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MANAGING WORK FORCE DIVERSITY - Need for a Contingency Approach in IHRM Prof. Dr. Uday Salunkhe Prof. Dr. P. S.Rao Director Dean Prin. L. N. Welingkar Institute of Prin. L. N. Welingkar Institute of Management Development & Research Management Development & Research Matunga , Mumbai – 400019 Matunga , Mumbai – 400019 ABSTRACT :

The attitudes, beliefs, values and customs of people in a society are an integral

part of their culture. Naturally, their culture affects their behaviour on the job

and the environment within the organization, influencing their reactions to

work assignments, leadership styles, and reward systems. Like the external

and internal environments of which it is a part, culture is undergoing continual

change. HR policies and procedures therefore must be adjusted to cope with

this change. In this paper an attempt was made to examine the workforce

diversity and cultural diversity and discussed the role of IHRM and its

challenges in International Business and also how Inter country culture

differences affect HRM with Indian perspective.

Work Force Diversity -what it means? Work force diversity means those organizations in general and Multinational

Corporations (MNC’s) in particular, which are becoming more heterogeneous

in terms of gender, race, and ethnicity. One of the most important and broad –

based challenges currently facing these organizations is adapting to “people”

who are different. The traditional “melting pot approach” to differences in

organizations conveniently assumed that people who were different would

some how automatically want to assimilate. But it is now increasingly

recognized all over the world that employees do not set aside their cultural

values and life style preferences when they come to work. The challenge (and

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also opportunity) for organizations, therefore, is to make themselves more

accommodating these diverse cultural groups of people by addressing their

different life styles, family needs, and work styles. However, the melting pot

assumption is being replaced in recent years by one that recognizes and values

differences

Work Force Diversity –Management Implications: Work force diversity has important implications for management practices.

Managers will need to shift their philosophy from treating everyone alike to

recognizing differences and responding to those differences in ways that will

ensure employee retention and greater productivity – while, at the same time,

not discriminating. Workforce diversity is a “doubled-edged sword”. It cuts

both ways. If positively managed, diversity can increase creativity and

innovation in organizations as well as improve decision making by providing

different perspective on problems. When diversity is not managed properly,

there is potential for higher turnover, more difficult communication, and more

interpersonal conflicts.

Review of Literature:

Dramatic increases in international activity in the last decade have raised

attention on the management of human resources in firms operating across

borders. Much literature discusses IHRM in terms of how it differs from

domestic HRM. Morgon (1986) discusses three factors:

1. Type of employees (local nationals, expatriates, third country nationals);

2. Countries of operations (host, home, other); and

3. Human resources function operations (procurement, allocation,

utilization).

4. Others (Flokowski and Nath, 1990; Kidger, 1991; Gronhaug and

Nordhaug, 1992) argues that IHRM differs from and is more difficult to

manage than domestic HRM because of macro environmental factors such

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as cultural, socio-economic, institutional, and political dissimilarities

across countries. Schuler et al. (1993) define IHRM 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.” In a multicultural

context, IHRM comprises four critical components :

1. A firm’s various environments or context (both inside and outside of

the firm);

2. The IHRM function (activities of finding, allocating, developing and

valuing human resources plus supporting systems and processes);

3. Employees involved in work that transcends borders (mode of

international interaction. Level / type, and “source) and

4. Outcomes or contribution of HRM.

These components of IHRM create a three-part framework or process of

diagnosing organizational environments, designing and managing human

resources activities, systems, and processes in organizations that operate

across borders and evaluating IHRM’s contribution.

In a multicultural context, IHRM function focuses on activities, polices and

practices of managing human resources. Four types of human resource

activities include: Finding, allocating, developing and valuing employees.

1. Finding consists of planning for, recruiting, and selecting employees

(Kane and Stanton, 1991).

2. Allocating includes issues relating to staffing, promoting, demoting, and

transferring employees (Gregersen and Black, 1992).

3. Developing employees embraces policies and practices associated with

preparing employees for current and future jobs in terms of formal and

informal training, development programmes, and career management

(Evans, 1992).

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4. Finally, valuing employees entails appraising, rewarding maintaining

strong relations with, and assessing benefits and costs associated with

employees (Waston, 1992;Pennings, 1993)

Milliman et al. (1991) use organizational life cycle more specifically as a

means to asses what various units will need in term of IHRM practices.

Firms and IHR managers must acknowledge the impact of external and

internal influences on the way IHRM is developed and managed. Dowling et

al. (1994) contend that as firms grow or develop over time, they require

different types of IHRM practices.

Cultural Diversity and its Management: Management is no longer constrained by national borders. For instance,

Exxon, a so-called American company, receives almost 75 per cent of its

revenues from sales outside the United States. Toyota makes cars in

Kentucky; General Motors makes cars in Brazil; and Ford (which own part of

Mazda) transfers executives from Detroit to Japan to help Mazda manage its

operations. These examples illustrate that the world has become a global

village’. In turn, managers have to become capable of working with people

from different cultures. The dictum in a multicultural context is “think

globally and act locally”.

Cultural diversity from the point of multiculturalism management can be

examined at two levels – international diversity and intranational diversity.

International level of analysis assumes that people from different countries

have common characteristics that differentiate them from people in other

countries (cross-national differences). On the other hand, intranational

diversity which synonymous with the tem ‘work force diversity’, recognizes

the importance of differences within any specific country.

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International Diversity: The familiar phrase “When in Rome, do as the Romans do” captures the

essence if why it is crucial to understand international diversity. Those

managers who understand and appreciate cross-national differences and can

adjust their managing styles appropriately when working with people from

other countries will be more effective than those who naively assumes “all

people are alike״.

Managerial styles and practices will have to be tailor-made to fit into the cross

national differences in a specific country. For instance the British protect

their privacy and avoid asking personal questions. In contrast, asking

personal questions in Greece is a sign of showing interest. In Denmark, they

would use professional titles when addressing people; but avoid it in Greece

where such a formality is frowned upon. In Japan, all business transactions

begin by the formal exchanging of business card; but knowledgeable

managers know not to expect this practices in Italy. While August may be

like any other month in most countries, managers should know not to do

business during this month in France. It should be noted that the British are

very prompt in sticking on to the schedules, managers who understand

national differences would not be wondered if an Indian turned up 20 or 30

minutes late for an appointment.

Intranational Diversity: From the above discussion it follows that it is relatively easier to say ”When

in Rome, do as the Romans do” than it is to know exactly what it is that “the

Romans do”. Managers should also understand the characteristics common to

people within a specific country in order to manage successfully in a global

economy.

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Multinational corporations (MNCs) maintain significant operations in two or

more countries simultaneously. They are a natural outcome of the global

economy. MNCs use their worldwide operations to develop global strategies

and gain sustainable competitive advantage. For instance, a photocopying

machine might be designed in Toronto, have its microprocessing chips made

in Taiwan, its physical case manufactured in Japan, be assembled in South

Korea, and then be sold out of warehouses located in Melbourne, London, Los

Angeles, and India.

A global economy presents challenges to managers that they never had to

confront when their operations were confined to within national borders.

They face different legal and political systems. They confront different

economic climates and tax policies. Besides, they must also effectively deal

with varying national cultures the primary values and practices that

characterize particular countries - many of which are nothing like those in

which they have spent their lives.

Sometimes, it is agued that the creation of a true global village is making the

concern over cultural differences irrelevant. It is predicted that in the long

run, the global village will become a single homogeneous culture – a world

melting pot in which cross-cultural differences will all but disappear.

Research demonstrates that organization strategies, structure, and technologies

are becoming more alike. However, there are still differences among people

within organization in different cultures. In other words, culture continues to

be a powerful force in explaining a large proportion of culture–specific and

contingency approach in managing culturally diverse organizations. Since the

various components of an organization–people, structure, task, technology,

environment – interact in a highly complex manner, multiculturalism

prospective in management intends to establish, develop and sustain

synergistic and symbiotic relationships among these components by adopting

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a cross-cultural approach to management. If people were becoming more

homogeneous, one could take a culture-free approach to management. But

such an approach does not appear to hold water at present owing to the

following reasons:

1. There are differences in managing people at work across national cultures;

2. Their differences explain a large proportion of the variance in attitudes,

values, belief and behaviour pattern; and

3. For now at least, and probably for a number for years to come, these

differences are not decreasing at any significant rate. Despite the

tremendous increase in cross-cultural communication, these continue to be

unique country-specific traditions and customs that shape the attitude and

behaviours of the people in those countries.

Characteristics of Multicultural Organization: The true multicultural organization is characterized by core cultural values

and an ongoing commitment to eliminate social oppression throughout the

organization. All members of diverse cultural and social groups are involved

in the decisions that shape the mission, structure, technology, psychological

dynamics, and products and services of the organization.

The foundation and point of departure for effectively managing diversity is

the development of a truly multicultural organization (Nemetz and

christernsen, 1996). A multicultural organization has been described by

Jackson et al. (1992) as one that

1. reflects the contribution and interests of diverse cultural and social groups

in its mission, operations, and product or service;

2. acts on a commitment to eradicate social oppression in all forms within the

organization;

3. includes the members of diverse cultural and social groups as full

participants, especially in decisions that shape the organization; and

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follows through on broader external social responsibilities, including support

of other institutional efforts to eliminate all forms of social oppression.

Role of HRM and its challenges in International Business:

When researchers asked senior international HR managers in eight large

companies, “What are the key global pressures affecting human resource

management practices in your firm currently and for the projected future?”

The three that emerged were:

1. Deployment. Easily getting the right skills to where we need them,

regardless of geographical location.

2. Knowledge and innovation dissemination. Spreading state-of-art

knowledge and practices throughout the organization regardless of where

they originate.

3. Identifying and developing talent in a global organization and developing

his or her abilities.

How Intercountry culture differences affect HRM? Companies operating only within the borders of the United States generally

have the luxury of dealing with a relatively limited set of economic, cultural,

and legal variables. The United States is a capitalist, competitive society. And

while the U.S. workforce reflects a multitude of cultural and ethnic

backgrounds, shared values (such as an appreciation for democracy) help to

blur potentially sharp cultural differences. Although the different states and

municipalities certainly have their own laws affecting HR, a basic federal

framework helps produce a fairly predictable set of legal guidelines regarding

matters such as employment discrimination, labour relations, and safety and

health.

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A company operating multiple units abroad isn’t blessed with such

homogeneity. For example , minimum legally mandated holidays range from

none in the United kingdom to 5 weeks per year in Luxembourg. And while

Italy has no formal requirements for employee representatives on boards of

directors, they are required in Denmark for companies with more than 30

employees. The point is that the need to adapt personnel policies and

procedures to the differences among countries complicated HR management

in multinational companies.

For example consider the following :

American, European and Asian Experiences: The findings of Hofstede (1991), Trompenaars (1993), and other have made it

clear that management theories and practices are constrained by national

cultures. National culture shapes behaviours and structures the perceptions

that managers have of the world. Managers are guided by implicit theories

of managing and organizing that can neither be divorced form society nor

guided by universals ( Hickson, 1993). HRM impacts directly on culturally

specific ways of doing things and is buttressed by national institutions and

value system, so HRM researchers need considerable historical and cultural

insight into local conditions to understand the processes. Philosophies, and

problems of national models of HRM (Hofstede, 1993).

Countries differ widely in their cultures – in other words, in the basic values

their citizens adher to and in the ways these values manifest themselves in the

nation’s arts, social programs, politics, and ways of doing things.

Cultural differences form country to country necessitate corresponding

differences management practices among a company’s subsidiaries. For

example, in a study of about managers from Hong Kong, the People’s

Republic of China, tended to be most concerned with getting the job done.

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Chinese managers were most concerned with maintaining a harmonious

environment, and Hong Kong managers fell between the se extremes.10 A

classic study by Professor Geert Hofstede identified other international

cultural differences. For example, Hofstede says societies differ in power

distance – in other words, the extent to which the less powerful members of

institutions accept and expect an unequal distribution of power. He

concluded that acceptance of such inequality was higher in some countries

(such as Mexico) than in others (such as Sweden).

Studies show how such cultural differences can influence HR polcies. For

example, compared to U.S. employees, “Mexican workers expect managers to

keep their distance rather than to be close, and to be formal rather than

informal. “ Similarly, compared to the United States, in Mexican

organizations “formal rules and regulations are not adhered

to unless someone of authority is present.” In Mexico, individualism is not

valued as highly as it is in the United States. As a result, Some workers don’t

place as much importance on self-sufficiency. They tend to expect to receive

a wider range of services and benefits (such as food baskets and medical

attention for themselves and their families) from their employers.

In fact, the list of cultural differences is endless. In Germany, you should

never arrive even a few minutes late and should always address senior people

formally, with their titles. Such cultural differences are a two-way street, and

employees from a broad need orientations avoid the culture shock of coming

to work in the United States. For example, in the Intel booklet “ Things You

Need to Know About Working in the U.S.A.,” topics covered include sexual

harassment, recognition of gay and lesbian rights, and Intel’s expectations

about behaviour.

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Reanalyzing his IBM data for European subsidiaries along the four statistical

dimensions of individualism, uncertainty avoidance, power distance, and

masculinity, Hofstede (1993b) pursues two themes : first, culturally Europe

does not exist; and second, Europe is becoming a cultural laboratory for the

world. Europe is not becoming more similar but is, rather, learning to

collaborate. Cultural accommodations, not assimilation, is the key to

understanding European management practices.

European managers approached during 1990s with a number of different

cultural assumptions about some of the most value-laden aspects of HRM,

such as the role of collectivism, the definition of managerial skills, attitudes

toward authority, need for interpersonal feed back, assumptions about rewards

and equity, and the social and cognitive constructs that mangers use to think

about organizations and their careers (Sparrow, 1995). The most obvious

links between national culture and HRM in a country are to be found through

the following mechanisms:

1. the attitudes and definitions of what makes an effective manager and their

implications for the qualities recruited, trained, and developed.

2. the giving of face-to-face feedback, levels of power distance, and

uncertainty avoidance and their implication for recruitment interview,

communication, negotiation, and participation processes.

3. Readiness to accept international assignments and expectations of what

will get you promoted

4. Expectation of managers – subordinate relationships and their implications

for performance management and motivation.

5. Pay systems and differential concepts of distributive justice, socially

healthy pay, and the individualization of reward.

6. The mindsets used to think about organizational structuring or strategic

dynamics

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Empirical studies in the recent past reveal that significant differences still

exist between European countries in terms on centralization and vertical

hierarchy, role of flexible work practices, emphasis on rewarding customer

service, rewards for innovation and creativity, and an emphasis on corporate

responsibility (Sparrow, Schuler, & Jackson, 1994). Britain, Germany, and

Italy, however appeared to be on a path of convergence in their overall pattern

of HRM, although France can be expected to continue to diverge. A large

number of common emphases and convergent areas of HRM were emerging

such as: promoting an empowerment culture, an increased role of

communication, the need to improve horizontal management processes, the

use of IT to help structure the organization, the role of recruitment, the

importance of training and career management, and the increasing link being

forged between pay and performance.

Multiculturalism and IHRM – Indian Perspective:

Compared with U.S. concepts for HRM, an Indian perspective needs to take

the following into account:

1. More restricted levels of organization autonomy in HRM decisions such as

recruitment, dismissal, and training:

2. A history which has produced a lower exposure of organizations to market

process;

3. A greater emphasis on the role of the group over the individual;

4. The increased role of social patterns (trade unions and employee

representatives) in the management of the business and the people within

it.

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Indian managers and academic researchers need to appreciate four major sets

of factors:

1. Cultural factors, such as national understanding of distributive justice and

manager – subordinate relationship.

2. Institutional factors, including the scope of labour legislation and social

security provisions and role of trade unions.

3. Differences in business structure and system, such as the degree of state

ownership and fragmentation of industrial sectors.

4. Factors relating to the roles and competencies of HRD professional.

Similarly, there is no such thing as a single European pattern of HRM, and,

marked differences exist between countries in terms of their practice (Sparrow

and Hiltrop, 1994). The field of comparative HRM is long on description but

short on analysis.

Conclusion: IHRM- Need for contingency approach: These discussions lend credence to the fact that a multicultural, multinational

organization cannot impart and implement “best practices” in HRM without

suitably modifying or aligning them to the firm’s internal and external cultural

environment. The belief that there is an identifiable set of best practices for

managing employees (the universal approach to IHRM) that have universal,

additive, positive effects on organizational performance seems to be a myth

rather than a reality. There is, of course, one level at which IHRM is

universal. All organizations operating across the borders have to utilize, and

hence to manage, human resources. In the ultimate analysis it could be stated

that IHRM philosophy, policies, procedures, programmes, and practices

would substantially influence the organizational performance when aligned

with nation and culture – specific IHRM strategies, there by supporting a

contingency view of IHRM in the multicultural context.

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Author’s Profile

Prof. Dr. Uday Salunke Director - Welingkar Institute of Management is

a mechanical engineer with a management degree in 'Operations', and a

Doctorate in 'Turnaround Strategies'. He has 12 years of experience in the

corporate world including Mahindra & Mahindra, ISPL and other companies

before joining Welingkar in 1995 as faculty for Production Management.

Subsequently his inherent passion, commitment and dedication toward the

institute led to his appointment as Director in 2000. Dr. Salunkhe has been

invited as visiting fellow at the Harvard Business School, USA and European

University, Germany. He has also delivered seminars at the Asian Institute of

Management, Manila and has been awarded "The Young Achievers Award-

2003" in the field of Academics by the Indo American Society recently.