What is strategic human resource management?
What is strategic human resource management?

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What is strategic human resource management?

2 Different types and levels of context

Differences between the following contexts cause variation in HR practice:

  • clusters of countries
  • countries
  • industry sectors
  • organisations within the same sector
  • parts of organisations.

Differences between clusters of countries

Analysts have noted patterns which show similarities of employment policies and practices among Mediterranean countries, which differ from Scandinavian countries, which in turn differ from Rhineland countries (Germany and related northern European countries) which are different again from Anglo-Saxon countries.

A striking example of differences in employment practices across countries is found in the vibrancy of the small- and medium-sized German companies known as Mittelstand. These companies, many of them family owned, invest for the long term, are export-oriented and invest in their workers and their machinery. They are often contrasted with Anglo-Saxon practices which seem more short term in their outlook and which rely on City finance.

Activity 4: The strength of the Mittelstand companies

Timing: Allow around 30 minutes for this activity.

Part 1

Watch the short video ‘Mittelstand’ and then listen to the radio clip ‘Lessons from Germany’s Mittelstand’. From both sources make notes on your own thoughts about what lessons managers from other countries might draw from these cases.

Download this video clip.Video player: Mittelstand
Skip transcript: Mittelstand

Transcript: Mittelstand

BOB HOCKENHULL:
Mittelstand are medium-sized companies. It's these not large multinationals credited with creating Germany's economic success. Our government believes a similar model here could boost the UK economy by 50 billion pounds.
MAN 1:
Germany's been concentrating on this for probably 60 years, so we can't do it overnight. But if you look at, for instance, the proportion of German companies that export, export outside the EU, it is much higher than the UK.
MAN 2:
We drive long-term strategies, and that gives us the flexibility to try out something that doesn't seem to give the return right away, but long term is a very fruitful opportunity.
BOB HOCKENHULL:
F. Ball, near Leeke, an example of what the government wants. It makes adhesive flooring, is still family run, has invested millions in machinery, but kept the 130-strong workforce.
MAN 3:
I think it's investing in the people, which is one of the most vital things to ensure that you have the buy-in from everybody, to ensure that the customer can get what he wants.
BOB HOCKENHULL:
Today's Mittelstand Conference is taking place at JCB, which, of course, was once a medium-sized company itself. One delegate had a warning, though.
MAN 4:
Don't try to copy the German model because a copy can never be as good as the original. But look at it, and take the best out of it.
BOB HOCKENHULL:
It's estimated Britain would have a quarter of a million extra jobs if mid-sized companies had grown at the same rate as Germany's. Bob Hockenhull, BBC Midlands Today, Staffordshire.
End transcript: Mittelstand
Mittelstand
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Download this audio clip.Audio player: Lessons from Germany’s Mittelstand
Skip transcript: Lessons from Germany’s Mittelstand

Transcript: Lessons from Germany’s Mittelstand

Presenter
Vorsprung durch Technik, you know what I mean by that, and the British Government wants businesses here to get some. It's invited German middle-sized businesses, mittelstand, to meet their UK counterparts. Why are these German firms so successful? Our reporter Bob Walker went to the meeting of European Minds in Staffordshire.
Bob Walker
This conference is taking place at the headquarters of JCB, a company which continues to expand and take on more workers, but today's delegates are trying to learn lessons from Germany. There are more than three-and-a-half million mittelstand companies in Germany, each employing fewer than 500 people, and they account for around a half of German national income. I am joined by one of today's speakers, Joachim Secker, who is from GE Capital, a lending company. What would you say is the secret of the success of mittelstand in Germany?
Joachim Secker
The ownership structure, which is family-based, usually company goes from generation to generation. A lot of these companies are champions in niches, which they decided to go to. They take a lot of care for two things. One is R&D, where they invest on average about 5% of their revenues, and the other one is education, the apprenticeship model, which the mittelstand supplies four out of five in Germany.
Bob Walker
And why is the system of family-owned companies so important?
Joachim Secker
It gives the whole thing a long-term spin. There is no shareholder-driven quarter result focus. You can see in a lot of companies that they really plan over decades and that clearly shows that this is a long-term oriented thinking.
Bob Walker
And the differences in the banking system here, in Germany?
Joachim Secker
The mittelstand companies really profit from the three pillar system, as we call it. Eighty per cent of the lending market for medium-sized enterprises is in the hand of cooperative banks and government-owned saving banks, only 20 per cent by private banks, and these two institution groups are there to support mittelstand companies.
Bob Walker
And the system of apprenticeships, I just heard you, during your speech, talk about how respected apprentices are.
Joachim Secker
Oh, absolutely, it is certainly no different if you sit down with people in Germany around a desk and you have people telling that they have an education based on an apprenticeship. They are as socially high respected as somebody with a college study would be.
Bob Walker
And you say ‘treat your employees well’?
Joachim Secker
Yes, that is certainly something that German companies have in mind, you know. If you look at the cooperation between the unions and the employers, that is very cooperative, it is not based on confrontation, and also things like holidays, subsidies in terms of benefits which employees can get, that is things that medium-sized companies in Germany hold very high, and that works to the advantage, and I see quite some differences there compared to other European countries.
Bob Walker
And finally, if there were one lesson for companies here in the UK, what would it be, a one tip?
Joachim Secker
Be patient, be there for the long-term, but don't stop investing into it.
End transcript: Lessons from Germany’s Mittelstand
Lessons from Germany’s Mittelstand
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What do you think drives the differences between German and UK approaches?

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Part 2

Now listen to the interview which takes place in the studio and compare your answers to the points made by the expert guest.

Download this audio clip.Audio player: The differences in approach between German and UK mid-sized companies
Skip transcript: The differences in approach between German and UK mid-sized companies

Transcript: The differences in approach between German and UK mid-sized companies

Presenter:
Quentin Peel, for several years was the Financial Times chief correspondent in Berlin. What can British small and medium-sized businesses learn really from the German experience?
Quentin Peel:
That it's actually rather complicated, that it isn't something that you could just get a nice blueprint and say we'll copy it, you know, it's to do with apprentices, it's to do with your banks, it's to do with being export-oriented and, even if you've only got sixty people, ten of them are out there trying to sell to China.
Presenter:
So is it so different and are there so many different factors that trying to import it piecemeal, trying to import elements of that is pointless?
Quentin Peel:
I don't think it's pointless, no, because there are a lot of good lessons to be learnt but, the trouble is, we've lost a hell of a lot of what we once had. I mean we used to train a lot of apprentices in this country too, but back in the ’80s Margaret Thatcher deregulated the whole sector and it's never really recovered. I think one of the reasons why it works in Germany is that these small companies trust the system so something like 85 per cent of all German apprentices are trained in small companies, and most of them work the rest of their lives in the same company. It's a sort of, you know, I look after you and you look after me system where people don't turn over their jobs every five years.
Presenter:
What about the idea that so many of the companies are family-based and can go back generations, I mean there's some of that here but is it much more prevalent there?
Quentin Peel
Yes, I think it is. They've survived. There are new ones, too, I mean I was looking, East Germany is a big problem because all the family companies were destroyed by communism so one of the big challenges they face is can they recreate this now in East Germany? I went to a company there in former Karl Marx Stadt, founded by three chemical engineers. They've now, twenty years later, they've got a thousand people and 50 per cent of the world market in the machines that coat solar panels, and that's the sort of thing they're so good at. They make the machines that do things and people want to buy them.
Presenter:
What's different about the banking system in this context?
Quentin Peel
Well, very localised. You've got all these Sparkassen, savings banks, very local level, only one town at a time, they know their customers, and it's a long-term relationship. The customers save with them, and they borrow from them and they don't get it called in in short notice so, again, it's the long-term planning that's involved. And you also get, these are very provincial companies, it's not as if they're all rushing to the big cities. You've got these mittelstand companies all over Germany in places we've never heard of.
Presenter:
What about, we've talked about banking, we've talked about apprenticeships, what about the university system and the sort of degrees people take?
Quentin Peel
Well, I mean what worries me about Britain is that we've actually probably got too many people going to universities, doing superficial degrees that don't really qualify them to do jobs.
Presenter:
So what are they doing in Germany?
Quentin Peel
Sixty per cent of German school-leavers do apprenticeships and very practical work. I mean I've got lots of kids coming out of school here in this country at the moment and they face a situation where far from doing apprenticeships, they're expected to be interns, paid absolutely no money, in order to get a foothold in the jobs market, whereas in Germany they'd have gone and become apprentices and have a much more formalised system.
Presenter:
Is Britain good at the sort of long-term planning they seem to be good at in Germany?
Quentin Peel
No, it's not good at the long-term planning, it's much more short term. Again, the German companies, and I think the figure's something like 7 per cent go to venture capital for their money. Now venture capital on the whole is looking for quite a quick return, or the banks are looking for a quick return. The German system isn't. Far more of these companies are family equity-financed. They just plough the profits back in because you're looking after, you know, little Johannes, your grandson, who actually you want the company still to go for. It's not perfect because, you know, the third generation often blows it but, having said that, it's amazing how many companies do survive.
End transcript: The differences in approach between German and UK mid-sized companies
The differences in approach between German and UK mid-sized companies
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Discussion

The answer is indicative of the complexity of content explored in this course. The drivers include a mix of industrial policy, culture, the way companies find the finance, employment laws, the apprenticeship system and other factors. There is also some uncertainty about the extent to which it is possible to cherry-pick selective elements without adopting the full package. This reflects the point discussed earlier about the interplay between contextual variables.

Differences between countries

Within the clusters there are also differences between countries. For example, within the Anglo-Saxon cluster, there are differences between American HR practices and those in the UK. Both in turn differ from the practices in Australia.

Labour laws and the ways in which they are enforced or ignored are one important example of differences between countries. These laws are not static, they are also subject to change with industrial policy and in response to changes such as membership of trade areas like the European Union. A shift to a more open, free labour market in the UK, along with complex and prevalent outsourcing and sub-contracting arrangements, led to tensions such as those described in the video below, which discusses the use of contract workers at Total Oil refinery.

Download this video clip.Video player: Total Oil refinery
Skip transcript: Total Oil refinery

Transcript: Total Oil refinery

EMMA MASSEY:
At a time of economic weakness and when jobs are being cut across the country, UK workers here at Total's oil refinery are frustrated because there are jobs available here in Immingham, just not for them. And that's because an Italian-based company, IREM, has been contracted in to do part of the HDS-3 construction project and it will be using Italian and Portuguese workers, leaving British workers out in the cold. Billy Bones is a contractor at the North Lincolnshire oil refinery and he says workers' livelihoods are being threatened.
BILLY BONES:
This is a classic case, is this industry, of being able to train highly-skilled, competent people but with us being barred from employment by all these foreign companies – which is getting worse and worse, it's getting more and more prevalent throughout the industry – the employment opportunities for us, as adults, and also for the training, is just disappearing.
EMMA MASSEY:
Lindsey Oil Refinery is Britain's third largest. It processes 200,000 barrels of oil a day. That's 10 million tonnes of oil a year. The unions have been told foreign workers have been brought in because they're skilled workers, but the union Unite disputes this and says these contractors are pipefitters, welders and riggers, all construction workers available in the UK.
UNION REPRESENTATIVE:
Our members have worked on these projects throughout their working life and have got the skills and experience better than anybody else, because the British engineering worker is clearly established as the front person within the engineering construction industry throughout the world.
EMMA MASSEY:
There are also concerns that because the overseas workers are bussed in and out of work and live on a barge in Grimsby which acts as a floating hotel, they're not part of the local community. Total has issued a statement which says, "The main contractor, Jacobs, is currently having discussions with workers and union representatives," and hopes "the situation will be resolved as soon as possible."
Elsewhere today, unemployed construction workers have been protesting at a power station near Newark for similar reasons. They claim jobs at Staythorpe Power Station have been going to foreign workers too.
Although today's walkout has not affected the day's normal operations at the refinery, that may be different tomorrow when workers picket the site in further protests. Emma Massey, BBC Look North, in Immingham.
End transcript: Total Oil refinery
Total Oil refinery
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The lack of training and the reliance on an opportunistic use of highly mobile, temporary, contracted labour forces illustrated by this video shows a marked contrast with the long-term employment system characteristic of the Mittelstand companies described above.

Differences between industry sectors

Employment and HR policies and practices are usually very different in professional service firms when compared with manufacturing firms or public sector employment. For example, levels of unionisation tend to be much higher in the public sector compared with private sector organisations.

Differences between organisations in the same sector

Even in the same industry sectors, although there are often some similar patterns, different firms may pursue different HR policies. Often this reflects different HR strategies matching different business strategies. So, a company in engineering or in customer services, which seeks to position itself at the high-value added end of the market, will often invest in its staff and take care in their recruitment, training and development, engagement and reward. Conversely, a company in the same industry competing on low cost is likely to adopt very different HR policies and practices and may adopt a low-pay and low-employment security approach to its labour management and offer little, if any, training.

Differences between parts of organisations

Even within the same organisation, the context for the HR practitioner to consider may vary considerably. For example, the employment policies such as recruitment criteria, reward systems and performance management regimes vary dramatically between the investment banking divisions of the major banks and their retail divisions.

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