders on equal terms. (Warren Bennis, interviewed in this issue, cites a similar sequence of events at Harman International, the manufacturer of high-quality audio equipment.) By using a “platform strategy,” the insourcing can take advantage of economies of scale and the renewed competitiveness of current personnel eager to beat the outside bids. The wonderful side effect of this insourcing is that jobs are saved and organizational commitment is restored. However, this assumes that the inside human resources are trained and developed to effectively compete with the outsiders. The new vision for human resource management should be to go on the offense. The “poor me” syndrome is self-defeating. HRM must break the mind-set that reacts to the downsizing spiral by “making do” with what’s left. Part of a new offensive vision would involve making human resources “employable.” Although this objective would infer a degree of social responsibility (develop people so they can get jobs outside the organization), the new perspective of “insourcing” would allow the employable internal human resources to directly compete with the outsiders. Such competition would be analogous to what strategy guru Michael Porter suggested a number of years ago for success in the international arena. HRM should train and develop internal people to not only compete fairly with the outsiders (outsourcing alternatives), but in an offensive mode, to create a competitive advantage for the company.
New Vision for HRM All of this requires new thinking, restrategizing, and moving to a new level of understanding of the role of HRM. Board member Randy Schuler suggests a series of core concepts as a way to move to this next level. The first of his core ideas is that a company must strive to understand and manage its human asset needs within both the internal SUMMER 1996
9
and external environments. The internal environment includes top management goals and values, the nature of the technology that the enterprise is using, the size of the firm, and the competitive strategy. The external environment includes the degree of competitiveness in the industry, the legal and cultural norms of the society, the labor market, and the degree of unionization. These environments collectively determine the objectives of the enterprise or, in Schuler’s words, the “needs of the business.” What, exactly, is new about this way of thinking? Schuler argues that in the past, the desires of those who ran the business tended
lieves that people are important to its longrun success, it will create a philosophy of continual improvement and development of its personnel. It may then have a compensation policy that rewards self-development and an appraisal policy that includes the development of employees as an important criterion for the evaluation of managers. Fourth, Schuler describes the need to manage human resources from a multiple stakeholder perspective. The major stakeholders-owners/investors, customers, suppliers, society, employees, the organization itself--all have needs and objectives that must be served by the management of human as-
In the years ahead, top management will view HM in terms of broader, value-based alko linked
policies
to the needs
to determine “business needs” and their personal preferences influenced ideas regarding what would work best. The true needs of the business-as determined by its environments-were not the main criteria for determining the selection of HRM practices. Schuler’s second core idea is that HRM practices will have to be considered as a “package of practices,” including employee selection, appraisal systems, compensation systems, and so on, as is true for the “high performance” practices cited earlier. All these systems send signals on what employees should do, what is rewarded, and what is not. The days of thinking about each practice as independent will be replaced by more interdependent thinking-again driven by the “needs of the business.” Third, Schuler believes that in the years ahead, top management will view HRM in terms of broader, value-based policies and philosophies, also linked to the needs of the business. For example, if an organization be10
ORGANIZATIONAL
and philosophies,
DYNAMICS
of the business. sets. Traditionally, companies thought of only one or two of these, but Schuler feels that in the future strong consideration should be given to all of the stakeholders. Support for concepts such as these seems to be growing, perhaps reaching critical mass. Various major consultancies in the compensation field-Sibson and Company, to cite one-have made the alignment of work and rewards a major thrust. Others, such as Hay Associates, are championing various systems of variable pay that make employees partners in company success. The various “parts” for Schuler’s vision may be coming together.
New Insights
into Personality
Board member Mark Martinko offers a more research-based perspective of the future of human resource management. For example, he suggests that recent meta-analytical research in areas such as personality may have significant implications. This new research
opens the possibility that HR managers may be able to more accurately describe the type of personalities and personality characteristics that relate to effective organizational performance and leadership. Martinko notes that until recently, researchers were hesitant to even suggest that particular personality traits were associated with effective performance and leadership. Although much research still needs to be done, he feels that we are moving closer to an ability to provide specific recommendations to HR practitioners regarding traits that predict effective leadership as well as other domains of organizational performance.
A Call to Action The bottom line is that HRM can no longer afford to be just an evolving field of theory, research, and practice. Let’s recognize the complexity suggested by Boulding and get on with it. We need more and better theory building and basic research. Also, perhaps even more important, we need translations of this theory and research for academics and professional managers. Easy to read, thoughtful articles on HRM can lead to more effective policies and practice and make our human resources truly become the sustainable competitive advantage in the challenges ahead. This is where Orgunizutionul Dynamics has and will continue to play an important role.
The boundaryless, virtual, network, horizontal, and learning organizations all require a transfer of decision making to those employees closest to the customers. Moving decision making authority down requires that top managers trust employees at lower levels to make accurate and informed decisions. These forms of organization provide the advantage of internal flexibility, while at the same time adapting to changes in their environment. There is a closeness between members of the organization and their customers and suppliers. These designs require managers to listen to customers and change their products and distribution systems to meet customer needs, rather than telling customers what to expect. According to board member Les Digman, permeable structures with information flowing freely between employees, customers, and suppliers require rethinking and unlearning traditional design concepts. It means forming partnerships and alliances with suppliers and perhaps even competitors rather than defending one’s turf. At the same time, the structures separating “functions” or “disciplines”-human resource management vs. financial management, for example-will become equally permeable. Several new metrics are gaining widespread use in helping HR managers gauge the performance impact of their contribution, and in helping financial executives evaluate returns on human capital. See sidebar, page 12.
ORGANIZATION DESIGN: THINKING OUTSIDE THE BOX
The Company
A second major theme, dealing with organizational design and change, emerged from our editorial board. For many organizations, choosing a design that enhances performance is becoming the latest management craze. Editorial board member Rob Hartz of Fidelity Investments believes that managers need to pay more attention to warning signs or red flags, such as slow customer response time, rigidity of systems, internal frustration, and customer alienations-all of which indicate that an organization’s design needs to be revamped.
While changing the boundaries of the organization is often seen as a panacea for managerial ills, such changes wilI have limited impact if the culture does not change. Board member Ed Schein recognizes the need for cultures to provide the organization with a sense of community or “glue” to hold the parts together. The sense of community ensures that the vision and strategy of the organization are known by all employees, and that these elements serve to guide their behavior. This sense of community is especially salient for
as Community
sum1996
11
Peering Over the Edge of the Box Two relatively new techniques for evaluating corporate performance value of human assets into perspective.
may well help bring the
Economic value added (EV). This approach calculates economic value added as after-tax profit, minus cost of capital for monies invested in a unit’s tangible assets. Greater value added comes from (a) judicious management of physical assets and (b) the contributions of human talent and energy to performance, among other activities. EV is said to reduce “accounting distortions” and avoid capricious fluctuations in the stock market as measures of company performance. Thus, there is growing use of the technique for determining salaries and bonuses at all levels. Activity
based costing (ABC). Developed for application in manufacturing operations, this direct costing method calculates the costs for a series of related activities, beginning with “purchase supplies” and ending with “ship product.” This allows management to identify how “cost drivers” impact an entire operation. Thus, managers can look for ways to remove nonvalue added costs and enhance those activities (including HR activities) that do add value. Although applications to service operations have been slow in coming, Peter Drucker and others continue to champion the ABC accounting methods as the single most important idea for the future.
organizations that are physically dispersed, such as GE, ABB, Elf, and other organizations that are exploring vast new markets throughout the globe. Suddenly Marshall McLuhan’s vision of a global village is no longer a futuristic pipe dream. Boundaries between markets, organizations, and nations have become irrevocably blurred. Board member Warner Burke notes that reward systems provide one of the mechanisms for designing cultures that provide a sense of community. Reward systems are vehicles whereby the organization can communicate its beliefs about customer loyalty, employee development, teamwork, and other valued characteristics. Traditionally, reward systems have served to magnify differences between employees and managers and divisions. Reward systems that are based on demonstrated competencies, integrated with performance, and shared with all members of the organization reinforce a sense of community and togetherness. Board member Kenneth Thompson notes that a leader can provide the sense of community identified by Schein by creating a vision that develops an organization’s learning capabilities. A vision is needed to keep the or12
ORGANIZATIONAL
DYNAMICS
ganization focused on meeting the needs of its customers, both internal and external.
Fast and Flexible Improvisation Cultural qualities such as those just discussed will help a company compete in tomorrow’s “war of movement” business world, where success will depend on anticipating market trends and quickly responding to customers’ needs, rather than carefully plotting out every alternative move that a competitor can make. Speed and flexibility become primary. Successful competitors will need to move quickly in and out of products, markets, and sometimes entire businesses. Strategic choices may be more akin to playing an interactive video game where each organization faces unknown opponents, and less like playing chess, where the opponent is known and has limited moves. The essence of this new strategy will often not be found in the company’s product line, but in the dynamics of its core capabilities and top management’s strategic thinking. This will require organizations to think of themselves as sets of shared resources and competencies that can be mobilized in differ-
ent ways to meet customer needs. Top management’s challenge is to create processes by which this mobilization occurs quickly, effortlessly, and proactively. One way to view organizations of the future is to imagine them being more organized along the lines of a jazz group rather than a band playing a John Phillips Sousa march. The needs of customers change so fast that one day, one customer may need a sax, cornet, and piano in the mix; another customer might require a clarinet, guitar, and bass. None of these players have any scored music, nor is there a conductor. They must improvise together in such a way that the customer finds the music pleasing.
It Starts with the Individual Organizational change does not occur without people changing. Over the last few years, we have seen hundreds and hundreds of organizations invest considerable resources in team building activities, organizational learning seminars, action learning projects, leadership development programs, reengineering efforts, and total quality management programs, among other change efforts. Yet in many cases, these change activities have had limited success because employees did not change. What human resources competencies must individuals acquire and/or hone for an organization to change? First, individuals need empathy to repair relationships caused by intricate webs of people who have diverse values and experiences. Empathy permits individuals to learn from their customers, suppliers, business partners, and community. Second, we must unlearn personal efficacy. Board member Chris Argyris challenges mangers to become “double-loop” learners. That is, we must be able to learn from our experiences, not with simple adaptations, but with a second “learning loop” that gets at the personal theories that influence our conduct.
If we take pride in our past accomplishments, such pride may pose a barrier to our ability to learn how to improve our performance. Third, systemic thinking means having employees think outside of the box or “silo.” Employees need to focus on the totality of their experiences and not compartmentalize these. Restructuring organizations into network, horizontal, or virtual forms requires employees as well as their managers to develop broader perspectives. The leader assumes a pivotal role in designing systems that reinforce a systemic view. Board member Rob Hartz, reflecting on Joan Lancourt’s writings on complex adaptive systems, notes that if “control” is not possible in these complex networks, then the manager’s role changes to one of catalyst, coordinator, conscience, and coach. Finally, we should have a degree of humility about our own experience and a willingness to suspend the need for control. Hierarchical organizations with systems that track and reward individual performance, spotlight leaders, and bespeak authoritarianism are symptomatic of a closed managerial mind. Openness begins with a recognition of the limitations of our own values, experiences, and knowledge. The articles that have appeared in Orgunizational Dynamics have indeed involved “thinking outside of the box.” In the future, this way of thinking will mean we have to reconfigure the box itself as well as go beyond the boundaries of the box. The articles in our 25th Anniversary issue are a good start in that direction. If you wish to obtain reprints of tbis or otber articles in ORGA~KZA~ONM Dm~cs, please refe to the reprint instructions on page 80 or call (800) 644-2464.
SELECTED BIBLIOGRAPHY
Board members cited these publications as being especially influential in the development of new management ideas and practices. For more insight on the future role of human resource management, see especially David Ulrich and Dale Lake, Organizational Capability: Competingfrom the Inside Out (New York: John Wiley, 1990). Board member Edwin Miller views this work as “challenging operating managers and HRM professionals to reframe their thinking about the role that this function can play in terms of both management practice and organizational success.” See also Jeffrey Pfeffer’s Competitive Advantage Through People (Boston: Harvard Business School Press, 1994) and M.A. Huselid, “The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance,” Academy of Management ~ourna2,Vol. 38 (1995), pp. 635-672. Randall Schuler’s concept of the new HRM vision is developed in an article co-authored with Susan Jackson, “Understanding Human Resource Management in the Context of Organizations and Their Environments,” Annual Review of Psychology, Vol. 46, pp. 237-264. Clearly, one of the most influential works published in recent years is Gary Hamel and C.K. Prahalad, Competingfor the Fufure (Boston: Harvard University Press, 1994). The ideas here also argue against a blind preoccupation with downsizing and a focus on core capabilities as a way of competing for new, emerging markets. On the topic of new organizational structures, see William H. Davidow and Michael S.
14
ORGANIZATIONAL
DYNAMICS
Malone, The Virtual Corporation (New York: HarperBusiness, 1992). See also Warren Bennis and P.E. Slater, The Temporal Society(New York: Harper and Row, 1968) and J.O’Toole and Warren Bennis, “Our Federalist Future: The Leadership Imperative,” California Management Review, Vol. 34, No.4, pp. 73-90; and N. Nohria and R. Eccles, eds., Networks and Organizations: Structure, Form, and Action (Boston: Harvard Business School Press, 1992). Board member Warner Burke cites several works as important in the study of organizational culture: J.P. Kotter and J.L. Heskett, Corporate Culture and Performance (New York: Free Press, 1992) and James C. Collins and Jerry I. Porras, Built to Last: SuccessHabits of Visionary Companies (New York: Free Press, 1992). On new research on personality theory, see M.R. Barrich and M.K. Mount, “Anatomy as a Moderator of the Relationships Between the Big Five Personality and Job Performance,” Journal ofApplied Psychology, February 1996, pp. 111 ff. See also William L. Gardner and Mark J. Martinko, “Using the Meyers-Briggs Type Indicator to Study Managers: A literature Review and Research Agenda,” Journal of Management, Vol. 22, No. 1, pp. 45-83. On the development of systems thinking, see Joan Lancourt, Edwin Nevis, and Helen Vassallo, lnfentional Revolutions: A Seven Point Strutegy for Organizational Transformations and, of course, Peter Senge’s The Fifth Discipline: The Art and Practice of the Learning Organization (New York Harper Books, 1991).
REDISCOVERING HR AS SUSTAINABLE COMPETITIVE ADVANTAGE The importance of human resources has been given considerable lip service over the years. However, few companies are “walking the talk.” Real world organizations and their managements continue to give priority to-and do quite well with-the functional and technological sides of the organization. But the human side continues to be “downsized-in importance as well as head count. A major reason for this continued imbalance of things over people, a trend that started with the scientific management movement at the beginning of the century, may have a lot to do with complexity. Although on the surface, finance, marketing, technological processes, and information systems appear to be more complicated and challenging, recall the classic work of Kenneth Boulding on the hierarchy of systems complexity. Boulding points out that people and human organizations are one step below the ultimate of systems complexity in the entire universe. In his widely recognized scheme of things, cybernetic systems (today’s information systems) are below the cell (the simplest living organism). Then, in increasing complexity, come plants, animals, humans, and human organizations. The complexity culminates in transcendental systems (deities, time machines and the secrets of the universe). One implication is that academics or managers do not have to be apologetic or feel guilty for not solving all the problems, or having all the answers, when it comes to the human side of enterprise. By the same token, it seems not only wrong, but very short sighted, and even “chicken” if you wish, to simply give up on the human side and downsize our human resources out of practical existence. The fact of the matter is that human re8
ORGAhTZATIONAL
DYNAMICS
sources do make a difference. As successful real world organizations ranging from Chrysler to GE to Microsoft to the corner drugstore and start-up company have discovered, people may be the only sustainable competitive advantage that an organization has in our globalized, informationalized world. The importance of the various functions, technology, and information systems is a given. But these simply level the playing field in the competitive battles ahead. The people, their ideas, their productivity, their adaptability to change, and their capacity to learn-at all levels of the organization-are the competitive advantage, now and especially in the “four anys” (anybody, anyplace, anytime, anyway) environment of the future. Interestingly, at the same time that stories of downsizing fill the media, our knowledge of how to use human energy and talent continues to grow. Consider the following example.
The “High
Performance”
Advantage
A number of our editorial board members, including Wayne Cascio and Edwin Miller, cited “high performance work practices” as having potentially the greatest impact on human resource management-and on company performance. This term, as it is being used, covers an array of practices, including high wages, incentive pay, information sharing, empowerment, employee ownership, selectivity in recruiting, and employment security based on continued high performance. Cascio pointed to various studies showing the economic impact of these practices on turnover and productivity, as well as longterm measures of corporate financial performance. “This empirical support,” Cascio wrote, “provides welcome guidance as well as a continuing challenge of implementation, as managers seek to achieve sustained competitive advantage.” Both Cascio and Edwin Miller noted, specifically, the work of Jeffrey Pfeffer as a catalyst for bringing this research to the forefront. (For more information, see Pfeffer’s article, “When it Comes to ‘Best Practices’-Why Do Smart Organizations Occasionally Do Dumb Things?” in this issue.)
The Organizational Dynamics editors, with the help of the editorial board, continue the search for ideas and practices that will have the greatest impact on organizational effectiveness.
Ideas that Will Shapethe Future of Management Practice DON L. BOHL JOHN W SLOCUM, JR.
n the inaugural issue of Organizational Dysome 25 years ago, Editor William F. Dowling used his “Letter to Readers” to define a mission for the new journal. “Our sole purpose,” he wrote, “will be with ideas and practices that, under the right circumstances, will improve the effectiveness of your organization and the quality of your life.” Rather than reflect on the history of the journal, we decided to use Dowling’s words as a prompt for looking at the future. What ideas and practices, we wondered, would have the greatest value, in improving organizational effectiveness and quality of life, in the next decade? To broaden our perspective, we put this question to the members of our editorial board, asking them to draw on the entire scope of their reading, research, and experience. We supplemented these answers with interviews with other individuals whose research and writing we respect, then used the input, collectively, as stimulus for shaping our thinking about the question. (Board members also cited recent publications that would influence management. These are noted in the selective bibliography.) We are very much aware of futility involved in trying to predict anything. As one
I numics
FRED LUTHANS RICHARD M. HODGE’ITS
commentator put it, “Had there been a computer 100 years ago, it would have predicted that by now there would be so many horsedrawn carriages it would be impossible to clean away the manure.” Trends never move in predictable linear fashion. There is always point, counterpoint, and merger, or, as philosophers put it, thesis, antithesis, and synthesis. Our crystal ball, placed against the backdrop of the responses we received, reveals this kind of dynamic future. On the one hand, there will be continued change in what we label “the organization”virtual corporations, flatter hierarchies (pancakes, not pyramids), networks, boundaryless operations, federalist structures, and so on. As counterpoint to this development-and to the recent downsizing frenzy-we will see a more mature articulation of the importance of people as a firm’s only sustainable competitive advantage. This will come in the form of high-performance work systems, “insourcing” as opposed to “outsourcing,” and a “packaging” of employment practices and policies to align work with the needs of the business. What is called “the new employment contract” may even be amended to include a SUMMER1396
7
Our thanks to these Organizational Dynamics board members for contributing ideas to this discussion: Chris Argyris,
Harvard Business
Warner Burke, College
Columbia
Wayne Cascio,
University of Colorado,
Lester
Digman,
School
University Teachers Denver
University of Nebraska
Rob Hartz, Fidelity Investments Mark Martinko, Edwin
Florida State University
Miller,
University
Edgar Schein, Technology Randall
Schuler,
Kenneth
Downsizing:
of Michigan
Massachusetts
Institute
of
New York University
Thompson,
DePaul University
Point and Counterpoint
Board member Edwin Miller pinpointed issues that may well temper the recent obsession with downsizing. There is now enough experience with downsizing, Miller noted, to indicate that cost savings from head count reduction and/or the use of temporary workers tend to be short term. These savings not only dissipate after a few years, but the majority of “rightsized” firms find they are now worse off than when they started. The same sequence of events could be said for the other tentacle of downsizing: outsourcing. An increasing number of firms are discovering that the logic of oursourcing can (and should) be questioned. Outsourcing is now coming under scrutiny because more realistic cost-benefit analysis shines a light on fixed costs and the lack of direct control over quality. In some cases, firms find that they are even losing valued customers to their outsourcing partners. As a reaction to head count reduction and blind outsourcing, the buzzwords for the future may become “insourcing” and “employability.” For example, German companies such
as Volkswagen and Opel are backing off their layoff plans and canceling outsourcing contracts. These auto firms now allow their own factories and relevant units to bid against outsiders on equal terms. (Warren Bennis, interviewed in this issue, cites a similar sequence of events at Harman International, the manufacturer of high-quality audio equipment.) By using a “platform strategy,” the insourcing can take advantage of economies of scale and the renewed competitiveness of current personnel eager to beat the outside bids. The wonderful side effect of this insourcing is that jobs are saved and organizational commitment is restored. However, this assumes that the inside human resources are trained and developed to effectively compete with the outsiders. The new vision for human resource management should be to go on the offense. The “poor me” syndrome is self-defeating. HRM must break the mind-set that reacts to the downsizing spiral by “making do” with what’s left. Part of a new offensive vision would involve making human resources “employable.” Although this objective would infer a degree of social responsibility (develop people so they can get jobs outside the organization), the new perspective of “insourcing” would allow the employable internal human resources to directly compete with the outsiders. Such competition would be analogous to what strategy guru Michael Porter suggested a number of years ago for success in the international arena. HRM should train and develop internal people to not only compete fairly with the outsiders (outsourcing alternatives), but in an offensive mode, to create a competitive advantage for the company.
New Vision for HRM All of this requires new thinking, restrategizing, and moving to a new level of understanding of the role of HRM. Board member Randy Schuler suggests a series of core concepts as a way to move to this next level. The first of his core ideas is that a company must strive to understand and manage its human asset needs within both the internal SUMMER 1996
9
and external environments. The internal environment includes top management goals and values, the nature of the technology that the enterprise is using, the size of the firm, and the competitive strategy. The external environment includes the degree of competitiveness in the industry, the legal and cultural norms of the society, the labor market, and the degree of unionization. These environments collectively determine the objectives of the enterprise or, in Schuler’s words, the “needs of the business.” What, exactly, is new about this way of thinking? Schuler argues that in the past, the desires of those who ran the business tended
lieves that people are important to its longrun success, it will create a philosophy of continual improvement and development of its personnel. It may then have a compensation policy that rewards self-development and an appraisal policy that includes the development of employees as an important criterion for the evaluation of managers. Fourth, Schuler describes the need to manage human resources from a multiple stakeholder perspective. The major stakeholders-owners/investors, customers, suppliers, society, employees, the organization itself--all have needs and objectives that must be served by the management of human as-
In the years ahead, top management will view HM in terms of broader, value-based alko linked
policies
to the needs
to determine “business needs” and their personal preferences influenced ideas regarding what would work best. The true needs of the business-as determined by its environments-were not the main criteria for determining the selection of HRM practices. Schuler’s second core idea is that HRM practices will have to be considered as a “package of practices,” including employee selection, appraisal systems, compensation systems, and so on, as is true for the “high performance” practices cited earlier. All these systems send signals on what employees should do, what is rewarded, and what is not. The days of thinking about each practice as independent will be replaced by more interdependent thinking-again driven by the “needs of the business.” Third, Schuler believes that in the years ahead, top management will view HRM in terms of broader, value-based policies and philosophies, also linked to the needs of the business. For example, if an organization be10
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and philosophies,
DYNAMICS
of the business. sets. Traditionally, companies thought of only one or two of these, but Schuler feels that in the future strong consideration should be given to all of the stakeholders. Support for concepts such as these seems to be growing, perhaps reaching critical mass. Various major consultancies in the compensation field-Sibson and Company, to cite one-have made the alignment of work and rewards a major thrust. Others, such as Hay Associates, are championing various systems of variable pay that make employees partners in company success. The various “parts” for Schuler’s vision may be coming together.
New Insights
into Personality
Board member Mark Martinko offers a more research-based perspective of the future of human resource management. For example, he suggests that recent meta-analytical research in areas such as personality may have significant implications. This new research
opens the possibility that HR managers may be able to more accurately describe the type of personalities and personality characteristics that relate to effective organizational performance and leadership. Martinko notes that until recently, researchers were hesitant to even suggest that particular personality traits were associated with effective performance and leadership. Although much research still needs to be done, he feels that we are moving closer to an ability to provide specific recommendations to HR practitioners regarding traits that predict effective leadership as well as other domains of organizational performance.
A Call to Action The bottom line is that HRM can no longer afford to be just an evolving field of theory, research, and practice. Let’s recognize the complexity suggested by Boulding and get on with it. We need more and better theory building and basic research. Also, perhaps even more important, we need translations of this theory and research for academics and professional managers. Easy to read, thoughtful articles on HRM can lead to more effective policies and practice and make our human resources truly become the sustainable competitive advantage in the challenges ahead. This is where Orgunizutionul Dynamics has and will continue to play an important role.
The boundaryless, virtual, network, horizontal, and learning organizations all require a transfer of decision making to those employees closest to the customers. Moving decision making authority down requires that top managers trust employees at lower levels to make accurate and informed decisions. These forms of organization provide the advantage of internal flexibility, while at the same time adapting to changes in their environment. There is a closeness between members of the organization and their customers and suppliers. These designs require managers to listen to customers and change their products and distribution systems to meet customer needs, rather than telling customers what to expect. According to board member Les Digman, permeable structures with information flowing freely between employees, customers, and suppliers require rethinking and unlearning traditional design concepts. It means forming partnerships and alliances with suppliers and perhaps even competitors rather than defending one’s turf. At the same time, the structures separating “functions” or “disciplines”-human resource management vs. financial management, for example-will become equally permeable. Several new metrics are gaining widespread use in helping HR managers gauge the performance impact of their contribution, and in helping financial executives evaluate returns on human capital. See sidebar, page 12.
ORGANIZATION DESIGN: THINKING OUTSIDE THE BOX
The Company
A second major theme, dealing with organizational design and change, emerged from our editorial board. For many organizations, choosing a design that enhances performance is becoming the latest management craze. Editorial board member Rob Hartz of Fidelity Investments believes that managers need to pay more attention to warning signs or red flags, such as slow customer response time, rigidity of systems, internal frustration, and customer alienations-all of which indicate that an organization’s design needs to be revamped.
While changing the boundaries of the organization is often seen as a panacea for managerial ills, such changes wilI have limited impact if the culture does not change. Board member Ed Schein recognizes the need for cultures to provide the organization with a sense of community or “glue” to hold the parts together. The sense of community ensures that the vision and strategy of the organization are known by all employees, and that these elements serve to guide their behavior. This sense of community is especially salient for
as Community
sum1996
11
Peering Over the Edge of the Box Two relatively new techniques for evaluating corporate performance value of human assets into perspective.
may well help bring the
Economic value added (EV). This approach calculates economic value added as after-tax profit, minus cost of capital for monies invested in a unit’s tangible assets. Greater value added comes from (a) judicious management of physical assets and (b) the contributions of human talent and energy to performance, among other activities. EV is said to reduce “accounting distortions” and avoid capricious fluctuations in the stock market as measures of company performance. Thus, there is growing use of the technique for determining salaries and bonuses at all levels. Activity
based costing (ABC). Developed for application in manufacturing operations, this direct costing method calculates the costs for a series of related activities, beginning with “purchase supplies” and ending with “ship product.” This allows management to identify how “cost drivers” impact an entire operation. Thus, managers can look for ways to remove nonvalue added costs and enhance those activities (including HR activities) that do add value. Although applications to service operations have been slow in coming, Peter Drucker and others continue to champion the ABC accounting methods as the single most important idea for the future.
organizations that are physically dispersed, such as GE, ABB, Elf, and other organizations that are exploring vast new markets throughout the globe. Suddenly Marshall McLuhan’s vision of a global village is no longer a futuristic pipe dream. Boundaries between markets, organizations, and nations have become irrevocably blurred. Board member Warner Burke notes that reward systems provide one of the mechanisms for designing cultures that provide a sense of community. Reward systems are vehicles whereby the organization can communicate its beliefs about customer loyalty, employee development, teamwork, and other valued characteristics. Traditionally, reward systems have served to magnify differences between employees and managers and divisions. Reward systems that are based on demonstrated competencies, integrated with performance, and shared with all members of the organization reinforce a sense of community and togetherness. Board member Kenneth Thompson notes that a leader can provide the sense of community identified by Schein by creating a vision that develops an organization’s learning capabilities. A vision is needed to keep the or12
ORGANIZATIONAL
DYNAMICS
ganization focused on meeting the needs of its customers, both internal and external.
Fast and Flexible Improvisation Cultural qualities such as those just discussed will help a company compete in tomorrow’s “war of movement” business world, where success will depend on anticipating market trends and quickly responding to customers’ needs, rather than carefully plotting out every alternative move that a competitor can make. Speed and flexibility become primary. Successful competitors will need to move quickly in and out of products, markets, and sometimes entire businesses. Strategic choices may be more akin to playing an interactive video game where each organization faces unknown opponents, and less like playing chess, where the opponent is known and has limited moves. The essence of this new strategy will often not be found in the company’s product line, but in the dynamics of its core capabilities and top management’s strategic thinking. This will require organizations to think of themselves as sets of shared resources and competencies that can be mobilized in differ-
ent ways to meet customer needs. Top management’s challenge is to create processes by which this mobilization occurs quickly, effortlessly, and proactively. One way to view organizations of the future is to imagine them being more organized along the lines of a jazz group rather than a band playing a John Phillips Sousa march. The needs of customers change so fast that one day, one customer may need a sax, cornet, and piano in the mix; another customer might require a clarinet, guitar, and bass. None of these players have any scored music, nor is there a conductor. They must improvise together in such a way that the customer finds the music pleasing.
It Starts with the Individual Organizational change does not occur without people changing. Over the last few years, we have seen hundreds and hundreds of organizations invest considerable resources in team building activities, organizational learning seminars, action learning projects, leadership development programs, reengineering efforts, and total quality management programs, among other change efforts. Yet in many cases, these change activities have had limited success because employees did not change. What human resources competencies must individuals acquire and/or hone for an organization to change? First, individuals need empathy to repair relationships caused by intricate webs of people who have diverse values and experiences. Empathy permits individuals to learn from their customers, suppliers, business partners, and community. Second, we must unlearn personal efficacy. Board member Chris Argyris challenges mangers to become “double-loop” learners. That is, we must be able to learn from our experiences, not with simple adaptations, but with a second “learning loop” that gets at the personal theories that influence our conduct.
If we take pride in our past accomplishments, such pride may pose a barrier to our ability to learn how to improve our performance. Third, systemic thinking means having employees think outside of the box or “silo.” Employees need to focus on the totality of their experiences and not compartmentalize these. Restructuring organizations into network, horizontal, or virtual forms requires employees as well as their managers to develop broader perspectives. The leader assumes a pivotal role in designing systems that reinforce a systemic view. Board member Rob Hartz, reflecting on Joan Lancourt’s writings on complex adaptive systems, notes that if “control” is not possible in these complex networks, then the manager’s role changes to one of catalyst, coordinator, conscience, and coach. Finally, we should have a degree of humility about our own experience and a willingness to suspend the need for control. Hierarchical organizations with systems that track and reward individual performance, spotlight leaders, and bespeak authoritarianism are symptomatic of a closed managerial mind. Openness begins with a recognition of the limitations of our own values, experiences, and knowledge. The articles that have appeared in Orgunizational Dynamics have indeed involved “thinking outside of the box.” In the future, this way of thinking will mean we have to reconfigure the box itself as well as go beyond the boundaries of the box. The articles in our 25th Anniversary issue are a good start in that direction. If you wish to obtain reprints of tbis or otber articles in ORGA~KZA~ONM Dm~cs, please refe to the reprint instructions on page 80 or call (800) 644-2464.
SELECTED BIBLIOGRAPHY
Board members cited these publications as being especially influential in the development of new management ideas and practices. For more insight on the future role of human resource management, see especially David Ulrich and Dale Lake, Organizational Capability: Competingfrom the Inside Out (New York: John Wiley, 1990). Board member Edwin Miller views this work as “challenging operating managers and HRM professionals to reframe their thinking about the role that this function can play in terms of both management practice and organizational success.” See also Jeffrey Pfeffer’s Competitive Advantage Through People (Boston: Harvard Business School Press, 1994) and M.A. Huselid, “The Impact of Human Resource Management Practices on Turnover, Productivity, and Corporate Financial Performance,” Academy of Management ~ourna2,Vol. 38 (1995), pp. 635-672. Randall Schuler’s concept of the new HRM vision is developed in an article co-authored with Susan Jackson, “Understanding Human Resource Management in the Context of Organizations and Their Environments,” Annual Review of Psychology, Vol. 46, pp. 237-264. Clearly, one of the most influential works published in recent years is Gary Hamel and C.K. Prahalad, Competingfor the Fufure (Boston: Harvard University Press, 1994). The ideas here also argue against a blind preoccupation with downsizing and a focus on core capabilities as a way of competing for new, emerging markets. On the topic of new organizational structures, see William H. Davidow and Michael S.
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DYNAMICS
Malone, The Virtual Corporation (New York: HarperBusiness, 1992). See also Warren Bennis and P.E. Slater, The Temporal Society(New York: Harper and Row, 1968) and J.O’Toole and Warren Bennis, “Our Federalist Future: The Leadership Imperative,” California Management Review, Vol. 34, No.4, pp. 73-90; and N. Nohria and R. Eccles, eds., Networks and Organizations: Structure, Form, and Action (Boston: Harvard Business School Press, 1992). Board member Warner Burke cites several works as important in the study of organizational culture: J.P. Kotter and J.L. Heskett, Corporate Culture and Performance (New York: Free Press, 1992) and James C. Collins and Jerry I. Porras, Built to Last: SuccessHabits of Visionary Companies (New York: Free Press, 1992). On new research on personality theory, see M.R. Barrich and M.K. Mount, “Anatomy as a Moderator of the Relationships Between the Big Five Personality and Job Performance,” Journal ofApplied Psychology, February 1996, pp. 111 ff. See also William L. Gardner and Mark J. Martinko, “Using the Meyers-Briggs Type Indicator to Study Managers: A literature Review and Research Agenda,” Journal of Management, Vol. 22, No. 1, pp. 45-83. On the development of systems thinking, see Joan Lancourt, Edwin Nevis, and Helen Vassallo, lnfentional Revolutions: A Seven Point Strutegy for Organizational Transformations and, of course, Peter Senge’s The Fifth Discipline: The Art and Practice of the Learning Organization (New York Harper Books, 1991).