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HUMAN RESOURCE FLEXIBILITY: A MULTINATIONAL VIEW

MOUSUMI BHATTACHARYA Charles F. Dolan School of Business Fairfield University Fairfield, CT 06430, USA Phone: (203) 254-4000 ext.2893 Fax: (203) 254-4105 E-mail: mbhattac@fairfield.edu

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HUMAN RESOURCE FLEXIBILITY: A MULTINATIONAL VIEW

ABSTRACT

Multinationals expand in foreign countries to create flexibilities. However little is known about how they can generate human resource (HR) flexibility across different countries. Research in this area is scattered across several disciplines. In this paper, I discuss how multinationals can develop HR flexibility through labor cost and functional flexibility across countries. I use input from several bodies of literature to develop a multinational model of HR flexibility. Future research directions based on this model and practical applications are discussed.

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HUMAN RESOURCE FLEXIBILITY: A MULTINATIONAL VIEW The benefit of firms having flexibility of human resources (HR), which is the adaptability of employee attributes such as knowledge, skill, and behaviors, as well as of HR practices to changing environment condition, has been a topic of discussion among scholars as well as practitioners in the last two decades (Baird & Meshoulam, 1988; Bhattacharya, Gibson, & Doty, 2005; Eldridge & Nisar, 2006; Hitt, Keats, & DeMarie, 1998; Lengnick-Hall & Lengnick-Hall, 1988; MacDuffie, 1995; Milliman, Von Glinow, & Nathan, 1991; Ngo & Loi, 2008; Wright & Snell, 1998). This discussion has primarily been in the context of increasing change in the external environment, which has necessitated more frequent adaptations on the part of organizations through its people and people management processes (Hitt, et al., 1998). However how HR flexibility as a dynamic capability can be generated by a firm operating in several countries has not been discussed. This is a critical consideration in view of the increasing multinationality of firms as they set up operations in several different countries in order to achieve cost efficiency or specialization of skills. As Hofstede pointed out In management literature there are numerous unquestioning extrapolations of organizational solutions beyond the borders of the country in which they were developed (1980, p. 373). In fact the issue of how multinational corporations (MNCs) develop capabilities related to human resources in foreign countries has been largely unexplored so far (Qian, Liao, & Chu, 2008). In this paper I analyze how HR flexibility can be generated by multinationals that operate in different countries, and what roles institutions, work systems and national culture play in generating HR flexibility for the multinational firm. Based on existing literature I build a model of HR flexibility in multinationals. This paper extends the current literature by expanding the concept of HR flexibility in a multi-country setting, thereby providing a broader theoretical model. It focuses on national differences in institutions, work systems and culture as factors that
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may affect creation and use of HR flexibility. It also shows ways to practitioners to build this valuable dynamic capability for their multinational firm.

THEORY DEVELOPMENT

HR Flexibility as a Dynamic Capability HR flexibility refers to the capability to facilitate the organizations ability to adapt effectively and in a timely manner to changing or diverse demands from either its environment or from within the firm itself (Milliman et al., 1991: 325). Wright and Snell (1998: 761) conceptualize HR flexibility as the extent to which the firms human resources possess skills and behavioral repertoires that can give a firm options for pursuing strategic alternatives in the firms competitive environment, as well as the extent to which the necessary HRM practices can be identified, developed, and implemented quickly to maximize the flexibilities inherent in those human resources. HR flexibility is a dynamic capability of the firm, which involves a set of organizational routines that act upon a firms human capital so as to reconfigure, expand, or contract the human resources and processes according to changes in business conditions. According to Zollo and Winter (2002: 340), A dynamic capability is a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness. HR flexibility, as conceptualized by Milliman et al (1991) and Wright and Snell (1998), is a dynamic capability because of three reasons. First HR flexibility is a set of activities that the firm pursues to change its human resources and processes. Human resources and processes of the firm generate routines to produce desired output through application of human capital. HR flexibility is the capability to change these routines according to changed environmental and organizational requirements. Second, HR flexibility is a learned
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pattern of collective activities. It is learned through accumulation of experience (Zollo & Winter, 2002) in the sense that a firm can generate HR flexibility only through repeated learning processes. Finally, HR flexibility evolves over time with several iterations of routines and processes, and is history and path dependent in its evolution. Therefore it is fairly stable; that is, firms who exhibit HR flexibility tend to continue to do so for a substantial period of time. In another conceptualization of flexibility, Schilling and Steensma (2001) focus on alternative work arrangements such as the use of contractual and temporary workers, for increasing firm-level flexibility. According to these authors, Firms may also rapidly alter their scale and scope (and the mix of talent and other capabilities they can access) through alternative work arrangements. In arrangements such as use of contract agency workers and temporary agency workers, a firm makes employees a loosely coupled component of the production system, thus increasing their recombinability and its own flexibility (2001: 1152). Cappelli and others (1997) call this the new economy where flexibility of HR is achieved through alternative work arrangements. Other authors have pointed out that HR flexibility is a multidimensional concept. Flexibility of human capital can be achieved through skill, behavior and HR practice flexibility (Bhattacharya et al., 2005); functional flexibility (Theodore & Peck, 2002); temporal and numerical flexibility; regulatory flexibility (Theodore & Peck, 2002); wage flexibility and so on (see Table 1). A review of these different dimensions show that they can be groups under two major categories: a) Labor cost flexibility through numerical and wage flexibility; b) functional flexibility through skill, behavior and HR practice flexibility. In the following section we discuss how country-level factors such as institutions, culture and worker characteristics influence multinationals choice for generating these two components of HR flexibility. --------------------------------------------Insert Tale 1 about here
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A Multinational Model of HR Flexibility In this era of globalization, increased flexibility in firm operation is associated with increased flexibility in the labor market. Multinational firms looking for greater labor flexibility have moved production and other business processes to foreign countries. However labor market institutions (unions, labor parties and labor regulation), work arrangement and employee characteristics are responsible for differences in labor market flexibilities among countries (Christpherson, 2002). These country level factors are relatively stable over time and therefore it is critical to understand their effect on different components of HR flexibilities. My aim is to provide a model which explains the factors that influence a multinationals search for HR flexibility in different nations. I would use the factors outlines in Table 1 to discuss the multinational model of HR flexibility. The propositions that would follow are:

Proposition 1a: Labor market control mechanisms such as unions, labor parties and labor regulations would influence a multinationals choice of country for generating numerical HR flexibility to adjust labor cost Proposition 1b: Work arrangements such as flexible working, employment contracts and turnover rate would influence a multinationals choice of country for generating numerical HR flexibility to adjust labor cost Proposition 1c: Characteristics of workers such as specialization of skills and creativity/innovativeness would influence a multinationals choice of country for generating wage flexibility for adjusting labor cost.

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Proposition 2a: Labor market control mechanisms such as unions, labor parties and labor regulations would influence a multinationals choice of country for generating functional HR flexibility. Proposition 2b: Work arrangements such as flexible working, employment contracts and turnover rate would influence a multinationals choice of country for generating functional HR flexibility Proposition 2c: Characteristics of workers such as specialization of skills and creativity/innovativeness would influence a multinationals choice of country for generating functional HR flexibility

FUTURE DIRECTIONS Although research on HR flexibility has proliferated in recent years, it is scattered over several disciplines. My model integrates concepts from different bodies of literature to discuss how multinationals would choose to develop HR flexibility in different countries based on labor market control mechanisms, work arrangements and characteristics of workers. Such a conceptualization adds clarity to multinational strategy in managing human resources. It also provides a rich new area for future investigation and practice.

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REFERENCES Baird, L., & Meshoulam, I. 1988. Managing two fits of strategic human resource management. Academy of Management Review, 13: 116-128. Bhattacharya, M., Gibson, D. E., & Doty, D. H. 2005. The effects of flexibility in employee skills, employee behaviors, and human resource practices on firm performance. Journal of Management, 31: 622-640. Cappelli, P., Bassi, L., Katz, H. Knoke, D., Osterman, P, & Useem, M. 1997. Change at Work. New York: Oxford University Press. Christopherson, S. 2002. Why do national labor market practices continue to diverge in the global economy? The missing link of investment rules. Economic Geography, 78(1): 120. Cohen, W., & Levinthal, D. 1990. Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35: 128-152. Cordery, J. 1989. Multi-skilling: A discussion of proposed benefits of new approaches to labor flexibility within enterprises. Personnel Review, 18: 13-22. Eldridge, D. & Nisair, T.M. 2006. The significance of employee skill in flexible work organizations. International Journal of Human Resource management, 17:918-937. Eisenhardt, K. M. & Martin, J.A. 2000. Dynamic capabilities: What are they? Strategic Management Journal, 21: 1105-1121. Hitt, M. A., Keats, B. W., & DeMarie S. M. 1998. Navigating in the new competitive landscape: Building strategic flexibility and competitive advantage in the 21st century. Academy of Management Executive, 12(4): 22-42. Houseman, S. N., 2001. Why employers use flexible staffing arrangements: Evidence from an establishment survey. Industrial and Labor Relations Review, 55: 149-? Lei, David, Hitt, & A, Michael. 1995. Strategic restructuring and outsourcing: The effect of mergers and acquisitions and LBOs on building firm skills and capabilities. Journal of Management, 21(5): 835. Lengnick-Hall, C. A., & Lengnick-Hall, M. L. 1988. Strategic human resources management: A review of the literature and a proposed typology. Academy of Management Review, 13: 454-470. Lepak, D. P., & Snell, S. 1999. The human resource architecture: Toward a theory of human capital allocation and development. Academy of Management Review, 24: 31-49.

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MacDuffie, J. P. 1995. Human resource bundles and manufacturing performance: Organizational logic and flexible production systems in the world of auto industry. Industrial and Labor Relations Review, 48: 197-221. Matusik, S. F., and Hill, C. W. L. 1998. The utilization of contingent work: Knowledge creation and competitive advantage. Academy of Management Review, 23: 680-697. Milliman, J., Von Glinow, M. A., & Nathan, M. 1991. Organizational life cycles and strategic international human resource management in multinational companies. Academy of Management Review. 16: 318-339. Ngo, H.Y., & Loi, R. 2008. Human resource flexibility, organizational culture and firm performance: An investigation of multinational firms in Hong Kong. International Journal of Human Resource Management. 2008. 19:1654-1666. Parker, S. K., Wall, T. D., & Jackson, P. R. 1997. That's not my job: Developing flexible employee work orientations. Academy of Management Journal, 40: 899-929. Parthasarthy, R., & Sethi, S. P. 1992. The impact of flexible automation on business strategy and organizational structure. Academy of Management Review, 17: 86-111. Pfeffer, J. 1994. Competitive power through people: Unleashing the power of the workforce. Boston, MA: Harvard Business School Press. Pfeffer, J. 1998. The Human equation: Building profits by putting people first. Boston, MA: Harvard Business School Press. Qian, J.L, Liao, S., & Chu, C.W.L. 2008. Human resource management and the globalness of firms: an empirical study in China. International Journal of Human Resource Management, 19:828-839 Sanchez, R. 1995. Strategic flexibility in product competition. Strategic Management Journal, 16: 135-159 Schilling, M. A., & Steensma, H. K. 2001. The use of modular organizational forms: An industry-level analysis. Academy of Management Journal, 44: 1149-1168. Simon, H. A. 1973. The organization of complex systems. In H. H. Pattee (Ed.), Hierarchy Theory: 1-27. New York: Braziller. Teece, D. J., Pisano, G., & Shuen, A. 1997. Dynamic capabilities and strategic management. Strategic Management Journal, 18: 509-533. Theodore, N. & Peck, J. 2002. The temporary staffing industry: Growth imperatives and limits to contingency. Economic Geography, 78(4): 463-493. Tsubone, H., & Horikawa, M. 1999. Impact of various flexibility types in a hybrid fabrication/ assembly production system. International Journal of Production Economics, 60-61: 117-123.
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Van den Beukel, A., Molleman, E. 2002. Too little too much: Downsides of multifunctionality in team based work. Personnel Review, 31:482. Van den Berg, P.T. & van der Velde, M.E.G. 2005. Relationships of functional flexibility with individual and work factors. Journal of Business and Psychology, 20(1): 111-129. Winter, S. 2000. The satisficing principle in capability learning. Strategic Management Journal, 21: 981-996. Wright, P. M., & Snell, S. A. 1998. Toward a unifying framework for exploring fit and flexibility in strategic human resource management. Academy of Management Review, 23: 756-772. Yale & Harel, 1998. Zollo, M., & Winter, S. G. (2002). Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13: 339-351

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TABLE 1: COMPONENTS OF HR FLEXIBILITY

HR Flexibility Component Resource flexibility Definition Ability to dynamically reallocate units of resources in production processes Ability to facilitate the organizations ability to adapt effectively and in a timely manner to changing or diverse demands from either its environment or from within the firm itself (Milliman, 1991) Labor/HR flexibility Ability of firms to adjust labor input in response to changes in product and the volume of demand (Christopherson, 2002) The extent to which the firms human resources possess skills and behavioral repertoires that can give a firm options for pursuing strategic alternatives in the firms competitive environment, as well as the extent to which the necessary HRM practices can be identified, developed, and implemented quickly to maximize the flexibilities inherent in those human resources (Wright & Snell, 1998) Skill/ Functional flexibility The number of potential alternative uses to which employee skills can be applied and how individuals with different skills can be redeployed quickly (Wright & Snell, 1998) Employees can fulfill different tasks and activities to meet changes in work requirement (van den Berg & van der Velde, 2005) Ability to access specialized skills and capacities on a selective and discontinuous basis (Theodore & Peck, 2002) Behavior flexibility The extent to which employees possess a broad repertoire of behavioral scripts that can be adapted to situation-specific demands (Wright & Snell, 1998) Willingness to be flexible (van den Berg & van der Velde, 2005) Numerical/Employment/Temporal flexibility Ability to accommodate daily, seasonal and cyclical fluctuations in the quantity of labor (Theodore & Peck, 2002) Adjustments in the number of workers or working hours (Christopherson, 2002) HR practice flexibility The extent to which the firms HR practices can be adapted and applied across a variety of situations, or across various sites or units of the firm, and the speed with which these adaptations and applications can be made (Wright & Snell, 1998) Ability to vary labor cost in response to changes in profitability (Bhattacharya & Wright, 2005) Adjust wages in response to changes in supply of labor or the demand for skills (Christopherson, 2002) Ability to liberalize, deinstitutionalize and deregulate the traditional employment relationship (Theodore & Peck, 2002)

Labor cost flexibility

Wage flexibility

Regulatory flexibility

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FIGURE 1: COUNTRY-LEVEL FACTORS AND HR FLEXIBILITY

Country-level factors

HR flexibility

Labor market control mechanisms Unions Labor parties Labor regulations

Labor cost flexibility Numerical flexibility Wage flexibility

Work arrangements Flexible working Employment contracts Turnover rate Functional HR flexibility Skill flexibility Behavior flexibility HR practice flexibility

Employee characteristics Specialization of skills Creativity/ innovativeness

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