Comparative Management: Critical Perspectives Vol 2 (Critical Perspectives on Business & Management)

Comparative management

Comparative Management Critical perspectives on business and management

Edited by Malcolm Warner VOLUME II EUROPEAN MANAGEMENT

London and New York

First published 1997 by Routledge 11 New Fetter Lane, London EC4P 4EE Simultaneously published in the USA and Canada by Routledge 29 West 35th Street, New York, NY 10001 Routledge is an imprint of the Taylor & Francis Group This edition published in the Taylor & Francis e-Library, 2005. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” © 1997 Malcolm Warner, editorial selection and Introduction All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Comparative management: critical perspectives on business and management/edited by Malcolm Warner. p. cm. Includes bibliographical references. (boxed set: alk. paper) 1. Comparative management. 2. Management—Cross-cultural studies. I. Warner, Malcolm. HD30.55.C657 1997 658–dc20 96–450 CIP ISBN 0-203-43560-5 Master e-book ISBN

ISBN 0-203-74384-9 (Adobe eReader Format) ISBN 0-415-13260-6 (Print Edition) (Boxed set of 4 volumes) ISBN 0-415-13261-4 (Print Edition) (Vol. I) ISBN 0-415-13262-2 (Print Edition) (Vol. II) ISBN 0-415-13263-0 (Print Edition) (Vol. III) ISBN 0-415-13264-9 (Print Edition) (Vol. IV)

Contents

VOLUME II: EUROPEAN MANAGEMENT Part III

Western Europe 19

Limits to participative leadership: task, structure and skill as contingencies—a German-British comparison F.A.Heller and B.Wilpert

2

20

Organization and managerial roles in British and West German companies: an examination of the culture-free thesis J.Child and A.Kieser

20

21

Societal differences in organizing manufacturing units: a comparison of France, West Germany and Great Britain M.Maurice, A.Sorge and M.Warner

41

22

Implanted decision-making: American-owned firms in Britain G.R.Mallory, R.J.Butler, D.Cray, D.J.Hickson and D.C.Wilson

63

23

The Japanisation of British industry? S.Ackroyd, G.Burrell, M.Hughes and A.Whitaker

80

24

Industrial reorganization in Europe: patterns of convergence and divergence in Germany, France and Britain C.Lane

95

25

Markets and managers [in Europe] R.Calori

113

26

Countries, cultures and constraints [in European business] J.-L.Barsoux and P.Lawrence

138

27

Decision style in British and Swedish organizations: a comparative examination of strategic decision making R.Axelsson, D.Cray, G.R.Mallory and D.C.Wilson

152

28

Industrial democracy in Europe revisited: summary and conclusions IDE—International Research Group

168

29

Banking on flexibility: a comparison of the use of flexible employment strategies in the retail banking sector in Britain and France J.O’Reilly

177

v

30

The Europeanization of manufacturing and the decentralization of bargaining: multinational management strategies in the European automobile industry F.Mueller and J.Purcell

194

31

Management development in Europe: a study in cultural contrast P.Lawrence

208

32

HRM: the European dimension C.Brewster

219

Part IV

Eastern Europe 33

What do Russian managers really do? An observational study with comparisons to U.S. managers F.Luthans, D.H.B.Welsh, S.A.Rosenkrantz

237

34

How Russian managers learn M.Warner, E.Denezhkina and A.Campbell

256

35

Labour relations in transition in Eastern Europe J.Thirkell, R.Scase and S.Vickerstaff

271

36

Human resource management in transitional economies: the case of Poland and the Czech Republic R.L.Tung and S.J.Havlovic

284

Part III Western Europe

19 Limits to participative leadership: task, structure and skill as contingenciesÐa German-British comparison F.A.Heller and B.Wilpert

The research investigated the relationship between managerial decision-making and a set of specified contingent situational factors: decision type, perceived skill requirements and objective skill inputs. The study was based on 663 German and British managers in two interlocking senior management levels of 37 large enterprises. The data were collected by means of Group Feedback Analysis as part of a large study of managerial decision-making in eight countries. The results show a significant relationship between the choice of decision styles and the postulated contingency variables. Only 1% of 615 senior managers consistently use a single decision style, more than two-thirds use four or five different styles. Very large variations occur as a function of different decision tasks, perceived skill requirements and objective skill availability. There are differences between the relatively well matched samples of German and British managers, but they are less significant than the broadly similar way in which both samples respond to the particular contingencies under investigation. The results are interpreted in the context of an open systems contingency framework. Their action implications are seen to suggest a link with socio-technical theory on job design and wider issues of organisational and social policy. THE RESEARCH OBJECTIVE The research was stimulated by the difficulty of applying well-established findings on leadership styles (Likert, 1961, 1967) to two Latin American countries. Was there a fundamental difference in culture or were there other factors which made a universalist approach to participative decision-making ineffective (Williams, Whyte and Green, 1966; Heller, 1969a, 1973)? There are a number of alternative strategies one can use in attempting to answer such a question. One very stringent scientific approach is well described by Triandis (1972) who supports Strodtbeck (1964) in the view that the nature of culture itself must be the objective of the ‘experimental treatment’. In such a methodological approach, an essential task is to develop cross-culturally equivalent variables and to

Source: European Journal of Social Psychology (1977), 7(1): 61–83. Reprinted by permission of John Wiley & Sons Ltd.

LIMITS TO PARTICIPATIVE LEADERSHIP

3

standardise and/or control the research situation within very narrow limits. Such a methodology is not only costly and time intensive, it is also unlikely to obtain the necessary conditions of control (Triandis, 1972:53– 55) where organisations as well as individual respondents have to sanction access to information. Among the alternative possibilities, the one adopted for the present research uses a multivariate contingency framework. Instead of using one major dimension for comparative purposes—for instance culture—we use more than a score of variables and include among them national groupings.1 Our major research question is as follows: which of the variables in our research design accounts for a significant variation in participative behaviour? Eventually we will want to rank order the impact of the various contingency measures on the core phenomenon under investigation. OPEN SYSTEMS AND CONTINGENCIES The basic concepts in our theory are (i) open systems of interacting variables, and (ii) the notion of contingencies as sources of variance.2 The approach to open systems follows Emery (1969) but extends it to factors inside organisations. Emery believes ‘that it has been shown that living systems whether individuals or populations, have to be analysed as “open systems”, i.e. as open to matter-energy exchanges with an environment. Human organisations are living systems and should be analysed accordingly. The fact that it faces us with the task of analysing forbiddingly complex environmental interactions gives us no more of an excuse to isolate organisations conceptually than the proverbial drunk had when searching for his lost watch under the street lamp because there was plenty of light when he knew he had lost it in the dark alley.’ The variables used in this research are arranged in a hierarchy of systems, from influences close to the person to the more distant effects of the environment (Heller, 1971, 1972). The model is deliberately labelled transitional to show that we expect to modify our system boundaries and their hierarchical arrangement as a result of our findings. Nor do we exclude the need to introduce further systems of variables in future research designs.3 Social scientists, and particularly psychologists, have always been aware of the potential importance of situational factors like heat, lighting, noise, task structure, but the effort to develop general laws of human behaviour has often taken precedence over the more careful examination of the relative impact of these situational variables. The parallel development in management theory and management science has also been in the direction of establishing universal laws in the possibly mistaken belief that this is the best way in which academic work can help the practitioner in the field. Technology was one of the first contingency variables to impose itself on the slowly developing study of behaviour in organisations and, with varying interpretations of what technology is, it has remained a critical factor. The pioneering work can be associated with the studies of coal mining under the direction of Trist (Trist and Bamforth, 1951; Trist, Higgin, Murry and Pollock, 1963) from which has evolved the socio-technical systems approach. The technical component in this theory was at first conceived in terms of machines and their interaction with people at the lowest level of the organisation. More recently the theory has been used to describe various technical, physical and ecological constraints in interaction with psychological and social variables (Emery and Trist, 1960, 1973). Other schools of social science have found it necessary to adopt analogous formulations or to consider other multivariate extensions to their theory. McGregor, for instance (1967), used an elaboration of Lewin’s (1951) famous formula (B=f (Person, Environment)) to arrive at a comprehensive statement of the interaction between a group’s behaviour and various task-environmental contingencies: Bgroup

=

f (M a, b, c…T f, g, h…O 1, m, n…L q, r, s…E u, w, x)

4

WESTERN EUROPE

where M T O L E

= = = = =

attitudes, knowledge, skills capabilities, etc. of members the nature of the job and variables related to the primary task structure and internal controls of the subsystem the skills, capabilities, and other characteristics of the leader environmental variables in the larger organisational system and society

In recent years a number of contingency theories have been developed and others like March and Simon (1958) and Burns and Stalker (1961) have been interpreted as belonging to this group (Terry, 1973). Various field and experimental studies have shown the significant relationship between situational factors and the choice of certain supervisory and corrective techniques in the interaction with subordinates (Kipnis and Consentino, 1969; Goodstadt and Kipnis, 1970; Kipnis, 1972). Such factors are considered to be: positional influence in terms of control over resources, type and complexity of the problem to be solved, experience on the job, span of control. At least four major organisation theorists have used technology as a contingency (Woodward, 1958, 1965; Thompson, 1967; Lawrence and Lorsch, 1967; Perrow, 1967 and 1970). If task and task structure can be considered as part of technology, then we have to include several others, for instance: Shaw (1962); Shaw and Blum (1966); Fiedler (1963, 1967); and Heller and Yukl (1969). While technology and the uncertainties of the environment have so far attracted the major share of attention, at least in leadership studies, other situational variables have been considered important recently. Sadler, Webb, and Lansley (1973) in a study of 50 companies, half in Printing and half in Building industry, find that the decision style of managers has to be considered together with structural measures of organisation before reasonable performance prediction becomes possible. Furthermore, the results coming from the 25 companies in each industrial sector are really substantially different and this could be due to differences in technology. Vroom and Yetton (1973) have developed a very sophisticated situational model of leader decision-making in which contingencies like time constraints, quality of problem-solving, adequacy of information, trust in subordinates, expected conflict among subordinates and acceptance of decisions by others, are measured. They find that information is a particularly important situational variable. When managers said they had sufficient information, they were less participative, and when they thought that subordinates had additional information, they were more participative. The availability of information could of course be a function of the technology surrounding the managerial job, but it was not possible to investigate this. In reviewing this literature, the question has to be asked whether socio-technical theory is related to the more recent situational and contingency theories, or should be treated separately. The greatest success of sociotechnical thinking has so far been achieved in applications at or near the shop floor level, but this could simply be an accident of history (Hill, 1972; Davis and Taylor, 1972). The answer to our question will to some extent depend on one’s definition of technology. Joan Woodward, for instance, found that her original classification was imperfect for a number of reasons. One was that the technology of the major product was not a determining factor in accounting for the behaviour of people who were not physically close to the production process. Her interest therefore moved to an analysis of control and control systems in organisations (Woodward, 1970). The structure of administrative-managerial jobs has never been adequately analysed, certainly not in terms of technological components. It is therefore possible that an extension of socio-technical thinking to higher levels of organisation still waits for a suitable classificatory theory of the critical environmental dimensions of administrative jobs. In the meantime what we call a contingency framework in this research may be considered as a step in this direction.

LIMITS TO PARTICIPATIVE LEADERSHIP

5

THE RESEARCH The research has been described elsewhere (Heller, 1971; Wilpert and Heller, 1973,1974). It will therefore be possible to be brief. This study analyses organisational decision-making at two senior-management levels in 17 German and 20 British companies. A total of 663 managers from both countries participated in the research. Some of the statistical analyses are based on smaller subsamples. Apart from certain explorative, descriptive purposes about the nature of decision-making among German and British managers, the research was to test some hypotheses that were formulated in the context of our contingency framework. Its basic contention is that people vary their behaviour according to circumstances or situations. With reference to our core variable—decision-making—we formulated the following hypotheses: Hypothesis 1 Managers will use different decision methods in different decision-task situations. Hypothesis 2 The choice of specific decision-making methods will vary with the reference point of the decision: subordinates, lower-level employees, department as a whole. More specifically: the decision method of superiors (L1) will be more centralised (i.e., less participative) if the decision directly concerns their immediate subordinates (SUB or Level 2) than if it concerns L2’s subordinates (EMP). Decisions concerning the senior manager’s department as a whole (DEPT) will be in between SUB and EMP decisions. Hypothesis 3 Differences in perceived skill requirements of the respective jobs in Level 1 and Level 2 will be associated with differences in the choice of decision-making methods; the more demanding an LI-manager perceives his work to be in comparison to his subordinates job, the more centralised will be his decision-making. Hypothesis 4 Differences in ‘objective’ skill inputs will be associated with differences in decision centralisation: higher qualifications in education will be associated with more participative decision-making. The data collection took place between 1970–1974 and was based on a method of field research called Group Feedback Analysis (Heller, 1969b). The German and British samples of companies were fairly successfully matched for size, managerial progressiveness, industrial sector, technology and level of organisational hierarchy.4 The average age and experience of the sample is shown in Table 1. INSTRUMENTS The reliability and validity of the 14 research instruments used in the comprehensive research are discussed by Wilpert and Heller (1974). Only 3 instruments are relevant for the purpose of this report:

6

WESTERN EUROPE

(1) Form 5—Specific Decisions Questionnaire (see Appendix) It defines five different decision-making methods on a hypothetical continuum of influence and power-sharing. LI-managers are asked to report Table 1 Age and experience of German and British managers (International Management Decision-Making Research—abbreviated IMDMR) Level 1a German

Level 2b British

Age 45.4 48.6 How long in present postc 5.9 4.4 How long in companyc 15.6 20.2 Number in sample 106 177 a. Level 1 are senior managers who report directly to a chief executive, b. Level 2 managers are senior subordinates of L1. c. In years.

German

British

42.6 4.9 14.5 147

44.1 4.7 17.6 185

on a cumulative percentage scale how frequently they chose different methods in making the 12 different decisions. L2-managers report how they see their superiors making the decisions. (2) Form 2—Skill Requirements Questionnaire L1-managers were asked to describe as objectively as possible the skill requirements of their own job in comparison to the requirement of their immediate subordinates job on a 5-point scale (see Table 7). These job descriptions had to be related to 12 specific managerial skills and qualities. Each L2-manager similarly compared his own job with that of his immediate superior. By use of factor analysis (Wilpert and Heller, 1974), we reduced the 12 items to 3 composite variables: technical competence, interpersonal competence, entrepreneurial competence. (3) Form 11—Objective Skill Questionnaire This form asks managers to describe their formal skills in terms of levels of education, the amount of work-related reading they do, the professional associations they belong to, and the courses they have attended inside and outside their industry. The research is part of a larger multinational project which started in the United States in 1967 and has been extended and considerably refined in Europe during 1970–1974. In addition to Germany, Britain and USA; France, Israel, Netherlands, Spain and Sweden have participated.5 Most of the data is now available. It will cover approximately 120 companies and over 1500 senior managers. This is a substantial sample if it is considered that each of the companies was visited at least twice and managers were interviewed in groups of 3 to 15. FINDINGS Managers use more than one style Table 2 shows the frequency with which German and British managers at both levels describe the use of a single decision method in 12 managerial situations. Only 1% of our total sample of 615 managers appear to

LIMITS TO PARTICIPATIVE LEADERSHIP

7

use one single method consistently. There are no significant variations for levels or national grouping. The majority of managers use either four or all five alternative methods. This can be seen from Table 3. 72% of the British sample and 58% of the German managers use four or five methods. For the purpose of this comparison the self-report of L1 and the description of L2 have been merged, and it can be seen that German managers appear to use a smaller variety of the available five methods than British managers. Since both national groups describe the same 12 decision situations, this comparison is of some interest. Table 2 How often do managers use single rather than multiple styles of decision-making? (Form 5 IMDMR) Level 1a

Level 2b

As senior managers describe their behaviour

As subordinates see the behaviour

Germany

Germany

Britain

2 out of 149 .0134

2 out of 186 .0107

Britain

1 out of 106 2 out of 177 .0094 .0113 a. As senior managers describe their behaviour, b. As subordinates see the behaviour.

Table 3 Variations in leadership methods used by senior managers: German and British samples (Form 5 IMDMR) Use of methods

British

German

L1 and L2 as %

L1 and L2 as %

All 5 methods 29 19 4 out of 5 43 39 2 or 3 out of 5 26 41 Only 1 1 1 Size of sample 286 255 Note. In this research L1-managers describe their own leadership method in relation to 12 specific decision situations relevant to their job. Level 2 managers (their immediate subordinates) describe their superior’s leadership method in the same 12 situations. For the purpose of this table, the L1 and L2 descriptions of decisionmaking are pooled.

Decision task as contingency However, even more significant than the variation between our national samples is the variation within each national group. These variations are clearly based on the nature of the tasks. The results for one of the national groups can be seen in Table 4. Table 4 How two interlocking levels of senior British management see the senior level make decisions in 12 distinct decision areas (UK sample: L1=177; L2=185) FORM 5 Decision style Level 1

8

WESTERN EUROPE

FORM 5 Decision style 1 52.0 5.5 3.9 12.8 13.2 4.4 6.1 14.9 3.5 7.2 8.6 6.8 2 45.3 11.0 8.0 6.6 20.7 8.5 10.5 27.7 9.9 13.7 38.2 27.7 3 2.7 52.5 27.6 18.6 41.7 47.3 33.8 41.4 39.9 42.2 42.5 44.4 4 0.0 28.4 40.7 6.4 17.1 32.5 37.3 15.9 35.9 28.6 10.7 20.9 5 0.0 2.6 19.7 55.6 7.3 7.4 13.0 0.1 10.8 8.3 0.0 0.2 Level 2 1 62.0 3.5 5.6 9.1 22.1 2.5 5.8 1.8 3.7 1.4 5.9 3.4 2 32.8 5.9 5.8 5.9 7.9 6.8 6.0 27.3 6.3 6.7 27.8 17.2 3 3.7 32.4 16.7 7.7 23.9 25.0 31.3 26.3 32.2 32.0 47.1 31.3 4 1.0 50.0 32.6 12.8 30.6 45.7 40.4 22.6 37.8 31.6 17.0 39.6 5 0.5 8.3 39.3 64.5 15.5 15.0 16.5 2.0 20.0 28.3 2.2 8.5 Note. Level 1 describes his own decision behaviour, Level 2 describes the behaviour he attributes to his boss. For a description of the five decision styles, see Form 5 (Appendix).

To illustrate the difference, it is only necessary to compare the answers to Question 1 with Question 3.6 In relation to Question 1, 97% of senior managers describe their decision behaviour as highly centralised and their subordinates perceive it similarly (95%). The same managers report only 12% of centralised decisionmaking for the situations described by Question 3 and again subordinates agree (11.4%). These differences can be seen more easily in Figure 1. These findings support hypothesis 1: (Managers will use different decision methods in different decision-task situations). Organisational distance as a contingency The 12 questions on Form 5 were designed to describe a range of tasks which senior managers in almost all industrial and service organisations carry out at least once a year and usually more often. The decisions fall into three categories, each category relating to one of three organisational levels of an average department or group of managers. The man in charge of the group is L1, his immediate subordinates (abbreviated SUB) form the second level. Other, lower-level employees (abbreviated EMP) are at least two levels below L1. Finally, some decisions apply to the department as a whole (abbreviated DEPT) and therefore affect the senior level, his immediate subordinates and other employees. Decisions focussing on the tasks related to SUB, EMP and DEPT can be ordered in terms of their ‘organisational distance’ from the senior-level manager. SUB decisions are those between L1 and managers who report to him directly; here the organisational distance is short (Distance A). DEPT decisions are made about tasks that affect his immediate subordinate (SUB) as well as other employees at lower levels of the department (EMP). This group of decisions tasks is more distanced from L1 than SUB decisions (Distance B). Finally, decisions that affect lower levels of employees are organisationally further from L1 than DEPT type decisions (Distance C) (see Figure 2). Our hypothesis (H2: decision centralisation will covary with the reference point of the decisionsubordinate, lower-level employees, department) has been confirmed by findings from the German and British samples (see Tables 5 and 6). From Table 5 it can be seen that method 1 where a manager makes his own decision without even communicating the outcome or the reasons for making the decision, is taken

LIMITS TO PARTICIPATIVE LEADERSHIP

9

Figure 1 Decision-method variations according to the nature of the task

most readily in SUB-type situations and least in EMP decisions. DEPT falls between the two. At the other end of the range of alternatives, method 5 (delegation) is used progressively more as we move from SUB to DEPT to EMP. Table 5 combines the results from both levels but shows the pattern of decision styles over the five methods. Table 6 shows the judgements of the two managerial levels separately but the decisionmethod alternatives are summarised in a single score called DCS (Decision Centralisation Score). It expresses the general tendency of decision-makers: the higher the score the more centralised the method of decision-making. It can be seen that the hypothesis is supported at both levels and for German as well as British managers.7

10

WESTERN EUROPE

Figure 2 Departmental organisation and the organisational distance of the different types of decisions Table 5 Decision method as a function of decision type and organisational distance: German and British managers at Levels 1 and 2 combined (Form 5 IMDMR) Method of decisionmaking

Decisions with immediate subordinates

SUB German %

Decisions on departmental issues

DEPT British %

German %

Decisions relating to employees below immediate subordinate

EMP British %

German %

1 14.30 18.43 8.17 18.01 2 22.09 26.00 11.69 20.74 3 34.63 29.90 37.08 33.20 4 23.35 18.84 35.33 21.74 5 5.61 6.06 7.70 6.26 Totals approximate to 100% German sample=253 British sample=362. Note. For a description of the five decision methods, see Form 5 (Appendix).

British % 5.51 8.73 34.29 42.00 9.39

4.45 7.74 34.20 38.20 15.39

LIMITS TO PARTICIPATIVE LEADERSHIP

11

Table 6 Decision method as a function of decision type and organisational distance: German and British managers at Levels 1 and 2 (Form 5 IMDMR) Decisions with immediate subordinate

Decisions on departmental issues

Decisions relating to employees below immediate subordinate

DEPT

SUB

EMP

German

British

German

British

German

British

DCS as seen 3.42 3.5 3.01 3.28 2.83 2.63 by L1 DCS as seen 2.97 3.15 2.60 3.17 2.42 2.33 by L2 Note. A high DCS (Decision Centralisation Score) signifies centralised nonparticipatory methods. The highest possible score is 5; the lowest 1.

Perceived skill difference as a contingency The results on perceived skill requirements and their relation to decision-making are shown in Table 7. Two findings emerge from this tabulation. Firstly there is considerable agreement between German and British managers at both levels. Secondly, as expected, there is a considerable amount of disagreement about skill requirements as judged by the two levels of management; both levels describe their own job as requiring more skill than the other level! The scores in Table 7 are averages but there are considerable variations around the average. The findings from both German and British managers support the prediction of hypothesis 3: High differences in perceived skill requirements at L1-level are associated with centralised decision-making of L1 (Table 8). Table 7 Perceived skill difference of two interlocking levels of management (Form 2 IMDMR) Skills

Level 1

Level 2

Mean scores German

British

1. Knowledge of technical matters 2. Technical competence factor 3. Interpersonal competence factor 4. Entrepreneurship factor 5. Average score of 12 items Number in sample Note: 1. Items 2, 3 and 4 are composites based on factor analyses. For Level 1 1 2 much more more 2. The scores in the table are means based on a 5-point scale: For Level 2

German

British

2.8 2.4 2.4 1.8 2.2 106

2.8 2.2 2.4 1.9 2.2 177

3.6 3.2 3.3 2.8 3.1 147

3 about the same

4 somewhat less

5 much less

3.5 3.2 3.4 2.8 3.1 185

12

WESTERN EUROPE

Skills

Level 1

Level 2

Mean scores German

British

German

British

5 much more

4 somewhat less

3 about the same

2

1 much less

more

Senior managers who judge the skill requirements at their own level to be much greater than those at the level of their immediate subordinate are also inclined to use more centralised (nonparticipatory) decision methods (Table 8). Similarly, when subordinates describe their own jobs as being more challenging than their superior’s, they also see him use power-sharing (participatory) methods (see Table 9). The judgements and perception at both levels are quite consistent; managers seem to see a connection between the use of participation and the availability of skill. Where skill is lacking, participation seems less appropriate. Objective skill as a contingency The skill assessment just described (based on Form 2) is semi-objective, semi-subjective. Managers at both levels are asked to describe the jobs not the people, but their ego involvement is unlikely to make them neutral judges in their job description. This expected perceptual distortion is confirmed by the results: One’s own job seems always more demanding than one’s subordinate’s/superior’s (Table 7). However, the research attempted to provide also a more objective means of describing the available skills at both levels. This task is very difficult, but it seems to have been solved adequately for our purpose. The results in Table 10 Table 8 Relationship between the senior manager’s judgement of skill requirements and his method of decision-making (Forms 2 and 5 IMDMR) Managerial skills: requirements at L1 and L2 British manager L1

German manager L1

1.

Knowledge of technical matters Technical competence factora Interpersonal competence factora Entrepreneurship factora Average score

2. 3.

Decision centralistition (DCS) −19*

−19

−28**

−19

−13

−31**

4. −25** −11 5. −30** −25* Number in sample 177 106 ** * a. These variables are based on factor analysis of 1 2 specific skills. Note: A negative correlation indicates that senior managers who judge their own jobs to require more skill than their subordinates’ jobs, also use more centralised decision methods (less power-sharing)

LIMITS TO PARTICIPATIVE LEADERSHIP

13

Table 9 Relationship between the subordinate manager’s judgement of skill requirements and his description of how his superior makes decisions: German and British subordinate managers (Forms 2 and 5 IMDMR) Decision centralisation (DCS) Managerial skills requirements at L1 and L2

British managers L2

German managers L2

1.

−10

−33**

−03

−30**

−17

−32**

2. 3.

Knowledge of technical matters Technical competence factora Interpersonal competence factora Entrepreneurship factora Average score

4. −15* −21* 5. −14 −33** Number in sample 185 147 ** * a. These variables are based on factor analysis of 12 specific skills. Note: A negative correlation indicates that when subordinate managers judge their own jobs to require as much or more skills than their superiors, they describe their superiors’ decision method as power-sharing.

have considerable face validity. In general we found that L1-managers who are older and have been in their company longer than their subordinates, also have higher scores on formal skills. They belong to more scientific and professional institutions, take and read more work-related journals and are more highly educated. This pattern is identical for German and British managers. When it comes to postexperience education, the results are more complex. German L1-managers attend more courses outside their own work place as well Table 10 Formal skill qualifications of two senior levels of German and British management (Form 11 IMDMR) Level 1

Level 2

Categories of experience and skill

German

British

German

British

1. Number of scientific and professional associations 2. Number of journals taken 3. Number of journals read (Scale 1–7) 4. Educational level (1=low, 4=high) 5. Number of courses outside industry 6. Number of courses inside industry Number in sample

0.61 3.98 5.08 2.21 1.22 0.95 106

1.22 3.84 5.46 1.07 1.27 1.19 177

0.35 3.48 4.54 1.60 1.03 0.82 147

0.79 3.45 5.28 0.95 1.36 1.42 185

as inside their companies than their subordinates. In contrast to this, British-L2 managers attend more outside and inside courses than their next higher level. This could be a reflection of different management development strategies with German companies paying more attention to higher rather than middle levels of management, while British companies concentrate on slightly lower levels. Our samples are too small to draw any firm conclusion at this stage. The research set out to test the hypothesis (H4) that higher education qualifications are associated with more participative behaviour.8

14

WESTERN EUROPE

This hypothesis receives support from the results for both German and British senior managers (Table 11). The average decision style used in 12 specific situations correlates significantly with formal educational qualifications; the higher the qualifications the more power-sharing. DISCUSSION We started the paper by drawing attention to the limitation of a universalistic approach to participation and followed it up by describing an open-system contingency research on decision-making styles in two countries. The findings show that senior, experienced and presumably successful managers do not use the same decision method in all circumstances.9 A manager will use a ‘democratic’ method on one occasion and an ‘autocratic’ one on another. The terms democratic and autocratic are really inapplicable because they pretend to describe personality whereas our findings suggest that the situation or task is the real differentiator. Vroom and Yetton come to the same conclusion. Their work and ours was pursued quite independently, neither knowing of the others’ existence for a while. In some respects our methods and hypotheses Table 11 Relationship between formal educational qualifications and power-sharing among German and British managers (Forms 5 and 11 IMDMR) Formal educational qualification Senior level German sample British sample Average of 12 specific decision N=147 −34** N=185 −29** situations (Decision centralisation score) ** Note: A negative correlation means that senior m more inclined to use centralised styles, while man participative methods. anagers with lower educa agers with higher formal tional qualifications are qualifications use more

are similar, in others they are different, but we have certainly worked with quite distinct samples of managers. The congruence of many of our findings is therefore encouraging. Vroom and Yetton (1973:120) say that: ‘in the literature on participation,…leaders have been typed as autocratic, consultative or participative…the findings seriously question the explanatory power of either the type or the trait concept… each manager studied indicated that he would use at least four of the five leadership methods… The manager’s choice of decision process was influenced much more by the properties of the situation depicted than it was by his average style.’ Our findings here, as well as previously with American data, fully support these conclusions (Heller and Yukl, 1969; Heller, 1971, 1973). It would be untrue to say that all psychological work in the area of leadership and decision-making had in the past ignored contingency factors. Some of the best theorists and experimenters had for a long time mentioned situational factors in leadership but mainly as afterthoughts or footnotes rather than as major structures in the framework of analysis. As long ago as 1948, Stogdill came to the conclusion that personality factors alone do not satisfactorily account for leadership behaviour, and in 1956 he successfully tested the hypothesis that leadership performance was contingent on the organisational position of actors. Wispe and Lloyd (1955), studying life insurance representatives, found a significant tendency for persons who perceived little threat in their environment to prefer permissive decision styles in group situations.

LIMITS TO PARTICIPATIVE LEADERSHIP

15

The main problem remained, in spite of extensive critical prodding (Gibb, 1947; Hemphill, 1949; Etzioni, 1965), and was well described by Koreman (1966:355): ‘What is needed however in future concurrent (and predictive) studies is not just recognition of this factor of “situational determinants” but rather a systematic conceptualisation of situational variance as it might relate to leadership behaviour’. The research from which the German-British findings reported here derive, was started in 1967 with the objective described by Koreman. It was felt that a considerable number of psychological, social, technical and structural contingencies would have to be examined step by step since the number of variables involved was too great for a single project. The early results with data from American managers fully supported a few contingency hypotheses (Heller, 1971), and the present report on German and British samples extends and confirms the conclusions. A great deal more work remains to be done, both conceptually and in terms of methodological refinements. It is most unlikely that a complex process like decision-making will yield simple analytical solutions. We would not expect to be able to account for more than a certain percentage of the variance of leader behaviour, but it should be possible to identify meaningful and consistent patterns of the more powerful contingencies supporting or opposing a variety of decision styles. The findings already show that psychological as well as nonpsychological factors set limits to the exercise of influence-sharing processes in organisations. We live in an era where more and more people, institutions and even political organisations are committed to policies for increasing the scope for autonomous decision procedures and participative practices. Up to now the major psychological contribution towards achieving such ends has been through a variety of training schemes designed to make people use more participative styles irrespective, or largely irrespective of the situations in which they find themselves. If our findings are correct, it would follow that we must expect considerable inconsistencies, strain and possibly deception in the attempt to fulfil global prescriptions for more participation. A similar point has been made by Mulder (1971). Apart from the necessary motivation to participate in the decision-making about subjectively salient issues, Mulder stresses expertness in the decision area as a necessary condition for effective participation. Our findings on the connection between objective skill input and decision centralisation supports this perspective. Is it likely that the variations in decision styles discovered in recent research can be ‘ironed out’ by training? Or are there limits set by the socio-technical interaction between the variables? These issues require further exploration and link our area of research with the field of job design and the experiments with semi-autonomous work groups which are now developing very rapidly in a number of countries (Davis and Taylor, 1972; SSRC, 1974). Psychologists interested in this developing field of enquiry may also find it requisite to consider the relationship between managerial decision practices and the attitudes of trade unions (van Beinum, 1972; Hughes and Gregory, 1974), as well as the implications of the wider social polity (Thorsrud, 1972; Emery andTrist, 1973). ACKNOWLEDGEMENTS The European research was initially financed by the Social Science Research Council (Britain), who have supported it with two grants. It was later cofinanced by the International Institute of Management. The research described in this paper was made possible as the result of funding from these two bodies.

16

WESTERN EUROPE

NOTES 1. A national group is more easily defined for our purpose than culture. The major problem is the representativeness of our sample and we do not pretend to have solved this issue. 2. The variances are between peripheral and core variables. We use these terms, instead of the more usual terms independent and dependent variables, to stress that the model does not require assumptions of causality. In this respect it differs from Emery and Trist (1965). 3. The present model does not include interorganisational analysis. Consequently we do not, at the moment, assess the influence of other organisations, competitors, suppliers, banks, etc. as part of the environment. 4. The matching procedure for the European sample of companies was carefully planned between the scientists in each of the national research centres, but certain problems and difficulties inevitably arose and had to be dealt with on an ad hoc basis. A full description of the procedures used and difficulties encountered will be published with the multinational research report next year. The German-British matching was reasonably satisfactory, with the following exceptions:

(a) one sector (oil technology R & D) could not be matched. (b) The L1-sample is almost 100% of the L1-level in British but approximately 80% of German L1. (c) The German sample is more heavily represented on the manufacturing and engineering function and has fewer ‘general’ nonspecialist managers than the British sample. 5. The following research institutes were in charge of the national research project: International Institute of Management (Germany); Tavistock Institute of Human Relations (Britain); University of California, Berkeley (USA); Institut Supérieur des Affaires (France); The Léon Recanati Graduate School of Business Administration (Israel); Erasmus University (Netherlands); Institute de Estudios Superiores de la Empresa (Spain); and Economic Research Institute of the Stockholm School of Economics (Sweden). 6. The 12 different situations are described in the appendix. 7. There is one exception. British L2-managers judging their boss’s behaviour on DEPT decisions show a slightly higher score (3.17) than their judgements of SUB decisions (3.15). 8. Previously it had been shown that there was a straight progression of more participative behaviour from first line to second line supervisors to senior managers to university students (Heller and Yukl, 1969:233). 9. The companies were selected by impartial judges in part because they were ‘progressive’ and successful. Similar findings have been reported by Vroom and Yetton, 1973, and Bass and Valenzi, 1973.

APPENDIX

Form 5ÐSpecific Decisions Questionnaire The five methods of the Influence-Power-Continuum

LIMITS TO PARTICIPATIVE LEADERSHIP

17

The five methods are defined for each manager as follows: ‘In this form we are concerned with the management skill called “decision-making”. This term includes the process leading up to the final decision, and advice or recommendations which are usually accepted also count as decisions for the purposes of this research. Many alternative methods of decision-making exist, among them those described below. All have been shown to be widely used and effective.’ 1. Own decision without detailed explanation Decisions are made by managers without previous discussion or consultation with subordinates. No special meeting or memorandum is used to explain the decision. 2. Own decision with detailed explanation Same as above, but afterwards managers explain the problem and the reasons for their choice in a memo or in a special meeting. 3. Prior consultation with subordinate Before the decision is made, the manager explains the problem to his subordinate and asks his advice and help. The manager then makes the decision by himself. His final choice may, or may not, reflect his subordinates influence. 4. Joint decision-making with subordinate Managers and their subordinates together analyse the problem and come to a decision. The subordinates usually have as much influence over the final choice as the managers. Where there are more than two individuals in the discussion, the decision of the majority is accepted more often than not. 5. Delegation of decision to subordinate A manager asks his subordinate to make the decision regarding a particular problem. He may or may not request the subordinate to report the decision to him. The manager seldom vetoes the subordinates decisions. The twelve specific decisions are as follows: (The following wording is for the L1-manager. The L2-manager answers the same questions, but referring to his end of the same decision process—i.e., he reports how he sees his superior making decisions.) 1. 2. 3. 4.

To increase the salary of your direct subordinate. To increase the number of employees working for your subordinate. To hire one of several applicants to work for your subordinate. To change the extension number of your subordinates telephone. (In Germany: To change the format of official letters.) 5. To purchase for your department a necessary piece of equipment costing over a stated amount. 6. To promote one of the employees working for your subordinate. 7. To give a merit pay increase to one of your subordinates employees. 8. To increase the financial allocation for your department during the preparation of the organisational budget. 9. To fire one of your subordinate’s employees. 10. To change an operating procedure followed by your subordinate. 11. To assign your subordinate to a different job (on same salary). 12. The decision regarding what targets or quotas should be set for your subordinate. REFERENCES Bass, B., and Valenzi, E. (1973). Contingency aspects of effective management styles. Management Research Centre. Technical Report 67: May.

18

WESTERN EUROPE

Beinum, H.von (1972). The relations between the role of the trade union in modern society and the attitudes of workers. In Davis and Taylor (Eds.), Design of jobs. Penguin Modern Management Readings. Burns, T., and Stalker, G.M. (1961). The management of innovation. London: Tavistock. Davis, L., and Taylor, J., Eds. (1972). Design of jobs. Penguin Books. Emery, F.E., Ed. (1969). System thinking. Penguin Modern Management Readings. —— and Trist, E.L. (1960). Socio-technical systems. In Churchman and Verhulst (Eds.), Management sciences: Models and techniques, Vol. 2. Oxford: Pergamon Press. —— and Trist, E.L. (1965). The causal texture of organisational environments. Hum. Rela., 18:21–31. —— and Trist, E.L. (1973). Towards a social ecology. London: Plenum Press. Etzioni, A. (1965). Dual leadership in complex organisations. Amer. soc. Rev., 30: 688–698. Fiedler, F.E. (1963). A contingency model for the prediction of leadership effectiveness. Urbana, Ill.: University of Illinois. Mimeo. —— (1967). A theory of leadership effectiveness. New York: McGraw-Hill. Gibb, C.A. (1947). The principles and traits of leadership. J. abn. soc. Psychol., 42: 267–284. Goodstadt, B., and Kipnis, D. (1970). Situational influences on the use of power. J. appl Psychol, 54(3): 201–207. Heller, F.A. (1969a). Management’s contribution to economic development. Michigan State University. Business Topics, Winter: 37–43. —— (1969b). Group feed-back analysis: A method of field research. Psychol. Bull., 72(1): 8–117. —— (1971). Managerial decision-making: A study of leadership styles and power-sharing among senior managers . London: Tavistock. —— (1972). The decision process: An analysis of power-sharing at senior organisational levels. Tavistock Institute of Human Relations. Mimeo SFP2337. (Also as chapter in the Handbook of work organisation and society. Ed. R.Dubin, Rand McNally, 1976). —— (1973). Leadership, decision-making and contingency theory. Industr. Rela., 12: 183–199. —— and Yukl, G. (1969). Participation and managerial decision-making as a function of situational variables. Org. Beh. hum. Perform., 4: 227–241. Hemphill, J.K. (1950). Relations between the size of the group and the behavior of ‘superior’ leaders. J. soc. Psychol., 32:11–22. — (1960). Dimensions of executive positions: A study of the basic characteristics of the position of 93 business executives. Ohio State University. Bureau of Business Research Monograph No. 98. Hill, P. (1972). Towards a new philosophy of management. London: Gower Press. Hughes, J., and Gregory, D. (1974). Work organisation: Some issues of practice and concept. SSRC. Kipnis, D. (1972). Does power corrupt? J. Pers. soc. Psychol., (1): 33–41. — and Cosentino, J. (1969). Use of leadership powers in industry. J. appl Psychol, 53 (6): 460–466. Koreman, A.K. (1966). Consideration, initiating structure and organisational criteria: A review. Personnel Psychol., 19: 349–361. Lawrence, P., and Lorsch, J.W. (1967). Differentiation and integration in complex organizations. Admin. Sc. Qua., 12: 1–47. Lewin, K. (1951). Field theory in social science. New York: Harper. Likert, L. (1967). The human organization. New York: McGraw-Hill. March, J.G., and Simon, H.A. (1958). Organizations. New York: Wiley. McGregor, D. (1967). The professional manager. New York: McGraw-Hill. Mulder, M. (1971). Power equalization through participation? Admin. Sc. Qu., 16(1): 31–38. Perrow, C. (1967). A framework for the comparative analysis of organisations. Amer. soc. Rev., 32:194–208. — (1970). Organisational analysis. London: Tavistock. Sadler, P., Webb, T., and Lansley, P. (1973). Management style and organisation structure in the smaller enterprise. Ashridge Management Research Unit. Final Report to the Social Science Research Council: April. Mimeo. Shaw, M.E. (1962). Annual technical report. Gainesville, FL: University of Florida.

LIMITS TO PARTICIPATIVE LEADERSHIP

19

— and Blum, J.M. (1966). Effects of leadership style upon group performance as a function of task structure. J. Pers. soc. Psychol, 3:238–241. Social Science Research Council (1974). Recent changes in work organisation in Sweden. Papers of the Anglo-Swedish Conference held in London: March. (To be published in bookform 1978.) Stogdill, R.M. (1948). Personal factors associated with leadership: A survey of the literature. J. Psychol., 25: 35–71. — and Sharfle, C., and Associates (1956). Patterns of administrative performance. Ohio Studies of Personnel Research Monograph No. 81. Strodtbeck, F.L. (1964). Consideration of metamethod in cross-cultural studies. Amer. Anthr., 66:223–229. Terry, P.T. (1973). The contingency theory of organisation: Its development and application. University of Loughborough. Master’s Thesis. August. Thompson, J. (1967). Organizations in action. New York: McGraw-Hill. Thorsrud, E. (1972). Job design in the wider context. In Davis and Taylor (Eds.), Design of jobs. Penguin Modern Management Readings. Triandis, H. (1972). The analysis of subjective culture. New York: Wiley. Trist, E.L., and Bamforth, K.W. (1951). Some social and psychological consequences of the Longwall-method of coalgetting. Hum. Rela., 4:3–38. — Higgin, G.W., Murry, H., and Pollock, A.B. (1963). Organisational choice. London: Tavistock. Vroom, V., and Yetton, P. (1973). Leadership and decision-making. Pittsburgh, Pa.: University of Pittsburgh Press. Williams, L.K., Whyte, W.F., and Green, C.S. (1966). Do cultural differences affect workers’ attitudes? Industr. Rela., 5(3): 105–117. May. Wilpert, B., and Heller, F.A. (1973). Power-sharing at senior management levels. Omega, 1:451–464. — and Heller, F.A. (1974). Decision-making in German and British companies. Paper to the 18th International Congress of Applied Psychology, Montreal. August. Wispe, L.G., and Lloyd, K.E. (1955). Some situational and psychological determinants of the desire for structured interpersonal relations. J. abn. soc. Psychol., 51:57–60. Woodward, J. (1958). Management and technology. Her Majesty’s Stationery Office. — (1965). Industrial organisation theory and practice. London: Oxford University Press. —(1970) Industrial-organisation: Behaviour and control. London: Oxford University Press.

20 Organization and managerial roles in British and West German companies: an examination of the culture-free thesis J.Child and A.Kieser

The aim of this chapter is to examine direct comparisons between business organizations in two countries—Britain and West Germany—which are at very similar stages of industrial development, but which have often been noted for their cultural and social differences. In the light of this examination the culture-free thesis will appear to be of only limited significance and based on unproven causality. Before describing the sample of organizations studied, and presenting the findings of the investigation, it is appropriate to examine the culture-free and the culture-specific arguments more closely in the form they would apply to a comparison between Britain and Germany. THE CULTURE-FREE OR CONTINGENCY ARGUMENT The best known thesis of this kind has been advanced by Kerr, Dunlop, Harbison and Myers in their Industrialism and Industrial Man (1960). These authors argue that there is a logic of industrialism, generating imperatives of an economic and technological nature, which is steadily moulding the development of industrial societies into a common pattern. Despite the diverse political, ideological and cultural origins of industrialized societies, their institutional frameworks are converging under the force of a common industrial logic. Galbraith, in his The New Industrial State (1967) has, of course, advanced a comparable argument. It bears some affinity to the Marxist view that the form of social institutions is moulded by forces in the economic substructure. This line of reasoning was developed with more specific reference to forms of organization and management by Harbison and Myers in their Management in the Industrial World (1959). Thus: …the industrialization process has its set of imperatives: things which all societies must do if they hope to conduct a successful march to industrialism. This is what we call the logic of industrialization. One of the imperatives in the logic of industrialization is the building of the requisite organizations to combine natural resources, capital, technology, and labor for productive purposes. Organization building has its logic, too, which rests upon the development of management. And this brings us to

Source: Edited version of a paper originally published in Organizations Alike and Unlike, C.J.Lammers and D.J.Hickson (eds), London: Routledge, 1979, Ch. 13.

WESTERN EUROPE

21

the fundamental premise of our study: there is a general logic of management development which has applicability both to advanced and industrializing countries in the modern world (p. 117). Harbison and Myers argue that industrialization brings about an increasing specialization of functions within industrial organizations. Enterprises grow in internal complexity and they grow in overall size. Specialization and complexity create problems of co-ordination within organizations and to maintain order and control the employer is forced ‘to covet the role of rule maker’ (p. 47). At the same time, growing size and complexity make it increasingly difficult to retain all decision making at the top of organizational hierarchies. Therefore, ‘the logic of industrial development calls for increasing managerial decentralization as enterprises grow in size and complexity’ (pp. 44–5). The appropriate style of management is also seen to shift from an authoritarian to a more ‘constitutional’ and even ‘participative’ approach along with decentralization, with the employment of specialist experts and with rising employee expectations. Management itself has to become increasingly based on competence and professionalism. Industrialization, according to this argument, brings about certain changes in the context of organizations, particularly their size and complexity. These contextual changes in turn are seen as necessitating certain developments in organization structure: greater specialization, reliance upon rules, and decentralization. Management becomes more ‘professionalized’ and authority relationships tend to shift from autocratic to formalized and more participative modes. The logic of industrialization prevails whatever the cultural setting, although Harbison and Myers do recognize that cultural factors can impinge on the process and may slow it down. The thesis put forward by Hickson et al. that ‘relationships between the structural characteristics of work organizations and variables of organization context will be stable across societies’ (1974, p. 63) can be seen to represent one chain in Harbison and Myers’ earlier and more comprehensive argument. Hickson and his colleagues doubt that cultural setting will influence the nature of such relationships. The implication of the culture-free or contingency argument for a comparison of British and German organizations is the following. The two countries are at approximately the same stage of industrialization and have very similar economic structures (NEDO, 1974). Economic organizations within the two countries, which are of similar size and other contextual characteristics, should demonstrate no significant differences in structure or in the nature of their approach to management. THE CULTURE-SPECIFIC ARGUMENT This argument notes how different societies exhibit distinct and relatively persistent cultures, that is, widely shared patterns of thought and manners. This enduring strain of culture is internalized as each new generation passes through its process of socialization. People learn their own unique language, concepts and systems of values, and they also learn to regard as legitimate particular modes of behaviour. Therefore, it is argued, even if organizations located within different societies do face similar contingencies and adopt similar models of formal structure, deep rooted cultural forces will still re-assert themselves in the way people actually behave and relate to each other. Structure will remain purely formal if it is not consonant with culturally derived expectations. Within the western world, the Germans have often been singled out for having a supposedly greater respect for authority and an inclination towards directive rather than participative relationships. One of the most striking examples of how this distinguishes between British and German populations is provided in Haire, Ghiselli and Porters comparisons between the meanings attached by managers in the two countries to the concepts ‘to direct’ and ‘to persuade’ (1966). Among the samples of managers from 14 countries

22

ORGANIZATION AND MANAGERIAL ROLES

included in the study, German managers scored the greatest degree of dissimilarity in the meanings they attached to the two concepts, while British managers tended to perceive relatively little difference in their meaning. For the German managers, directing had much greater prestige and involved far more firmness than did persuading. At the same time, persuading was for German managers less closely associated than directing with ‘favourable’ concepts of ‘to decide’, ‘to create’ and ‘to co-operate’. Persuading was more closely associated than was directing with ‘unfavourable’ concepts of ‘to reprimand’, ‘to make a mistake’ and ‘to cheat’. In both Britain and Germany, attitudes towards the two concepts did not vary much with managers’ hierarchical positions. They would therefore seem to point to different philosophies, the German one being more inclined towards authoritarianism and centralization. Hofstede (1974), in a study of middle managers attending courses at Lausanne between 1970 and 1973, presents data which also suggest that German managers hold different value preferences from their British counterparts. In regard to work, the Germans tended to attach greater importance to orderliness and having clear cut objectives, but less importance to achievement and challenge. In regard to relations with people, the British tended to value benevolence towards, and receiving recognition from, others more highly, while the Germans attached relatively greater value to having authority over other people. These findings are consistent with other research and discussion on British and German cultural differences, most of which because of the Nazi trauma concentrates on the German case (e.g. Erikson, 1965, McClelland, 1961). Compared to his counterpart in Britain, the German emerges as having a greater respect for authority, a stronger fear of displeasing his superiors and of failure, and a stronger desire for explicit and stable relationships. There is also evidence from previous studies to suggest that these broad cultural contrasts will be evident in the behaviour of managers and in the ways their roles and relationships are structured. For example, Ruedi and Lawrence (1970) compared six American plastics firms with a German counterpart and concluded that ‘the evidence is abundant that the general features of the German culture did show up in the internal features of Plastik AG’ (p. 74). The German management adopted ‘the traditional and culturally ingrained view of organizations as authority structures, requiring explicit, stable and strong hierarchical relationships with “ultimate” authority at the top’ (p. 81). Granicks comparative studies (1962, 1972) also lead to the conclusion that British managers enjoy a relatively high degree of decentralization of authority and influence, while German managers enjoy relatively less freedom of action. If culture does make for a difference between organization and management in Britain and Germany, the nature of the contrast to be expected seems pretty clear from the studies cited. German firms will, ceteris paribus, be more centralized. Their internal relationships will have a stronger emphasis on hierarchy and stability and this is likely to be reflected in higher degrees of routine, lower authority and less mobility between jobs at levels below top management. One of the most insightful and graphic analyses of what this means for German managers has been provided by Hartmann (1959a, 1959b). Hartmann stresses that German top managers (Unternehmer) are much concerned with their authority. Whereas management in most western countries justifies its authority in terms of knowledge and technical ability, Hartmann states that the German top executive’s system of authority consists of value-oriented or non-functional definitions based on notions of charisma, calling or trusteeship. In contrast to the British ethos of a management team, many top German executives conceive of departmental managers—the leitende Angestellte—as being quite distinct from themselves: In this context, the major qualifications of the leitende Angestellte have been described as bureaucratic attention to detail and Sitzfleisch (‘ability to sit it out’). It is considered proper management strategy that the Unternehmer retain for himself the function of leadership (Fiihrung) and delegate only authority over routine operations (Leitung). The ensuing lack of legitimate power so

WESTERN EUROPE

23

strongly emphasizes the subordinate character of the leitende Angestellte that, by comparison with the top executive, they appear to have more in common with their own subordinates than with their ultimate superior (1959b, pp. 270–1). Two opposing theories, then, provide an analytical framework within which a comparative study of British and German companies can be undertaken. As is often the case, both theories could be partially correct. Contingencies associated with industrialization, such as the economics of scale, could take a hand in shaping organizational variables together with cultural factors. Contingencies possibly bear more upon formal structural arrangements while culture may be reflected more at the level of how individuals activate their roles and relate to each other. What do the data suggest? SAMPLE OF COMPANIES IN BRITAIN AND WEST GERMANY Data for the study were drawn from 82 British companies and 51 West German companies. The British sample comprised 55 organizations located in four manufacturing industries—chocolate and sweets, electronics, daily newspapers and pharmaceuticals—and 27 organizations located in two service industries — advertising and insurance. The German companies were all manufacturing, located in a range of industries in Nordrhein-Westfalen. The British companies were selected to provide clusters around the following size levels: 150, 300, 500, 1,000, 2,500 and 6,000 employees. The range of organization sizes runs from 108 to 9,778 employees with a mean size of 1,542 employees. The German companies were selected on the same basis, except that none were studied at the 6,000 employment level. The range of German organization sizes runs from 85 to 3,324 giving a mean of 895 employees. For certain comparative purposes a sub-sample of 71 British companies will be used, eliminating those clustering around the 6,000 level, and giving a mean size of 798 employees. In both British and German samples, the great majority of organizations were independent companies or subsidiaries operating under their own identity. A difference between the two samples lies in the fact that there are 27 service companies in the British sample. An examination of the interindustry differences in organizational and managerial variables indicated that the inclusion of the service companies does not significantly affect comparisons to be made, except in the case of a few variables which will be noted. It was decided, therefore, to retain the service companies in the sample. PROCEDURE Fieldwork was undertaken in Britain during 1967–69 and in Germany during 1970–71. Both investigations employed the relatively standardized ‘Aston’ methods for measuring dimensions of organization structure and context developed by Pugh et al. (1968, 1969). These instruments were translated into German by Kieser who had previously studied in the USA. In order to gain an insight into managerial variables within each company, a self-administered questionnaire was used. This had also first been developed at the University of Aston, having been piloted by Inkson et al. (1968). Kieser translated the questionnaire into German. Completed questionnaires were received from 787 managers in 78 of the British companies and from 198 managers in 47 of the German companies. For these managerial samples, heads of departments in 13 specified functional areas were selected from each organization (where such posts existed), together with any other managers reporting directly to the chief

24

ORGANIZATION AND MANAGERIAL ROLES

executive. Personal assistants were excluded. Nearly all the managers were located at one or two levels below the chief executive. The specific measures of organization and management used in the present comparison will be described as they arise. A few of the organizational measures employed in the German investigation are modifications of the British originals. However, both British and German samples can be compared through an identical conceptual framework and, with a few exceptions, through the application of identical measurements. RESULTS: CONTINGENCY THEORY The logic of industrialization thesis points to a causal nexus in which the level of industrial development leads to increased organizational size and complexity, which in turn leads to greater specialization, use of standard rules and procedures, and decentralization. The style of management changes from authoritarianism to constitutionalism (a framework of procedure governs relationships) and involves greater participation. The relationships found in both the British and German samples do not appear to refute this thesis. In both countries the size of the organization studied and the size of a parent organization or group to which it might belong emerged as predictors of organization structure. Technology (as assessed by the integration and automation of workflows) did not emerge as a consistent predictor of structure. A summary of these results is shown in Table 1. Size of organization and of parent organization is measured as the logarithm of total employees, since in both samples this transformation converted a very similar asymptotic relationship with structural dimensions into linear regressions. Among British and German companies, as their size increases so they tend (as predicted) to develop an increasing number of functionally specialized departments (functional specialization) and an increasing range of formally differentiated roles (role specialization). Where an organization belongs to a larger parent, this was found through multiple regression analysis to add to the probability of higher specialization. (Where no parent exists the size of parent is taken to equal the size of the organization itself.) The two size factors also predict greater standardization of procedures in both British and German companies with parent size being somewhat more significant. The standardization measure is an aggregation of scores for the use of standard rules and procedures in a representative range of activities among British firms and in planning activities among the German companies. A greater size of company and of parent also predicts that there will be more decentralization (in the sense of delegation) of decision making, although the predictive power for German companies is weaker. Finally, the integration of technology (more rigid, integrated and Table 1 Product-moment correlations between variables of context and structure (UK sample: n=82 organizations; West German sample: n=51 organizations) Structural variables Context Size of organization (log. total employees) Size of parent organization (log. total employees)

Functional specialization Role specialization Standardization of procedures Decentralization UK 61***

WG 83***

UK 72***

WG 85***

UK 63***

WG 23

UK 58***

WG 35*

59***

44**

62***

40**

67***

46***

40***

34*

WESTERN EUROPE

25

Structural variables Context

Functional specialization Role specialization Standardization of procedures Decentralization

Workflow 41*** integration Note: Decimal points omitted * ** ***

08

39***

10

26*

−07

−13

04

automated production) predicts some increase in specialization and use of standard procedures among British companies but not among German ones. When size is controlled statistically, a greater integration of technology predicts less decentralization in the British sample. The size of organizations is clearly a major correlate of their structure, and this iterates similar findings from other studies which have been made of other samples of organizations in various countries (cf. Child, 1973a; Hickson et al., 1974). The British and German samples exhibited similar regression lines for the measures of specialization as size increased and also for their number of hierarchical levels (Kieser, 1973). However, while German companies tended over most of the size range sampled to have marginally lower scores on these variables, they had significantly higher levels of centralization as we note shortly. It might be expected that a contextual factor such as size would relate to the nature of managerial roles through the general approach which a company consequently adopts towards its structure of organization. Data obtained from the managers’ questionnaires were used to construct measures characterizing the extent to which their roles were formalized, defined, routined and endowed with discretionary authority. Other measures concerned the managers’ career in the organization, their influence, their levels of perceived competence and satisfaction in the job and the degree of conflict they perceived to exist between managers in their company. A summary of the measures employed is given in Table 2. A total of 14 Likert-type items had been included in the questionnaire to operationalize the concept of specificity of role prescription formulated by Hickson (1966). Hickson had concluded, from a review of the literature of organization theory, that role prescription formed a major focus of research and speculation, lying at the heart of distinctions between, for instance, mechanistic and organic models of management. A factor analysis of the data obtained from these questions produced a similar patterning of responses among both British and German managers. In both samples four main factors emerged and, although none of these are large in terms of variance accounted for, they segregate the data in a manner which is conceptually very acceptable. Three types of routine emerge, together with a factor depicting the degree to which jobs are defined. One type of routine concerns the character of problems encountered with respect to their intrinsic qualities and the skills required for their solution (Factor I). A second type concerns an everyday aspect of routine much at the level of how much work is programmed (Factor IV), while a third type concerns long term changes in a manager’s job (Factor III). This factor analysis has been used to construct identical measures for both British and German samples, incorporating the items marked in Appendix 1. Table 3 lists the correlations found in British and German companies between the characteristics of managerial roles, on the one hand, and contextual and structural variables on the other. In both countries managers in larger organizations tended to experience less routine in their work (contrary to what is popularly supposed), particularly in the type of problems they had to deal with and in the degree to which their programming of work followed a predictable pattern. In larger organizations it was more likely that their jobs would be formally defined by official documents, although belonging to a larger parent group was a much surer guarantee of this. The type of internal organization structure which was adopted by companies

26

ORGANIZATION AND MANAGERIAL ROLES

was also consistently reflected in the extent to which managers’ jobs were formalized in official documents. Greater specialization, use of standard procedure, and decentralization all predicted a greater formalization of managers’ jobs. The same shift towards specialization, procedure and decentralization also tended to predict that managers would find their jobs less routine. Decentralization was particularly associated with the experience of more challenging problems, taking the two samples together. Managers perceived that they had greater authority in larger and more decentralized British firms, but in Germany size was not associated with greater authority and decentralization only fairly weakly so. In Britain, managers operating under a decentralized system did not personally experience their jobs to be more closely defined, yet in Germany they did. At the stage of analysis, then, it begins to appear that, in line with the contingency thesis, a nexus is present in both countries between size, organization structure and managerial roles. Larger size is associated with greater specialization, reliance on standard procedures and decentralization. These structural variables, especially decentralization, are to some extent associated with less routine and a greater participation in top management authority. The relationships which context and structure have with managerial characteristics are not very strong, however, especially when one ignores the formal aspect of job definition (role formalization). In addition, there are signs that in Germany context and structure do not relate in the same way as in Britain to variables such as the definition or the authority that managers perceive their jobs to have. Table 2 Summary of measures of managerial role dimensions Name of variable

Nature of variable

Nature of measure

Sample item

1

Role history

(a) Length of employment in present organization (years)

(b) Number of different positions held since joining the organization (c) Length of time in present position (years) 2

Role formalization

Total of 5 biserial items

Is there a written job description or terms of reference for your job?

3

Role definition

Extent to which manager’s role is formalized by prescription in official documents Extent to which managers perceive their jobs and authority to be constrained within fixed limits

Total of 3 weighted Likert-type (5-point) items

4

Role routine (problems and skills)

Extent to which managers perceive their work as involving familiar

Total of 5 weighted Likert-type (5-point) items

How precisely are your responsibilities laid down? (Very precisely, fairly, not very, very imprecisely, not laid down at all) How often do completely unforeseen things happen in your job? (Very often, often,

WESTERN EUROPE

Name of variable

5

Everyday routine

6

Long term stability

Nature of variable problems and not requiring new skills

Nature of measure

Extent to which managers perceive their work to be highly programmed Extent to which managers perceive and anticipate little year-to-year change in the content of their job

Total of 4 unweighted Likerttype (5-point) items Total of 2 unweighted Likerttype (5-point) items

7

Perceived authority

The scope of authority managers perceive themselves as possessing

Total of scores from two similar scales each describing 8 degrees of authority

8

Role performance

(a) perceived job competence

Score on 9-point scale

(b) job satisfaction Score on 9-point scale 9 Conflict between managers

Extent to which a Total of 4 Likert-type manager perceives his (5-point) items colleagues to find difficulty in agreeing on four aspects of problem solving

10

Self-attributed influence

Relative degree of influence which a manager perceives he has within the organization

Score on 5-point Likert-type scale

11

Mean-attributed

The mean of scores given by other influence managers

Score on 5-point Likert-type scale

Sample item sometimes, occasionally, seldom) How many of your working days follow a similar pattern to one another? How much of the content of the job you are now in has changed in the past year?

I have complete authority on routine matters but refer the majority of unusual items to my superior for approval

How much difficulty do senior managers (in your organization) have on reaching agreement on the facts of the situation? (None, a little, some, quite a lot, a great deal) Below are listed a number of people in your organization, including yourself (list of job titles). How much actual say or influence does each of them have in what goes on in your organization? (Very great influence, great influence, quite a bit of influence, some influence, little influence) as above

27

28

ORGANIZATION AND MANAGERIAL ROLES

for a managers influence within the organization Table 3 Product— moment correlations between organizational and managerial role variables (UK sample: n=78 organizations; West German sample: n=47 organizations) Managerial role variables Organiz Formalization ational variable s Context Size of organiz ation (log. total employ ees) Size of parent organiz ation Workfl ow integrat ion Structure Functio nal speciali zation Role speciali zation Standar dizatio n of proced ures (UK) (Planni ng proced ures only— WG)

Definition

Routine problems Everyday and skills routine

Long term stability

Perceived authority

UK

WG

UK

WG

UK

WG

UK

WG

UK

WG

UK

WG

24*

22

05

19

−22*

−36*

−38** *

−25

−20

−20

29**

02

59***

59***

16

44**

−15

00

−25*

−04

−20

−32*

22*

01

04

04

26*

10

17

−10

15

12

−10

−13

−39** *

−13

48***

29*

27*

20

−11

−30*

−21

−25

−25*

−23

07

09

52***

32*

35**

04

−04

−39**

−22*

−38** −28*

−17

14

04

68***

46***

28*

−03

−20

−14

−21

−27

−38**

24*

15

−27*

WESTERN EUROPE

29

Managerial role variables Organiz Formalization ational variable s

Definition

Routine problems Everyday and skills routine

Decentr alizatio n

−08

−45** *

31**

34*

30*

−32*

−51** *

−14

Long term stability

Perceived authority

−32**

57***

−07

25

Note: Decimal points omitted * ** ***

In short, a link between context and structure has been established, but the relation between these factors and managers’ roles is less consistent. Moreover, the nature of authority relationships—the main area in which we have predicted that differences in British and German cultures will have an effect—has been the least satisfactorily accounted for by the culture-free contingency analysis we have applied up to this point. RESULTS: CULTURAL SPECIFICITY The correlations presented in Table 1 indicated that among British firms their size accounted for about three times (34 per cent) of the variation in their level of decentralization than it did among German firms (12 per cent). Further analysis of our data also indicated that other factors, such as a divorce of ownership from control, which predicted decentralization in Britain (r=0.44) failed to do so in Germany. These contrasts between the two countries lead one to look at decentralization more closely. Are they due to a reluctance among German top management to delegate because of national attitudes about authority, even when contingencies such as size place pressures on it to do so? Table 4 compares the average level of decentralization (delegation) for directly comparable decisions in the sample of German firms and in the sub-sample of 71 British firms selected so as to provide comparability in the organization sizes sampled. On the whole, companies in both Britain and Germany take strategic decisions at a high level—at chief executive or board level. Major administrative decisions also tended to be fairly centralized in both countries with those on departmental responsibilities being somewhat more centralized in British companies and decisions on creating new positions more centralized in German companies. However, when one examines the level at which operational decisions are made, it is then apparent that German firms are more centralized than their British counterparts. This is true of all the marketing, production and purchasing decisions studied, and of some personnel decisions as well. Not a single one of the operational decisions for which we had directly comparable data was, on average, taken at a higher hierarchical level in the British companies. This tendency towards greater centralization in operational decision making among German firms accords with the predictions and descriptions of writers who have singled out German industry as being culturally distinctive within the western world. In both the British and German samples, delegation provides an increase of authority for departmental managers which is formally defined in their roles. It is therefore reasonable to expect such managers in the generally more centralized German firms to find themselves in the

30

ORGANIZATION AND MANAGERIAL ROLES

type of confined and dependent position which Hartmann described to a much greater degree than will their British counterparts. This is almost precisely the contrast which emerges. Table 5 first of all provides a comparison of the British and German managers’ career profiles. This shows that both groups of managers were, on average, approximately the same age and Table 4 Comparison of decision making levels Decisions

Strategic decisions 1 Decide on type of market 2 Determine new product or service 3 Decide price of output 4 Spend unallocated money on capital items Administrative decisions 5 Create a new department 6 Alter responsibilities of departments 7 Create a new position Marketing decisions 8 Decide on priority of orders Production decisions 9 Methods of work to be used 10 When overtime is to be worked 11 Operations to be work studied Purchasing decisions 12 Type/brand of new equipment 13 Suppliers of materials Personnel decisions 14 Appointments to operative jobs

British companies mean score

W. German companies mean score

Value of t

Level of confidence (p)

3.65

3.54

0.69

n.s.

4.27

3.79

3.98

<0.001

3.32

3.35

0.12

n.s.

3.83

3.79

0.28

n.s.

4.09

3.96

1.66

n.s.

3.42

3.02

2.42

<0.02

3.62

3.90

2.46

<0.02

1.77

2.62

4.59

<0.001

1.37

2.64

7.37

<0.001

1.58

2.46

4.89

<0.001

2.29

3.10

3.65

<0.001

2.34

3.31

4.85

<0.001

1.64

2.62

4.33

<0.001

1.66

2.44

4.40

<0.001

WESTERN EUROPE

Decisions

British companies mean score

W. German companies mean score

Value of t

31

Level of confidence (p)

15

Promotion of 2.63 2.82 1.27 n. s. operatives 16 Appointment of 2.82 3.27 3.28 <0.01 supervisors from outside the firm 17 Promotion of 3.35 3.54 1.34 n. s. supervisors 18 Salaries of 3.39 3.64 1.89 n. s. supervisors 19 Dismissal of 3.20 3.42 1.66 n. s. supervisors 20 Dismissal of 2.14 2.52 2.35 <0.05 direct workers Note: 51 West German companies compared with 71 British companies (a sub-sample selected so as to provide compatibility between sizes of company selected in both countries). Mean scores are derived from the application of a standard scale of hierarchy to both samples. A higher score denotes greater centralization/ less delegation. A value of 5 would indicate that the decision is normally taken above the chief executive (e.g. by a board which was predominantly non-executive or by an owning group); a value of 4 indicates chief executive or executive board level, 3 indicates head of a range of departments (e.g. production director), 2 indicates head of a single department, 1 indicates supervisory level, 0 indicates operative level. Being a standardized measure this scale does not necessarily equate exactly to the number of hierarchical levels in a particular firm, but in each company studied managerial positions were carefully assessed in relation to the scale. Table 5 Comparison of managers’ career characteristics Mean values German managers

British managers

Value of t

Level of confidence (p)

Age (years) Level of qualifications† Years in organization

44.15 2.28

45.45 2.45

1.73 1.72

n. s. n. s.

15.25

Number of positions held

2.51

15.53 14.54* 3.50

0.23 0.81 6.69

n. s. n. s. <0.001

3.20* 4.46 <0.001 Years in present 7.36 4.79 5.42 <0.001 position †These scores are not exactly comparable as between the two samples, because of national differences Note. 198 West German and 787 British managers. For variables related to size of organization, comparisons are also made with 636 British managers from a sub-sample of 71 organizations selected so that their average size (797.86 employees) is closer to and not above that of the German organizations from which the 198 managers come (mean size: 894.59 employees). Results for n=636 are marked by an asterisk.

32

ORGANIZATION AND MANAGERIAL ROLES

they had been with their companies for a comparable number of years. So far as it is possible to compare British and German qualifications, both groups of managers were on the whole similarly endowed when assessed against a scale of formal qualifications. What did distinguish between British and German managers was the latter’s lower job mobility within the company. The German managers had, on average, held one job less since joining their company and had been some two and a half years longer in each job. This looks very much like a manifestation of ‘Sitzfleisch’. The greater job mobility of the British managers is not exaggerated by the inclusion of service companies since mobility was somewhat less in these companies compared with managers in manufacturing firms. When one examines the characteristics of managers’ roles, differences between the two countries are quite striking. These can be seen in Table 6, which gives comparisons between all the role variables measured and which adjusts the British sample to provide comparability in size of organization for variables known to be related to size. It should be recalled that German departmental managers are more likely to have decisions taken over their heads than their British equivalents. It is not surprising, therefore, that they perceive themselves as having significantly less discretionary authority attached to their roles (perceived authority) and that they are perceived by their colleagues as having less influence within their companies (mean attributed influence). Similarly, German managers experience considerably more routine in their work. Their activities follow a less varied programme and involve less novel problem solving and application of new skills or techniques. The long term (year-to-year) change experienced by German managers is greater, Table 6 Comparison of managerial role variables Mean scores

Role formalization Role definition Routine: problems and skills

German managers

British managers

Value of t

Level of confidence (p)

0.98 16.09 16.53

2.14 15.00 12.52

13.15 2.28 11.83

<0.001 <0.05 <0.001

11.29 13.57 13.18 13.63 13.42 11.39 10.89 1.52

<0.001 <0.001 <0.001 <0.001 <0.001 <0.001 <0.001 n.s.

Everyday routine

17.36

Long term stability

2.24

Perceived authority

8.20

Self-attributed influence Mean attributed influence Conflict between managers Job competence Job satisfaction

1.70

12.61* 11.06 11.38* 4.16 4.25* 10.10 10.05* 1.81

1.49

1.63

3.62

<0.001

6.72

6.58

0.57

n.s.

6.33 6.39

6.46 5.98

1.23 3.36

n.s. <0.001

WESTERN EUROPE

33

Mean scores German managers

British managers

Value of t

Level of confidence (p)

Note: 198 West German and 787 British managers. For certain variables which are related to size of organizations, comparisons are also made with 636 British managers from a sub-sample of 71 organizations selected so that their average size (797.86 employees) is closer to, and not above, that of the German organizations from which the 198 managers come (mean size: 894.59 employees). Results for n=636 are marked by an asterisk.

but this probably reflects the much faster rate of industrial growth in Germany at the time of the research rather than the degree to which their roles are structured at a particular point in time. The way in which managers’ roles are structured varies between the two countries. Although the degree of role definition perceived by British managers is somewhat less, this is a consequence of particularly low scores on this variable among managers in the British service companies. More noteworthy is the fact that in British companies departmental managers’ roles tend to be formally defined by means of official documents such as job descriptions and organization charts to a considerably greater extent than tends to be true of German managers. The definition of German managers’ roles must therefore, in large measure, be a function of personal relationships between top management at the Unternehmer level and departmental management at the leitende Angestellte level sampled. The data imply that German departmental managers have a greater dependence on the personal decisions of top managers (particularly the chief executive and members of the supervisory board) as opposed to their position being formally and ‘objectively’ defined in a somewhat legal-rational manner. In terms of Harbison and Myers’ thesis, German management has in this way tended to resist the ‘logic’ of development towards formalization. There are certain indications that these differences between British and German managers are culturally acceptable in their respective contexts, over and above the fact that they are consonant with contrasts drawn by others between the two societies. The level of job satisfaction expressed by German managers is higher— indeed, if the British service organizations are eliminated the contrast becomes greater since the British average is then lowered. This higher level of job satisfaction is not a consequence of lower conflict or a greater feeling of competence among German managers, for these variables do not discriminate between the two samples. It could, of course, reflect their higher rewards and the generally superior performance of German companies. However, most authorities would accept that the level of satisfaction with jobs is a function of how compatible those jobs are with the expectations of their incumbents. The higher job satisfaction of German managers therefore suggests that the limited authority and variety which tends to characterize their jobs is expected and accepted as legitimate. Such acceptance would almost certainly be a product of social culture, and may go back to the dominant role of the German father in the childhood home which Erikson (1965) describes. Further pointers to the presence of differential expectations in the populations of British and German managers are provided by Table 7. A multi-item measure of personal flexibility in the work context was completed by all the managers, and a similar first factor emerged from both samples. This was highly loaded Table 7 Comparison of personal orientation (198 West German and 787 British managers) 1

Degree of preference for a varied work environment Mean

German managers 4.91

British managers 7.11

34

2

ORGANIZATION AND MANAGERIAL ROLES

S.D. Value of t

1.47 16.08

2.47 Level of confidence (p) <0.001

Expectations regarding the questioning of authority Mean S.D. Value of t

10.54 2.35 11.05

13.38 5.47 Level of confidence (p) <0.001

on items which expressed whether or not respondents preferred variety and uncertainty in their work (preference for a varied work environment). It can be seen that German managers tended to be significantly less willing to face variety and uncertainty, and this is quite consistent with the greater routine and reduced discretion they accepted in their jobs compared to British managers. Similarly, a measure of managers’ expectations about questioning the system of authority in their firms suggests that German managers regard as appropriate a higher degree of acquiescence with established authority than is the case with British managers. Personal preferences and expectations such as these are likely to be culturally derived and help to explain why German managers should be more satisfied with their restricted roles than are British managers with less restricted roles. In short, German managerial roles have been found to differ from their British equivalents in ways which commentators on the two countries have predicted. There is some evidence that these differences are consistent with the personal outlook of managers in each country. Some of the contrasts in roles are associated with a dimension of organization structure—the degree of decentralization—and this itself throws into question the thesis that the explanation of structure need not make reference to the cultural setting. CONCLUSION: A FRAMEWORK FOR CROSS-CULTURAL STUDIES OF ORGANIZATIONS The research reported in this chapter suggests that culturally specific factors such as people’s expectations on the nature of authority relationships will mediate between contextual variables such as size of organization and the nature of structures and roles within organizations. The nexus of size, structure and role, posited by the logic of industrialization thesis, was apparent in both British and German firms. However, companies in the two countries displayed different patterns of decentralization—a major structural dimension—and different managerial role characteristics, which could not be ascribed to size or indeed to any other immediately contingent factor. These contrasting patterns in structure and role were, on the other hand, predictable in view of the differences which commentators have drawn between British and German cultures, and which the authors have themselves experienced. There can be no question on the basis of this evidence that, contrary to the view implied in some recent writings, a sociologically valid theory of organization must take cultural settings into account. Even the modest consistencies in context-structure relationships which are cited as evidence for a culture-free or ‘contingency’ theory of organizational development are open to another interpretation. They may be due not simply to a process of causation whereby contingencies such as size lead to specialized, formalized and decentralized structures, but also to the designers of organization in different countries applying the same principles and philosophies. This could mean that while contingencies may be the product of industrial and

WESTERN EUROPE

35

social development, a communality in structural forms is the product of a transference of ideas as much as a consciously planned response to the contingencies. The transference of ideas argument gains some support when one examines the major sources in business literature which have been consulted by managers in Britain and Germany. Conceptually there is not a great deal of difference between the approach of Anglo-American writers such as Gulick and Urwick (1937) with their classical ‘Principles of Management’ school which exercised considerable influence in post-war British management, and the work of leading German writers on organization of the same period, such as Nordsieck (1931, 1934), Hennig (1934) and Ulrich (1949). Following the war, Anglo-American approaches to organization design were quickly adopted by German writers and by business practice. More recently, large consulting firms such as McKinsey with subsidiaries in all the main west European countries have also played their part in accelerating the transfer of organizational principles and techniques across national boundaries. The contingency argument would gain some support if it could be shown that the same context-structure relationships prevail in different countries even if the designers of organization hold different preferences on the matter of how structures and roles should be set up. In other words, it depends on showing that contingencies will have effect despite culturally derived preferences or that, where such preferences are allowed to influence organization, the performance of the institution suffers. Elsewhere it was argued that it was not realistic to suppose top managers and administrators did not incorporate their own ideas and preferences into the strategic policies they formulated (Child, 1972). As it is, most of the dissimilarities we have noted between British and German companies could be interpreted on the basis of an assumption that German top managers prefer centralized decision making. If it is allowed that both contingencies and cultural factors are likely to assist in the shaping of organization structure and roles, the question arises as to where these two streams of influence fit together. Our data suggest that the cultural factor has most bearing upon modes of individual conduct and interpersonal relationships, and it is precisely at this level that one would expect the products of socialization to be manifested most strongly. Granick (1972) has also presented some evidence on the way in which culturally different management philosophies bear particularly closely on the roles of managers. Studies of industrial workers (e.g. Goldthorpe et al., 1968, Kohn and Schooler, 1969, Kern and Schumann, 1970) have indicated that orientations to work roles are to some degree shaped by factors such as previous work experience, education, family situation, class affiliation and so forth. There is no reason to believe that the substance of these out-of-work factors, which will reflect societal differences, should not affect the orientations of managers towards their work roles. If managers in different countries have internalized qualitatively distinct attitudes and norms of conduct as a result of such experiences, then their interpretation of social reality and of their role within it is also likely to vary. If one attempts to draw some of the foregoing considerations together into a framework of analysis for cross-cultural organizational comparison, the result is along the lines shown in Figure 1. This is based on a previously developed model implying an asymmetrical set of causal influences running from the context of organizations to their structures, to work roles and behaviour (Child, 1973b). The asymmetry of such a model is, of course, an oversimplification but it does nonetheless represent the contingency view in its crude form. In the diagram, we suggest that philosophies of management are likely to enter primarily as a mediating influence on the design of structure and to some extent on the design of roles. The attitudes of managers towards concepts of work and authority are likely to affect the structuring of decision making and the nature of individual roles. It is portrayed as mediating the relationship between structure and roles. The interpretation of acceptable conduct is likely to mediate between the role a person occupies and the way he chooses to behave in that role.

36

ORGANIZATION AND MANAGERIAL ROLES

Figure 1 A general model of cultural and ideational variables intervening in the relationships between context, structure, role and behaviour

At every point, then, in the causal chain posited by culture-free contingency analysis, other influences— mostly cultural in origin—are likely to interpose. Most of these influences have already been identified and conceptualized by other writers (e.g. Oberg, 1963; Farmer and Richman, 1965; England, 1973 and Negandhi, 1973). Cultural variables have not, however, been incorporated into a model which systematically links together the analytical levels of context, structure, role and behaviour. Our comparison of data from British and German companies suggests that an extension of the basic contingency model through allowing for the influence of culture and ideas on managerial choice can result in a meaningful explanation of variations between the two countries as well as a plausible interpretation of similarities. REFERENCES Child, John (1972), Organization structure, environment and performance: the role of strategic choice, ‘Sociology’, vol. 6, pp. 1–22. Child, John (1973a), Predicting and understanding organization structure, ‘Administrative Science Quarterly’, vol. 18, pp. 168–85. Child, John (1973b), Strategies of control and organizational behaviour, ‘Administrative Science Quarterly’, vol. 18, pp. 1–17. Crozier, Michel (1964), ‘The Bureaucratic Phenomenon’, Tavistock, London. England, George (1973), Personal value systems and expected behaviour of managers —a comparative study in Japan, Korea and the United States, in Desmond Graves (ed.), ‘Management Research: A Cross-Cultural Perspective’, Elsevier, Amsterdam. Erikson, Erik H. (1965), ‘Childhood and Society’, Penguin, Harmondsworth. Farmer, Richard N. and Barry M.Richman (1965), ‘Comparative Management and Economic Progress’, Irwin, Homewood, Ill. Galbraith, John Kenneth (1967), ‘The New Industrial State’, Hamish Hamilton, London.

WESTERN EUROPE

37

Goldthorpe, John H., David L.Lockwood, Frank Bechhoofer and Jennifer Platt (1968), ‘The Affluent Worker: Industrial Attitudes and Behaviour’, Cambridge University Press. Granick, David (1962), ‘The European Executive’, Doubleday, New York. Granick, David (1972), ‘Managerial Comparisons of Four Developed Countries’, MIT Press, Cambridge, Mass. Gulick, Luther H. and Lyndall F.Urwick (eds) (1937), ‘Papers on the Science of Administration’, Institute of Public Administration, New York. Haire, Mason, Edwin E.Ghiselli and Lyman W.Porter (1966), ‘Managerial Thinking: An International Study’, Wiley, New York. Harbison, Frederick and Charles A.Myers (eds) (1959), ‘Management in the Industrial World: An International Analysis’, McGraw-Hill, New York. Hartmann, Heinz (1959a), ‘Authority and Organization in German Management’, Princeton University Press, NJ. Hartmann, Heinz (1959b), Management in Germany, in Harbison and Myers (eds), ‘Management in the Industrial World: An International Analysis’, McGraw-Hill, New York. Hennig, Karl Wilhelm (1934), ‘Einfiihrung in die Betriebswirtschaftliche Organisationslehre’, Springer, Berlin. Hickson, David J., Christopher R.Hinings, Charles J.McMillan and Joseph P. Schwitter (1974), The culture-free context of organization structure: A tri-national comparison, ‘Sociology’, vol. 8, pp. 59–80. Hofstede, Geert H. (1974), Nationality and espoused values, ‘Working Paper 74–8’, European Institute for Advanced Studies in Management, Brussels. Inkeles, Alex (1960), Industrial man: the relation of status to experience, perception and value, ‘American Journal of Sociology’, vol. 66, pp. 1–31. Inkson, J.H.Kerr, David J. Hickson and Derek S.Pugh (1968), Administrative reduction of variance in organization and behaviour: A comparative study. Paper given to British Psychological Society Annual Conference. Kern, Horst and Michael Schumann (1970), ‘Industriearbeit und Arbeiterbewussten’, Europaische Verlagsanstalt, Frankfurt/Main. Kerr, Clark, John T.Dunlop, Frederick Harbison and Charles A.Myers (1960), ‘Industrialism and Industrial Man’, Harvard University Press, Cambridge, Mass. Kieser, Alfred (1973), ‘Einflussgrössen der Unternehmungsorganisation’, Habilitationsschrift, University of Köln. Kohn, Melvin L. and Carmi Schooler (1969), Class, occupation and orientation, ‘American Sociological Review’, vol. 34, pp. 659–78. McClelland, David C. (1961), ‘The Achieving Society’, Van Nostrand, New York. Malinowski, Bronislaw (1960), ‘A Scientific Theory of Culture and Other Essays’, Oxford University Press, New York. National Economic Development Council (NEDO) (1976), The UK and West German Manufacturing Industry 1955–1972’, M. Panic (ed.), HMSO. Negandhi, Anant R. (1973), A model for analyzing organizations in cross-cultural settings: a conceptual scheme and some research findings, in Negandhi (ed.), ‘Modern Organization Theory’, Kent State University Press, Ohio. Nordsieck, Fritz (1931), ‘Die Schaubildliche Erfassung und Unterzuchung der Betriebsorganisation’, Poeschel, Stuttgart. Nordsieck, Fritz (1934), ‘Grundlagen der Organisationslehre’, Poeschel, Stuttgart. Oberg, W. (1963), Cross-cultural perspectives on management principles, ‘Academy of Management Journal’’, vol. 6, pp. 129–43. Pugh, Derek S., David J.Hickson, Christopher R.Minings and Christopher Turner (1968), Dimensions of organization structure, ‘Administrative Science Quarterly’, vol. 13, pp. 65–105. Pugh, Derek S., David J.Hickson, Christopher R.Minings and Christopher Turner (1969), The context of organization structures, ‘Administrative Science Quarterly’, vol. 14, pp. 91–114. Ruedi, André and Paul R.Lawrence (1970), Organizations in two cultures, in Jay W.Lorsch and Paul R.Lawrence (eds), ‘Studies in Organization Design’, Irwin & Dorsey, Homewood, Ill: Ulrich, Hans (1949), ‘Betriebswirtschaftliche Organisationslehre’, Haupt, Bern.

38

ORGANIZATION AND MANAGERIAL ROLES

APPENDIX 1

Specificity of role prescription: principal components analysis (varimax rotation) n=787 (UK); n=198 (WG) Items

Factor I

Abbreviate Routine nature of problems and d from skills questionna ire and rearranged in order UK WG Nothing 78 47 completel y unforesee n Few new 68 92 10 problems No fresh 68 61 −01 skills required Few 56 25 15 switches of task Solutions 50 27 01 are clear Precisely 03 03 defined responsibi lities Precisely 05 06 86 defined authority

Factor II

Factor III

Role definition

Long term stability Everyday routine

UK

WG 05

UK

03

22

01

21

16

−05 27

14

01

06

07

−16 15

07

07

08

00

08

24

34

87

88

06

00

04

−01

05

07

11

87

07

Factor IV

WG 18

UK

07

11

14

WG 40

WESTERN EUROPE

39

Items

Factor I

Factor II

Factor III

Abbreviate d from questionna ire and rearranged in order Much informatio n on job descriptio n Job content— little change in past year Job content— little change expected over next year Much routine Frequently follow set procedure s Days similar to one another Most foreseeabl e, week ahead Percentag e of total variance Mean intercorrel ation

Routine nature of problems and skills

Role definition

Long term stability Everyday routine

13

02

07

22

06

08

12

87

69

13

18

04

01

71

06

12

14

25

10

−01

06

05

06

06

19

19

12

01

74

55

17

07

−01

00

13

11

71

78

28

03

14

13

−19 −12

47

51

24.6

24.0

12.8

r=0.31

0.30

r=0.36

45

−13 00

−05 −01

86

Factor IV

11

−06

77

56

11.0 10.0

8.5

8.6

13.5

0.30 r=0.63

0.50

r=0.34

0.36

40

ORGANIZATION AND MANAGERIAL ROLES

Items

Factor I

Abbreviate Routine nature of problems and d from skills questionna ire and rearranged in order between items marked Note: Decimal points omitted

Factor II

Factor III

Factor IV

Role definition

Long term stability Everyday routine

21 Societal differences in organizing manufacturing units: a comparison of France, West Germany, and Great Britain M.Maurice, A.Sorge and M.Warner

The literature has largely tended to consider organizations as distinct from societal processes and institutions, and to emphasize convergent and ‘culture-free’ elements of organization. By cross-national comparisons of closely matched factories in France, West Germany, and Great Britain, this paper shows that more pervasive differences exist than are usually recognized. Organizational processes of differentiation and integration can be seen to consistently interact with processes of educating, training, recruiting, and promoting manpower, so that both develop within an institutional logic that is particular to a society, and bring about nationally different shapes of organization. Organizational differences can thus be considered as linked to different extents and dimensions of professionality. Comparisons show that a multidimensional concept of professionality is called for, in contrast to the one-sided emphasis on the social status and formal knowledge dimension usually found in the literature. THEORETICAL INTRODUCTION AND EMPIRICAL METHODS It has certainly become a well-established feature of the sociology of organizations that organization structures are largely explained with reference to the size, technology, and task environment of organizations. This approach is most eminently presented by Pugh et al. (1969), Blau and Schoenherr (1971), Child (1973), Woodward (1965), among others, and it has become intertwined with the contingency theory of organizations, as formulated by Lawrence and Lorsch (1967), Perrow (1971), or, at an earlier stage, Burns and Stalker (1961). There has been a discussion about the relative importance of explanatory variables, which has to some extent been settled by Hickson et al. (1969), and Child and Mansfield (1972). But despite the formally rigorous procedures employed, and the conceptual closeness of the researchers, inconsistencies remain. Thus, the conflicting views on the relationship between the structural dimensions of Structuring of activities’ and ‘centralization’, as put forward by Pugh et al. (1968), on the one hand, and Child (1973) and Mansfield (1973), on the other, could not be resolved empirically. Attempts at reconciliation on the basis of empirical reanalysis by Donaldson, Child, and Aldrich (1975) do not appear to have led to a conclusive interpretation of the differences. It would therefore seem that both the theoretical approach and empirical methods used have passed their peak in both senses: a vast number of valuable insights has been derived, but the marginal utility of both the

Source: Organization Studies (1980), 1(1): 59–86.

42

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

theoretical paradigm and the research methods seems to be declining rapidly to the extent that data now appear as black boxes, with internal mechanics which seem to be opaque. A further symptom of the declining utility of the approach is that at least one of its proponents has joined the ranks of the critics; Child (1972) argued that, instead of focussing on the organizational response to environmental constraints, one should conceptually admit a choice of different forms of organization because the amount of organizational variance explained by the contingency approach was rather limited. A more pervasive critique of this mainstream theory of organizations had, however, been formulated by other authors. To name but a few, Argyris (1972) argued for a closer link with psychological research, Crozier (1963) developed a culturalist perspective, and, following from this, an analysis of the ‘structured games’ actors play in power relationships (Crozier and Friedberg 1977). Silverman (1970) pleaded for an ethnomethodological and symbolic inter-actionist orientation, and Altmann and Bechtle (1971) for a grounding in political economy, following the Marxist tradition; many more could be added. Ambition abounds, but no convincing alternative paradigm has as yet gained centrality. However, by now, it must be accepted by a majority of researchers that the constraint-organizational response pattern of the contingency approach does not lead any further; but it is equally clear that ‘choice’ by itself cannot simply take the place of ‘constraint’. As Hage (1977) showed, both concepts can complement each other quite well analytically. The more one looks at them, the less the difference between them. Just as constraint and choice can thus be conceptualized on a new plane, it appears useful to regard the organization-environment concept as problematic. Without denying the value of research into the interaction between the organization and its environment—quite to the contrary—we would suggest that this theoretical interest can only be fully developed if the analytical distinction between the two is discarded. We would like to show that it can only be maintained at the cost of great artificiality and implausible abstraction. This, to us, appears as the most important conclusion from cross-national research on organizations. Although it is true, and well-argued by Roberts (1977), that this type of research is notorious for its shifting concepts, murky notions, and methodologically doubtful procedures, we would maintain that it is able more than any other activity to advance the sociology of organizations. Cultural and national variety provides sources of variance in organizational forms which have been somewhat played down or covered up. Their study need not only serve as an end in itself, but it can also provide important clues for the study of organizations within one given society; it is not an attempt to establish theoretical particularisms based on different cultures, however, it clearly points in the direction of theoretical universalism while exploring the variances of organizations across national or cultural boundaries (Maurice 1977). It is indeed the fear of theoretical particularism which kept national differences out of the minds of authors. By and large, it was assumed that industrial societies would produce similar institutional patterns, following convergence theorists such as Kerr et al. (1973). It seemed inconceivable that the same overall task could be achieved by different means in different societies; this was clearly stated by Hickson et al. (1977:361): The technological equipment of an oil refinery requires much the same operatives and supervisors wherever it is.’ Our research shows this to be a one-sided view. But we do not want to add additional, vaguely specified cultural variables as a residual to contingency explanations. Nor will we proceed in a deterministic way. This would only increase the dilemma of comparative organization studies highlighted by Hickson et al. (1979). Instead, we want to show that societal factors make a difference of a qualitative kind. Reporting the findings of a study preliminary but similar to those reported here (Silvestre 1974), and commenting on comparative organizational research, Brossard and Maurice (1974) had posited the ‘societal effect approach’ for studying organizations. It makes for an extension of organizational research into the

WESTERN EUROPE

43

interaction of people at work, work characteristics of jobs, systems of recruitment, education, training, remuneration, and industrial relations. All of these were to be considered as phenomena constituted within a society, and the organization-environment distinction was thus abandoned. Instead, research was to focus on the interrelations between the social fields mentioned above. The approach explores different courses of action towards similar goals—like running a factory within a certain task environment; in this, it stresses the principle of functional equivalence. But it also further explores the conditions under which different solutions to similar challenges are chosen. Thus, as one moves away from determinism and brings the ‘actor’ back in, the end of the story is not sheer voluntarism. The approach does focus on how actors construct organizations, but, in addition, it tries to find out how this constructive process is influenced by the societal fabric in which the actors operate, and which they continuously modify. We see the actor and society in a dynamic two-way relationship, but we do not want to emphasize the contrast between both too much; nor do we want to say who came first. For again, as with the contrast between constraint and choice, the more one looks at it, the more it is not there. Thus the societal-effect approach is a systemic analysis of social action which emphasizes the interconnections between different social spheres such as manufacturing, industrial relations, education, training; it recognizes that constellations of such interconnections can only be explored by considering historical and ecological factors. Again, we stress that this is not theoretical particularism, but an acknowledgement that the extension of our study to additional countries is likely to enrich our systematic grasp of events. The approach touches upon the theory of organizations, but it is not specific to it; it has applications to research on social stratification, industrial relations, labour economics, and other topics as well (Maurice et al. 1979). Following this approach, closely matched-pair comparisons are a good method of investigation. Following the preliminary Franco-German comparison reported by Silvestre (1974) and Brossard and Maurice (1974), another, but in much greater depth, was undertaken along the same lines of matched-pair comparisons. Production units in France and Germany were chosen to match as closely as possible from the points of view of size, technology, location, and dependence. Following a simplified Woodward (1965) scale of technology, firms were selected within unit, mass/large batch, and continuous process production, manufacturing products as closely similar as could be found in the respective technologies—bearing in mind that they also had to match with regard to the other criteria. To this original Franco-German sample, British units were later added according to the same criteria, which made a three-way comparison possible.1 Here, we report joint findings on nine production units thus matched, one from each production technology and nation. Information about products and sizes is given in Table 1. As can be seen, matching with regard to products and technology was quite successful, whereas some discrepancies occur in the size column, primarily because the British units were smaller. The difference, however, was large only in unit production, where economies of scale are negligible; furthermore, it was clear that British units were consistently more differentiated than their German counterparts, so that size cannot have had a distorting effect. Table 1 Matching of firms Unit prod.

France

Germany

Pressure vessels, heat exchangers, heavy protective equipment

Products

Size (no. of employees)

Turbines and gates for dams and power stations 1700

2000

44

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

Products Britain

Pressure vessels, boiler drums, pipework, nuclear waste containers France steel tubes

Mass prod. Germany Britain Cont. process prod. France Germany (ethylene, polythylene, Britain acrylonitrile, etc.)

Size (no. of employees)

over 700

Straight welded 800 600 Chemicals 2600 2200

1000

2600

All the units were located in urbanized industrial areas: in the Paris, Marseille, and northeastern French regions; in the Rhine-Ruhr area in Germany; and in the West Midlands and the Scottish industrial belt in Britain. All the production sites were subsidiaries or factories of larger concerns; where the site included some head-office functions, such as in the cases of the German chemical and the British tube sites, company head-office personnel were not considered in the studies. Earlier results of the Franco-German studies were reported by Maurice, Sellier, and Silvestre (1977, 1979), and some results of the British study as compared to Germany were reported by Sorge and Warner (1978a, 1978b). In both studies, the following data were collected: 1. Statistical data – at the national level, about vocational training, employment, and mobility, particularly from series of manpower surveys of the European Economic Community, and – at the organization level, about age, seniority, wages, grading, qualifications, authority, education, and training of individuals, from enterprise personnel records. 2. Qualitative data – in the form of organization charts and supplementary information about enterprise history and industrial relations procedures, and – in the form of qualitative interviews whereby ‘strings’ of the production hierarchy, from production director down to a leading hand, were interviewed about their tasks, career, communications, industrial relations, functional place in the organization, and work characteristics, particularly management activity. 3. Information about national systems of education and training, industrial relations, and other relevant societal data, from monographs or institutional comparisons, as well as through interviews with experts in the field. There were between 7 and 20 interviews in each factory, according to size. In unit and mass production, one hierarchical ‘string’, from director down to a leading hand, was interviewed on each site, whereas in the chemicals factories, more strings were studied, two in operations departments and two in maintenance. A guideline was used in interviews, instead of a more rigorous questionnaire, since we followed a ‘grounded’

WESTERN EUROPE

45

approach and did not presume that response patterns were known sufficiently to warrant questions and response categories predetermined in detail. Interviews lasted about 1–2 hours and were taped. Strings of positions were selected for interviews in such a way as to assure maximal comparability; the emphasis was on similarity of products and technical processes across nations; for instance, everyone between a vessel welding shop foreman and the production director, in all the countries concerned, and similarly for the other technologies. All three authors took part in interviewing, with the additional help of field research workers in the Franco-German studies. It is quite helpful to visualize a unit’s workforce as broken down according to the scheme below; this is, of course, not meant to be a generally valid classification, but is adjusted ad hoc to the situation in the units studied. Categories of the workforce are referred to in a terminology widespread in Britain, i.e. those in boxes 1 and 2 are called ‘works’, whereas the rest, which are white-collar employees, are called ‘staff’. The latter term is, therefore, not used to refer to those not located in the ‘line’, as the line-staff categorization has it. A national classification parallel to the English works—staff distinction is that of Arbeiter—Angestellte in Germany, and one can similarly distinguish ouvriers as ‘works’ and ETDAM (employés, techniciens, dessinateurs, agents de maîtrise) and cadres as ‘staff’ in France. In box 3, one finds foremen and superintendents, and in box 4, various draughtsmen, design and development engineers, quality controllers, industrial engineers, production controllers and planners, and similar technical staff. In box 5, are the employees with less technical, product and process-centred jobs, that is, secretaries, typists, stock and stores clerks, sales people, accountants, personnel officers, etc. Both boxes 4 and 5 include some personnel in positions of formal authority, in the senior brackets. The managers in box 6 are the cadres above a defined level in France, at least those graded outside collective agreements in Germany, and those called managers or holding equivalent positions in Britain. Our analysis will focus on the organization of the production-orientated components of the units and their relations with supportive functions in the areas of maintenance, engineering, production planning and control, quality control, and industrial engineering. We are, therefore, not concerned, in this article, with the organization of clerical and commercial, administrative, stock and stores, and personnel staff. We will demonstrate the societal effect on organization in a specific situation, which is that of manufacturing units using different technologies, and within these units the functions most closely related to manufacturing. Thus, we shall deal with what happens in and between boxes 1, 2, 3, 4, and the production-related personnel in box 6. This is a deliberate reversal of a trend in the sociology of organizations, which had made for both empirical and theoretical generalization across all manner of social activities, such as manufacturing, medicine, social work, public administration, etc. We believe that further advance is only possible by bearing in mind what the specificity of these diverse activities is. Quite simply, we think that organizational research has to consider what, after all, is the most essential thing happening in organizations: work, and the way people go about it, depending on various factors to be shown. The ‘social action’ perspective is relevant here; we are interested in different ways in which it is possible to divide the myriads of activities in a factory into jobs and positions, how these relate to the acquisition of qualifications and experience, recruitment, promotion, industrial relations, as well as to the generation of further activities, and how this construction of a social structure and division of labour takes places through interconnections across social spheres. The consequence of this is that generalization is approached very cautiously since the specificity of work activities makes them very hard to fit into generally defined variables, and relations between variables may indeed change from one social activity to another.

46

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

Findings will often strike the reader as reminiscent of Aston measures, at the operational definition level. However, we did not follow this approach through, because it often appeared inappropriate to distinguish, for instance, only quantitatively different extents of centralization. One could have differentiated dimensions of a variable, in order to measure extents along different dimensions. But this did not help us much either, because the decisive impression was that countries varied in the way rather than in the extent to which they centralized responsibilities. This is undoubtedly a consequence of the research method which is not as selective regarding indicators as the Aston School, but which tries to register as many as possible and as appear relevant to a phenomenon. In this way, a better account can be given of the specifics of work in each unit, following a ‘grounded’ approach which foregoes standardization of variables in favour of sensitivity to unanticipated empirical variation, and thus shifts the emphasis from quantitative to qualitative aspects. We will divide our data into three blocks of variables, and hypothesize that interrelationships between these blocks can be perceived as clear national patterns and be used to explain the emergence of organizational phenomena. These blocks are: 1. The configuration of the organization: breakdown of the labour force into categories as shown in the scheme above, and numerical ratios between the sizes of components, as well as sizes relative to the total workforce. 2. The joining of individual tasks into work positions, and the coordination of work activities; this could be called work structuring and coordination. 3. The acquisition of qualifications and competence, and the progression of individuals within typical careers; these constitute the qualification and career systems. Interrelationships between phenomena within these analytically separate blocks are then seen to bring forth nationally divergent manufacturing cultures extending across the full range of technologies. In particular, we intend to show how one can see differences in organization configurations arising because of the joint emergence of different work structuring and coordination, and qualification and career systems. It is primarily by way of the latter two systems that we see the societal effect taking place. We will first present results for each of the three blocks separately; then, we will show coherences between them and extend this into a discussion of a more general kind, on sources of organizational diversity and prerequisites of organizational change. A key variable in the organizational literature, mediating between ‘context’ and ‘structure’, is professionalism (Blau 1973; Hall 1968; Stinchcombe 1959), and this is affected by the central results of our studies. We shall attempt to steer this discussion in a different direction, following our findings and the implications of the approach which we utilize. CONFIGURATION OF ORGANIZATIONS Quite distinct national patterns already emerge when looking at the share of the works or staff, respectively, as part of total personnel. Table 2 shows the works percentages for each of the units. In every branch of technology, Germany clearly has the largest works component. Britain comes second except in large batch/ mass production, and France usually has the smallest works. Conversely, the size of white-collar staff components increases from Germany to Britain to France. The exception in mass production is to be explained by the fact that the British site was studied later than the others and had thus been effected by a decrease in orders, which led to redundancies among the works while staff were kept on to a greater extent. Also, some technical services of its staff component had to attend to a division which was not included for

WESTERN EUROPE

47

reasons of comparability. It is thus likely that correcting for these influences would again show the British staff component to be smaller than the French one. In every industrialized country, the share of staff employees among the workforces of industry has increased over time. Although patterns of growth and levels reached at certain points in time are different, there is still, as Bendix (1974: 211–225) showed, a universal tendency for staff percentages to increase. In this sense, one can metaphorically speak of staff components ‘growing out of the works, without implying that all new staff employees were recruited out of the works—although this has happened to a considerable extent. But this does not Table 2 Works’ share of total personnel (%) Unit production Large batch/mass production Continuous process production

France

Britain

Germany

47.6 76.0 51.8

52.9 72.4 63.9

61.2 88.0 66.4

yet make it clear into which activities and functions the growth occurred. To show this, we calculated a series of index numbers expressed as percentages, which relates the absolute size of a staff component to the absolute size of the works, thus demonstrating the ‘weight’ of such components with regard to the works, or, the extent to which ‘growth into’ a staff component has taken place. The first of these measures is the percentage of supervision per works (see Table 3). In unit and mass production, the layer of supervision formed by foremen, contre-maîtres, and Meister was considered, and their number was related to the number of subordinates. Thus, in these branches of technology, our measure is the reciprocal of the span of control. In chemicals, however, personnel in the first two layers of supervision were counted and related to workers under them. Rather than being an inconsistent measurement, this should be seen as due to shifting job designations and status. Whereas British foremen are the rough equivalent of contre-maîtres and Meister in unit and mass production, they are something different in chemical factories. Further qualitative differences exist with regard to the staff status of the first-line supervisor in different countries. This was completely realized only after interviews, and some adjustments were thus necessary during the analysis of statistical data. The slight inconsistency is linked to greater numerical precision on the basis of qualitative interviews, which appears to speak in favour of a less standardized but more ‘grounded’ approach. Table 3 Supervisory staff/works (%) Unit production Large batch/mass production Continuous process production

France

Britain

Germany

9.6 9.5 22.2

5.7 3.8 16.5

4.0 3.5 15.8

Table 3 shows a clear, consistent pattern of national differences with regard to the growth of supervisory components. It is strong in France, much less strong in Britain and less again in Germany. Supervisors are an important group within the larger managerial and supervisory component (boxes 3 and 6 in our scheme). This includes all personnel who are authorized and responsible to instruct others on a regular basis, even if this is not shown in organization charts but is clear from interviews. The French term for this group is encadrement, and a roughly equivalent one in German would be Vorgesetztenschaft.

48

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

Such personnel also include those with authority over other employees among the technical, commercial, and administrative staff in boxes 4 and 5. One could thus assume that a pattern similar to the subgroup of supervisors might hold for the weight of employees in positions of authority for works. This is true only to a limited extent, however, as Table 4 indicates. Here, we calculated the percent ratio of total managerial and supervisory staff, i.e. all staff in position of authority, to works, across all departments of the units. Unfortunately, we could not include Table 4 Managerial and supervisory staff/works (%) Unit production Continuous process production

France

Germany

Britain

46.6 55.0

28.8 37.4

21.6 25.7

the mass production factories in the comparison due to restriction of access to information about each employee’s authority position in the French and German units. This time, the ‘order’ of countries is slightly reversed: France again clearly has the most pronounced tendency to grow positions of authority, and Britain the weakest, accounting for less than half the percentages of France; Germany is in a middle position. The growth of supervisory positions is, therefore, not necessarily accompanied by an equivalent growth of authority positions elsewhere in staff departments. While France tends to grow the largest number of authority positions everywhere in the staff area, Germany grows a numerically weak authority component only in supervision, but one about intermediate in strength within technical and commercial services, and in the managerial area. Britain tends to grow few positions of authority anywhere, slightly more than Germany in supervision, but markedly least in other staff areas. It is interesting to compare these results with the share of positions of authority as part of total staff employee strength. The tendency to order staff departments hierarchically, measured by the share of authority positions among staff, is very weak in Britain, but strong in Germany. In France, this tendency is intermediate. This result complements the previous ones in the following way: in France, both total staff components, the supervisory force, and the overall managerial and supervisory component are large in relation to works personnel. Since in the staff area, clerical and commercial components also grow strongly, there are not only many managers, but also many clerks, which makes the hierarchical ordering of staff appear intermediate. In Germany, however, the growth of total staff and supervision components is much restricted; but managerial and supervisory personnel grow to an intermediate level, and the growth of clerical and specialist staff is again restricted; therefore, as part of restricted staff strengths, managerial and supervisory components are very strong, so that staff appears very hierarchically ordered although having a ‘lighter weight’ in relation to works strengths than in France. By contrast, in Britain, intermediate total staff sizes occur, supervisory components do not grow much more than in Germany, and overall managerial and supervisory components are the smallest among the three nations, both if calculated for works and as a share of total staff. As we are dealing with manufacturing organization, we give a further measure, on the relative sizes of staff technical components, i.e. those in box 4 of our scheme, in Table 5. These are the categories of personnel which relate most closely to production and maintenance manpower in the works, next to supervision, and

WESTERN EUROPE

49

Table 5 Technical staff employees/works (%) Unit production Large batch/mass production Continuous process production

France

Britain

Germany

46.2 7.2 39.8

39.9 6.5 16.7

25.0 2.3 11.3

there is in fact substantial functional interdependence between these sectors, as well as a considerable margin of effort substitutability between works and technical staff positions. The pattern is similar to that of the growth of total staff, in which Germany features considerably smaller technical departments, France larger ones, and Britain intermediate ones. Throughout Tables 2–5, technology is closely and consistently associated with shapes of organization. This relationship is, therefore, not one which we want to suppress. Technology is very relevant to the organization of manufacturing units. But we would argue that – technology should not be thought of as a constraint, since it is modified and constructed in a similar way to organization features; the action perspective applies to actors in their technical as well as their social capacities; – technical effects interact with the societal effect; we stress that it would appear pointless to see technical and societal effects as additively related; – the contribution of technical effects in this interaction is not necessarily greater; some comparisons suggest that the societal effect is stronger than the technical (see Maurice et al. 1978:519–546). To sum up comparative patterns, Table 6 was compiled. It can be synthesized in the following way (without necessarily implying causal connections): France: Strong growth ‘in all areas’ of staff leads to high staff percentages, but intermediate balances of authority and nonauthority positions. Germany: Weakest growth of total staff and supervision, intermediate growth of managerial and supervisory staff, which in conjunction produce a staff balance in favour of positions with direct authority, and therefore small components of ‘nonhierarchized’ staff. Table 6 Countries’ scores against configurational measures Share of staff employees Weight of supervision/works Weight of authority positions/works Weight of authority positions/staff Weight of technical personnel/works *D=Germany; F=France; B=Britain

Low

Medium

High

D* D B B D

B B D F B

F F F D F

Britain: Intermediate growth of total staff, fairly weak growth of supervision, and very weak growth of total managerial and supervisory staff, producing a staff balance in favour of positions without direct authority, and therefore small components of ‘hierarchized’ staff.

50

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

WORK STRUCTURING AND COORDINATION In presenting results from qualitative interviews in the units, we shall progress ‘upwards’, starting with works departments, then dealing with their relations with supervisory and technical staff, the work of both, and, finally, their relations with managers, and the content of managerial tasks. Since we give the results of comparative interviews along the strings of hierarchies mentioned in the methods section, a difficulty of presentation arises. If we were to give detailed findings, this would involve relating lengthy citations and descriptions of activities, going far beyond the confines of a paper. We, therefore, take the liberty of summarizing results briefly, without directly referring to the underlying interview material. 1. In the works the flexibility and cooperation between different production jobs was greater in Germany than in the other countries. This contrast was most marked in continuous process production; the German factory had a policy of making operators flexible between all jobs in their plant, whereas in the French and British units, they would progress from one job to another as vacancies arose. However, there did not seem to be any difference in flexibility between Britain and Germany with regard to maintenance workers. Nonetheless, the differentiation between the functions of production and maintenance workers was strongest in Britain, so that both sets of activities were sharply distinguished and individuals rarely crossed over from one area into the other during their working career in the factory. 2. With regard to the autonomy of workers, everyday performance in jobs was made more dependent on the hierarchical exercise of authority by supervisors in France, while workers seemingly enjoyed greater autonomy in Britain and Germany. Thus, it was reported in the French and British unit and mass production factories that work plans and time allowances for certain jobs had to be accepted as such by the shop floor, whereas they were often challenged and modified through the supervisors in Germany, where work gangs and their foremen were allowed greater leeway on the basis of craft judgement and informal arrangements. Similarly, the German foremen in process production were free to detail workers to individual jobs in the plant, during a shift, whereas this arrangement was centrally specified by British and French work planning and grading systems. Therefore, in Britain and France a conflict about the time allowed for a job or job manning typically led to a confrontation between management and worker representatives, while in Germany it was more informally sorted out between the foreman and ‘his’ workers. In this way, specialist departments in France and Britain determined production work more minutely. Maintenance in Britain, however, was not subject to similarly intensive control. 3. The day-to-day supervision of shop-floor details, such as laying out tools and equipment for jobs to be done, moving equipment and parts of products about in the factory, taking care of equipment changeovers and details of particular welding, fitting, etc., was handled by different types of personnel. In France, this was done by the chef d’équipe at the lowest level of supervision, who was usually part of the staff, not works, and had greater hierarchical authority. In Britain, this was, above all, the task of foremen, who also formed part of the staff, and, to a lesser extent, and only occasionally, of chargehands—that is, workers. In Germany, however, the typical person in charge of such activities was the Vorarbeiter, a worker, who for much of the time does the same job as others in the group; the Vorarbeiter holds little disciplinary but more extensive ‘professional’ authority. 4. A complementary result is that, because of the delegation of day-to-day supervision to hierarchically little-differentiated members of the works (Vorarbeiter) in Germany, there was generally only one layer of supervision by staff (Meister), except in continuous process production, where the process foreman of a particular shift in one given plant was already part of the staff (Schichtführer), and thus formed a layer of supervision below the Meister. In Britain and France, however, at least two layers of staff supervision were

WESTERN EUROPE

51

found to be typical, consisting of the foreman and superintendent, or the contre-maître and chef d’atelier, respectively, with the chef d'équipe being added below them in France. 5. In Britain and, particularly, in France, shop floor and supervisory activities were to a large extent dominated by technical services, including production planning and control. In contrast, technical services in Germany were more ‘at the service’ of production and maintenance. This variation coincides with an inclination in France, and, to a certain extent, in Britain, to have ‘buffer’ or mediating staff services between the technical departments in the narrowest sense, i.e. design and development, and the works and its supervision. Apparently, there are different tendencies towards incorporating technical tasks in the widest sense into staff departments by splitting them off from the works and works supervision. This tendency appeared quite strong in France, was apparent in Britain, but was weak in Germany. These results are confirmed by another in-depth study of production management in Britain and Germany by Lawrence and Hutton (1968). 6. This leads to a consideration of the differential natures of ‘line’ jobs, i.e. those within the formal line of supervision and management, but not including those at the top of specialized sections and departments in technical services. There were pervasive differences as to the ‘technicity’ of work in the line, and they seemed to increase as one went up the hierarchy. By technicity, we mean that a job had technical aspects, such as work on improving products and equipment, judging the quality of production or engineering from a technical point of view, advising subordinates on tricky or critical jobs, and thinking about managerial decisions with an eye to technical details, without necessarily having to consult engineering specialists. This notion also comprises fitting ‘assistant’ expert positions into the line hierarchy and giving specialist work to line personnel. Work in the line in Germany clearly showed the highest amount of technicity, with the least amount being shown in Britain. We found a pervasive tendency in Britain to split off technical tasks from the line, and thus to purify line work down to more ‘managerial’ aspects. In France, this tendency was not quite as strong, but greater than in Britain. 7. Managers in French and British units spent a greater portion of their time dealing with labour grievances or disputes, over internal transfer or promotion, the grading of positions in the works, values attributed to individual jobs of work, heat or other abnormal conditions payments. Such questions quickly went above the level of supervisors, and moved up the management hierarchy since they turned into questions of principle. French and British line managers would spend around 30% of their time on these issues. In addition, French managers often had to bear in mind company-wide personnel guidelines and collective agreements above the unit level, while British industrial relations centred on the factory. In Germany there was much less of a preoccupation with labour disputes in line management. When they arose, they usually did not pass above the level of Meister, i.e. foreman or superintendent, but were resolved between him, workers, and union representatives or works councillors. Although all these findings are clearly reminiscent of, for instance, Aston-type measures leading to aggregate values for centralization and line control of workflow, we did not follow that type of empirical procedure. Since they are geared to a wide range of organizational activities and give aggregated scores, Aston-type measures would have been insensitive to much of the variation which we found. For instance, in the German enterprises functions like maintenance, sales, or personnel were centralized far above the head of even the unit director. However, that was only officially; in fact their work was usually done in very close contact with the relevant people in the unit. Individual grievances could usually be settled at a lower level than in the other countries. From this we derive our view, mentioned earlier, that organizational features have to be seen as socially constructed in different ways, rather than measured along a standardized dimension. It could be argued that we are in fact greatly multiplying dimensions. This is true, but the consequence is also that a presentation which explicitly names every dimension and gives a score to each, becomes very unwieldy. We prefer a

52

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

more qualitative presentation which does greater justice to the fact that, on closer inspection, organizational features appeared qualitatively rather than quantitatively different. This does not deny that Aston measures allow a fairly quick, standardized grasp on phenomena, but this is precisely what we are trying to improve upon by an in-depth study. On the whole, formalization was found to be greatest in France, but then again it seemed very difficult to relate this to the debate about its relationship with centralization. However, it did seem the corollary of a more rigorous division of labour coordinated by hierarchical means, and of a larger growth of various staff departments. Another finding, which might be surprising to many people, is that German units were the least formal and were run along more personalized lines (see also Child and Kieser 1979). In Germany, it was most difficult to find organization charts. This was an easier task in Britain, and even easier in France; the tendency coincides with the size and proliferation of staff departments in these countries. We also consistently found the line-expert distinction to be fairly inoperative in Germany. This may be surprising considering that the traditional Prussian General Staff is often cited as the expert staff par excellence. What is overlooked by management theorists who emphasize the line-expert distinction, however, is that the Prussian General Staff from the outset went against this distinction quite strongly, and for over a century had de facto or formal-line authority, particularly in times of war (see Görlitz 1977). QUALIFICATION AND CAREER SYSTEMS Our description of differences in the way employees acquire qualifications and progress through careers will be centred on the concept of professionally. We will thus present national differences both along different dimensions and following different degrees of professionality. At first, the choice of this term may be a bit misleading since it is too often used to refer purely to its formal knowledge and social-status dimensions, and tends to exclude jobs which are not ‘above the salt’. In the classic article by Wilensky (1964), this tendency was neatly expressed, with an emphasis on the affiliation of professional training schools with universities, the formation of self-regulating associations, formation of a code of ethics, and autonomy from pressures from everyone outside the profession, including clients and the employing organization. Such a definition favours the formal knowledge bases of work, and neglects the exercise of practical skills; it is more concerned with social status than with performance in the job, and hides its element of self-interest behind a front of immunity from pressures, stressing the ideal of service to the public. All this is argued by Fores and Glover (1978), who also expose the concept as peculiar to Englishspeaking countries. We use the word professionality instead of professionalism, in order to avoid such culture-specific and social-status-conscious connotations. By the degree of professionality, we mean the extent to which a set of activities is organized into a fulltime occupation, and taught in a systematic training schedule. The concept has several dimensions, and one can differentiate between a formal knowledge base, mastery of practical skills, membership in an association, and formal recognition of qualifications. It would seem that only in this way, could the professionalization of everyone—Wilensky’s problem—be a viable concept. We do not agree with an operational definition which determines professional status purely on the basis of a college or university exam, as is often the case in organizational research. It is very difficult to sketch the outlines of three different national systems of professional training and education here without being superficial. Industrialism has not had a very standardizing effect, and it is nearly impossible to see through any system without some introductory historical remarks. The roots of all three systems are: (1) medieval craft apprenticeships, (2) state engineering schools, for which France was the pioneer during the 18th century, and (3) the classical universities. These institutions can be visualized as

WESTERN EUROPE

53

centres of gravity, each exerting a pull which has been different in the three nations. Apprenticeships were most strongly cultivated in Germany, where they eventually formed the backbone of professional training in handicrafts, industry, and commerce. They are regulated by collaboration between the state, industrial and professional associations, and trade unions, and administered by local chambers of industry and commerce or handicrafts guilds. The apprenticeship system has become a most elaborate institutional network with exams, certificates, and bodies at various levels, and it exerts a strong status-conferring function throughout the economy. Other training in Germany traditionally builds upon previous apprenticeships, for instance, master craftsman, technician, and even higher engineering courses. This makes for a professional continuity from the worker to the engineer, and from public training to training which is done at one’s place of work. Furthermore, Germany took over a modified system of public higher technical education from France, which was separate from the classical universities. But the dominant traits of its system are professionally corporatist with an emphasis on practical proficiency from the bottom up, and with strong state involvement in the training of technicians and, particularly, engineers. French education and training was founded on the prestigious higher schools of engineering which form part of the grandes écoles, with a tendency towards higher-level training. Intermediate schools for technicians and master craftsmen often evolved into grandes écoles. The apprenticeship system waned in France and the training of workers and technicians now takes place through full-time state education in Lycées techniques and collèges d’enseignement technique. But this accounts for only a small portion of worker training, which is primarily done in a less-coordinated way by enterprises, by successive familiarization with jobs and promotion from one job to another, and by shorter enterprise-specific courses (formation-maison). Intermediate training is fragmented and less frequent and placed less within a professional continuity with worker training. In Britain, there is much less formalization and certification of training than in the other countries. The apprenticeship system was conserved, but not developed and expanded to the same extent as in Germany. It has penetrated to the training of engineers and led to the establishment of professions as qualifying associations; but this reflects the traditional weakness of British technical education, which came much later than in the other countries and which was often absorbed by a ‘pull of gravity’ from classical universities and academic education. In the range between worker and higher training, Ordinary and Higher National courses and exams have come to play an important part; these are administered at local technical colleges and polytechnics. The British system tends to juxtapose technical-practical experience and academic training laterally, so that it is not as hierarchically specific as the German system. It is more of a dual system than the French or even the German one, which have their respective dominating traits of state training focussing on higher levels and professional corporatism. Differences, with respect to personnel categories, are presented in detail in the same sequence as for work structuring and coordination. 1. Semiskilled jobs were primarily to be found in production departments, less in the maintenance and toolmaking parts of the works. In Britain and France, short induction training of up to three months or so was given, and then a worker was slotted into a specific job on the shop floor. As he gathered experience on the job, he could then move to other jobs as they became vacant, successively extending his experience over time. In the mass production factories in Germany, tube mill operators were, to a greater extent, trained to do mill changeovers, slitting, or recoiling work from the start, whereas these categories of work were more often separate in France and Britain. Similarly, in chemicals the German factory operators were familiar with various jobs on the plant from the outset, whereas in France and in Britain, operators had to progress gradually

54

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

from one job to another, as vacancies arose. One could say that in Germany, semiskilled professionality was thus greater along the practical skills dimension. 2. With regard to skilled workers, a different pattern was observed. Such jobs were primarily found in maintenance, in production within the unit technology enterprises, and in the continuous process factory in Germany and—to a very limited extent—in Britain. In Britain and Germany, qualifications for skilled trades were invariably acquired through apprenticeships. The patterns of training were essentially the same in Britain and Germany, however, apprenticeships in Britain were somewhat longer and were not finished by an exam and diploma, as they were in Germany. In France, apprenticeship training was rarely found. It was customary for youths to receive public education focussing on the principles of certain skilled trades, as preparation for a wide range of jobs in manufacturing. This took place outside the factory, and was more concerned with laying a basis for professional practice than with introducing trainees to the specifics of trades and places of work. Such training was concluded, after an exam, by conferring a CAP (certificat d’aptitude professionnelle), which is the mainstay of French vocational education. The CAP is not as frequent among skilled workers as apprenticeships in Germany and Britain; it is more usual to recruit such workers from the semiskilled, according to age and experience, without requiring an exam or diploma. The familiarization of an entrant with the specifics of work came with his gradual progression through various jobs of work, sometimes complemented by a formation-maison. We, therefore, again observe national differences with regard to the extent of professionality along the practical skills dimensions. Britain and Germany feature a higher degree of professionality, whereas in France workers could be said to be weakly professionalized, with the professionalization occurring more on the formal knowledge and public education dimensions. However, there is a qualitative difference between Germany and Britain. Apprenticeships in Britain were served at the beginning of a working life, and it was unusual for someone to have served more than one. In Germany, they were important in the continuous training of the semiskilled, and many workers had done more than one apprenticeship. In Britain, there were barriers to mobility from semiskilled into skilled trades, which paralleled the qualificational gap between them, whereas German patterns tended to assimilate skilled and semiskilled workers by allowing continuous training and a progression from semiskilled to skilled trades. France permitted an even smoother progression from semiskilled to skilled jobs. CAP absolvents often started as semiskilled workers, and diplomas were not usually required for promotion. In summing up findings for all categories of the works, one might say that, in Germany, the professionality of workers is strongly developed by apprenticeships and semiapprenticeships, along the practical skills dimension, and it can be visualized as continuously increasing from semiskilled to skilled trades. In Britain, this professionality is equally strong as regards maintenance jobs and some jobs in unit technology production, but it is isolated to a greater extent from most jobs in production, which show lesser professionality. In France, the professionality of workers is present only with regard to a knowledge basis and full-time public education, but it extends across the skilled/semiskilled categories. 3. In all countries, practically all the personnel in supervision have come up through the works. But differences exist with regard to the mechanisms of advance. In France, advancement was dependent on age, experience, and the ability to command. In Britain, experience and relational qualities were also relevant. Foremen in skilled areas, particularly throughout maintenance, were required to have served an apprenticeship and have worked as a craftsman, while foremen in production usually had no craft status, just as the men under them. Thus, in both France and Britain, promotion to foreman status was not dependent on additional professional qualifications. Instead, foremen already appointed were sometimes sent on short human-relations-type courses. In Germany, the situation was different since promotion to foreman required previous, technically dominated training. Supervision was expected to be ‘one-up’ on

WESTERN EUROPE

55

those under them, along the technical skills dimension of professionality. Where workers had craft status, promotion into supervision would depend on successfully completing a part-time Meister course in the relevant speciality. Such courses would last for about two years, and often longer than that. Where the works were mainly semiskilled, promotion depended on getting craft qualifications, so that, for instance, in the mass production unit, production foremen were required to be qualified in the fitting or a related trade. In chemicals, the German foremen had to be craft qualified chemical operators, a trade which was unknown in France and very infrequent in Britain. Again, stronger professionality was found, and it can be seen as a topping-up of skills, i.e. in addition—on top—of those generated in the respective works department, but continuing along the same line of professional speciality. A qualification has to be added with reference to British superintendents, the upper layer of supervision. Unlike the foremen, they had a greater complement of additional qualifications, for example, Ordinary or Higher National Certificates in mechanical or production engineering, or management courses. But it is important to realize that they did not follow trade speciality lines, seemed more centred on principles, and were less in evidence. Nonetheless, the trend seems to be away from the old-style superintendent, who has advanced on experience alone, in favour of younger people with some additional training. 4. Systems of training for technicians and engineers are quite complex. To an important extent, they latch on to careers in the works, so that sizable groups of technicians are former workers or have works-related experience. This is one of the primary inputs into their process of qualification, the other being training or education in technical colleges, polytechnics, universities, grandes écoles, Technikerschulen, Fachhochschulen, or whatever such institutions may be called. The works-related input is particularly strong in France as its technical staffs are the largest to be found. Workers there stand a very good chance of being promoted to staff status, as technicians. Thus the basis qualification for technicians in France is the CAP, whereas it is an apprenticeship in Britain and, particularly, in Germany. In that way, national differences as to extent and dimensionality of workers’ professionality become extended into the staff area. In France, qualifications were concentrated at extreme ends of the educational and training range. At all levels, people stressed the fact that the relationship between formal qualifications and job performance was fairly tenuous. The view prevailed that courses provided students with an insight into principles, but that, as far as work in detail was concerned, people still had much to learn. This was true for both CAP and higher diploma qualifications. The professionality of higher qualifications is undoubtedly strong as far as formal knowledge and engineering principles are concerned, but it seems to be weaker with regard to product, equipment, and engineering practice specificity. Higher diplomas appeared to become fairly obligatory from a certain level of management upwards, but within the nonmanagement technical sector of factories, box 4 of our initial scheme, there was no noticeable hierarchical specificity of certain qualifications. In Germany, by contrast, one was more likely to find a hierarchical incidence of formal qualifications, with engineering diplomas (Dipl.-Ing. and Ing. grad.) dominating at the department or section leader level, and technician diplomas below that level. But the professional coherence between qualifications at different levels was quite strong; apprenticeships in the works were the usual entry requirement for a number of technician courses, as well as for the ‘lower’ tier of higher engineering courses leading to the Ing. grad. diploma; even in the range of those holding university degrees, it was not infrequent to find exapprentices. The practical-professional orientation of courses at all levels appeared high, particularly for those leading to technician level and Ing. grad. qualifications, just as if they were founded on apprenticeship or some years of work entry requirements. In Britain, there was a much higher incidence of technical people who had ‘no’ qualifications. However, British technicians and engineers were not necessarily less, but rather differently, qualified. Works-related experience of such employees often had been arranged through informal traineeships, particularly for staff

56

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

positions in production planning and control, or quality control. Similar to the German pattern, apprenticeships provided a basis for other formal qualifications, and they were not infrequent among the holders of university degrees in engineering. There was thus a certain practical—professional coherence throughout the qualification structure, based on the apprenticeship and informal traineeship system. Frequencies of qualifications were highest in the ‘middle’ range, i.e. for those having Higher National Certificates, and usually not much less for those holding university degrees. But, on the other side, qualifications in Britain were unspecific hierarchically, quite unlike the German system and more like the French one, although there was no equivalent to the grande école type of diploma, and its near-obligatory nature for higher managerial jobs. This parallel between France and Britain seems to fit in with another trait of the British system. Where education and training courses in institutions outside the factory accentuate the practical-professional dimension in Germany, in Britain they emphasize the scientific knowledge basis and experimentation dimension of technical work (see Chisholm 1976). As Musgrove (1976) has shown, this is a strong historically founded trait. Accordingly, qualifications at all levels tended to be perceived as ‘academic’ rather than vocational. Qualifications from professional associations are by now fairly marginal in Britain, and, therefore, we do not include them in this discussion. 5. In management, the qualifications to be found were generally those from the middle and upper brackets of engineering and chemistry, as mentioned above. Usually, technical and management qualifications were closely related; an engineer was considered a likely manager, and a manager was required to be competent in the unit’s technical affairs. This link was particularly evident in Germany, while the engineering generalism found in France was very weak. In Britain, by contrast, management and technical qualifications were more dissociated, particularly in mass production. Few engineering qualifications occurred in management. Instead, one found more naturalscience degrees or management diplomas. This did not apply to the same extent in unit and continuous process production, but in these branches there was also a tendency to have different qualifications for management and technical work. In addition, engineering qualifications were often considered less relevant for management. National differences can be demonstrated by comparing the distribution of qualifications. In Table 7, we give these for the managerial and supervisory staff in the chemicals factories. They are usually considered as part of a typically ‘convergent’ industry, and thus afford a particularly stringent test of national differences. Both technically and from the point of view of size, it will be recalled, the chemicals factories were probably the most similar in our study. They had, in fact, themselves organized earlier comparisons and tried to assimilate practices. It is difficult to interpret a qualification in one country as the equivalent of that in another, but Table 7 offers rough approximations. It can be seen that craft qualifications are not relevant in France and that the overall qualifications systems of Britain and, particularly, France appear more variegated than in Germany. This concerns, above all, the ‘middle’ range. Further, frequencies are strikingly different, in particular the lack of qualification in Britain, with 42% having none. These were mainly process foremen and shift superintendents. The German system is extremely pyramidal; the ‘higher’ the qualification, the less frequent it is found, lack of qualification is rare, and craft diplomas are in abundant supply. The French system is fairly top-heavy, above a rather fragmented and discontinuous middle range, since higher education diplomas form the largest bracket. This is also the case in Britain, except for the stronger craft basis of the distribution. But the acquisition of competence is much less formalized in Britain than in the other countries, particularly Germany, which explains the marked lack of formal qualifications. This is a reflection of Britain’s emphasis on academic criteria, which makes the system of education and training appear less relevant to enterprises.

WESTERN EUROPE

57

However, both French and British higher education degrees are internally stratified to a greater extent than the German ones, so that the concentration in this bracket is also a result of categorization. It is nearly impossible to evaluate different systems in quantitative ways without adding qualitative considerations, which usually vitiate the quantitative view. In what way could a system, for instance, be said to be more elitist? In Germany, on the one hand, university degrees occur less frequently, so that their holders are certainly an elite; on the Table 7 Vocational qualifications of managerial and supervisory staff in the chemical factories (highest qualification reached by each individual) France

%

Germany

%

Britain

%

Craft

3 42

Craft

42 21

Meisterbrief, Techniker 30

City and Guilds, Ordinary National

4

Ing. grad.

Higher National State (e.g. in engineering, Ministry of Transport— Steam) University degree

Without formal qualification 19 Technique court Techn. professionnelle

11 8

Techn. long BTS, PST, CNAM

12 14

Supérieur, grandes écoles Total

36 100

University degree

17

8 100

8 4

21 100

other hand, the French system is institutionally more concentrated at higher levels. It seems preferable to speak of different kinds of elitism. Linked to this are nationally different kinds of career progression, selection criteria, and divisions of labour. Qualification systems and forms of functional differentiation and integration are two sides of the same coin. Their interactive logic is explored in the following section. DISCUSSION AND CONCLUSIONS On the basis of the findings presented above, it is now possible to try to explain how the organization of production comes to be different in the three countries, and to point out the sources of additional variety. This is the systemic analysis of social action which we envisaged at the outset. Our hypotheses will be advanced tentatively, because there is a risk of overgeneralization. But we hope to show in which way the sociology of organizations might sensibly proceed, trying to combine action and systemic perspectives as well as a societal orientation. ‘Micro’ influences (relational properties of the units internal division of labour), can be demonstrated to interact with properties shading into the ‘macro’ area (of national training and education patterns, social mobility, industrial relations), in order to bring forth organization forms. In explaining the emergence of different configurations, we shall first describe, for each set of relationships, the underlying interactive process between work structuring and coordination, and qualification and career processes. Then, we will show the effect of each of these interaction processes on the shape of organizations. In all three countries, the acquisition of competence not only comprises specific institutions for training and education, but also happens throughout working life. It is thereby intimately involved with the division of labour, which facilitates

58

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

—or prevents—the acquisition of competence. But competence itself is not a one-dimensional notion, being differently defined in each nation and personnel area, following a logic brought about by the interaction of the systems of qualification and functional differentiation and integration. To some extent, initial vocational training by rotation, in the typical form of apprenticeship in the place of work, is the functional equivalent of the gradual progression from one particular job to another. But these ‘ideal types’ of acquiring competence are linked with different kinds of organization. Where gradual progression is more pronounced, the organization is by necessity more differentiated, and career mobility internal to the factory is accentuated. Where initial vocational training according to the apprenticeship principle is strong, both tasks and the organization are less differentiated, and internal career mobility deemphasized. Thus France features an acquisition of competence by gradual progression from one job to another, which implies a strong drift into specialized staff departments, and up the hierarchy in general, as well as a more finely structured division of labour. Conversely, practical professionality ‘from the bottom up’ in Germany implies a more stabilized workforce where flexibility enters into task performance, but less so into career progression, and where the organization is less differentiated. Britain falls into an intermediate position, featuring strong practical professionality in maintenance and some technical staff services, but equally strong gradual career progression in semiskilled production departments and many staff areas, notably management. These are only basic traits of highly variegated societal processes by which interaction occurs between different social spheres, within units and beyond, in the wider society. They attach to different parts of the workforce and bring forth societally peculiar coherences and discontinuities, types of organization and qualification, as well as social patterns of stratification, mobility, and industrial relations (see Maurice et al. 1979). To summarize them for the purpose of our trinational comparison, one can suggest three interactive effects from which shapes of organization result. They can be distinguished according to the area concerned, and within that area the line of differentiation around which they revolve. Area concerned: All personnel

Lines of differentiation: Works-staff; between staff departments

1. An interaction can be perceived, between the extent of professionalization of various groups of personnel along the technical—practical skills dimension, and the tendency to differentiate supervisory, managerial, and technical tasks both from the works and within the staff area. The higher the practical professionalization of workers, technical employees, and supervisors and managers, the less technical and authoritative tasks are split off from the works and organized into differentiated jobs, and the less such activities are differentiated internally in the staff area. The factors of this process are strongest in Germany, intermediate in Britain, and least strong in France, as shown in the sections of this paper on work structuring and coordination, and qualifications and careers/The stronger these factors are, the slower is the growth of supervisory, managerial, and technical staff components, as shown in the section on organization shapes; this also makes for greater parsimony in the proliferation of all sorts of staff activities, as well as greater autonomy of job performance in the works. It might appear that the case of Britain refutes these relationships as it has smaller components with direct-line authority than Germany, although its workforce was shown to be less professionalized along the practical-technical dimension. This divergence in organization shape has to be considered in light of the following hypotheses, however, since the growth of the direct-authority component is also subject to an effect different from the one described above.

WESTERN EUROPE

Area concerned: Initially works, then staff

59

Lines of differentiation: Production-maintenance, technical-managerial

2. The higher the discrepancy in practical professionalization between production and maintenance components of the works, the higher the separation between production and maintenance activities and careers. This effect is strongly operative in Britain, and lays the basis for emergent functional, qualificational and career differentiation between line personnel and technical experts in the staff area. Thus insofar as there is a tendency to split off maintenance and technical activities from production and the line of authority, both in the evolution of tasks, qualification patterns and careers, the growth of positions carrying direct authority will be checked, and it will be checked into the area of technical employees. The operation of this effect thus begins in the works, and it is carried into staff components by the fact that supervisors and a good number of technical employees are recruited from the works. Area concerned: Staff

Lines of differentiation: Line-expert

3. The second effect is closely related to a third one, which is concerned with the division of labour and qualification processes among staff. The greater the qualificational and career differences between the line and experts, the more the differentiation between line management and expertise. This effect is most operative in Britain where—in an ideal-typical depiction—technical tasks are split off from the line of authority; it is intermediate in France where engineering generalism is differentiated from engineering specialism; and it is weakest in Germany where the concept of associating authority and expertise is dominant. This effect then makes for a lesser hierarchization of staff, i.e. it shifts the staff balance towards those in nonline expert functions. British units develop weak lines and numerous experts, France strikes an intermediate balance, and Germany keeps the number of experts down in favour of the line. How the operation of these three effects produces particular organization shapes can now be visualized. French units grow ‘in all directions’ because of the first effect, and to some extent the third; British units show intermediate growth into staff areas because of the first effect, but they strongly feature a particular ‘lateral’ growth within the staff area because of second and third effects, which keep the line trim; the growth of German units is restrained by the strength of the first effect, in all areas of staff as compared to works, but within staff, particularly weak second and third effects make for a less ‘lateral’ shape. It would be interesting to complement these explanations with further, more detailed ones, for instance, on the effect of particular centres of gravity in training, with hierarchical vs. other modes of structuring and coordinating work. For France and Germany, the operation of the societal effect has already been demonstrated far beyond the confines of organization theory (see Maurice, Sellier, and Silvestre 1977). The present approach and its results would appear to provide valuable clues about organizational change processes. So far, the tall, less pyramidal but more onion-shaped organization, which is slim at the bottom but lateral in the middle, with sizable numbers of specialized technical staff and less workers, has filled a glamour spot in the literature. It was regarded as modern, less oppressive, more flexible vis-à-vis its environment, equipped with better technical means of production facilitating less monotonous and dirty work. In it the bright light of the postindustrial society shined, and ‘professionals’ deployed their talents at work, pulling weight, as ‘cosmopolitans’, against the dumb ‘locals’, the relics of an age surpassed. Such wishful thinking on the basis of overgeneralized results, is exemplified by Blau (1973) who contrasted ‘modern organizations governed by universalistic standards’ to ‘the old-fashioned bureaucracy’. Needless to

60

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

say, the pyramidal organization which is squat, lateral at the bottom, and growing slimmer from the bottom upwards, was seen to be ‘placing the importance of loyalty above that of technical competence’, and promotion standards gave ‘weight to seniority and personal judgements of superiors rather than objective merit criteria (Blau 1973:559). Our results from cross-national comparisons lead us to question such a simplified picture. We have been concerned with the way in which the bundling of work tasks into professions relates to the acquisition of competence and qualifications and how this influences organizational shapes. Extent and dimensions of professionality, therefore, need to be stressed; this is certainly not a surprising finding, and it fits in, for instance, with both the stereotypes of organizations advanced by Blau, and the work of Hall (1968). But observers have become fascinated with the formal knowledge and social-status aspects of professionality, which indeed tend to inflate technical departments, complicate hierarchies, and depyramidize the organization. However, they do not at all make for greater autonomy at work, particularly not among the forgotten creatures of modernistic organization, the workers. In most nations, an unlimited trust has developed in general and scientific education as the way to professionalization. This is likely to create a well-educated generalist frustrated by his work task, which has to be specific since he is not equipped with the practical skills to perform varied work from the outset. In fact, it is the alienation of the ‘professional’ which has resulted. The notion of professionalization has gone through colour changes like a chameleon. In the important contribution of Stinchcombe (1959), it was defined as ‘technical socialization to achieve a publicly recognized occupational competence’, and the author could therefore use it as a constituent of organization unfavourable to the bureaucratic mode since it emphasized the technical skills dimension. Usually, however, Wilensky’s (1964) notions were taken over, and the results have been a muddled concept of how organization shapes, alienation, and professionalism relate to each other. As Miller (1967) and others reported, there is a striking difference between the orientations of engineers and scientists. Yet, researchers have tried to put them into the same uniform of professionalism, albeit with different sizes. It was not realized that different dimensions may exist. The literature did not seem much bothered about the fact that professionalism was epitomized, in Stinchcombe’s study by the bricklayer, but, in Wilensky’s studies, by psychologists or aerospace physicists. Since the multidimensionality of professionalism was covered up, and only one dimension emphasized, it is not astonishing that, on the basis of the results of scientists studying organizations, the alienation of ‘professionals’ was stressed, and attention was directed towards ‘modern’, tall, and slim organizations as potential liberators of the professional alienated in the ‘old-style’ organization. Our analysis, however, supports the view that, under conditions of professionalization along the scientific and formal knowledge dimensions alone, such ‘modern’ organizations will indeed arise, but they will be perfectly concomitant with bureaucratic patterns, and, therefore, with alienation. As Crozier (1963) showed, a finely structured bureaucracy is eminently capable of isolating individuals from one another in a vicious circle, so that the knowledge-based professional can both maintain a semblance of cosmopolitan autonomy in his shut-off little job, and suffer from alienation. Despite this, the skills-based professional will be more of a local, his science connection will be less evident, and his presence will fashion the organization in a more ‘old-style’ way, but his alienation will be less strong, his work richer, his work relationships more flexible, and his autonomy in day-to-day performance greater. The professionalization of everyone, including workers, appears more viable in this type of work and organization.

WESTERN EUROPE

61

NOTES 1. The replication in Britain was done on a smaller scale, by Sorge and Warner. Maurice was responsible with Sellier and Silvestre for the French-German comparison, in which other researchers also collaborated. For their help with this and with data analysis, we are indebted to Michel Brossard, Jean Duplex, Olivier de Fontmagne, Catherine Marry, and Joachim Jaudas. We also want to thank the employees of the various firms. Funding was arranged by CORDES in France, and by the SSRC for the British extension. We gratefully acknowledge the support of the Laboratoire d’Économie et Sociologie du Travail (France), the Administrative Staff Collège, Henley, and St. Antony’s College, Oxford.

REFERENCES Altmann, Norbert, and Günther Bechtle. 1971 Betriebliche Herrschaftsstruktur und industrielle Gesellschaft. München. Argyris, Chris. 1972 The applicability of organizational sociology. Cambridge: Cambridge University Press. Bendix, Reinhard. 1974 Work and authority in industry. Berkeley: University of California Press. Blau, Peter M. 1973 ‘The hierarchy of authority in organizations’ in Comparative organizations. The results of empirical research. Wolf V.Heydebrand (ed.), 543–559. Englewood Cliffs, N J.: Prentice-Hall. Blau, Peter M., and Richard A.Schoenherr. 1971 The structure of organisations. New York and London: Basic Books. Brossard, Michel, and Marc Maurice. 1974 ‘Existe-t-il un modèle universel des structures d’organisation?’ Sociologie du Travail 4:402–425. Brossard, Michel, and Marc Maurice. 1976 ‘Is there a universal model of organisation structure?’ International Studies of Management and Organisation 6:11–45. Burns, Tom, and G.M.Stalker. 1961 The management of innovation. London: Tavistock. Child, John. 1972 ‘Organizational structure, environment and performance: the role of strategic choice’. Sociology 6: 1–22. Child, John. 1973 ‘Predicting and understanding organization structures’. Administrative Science Quarterly 16: 168–185. Child, John, and Alfred Kieser. 1979 ‘Organization and managerial roles in thesis’ in Organizations alike and unlike. C.J.Lammers and D.J.Hickson (eds.), 251–271. London: Routledge and Kegan Paul. Child, John, and Roger Mansfield. 1972 ‘Technology, size, and organization structure’. Sociology 6:370–393. Chisholm, A.W. J.1976 ‘Some comparisons of the engineering education and training systems of Britain and continental Europe’ . Paper for an Institute of Mechanical Engineering Conference. Crozier, Michel. 1963 Le phénomène bureaucratique. Paris: Seuil. Crozier, Michel, and Erhard Friedberg. 1977 L’acteur et ‘le système’. Paris: Presses Universitaires de France. Donaldson, Lex, John Child, and Howard Aldrich. 1975 ‘The Aston findings on centralization: further discussion’. Administrative Science Quarterly 20:453–460. Fores, Michael, and Ian Glover. 1978 ‘The British disease: professionalism’. The Times Higher Education Supplement, 24 February: 15. Görlitz, Walter. 1977 Kleine Geschichte des deutschen Generalstabes. Berlin: Haude and Spener. Hage, Jerald. 1977 ‘Choosing constraints and constraining choice’ in Organizational choice and constraint: approaches to the sociology of enterprise behaviour. M.Warner (ed.), 1–56. Farnborough: Saxon House-Teakfield. Hall, Richard H. 1968 ‘Professionalization and bureaucratization’. American Sociological Review 33:92–104. Hickson, David J., C.R.Hinings, C.J.McMillan, and J.P.Schwitter. 1977 ‘The culture-free context of organization structure: a tri-national comparison’ in Culture and management. Theodore D.Weinshall (ed.), 354–382. Harmondsworth: Penguin. Hickson, David J., C.J.MacMillan, K.Azumi, and D.Horvath. 1979 ‘The grounds for comparative organization theory: shifting sands or hard core’ in Organisations alike and unlike. C.J.Lammers and D.Hickson (eds.). London: Routledge and Kegan Paul.

62

DIFFERENCES IN ORGANIZING MANUFACTURING UNITS

Hickson, David J., Derek S.Pugh, and Diana C.Pheysey. 1969 ‘Operations technology and organization structure: an empirical re-appraisal’. Administrative Science Quarterly 14:378–397. Kerr, Clark, John T.Dunlop, Frederick H.Harbison, and Charles A.Myers. 1973 Industrialism and industrial man. Harmondsworth: Penguin. Lawrence, Peter A., and S.P.Hutton. 1978 Production managers in Britain and Germany. Southampton: Department of Mechanical Engineering. Lawrence, Peter R., and Jay W.Lorsch. 1967 Organization and environment. Cambridge, Mass.: Harvard University Press. Mansfield, Roger. 1973 ‘Bureaucracy and centralization: an examination of organization structure’. Administrative Science Quarterly 18:477–488. Maurice, Marc. 1977 ‘Theoretical and ideological aspects of universalism in the study of work organizations’ in Working and technology. M.R.Haug and J.Dofny (eds.), 27–33. Beverly Hills: Sage Studies in International Sociology. Maurice, Marc, François Sellier, and Jean-Jacques Silvestre. 1977 Production de la hierarchie dans l’entreprise. Recherche d’un effet societal. Aix-en Provence: Laboratoire d’économie et de sociologie du travail. Maurice, Marc, François Sellier, and Jean-Jacques Silvestre. 1979 ‘La production de la hiérarchie dans l’entreprise: Recherche d’un effet societal. Comparaison France-Allemagne’. Revue Française de Sociologie 30:331–365. Miller, George A. 1967 ‘Professionals in bureaucracy: alienation among industrial scientists and engineers’. American Sociological Review 32:755–768. Musgrove, P.W. 1967 Technical change, the labour force, and education. Oxford: Pergamon. Perrow, Charles. 1971 Organizational analysis: a sociological view. London: Tavistock. Pugh, D.S., D.J.Hickson, C.R.Minings, and C.Turner. 1968 ‘Dimensions of organization structure’. Administrative Science Quarterly 13:65–91. Pugh, D.S., D.J.Hickson, C.R.Minings, and C.Turner. 1969 ‘The context of organization structure’. Administrative Science Quarterly 14:91–113. Roberts, Karlene H. 1977 ‘On looking at an elephant: an evaluation of cross-cultural research related to organizations’ in Culture and management. T.D.Weinshall (ed.), 56–104. Harmondsworth: Penguin. Silverman, David. 1970 The theory of organizations. A sociological framework. London: Heinemann. Silvestre, Jean-Jacques. 1974 ‘Industrial wage differences: a two-country comparison’. International Labour Review 110:495–514. Sorge, Arndt, and Malcolm Warner. 1978a ‘The societal and organizational context of industrial relations: a comparison of Great Britain and West Germany’. Berlin: International Institute of Management Discussion Paper Series 78– 53. Sorge, Arndt, and Malcolm Warner. 1978b ‘Manpower training, manufacturing organization and work roles in Great Britain and West Germany’. Berlin: International Institute of Management Discussion Paper Series 78–96. Stinchcombe, Arthur L. 1959 ‘Bureaucratic and craft administration of production: a comparative study’. Administrative Science Quarterly 4:168–187. Wilensky, Harold L. 1964 ‘The professionalization of everyone?’ American Journal of Sociology 70:137–158. Woodward, Joan. 1965 Industrial organization: theory and practice. London: Oxford University Press.

22 Implanted decision-making: American-owned firms in Britain G.R.Mallory, R.J.Butler, D.Cray, D.J.Hickson and D.C.Wilson

Decision-making processes are compared in American and British subsidiaries in Britain to investigate how far processual characteristics as distinct from structural features, may be implanted in subsidiaries abroad. Managements in the British owned subsidiaries tend to route their biggest decisions through the formalities of standing committees in conformity with customary procedures, taking a comparatively long time to do so. Managements in the American owned subsidiaries tend to rely on informally assembled working groups which help to arrive at a decision comparatively rapidly through a process which does not ostensibly follow any recognized procedure. The British mode is formal within a non-formalized customary pattern, the American mode informal within a formalized frame. IMPLANTING PROCESSUAL CHARACTERISTICS Conversations between those who contend with the practical and theoretical obstacles of cross-national comparative research sometimes refer wistfully to an ideal study in which the organizations to be compared are perfectly matched. One ideal is where in comparing, for instance, firms in Japan, the United States, and other countries there would be an exact correspondence of Japanese firms in Japan and Japanese owned subsidiaries in the United States with American firms in the United States and American owned subsidiaries in Japan, and so on. In successive analyzes the apparent effects of national location, and of ownership, could then be controlled and anything due to elements in the national ways of life be more clearly exposed. Pending such ideals, published research consists of piecemeal accumulation of results from samples each of which contributes only one piece to the picture. But even piecemeal accumulation during the 1970s did begin to put that picture together: ‘…there is gradually increasing understanding, and Child’s (1981) review at the end of the decade does not have the despair that Roberts (1970) felt “on looking at an elephant” (as she put it) at the beginning of the decade’ (Hickson and McMillan, 1981, p. 187). The research reported here offers one such piece, the results of a comparison of American owned subsidiaries and British owned subsidiaries all with British managers and located in Britain. This has the advantage of controlling for any effects of national location, raising the question whether firms adjacent territorially can differ just because some of them are owned from the territory of another nation. Can the

Source: Journal of Management Studies (1983), 20(2): 191–211.

64

IMPLANTED DECISION-MAKING

managements of multinational corporations project national characteristics, which in this case would be ‘Americanisms’, across the oceans to their subsidiaries? Since prima facie the answer is ‘yes’ for structural specialization and formalization, for obviously headquarters can require the setting up of specialist departments (e.g. insist on a marketing department being established by the subsidiary where there was none before) or conformity to corporation rules (e.g. monthly financial returns by the subsidiary in a standard form), what then if the question is asked of processes? This paper examines how far a multinationals management can project characteristics in the processes of making decisions even though those making the decisions are of a different nationality, in this case British managers in American-owned subsidiaries where no American manager is personally present. Do the British managements in the subsidiaries tend towards decision-making processes with American characteristics? Negandhi (1979) showed that the subsidiaries abroad of American multinationals, even if located in culturally different and economically ‘developing’ societies, do take over all the more formal paraphernalia of modern management normal to the parent corporation. They have comprehensive planning procedures, formalized budgetary controls, effective personnel and training functions etc., whereas similar locally owned firms do not. He compared American owned subsidiaries with locally owned firms in South America and Asia. In Africa, Ajiboye’s (1980) comparison of two locally owned firms with a French subsidiary and a British subsidiary in Nigeria is suggestive in the same direction, but for hierarchical relationships. The two locally owned firms differed from the French and British owned subsidiaries in their employees’ responses to questions on hierarchical influence, as plotted on a Tannenbaum (1968) control graph, but even more significantly the French and British owned subsidiaries differed from each other, the British being the less hierarchical. These owning corporations seemed able to stamp their own imprint on the managements of their overseas subsidiaries. In both the Negandhi (1979) and Ajiboye (1980) studies the means used by the owning corporations appeared to be the export of expatriate top managers to the subsidiaries. Although this may be effective for management systems and the approach taken to subordinates, the national norms of behaviour in which arise the decision-making processes examined in this paper could be resistant to influences from foreign headquarters even when expatriates bring their own customary approach with them. Preliminary impressions of research by Kidd and Teramoto (1981) indicate that although expatriate Japanese managers bring to their European subsidiaries typical Japanese practices such as the widely participative ringi decision-making process and the ringi sho document which all involved managers sign to signify their assent, such practices do not include nor transfer to their European colleagues (in the particular instance of the ringi sho this is virtually impossible by it being in Japanese script). In the same way, the prolonged nematuashi process of informal, indeed casual, discussion which precedes the drawing up of the ringi sho rarely includes European colleagues who do not have time for it, neither literally nor temperamentally. Thus although the European managers appreciate what they find to be a more communicative organizational climate, despite the normative barriers, their own ways are little affected by the Japanese practices even though their senior colleagues are Japanese. Given this resistance to the adoption of foreign ways when they are introduced by the presence in person of foreign nationals, the question is whether the decision-making processes of managements in far off subsidiaries show characteristics representing the ways of their foreign owners even when there are no expatriates among them? How influential in this respect are multinational corporations at, so to speak, one remove?

WESTERN EUROPE

65

The importance of local conditioning is evidenced by Kelly and Worthley (1981) who show that Japanese-American managers in Hawaii are more like the Caucasian-American managers with whom they interact, and whose national outlook they share, than they are like Japanese managers in Japan. The implication is that it is difficult to implant characteristics from afar to managements of another nationality. Whilst it is commonplace for multinationals to introduce prescribed information and control systems, it is less likely that they are able to shape the processes by which major decisions are arrived at within their subordinate élites. CASES COMPARED The twenty cases of decision-making processes compared in this paper took place over various periods ranging from months to years during the ten years 1969–1979 in two American subsidiaries in Britain with wholly British managements (there were no American expatriates among them at any time), and two British owned subsidiaries in Britain. The selection of American owned subsidiaries parallels that made by Jamieson (1980a; 1980b) who argues that: The majority of studies which have attempted to investigate the effect of socio-cultural factors on business behaviour have tended to compare indigenous firms operating in country A with indigenous firms operating in country B. The design of this study is different in that all firms are located in one country, England. I would argue that in two distinct ways this is a more rigorous test of hypotheses about the effect of culture on business organizations. In the first place the operating environment of the firms is held constant and this is of vital importance. Secondly, if it can be shown that American firms, despite operating in England and employing English nationals, still exhibited the effects of American culture upon their structure and operation, then it can be safely assumed that cultural variables are relevant in the explanation of business behaviour (Jamieson, 1980a, p. 219). Whilst agreeing with Jamieson’s (1980a) point that such a sample can show how far ‘culture’ can be implanted abroad, it has to be recognized that the case of American firms in Britain is a less rigorous test than he here makes out, for despite fascinating American/British differences the two nations share an Anglo-Saxon cultural heritage that could make the implanting of American characteristics more likely than implanting, for example, from Japanese multinationals. This qualification will be referred to again in the interpretation of the result. This paper also takes the same point of comparison for decision-making processes in the American owned subsidiaries as Jamieson (1980b) took for his comparison of structural, ideological, and organizational climate features, namely British owned subsidiaries. Any differences which may be attributable to American influence are exposed by comparing ten decision-making processes in the two American subsidiaries with ten processes in the two British subsidiaries. For those who are concerned with cross-national research, this kind of comparison of subsidiaries within the one country might be exploited more than it has been so far. Whilst its interpretation must differ from those of country by country studies, where it is appropriate to research aims it brings the advantage of completely avoiding the costs in travel and time and coordination which those studies incur. The comparison originated when it was noticed that a sample of thirty diverse organizations in Britain studied for an extensive project over 150 cases on the making of strategic decisions (Butler et al., 1979/80; Butler et al., 1982; Wilson, 1982) included two American subsidiaries. Since there is little or no empirical cross-national comparison of such processes this aroused immediate curiosity. The two most similar British

66

IMPLANTED DECISION-MAKING

subsidiaries in the same sample were compared. The results of the comparison were of sufficient interest to lead to the writing of this paper. However, an analysis of twenty cases of decision-making in only two pairs of organizations taken from a set chosen primarily for other purposes is strictly limited. This paper is bound by these limits, and its claims to validity rests primarily not on the sampling but on the correspondence of results with the implications of published research. It fulfils these implications in an area previously not directly investigated: decision-making processes. The firms The four firms from which the twenty cases of decision-making are taken are denoted as US-H, US-J, UKA, UK-M. Firm US-H is a wholly owned subsidiary of a major U.S. food and chemical corporation. Its principal manufactures are chemicals and paint which it markets together with other agency products through a large and well established distribution network. The company was essentially a family business from its founding in the early 1900’s until it went public in the mid-60’s, since when it has continually and successfully added to its product range, eventually being taken over by the U.S. corporation in the early 1970s. Firm US-J is a wholly owned subsidiary of a U.S. engineering group. It specializes in the manufacture of precision tools and also markets a variety of agency products. The company in its present form grew from an initial association of a subsidiary of the U.S. parent with a well established engineering group in the immediate post-war period. Two years later both were combined as a wholly owned subsidiary. It has a U.K. board of directors who are working executives of the company and it is this group, particularly the chairman, who are responsible for dealing with the parent group. Firm UK-A is a wholly owned subsidiary of a major U.K. engineering group: it manufactures a standard range of construction engineering equipment. The company has gone through many stages of growth and mutation since its foundation in the late 19th century, particularly in the late 1960’s when its existing organizational form and pattern of ownership was set, changing from being independent to a wholly owned subsidiary Manufacturing is at two sites with the company’s headquarters located at the major one. Group Head Office is in London. Firm UK-M is a wholly owned subsidiary of a U.K. textile and engineering group, specializing in the manufacture of friction products which it markets on a worldwide basis to both manufacturer and via its own distribution network to replacement customers. The firms task is difficult to characterize as the product requires an unusual amalgam of both chemical and engineering technologies. The production unit and Head Office function are located on the same site, which also houses the owning groups worldwide headquarters. There is a product division form of organization so that between the board of directors of UK-M and the holding group board, a divisional board is interposed, providing a complex pattern of interlocking directorates. The company began operations in the late 19th century and moved into its present product line in the 1920’s; its current organizational form was the result of a succession of amalgamations and reorganizations in the late 1960s. All four firms have a distinct corporate identity, marketing products under their own name. All had similarly functionally differentiated top managements, the chief executives’ spans of control ranging between six and eight. Table I lists some of their more obvious features, in addition to nationality of ownership, by which differences in decision-making might be explained. The factor on which there is a substantial disparity is size, the British being the larger. This makes some results difficult to interpret, where possible effects of size cannot be distinguished from those of nationality of ownership. This is referred to in the discussion of results.

WESTERN EUROPE

67

Table I Four American owned and British owned subsidiaries American owned Firm:

British owned

US-H

Wholly owned Chemical and food group Technology/product: Large batch chemicals and paint

Ownership: Ownership group:

Size (employees):

US-J

UK-A

UK-M

Wholly owned Engineering group

Wholly owned Engineering group

Wholly owned Engineering and textile group Large batch automotive components (nonmetal) 2000

Large batch precision Small batch building small tools and their contractors’ components equipment

350

700

2000

But the firms themselves are not the primary unit of analysis. This is the decision-making process, of which there are five per firm. All but one fall into four categories of decision topics, product decisions, plant/equipment decisions, domain (marketing) decisions, and planning decisions, as shown in table II. There are new product and plant/equipment decisions in all four firms, and marketing and planning decisions in three out of four. This reflects the tendency for given kinds of organization to be preoccupied with certain categories of decision as reported by Hickson et al. (1982) in their analysis of the full sample of 150 cases in thirty organizations from which these twenty cases are drawn. Manufacturing firms are typically mostly concerned with product, plant, and marketing issues. Data collection Data on twenty decision-making processes were collected by lengthy interviews with senior executives who had been centrally involved. The firms were first approached by letter, and the chief executives interviewed both to obtain background information on the history, products, and structure of the firm and to obtain a list of decisions defined by the management as major which had been taken within the recent memory of senior managers. The chief executive nominated as many such decisions as could be readily recalled, and from these a selection of five was made to include as far as possible one in each category of topic concerned with inputs, outputs, core technology, personnel and reorganization. Since the research dealt only with actual processes within recall the coverage was uneven, as table II shows, for if no reorganization case could be recalled, for example, no attempt was made to strain memory into the distant past to find or ‘invent’ one. The chief executive nominated one or more key informants from among his colleagues to discuss each decision. The twenty cases discussed in this paper were derived from interviews with from one to three Table II Twenty decision cases American owned Firm:

US-H

Decision Topic Category: Products: 1.

2.

Become agents for

British owned US-J

Extend product range

1.

UK-A New product

1.

UK-M New product

1.

New product

68

IMPLANTED DECISION-MAKING

American owned Firm:

Plant/ equipment:

3.

Domain (marketing) : 5.

Planning:

US-H German company’s products 3.

Expand data processing facility 4.

British owned US-J

Expand production capacity (rent additional factory) 3.

Stay out of a market

2.

Purchase new lathes

UK-A

Expand production capacity (new building and plant) 3.

2.

UK-M

Expand production capacity (new building and plant)

2.

New plant

4.

Business plan Staff regrading, using consultants

Computeriz e inventory control

4.

Create marketing specialism

4.

Standardize company name

5.

Business plan

5.

Production plan

Direct sales to retail outlets

5.

Personnel:

informants per case, usually two, ranging from function heads through directors to managing director and chairman: the separate accounts were consolidated into a single process description of each case. Each interview began with an historical description of the decision-making process from the time the matter was first raised until the decision, positive or negative, was reached. This was followed by a series of standard questions to which responses were either open-ended only or open-ended together with a rating on a short scale. PROCESS FEATURES COMPARED A set of concepts of strategic decision-making processes formulated by Astley et al. (1982) were used to guide the larger empirical project referred to earlier. From among these concepts, American/British differences were looked for in those listed in table III. It is not implied that the eight listed describe all aspects of decision-making, but they do represent aspects all through the process, from its initiation proactively or reactively, through the horizon of vision and the number of alternatives considered, to the amount and formality of interaction, the level at which the authorized decision was taken, and how long the process went on. It was these eight which carried the strongest presumptions of American/British differences. These presumptions are succinctly put by McMillan et al. (1973, p. 157):

WESTERN EUROPE

69

Predominant American values of rugged individualism, a frontier spirit, a revolutionary character conducive to change and mobility, and a preference for pluralistic authority patterns are all part of a normative cultural mosaic. The much longer history of British society, its traditions and its stability, give it a legacy of normatively legitimized adherence to established institutions and behavioural patterns. Jamieson (1980a) sees the American values as more fully in keeping with the interests generated by capitalism, so that the greater managerial dedication to all that is implied by ‘scientific management’ which Inkson et al. (1970) found reflected in their empirical results is to be expected. Hence the ‘Impressions of a Visiting Professor’ put forward by Dubin (1970) have a ring of truth about them when they accord with these basic societal differences, even though Jamieson (1980a) is inclined to be dismissive about ‘impressions’. Impressions are impressive when they accord with so much else, and they have a depth of understanding that is often missing from survey-type comparisons. So when Dubin (1970) suggests, as did Granick (1962) before him, that American managers are willing to try something out despite risks, whereas their British counterparts demand that proposals for innovation be proved before they are applied, this does create a presumption that decision processes in American owned firms are more likely to be initiated proactively rather than to be reactive, to go ahead on a shorter view (i.e. time horizon) of Table III Decision-making process features Concept

Definition

Operational variables

Proactivity.

The extent to which the process is an initiative.

Horizon:

The extent to which the process generates future resource commitment. The extent to which the process surveys available choices.

Six point scale from No Initiative (decision predefined) through Constrained Initiative to Opportunistic Initiative (unexpected event triggers decision beyond any previous ideas). The period for which process participants looked ahead. The number of alternatives considered (doing nothing being counted where it was a viable alternative). Five point rating from None to A Very Great Deal. The number of working groups, special committees, and standing committees used (a committee being a body formally established, in the case of a special committee for the particular issue being processed). The number of unwritten or written procedures followed. The level in the hierarchy at which a decision was authorized. a Gestation time: the period in months from the first mention of an issue to the time identifiable action took place on a specific topic. b Process time: the period in months from the time of first action towards decision on a

Scan:

The extent to which the process generates interaction among its participants. Interaction formality. The extent to which interaction generated in the process is predefined.

Interaction volume:

Standardization: Centrality. Duration:

The extent to which the process follows preexisting routines. The extent to which the process occurs at the summit of the hierarchy. The temporal extent of the overall process.

70

IMPLANTED DECISION-MAKING

Concept

Definition

Operational variables topic to the time the decision is authorized (i.e. approved choice is made).

possible consequences with less concern for the farflung future, and to scan more alternative possibilities. These features, proactivity, horizon, and scan are the first, second, and third concepts in table III. Dubin (1970) makes much of the personal trust in subordinates that British management style emphasizes, a trust which requires reciprocal conformity from those subordinates, in contrast to the openness of American management style. This latter might well stimulate a greater interaction volume (table III) since more is open to discussion, and Jamieson (1980a, p. 226) did find ‘more meetings of managers’ in American owned subsidiaries. In contrast, British style interaction may not only be less but may have more formality (table III) about it, for Jamieson (1980a) found American owned firms comparatively informal in personal relationships. If that is so in American firms it is an intriguing combination with American bureaucratic formalization (pointed to by Inkson et al. (1970), McMillan et al. (1973), and to a lesser degree by Jamieson (1980b)). It leads to a presumption that American-influenced managerial decision-making processes will combine informal interaction with formalized standard procedures (table III: Standardization). All comparative statements are relative, and although Clark (1979) finds British management more decentralized than equivalent French management, and Budde et al. (1982) find some tendency in the same direction on some decisions only in a comparison with West German managements, Jamieson (1980a) suggests that American owned firms are even further decentralized. So their decision processes should culminate at a lower authority level (table III) than do those in British owned firms. Eggars (1977) asserts that American managers like to get a move on. Comparing them with their French counterparts, he writes: An American will probably lose his typical enthusiasm for a project before a Frenchman gets over his typical reservations (Eggars, 1977, p. 137). This caricature may be overdone just for effect, but it fits well with Jamieson’s (1980a) finding that managers in American owned subsidiaries rated forcefulness relatively highly as a characteristic, and with the tendency for his data to support Child and McMillan’s (1972) finding that American managers not only work longer than British managers but use leisure time as an ‘extension of work’ into which work related activities intrude. This pattern of characteristics implies that American-influenced managements may take decisions faster, i.e. the duration (table III) of major decision-making processes will be shorter. In summary, on variables representing the concepts of decision-making process in table III, American influenced subsidiary firms might be anticipated to show greater proactivity, interaction volume, standardization, and scan, and British subsidiaries not so influenced might be anticipated to show longer horizon and greater interaction formality, centrality, and duration. The twenty processes dealing with the decision topics listed in table II are now compared, ten in each pair of subsidiaries. The comparison is on the operational variables in table III, these being taken from those devised by Butler et al. (1982) for the larger project.

WESTERN EUROPE

71

RESULTS The differences between decision-making processes in the American owned and British owned subsidiaries are not extensive. It would be surprising if they were. Even comparing firms located in the United States and in Britain, Inkson et al. (1970, p. 363) suspected there were ‘…more differences among managers and organizations within both U.S. and G.B. cultures than between these cultures’; and comparing subsidiaries located in Britain, as this paper does, Jamieson (1980a, 1980b) reported few differences. Across the twenty decision-making processes, the U.S./U.K. proactivity, horizon, scan, interaction volume, and centrality are much the same. There is nothing to suggest that the decisions in the U.S. owned firms were more often launched proactively; nor that the decision-makers in the British owned firms looked further ahead since in both sets of decision processes the horizon averaged about six years (ranging from the very short term to many years); nor that American influence encourages a wider scan of alternatives for in both sets of processes two, three, or four possibilities were usually considered, such as investment in equipment versus product rationalization versus buying in supplies as alternative ways of circumventing bottlenecks in future plans (table II, US-J5) or several company image names (table II, UK-A4). Thus American ownership did not appear to spur British managements into the more risk-taking mode of proactive, short term, alternative scanning decision-making that Dubins (1970) impressions suggest. Likewise, all the decisions in both pairs of subsidiaries were reported as having stimulated comparably busy interaction, a to-ing and fro-ing which rated similarly on a scale of interaction volume. The sheer amount of interaction did not differ. Finally, centrality of authorization of the decision, either to go ahead or more rarely not to do so (table II, US-H4), was at similar levels. In both pairs of subsidiaries, some decisions were authorized by the chief executive alone (such as the new product decisions in US-J and UK-M: table II), some by the top governing body (such as direct sales to retail outlets decision in US-H), some by that body but subject to ratification by headquarters (such as UK-A’s new company name and US-J’s data processing expansion). The American owned subsidiaries were not noticeably more decentralized in this respect, despite the anticipation that they were likely to be so. So on these aspects of process there is no hint of any difference which might be due to American influence. It is in the kinds of interaction and routines that differences stand out, and in the time it takes to take a decision. These differences are apparent in overall comparisons across all the decision topics in table II, and even more clearly if decision topic is controlled for by comparing across only the new product/ extend product range topics or expand production/new plant topics that are common to all four subsidiaries (table II: topics 1 and 3, US-H, and topics 1 and 2, US-J, UK-A, UK-M). Interaction formality (table IV) is indicated by the use of management working groups, special committees, or standing committees during a decision-making process. The working group is informal in origin and composition, and temporary, arising in the course of the particular decision process. For example, senior managers may get together several times although no one sets terms of reference, or agenda, or plans the meeting. Special committees, frequently called task forces or project teams, are formally constituted to accomplish a certain task, but they too are finite. Standing committees are positioned well within the formal institutional framework, being both formally constituted and of infinite life. They meet at regular intervals, with agenda and minutes, and have a comparatively static membership: examples are Management Meetings, Finance Committees, and Boards of Directors. Table IV compares the decision processes in these terms. The contrast is plain to see. The processes in UK-A and UK-M have all the standing committees and all but two of the special committees. Those in USH and US-J have all but one of the working groups. The contrast is especially clear if like decision topics only

72

IMPLANTED DECISION-MAKING

are compared, the four new product cases (all topic 1) and the new plant cases US-H3, US-J2, UK-A2, and UK-M2. It is tempting to conclude that American influence breaks down the formality of decision-making in British management. The social customs of British society which require a time and a place for everything, including predictable meetings of predictable composition for predictable purposes, give way to informally gathered working groups. Indeed, this is a likely and tenable interpretation, but it has to be held alongside an alternative interpretation that gives primacy to size. As the British owned subsidiaries are larger it can also be argued that interaction has to be more formally pre-planned and regulated to avoid confusion. Probably the influences of American ownership and of size are both operative, but if so and both are working in the same direction their effects cannot be separated in this sample of decision-making processes. However, it is possible that within the four firms there is some apparent size effect in the opposite direction, favouring formal committees in the American owned pair and in some degree offsetting any direct size effect in the British owned pair, since the parent corporations of the American pair are somewhat larger. Other evidence also helps to sustain the interpretation that American ownership is a strong influence. Even though the sizes of the subsidiaries differ their top management echelons do not. It is these echelons whose members generate and take part in the processes of deciding what they regard as major matters, and it is these processes that are the subject of comparison here. It was mentioned earlier that in both pairs of subsidiaries the numbers at the top reporting direct to the chief executive and making up his span of control were Table IV Americ an/British differences in decision-mak ting Interaction formality Number of:

Standardization Any procedures:

Duration Number of months:

Firm

Decision topic

Working Groups

Special Standing Unwritten Written Committe Committe es es

Gestation Process

US-H

1.

1

0

0

0

0

0

2.

Become agents for German company’ s product Expand productio n capacity Stay out of a market Direct sales to retailers 1.

Extend product range 0

1

0

0

0

0

10

1

0

0

0

0

0

1

0

0

0

0

0

96

18

0

0

0

0

0

180

3

New product

1

0

0

0

0

0

3.

4.

5.

US-J

5

2

WESTERN EUROPE

Interaction formality Number of:

Standardization Any procedures:

Duration Number of months:

Firm

Decision topic

Working Groups

Special Standing Unwritten Written Committe Committe es es

Gestation Process

2.

Expand productio n capacity Expand data processin g facility Create marketing specialis m Business plan 1.

1

0

0

0

1

0

3

1

0

0

0

0

0

12

1

0

0

0

0

0

12

0

1

0

0

1

0

8

New product 0

0

1

2

1

0

6

1

3

0

1

0

30

0

1

1

1

0

0

18

0

1

0

0

0

1

6

0

0

2

1

0

12

1

New product 0 1

0

0

1

1

0

0

1 1

1 2

0 1

1 0

72 22

24 18

0

0

2

1

0

0

2

0

0

2

0

0

0

11

3.

4.

5. UK-A 2.

Expand productio n capacity 3. Purchase new lathes 4. Standardi ze brand name 5. Productio n plan UK-M 1. 2. 3.

4. 5.

New plant Computer ize inventory control Business plan Staff regrading, using consultant s

73

6

27

similar, as were the functions they represented. Thus UK-A and UK-M did not have greater numbers of immediate participants to coordinate through their standing committees than did US-J and US-PL

74

IMPLANTED DECISION-MAKING

Standardization, the second variable in table IV, indicates whether any part or parts of a decision-making process followed a standard procedure, that is a recognized routine existing prior to the particular topic arising and applying also to other decision processes. It can be seen that only two procedures were reported in the processes in US-H and US-J, whereas eight out of the ten processes in UK-A and UK-M followed procedures. Of these eight, most were unwritten rather than bureaucratized: one did follow a written procedure predominantly, but another did so in part only and the others followed what were termed unwritten procedures. Among the instances of written procedures, US-J 5, the business plan decision, had to conform to a procedure imposed by the American owning corporation, a procedure conspicuous in the stack of estimates and supporting data in a standard form which the chief executive heaved from his desk drawer. The other three instances of written procedures all apply to new plant/expand production capacity decisions, and suggest a tendency for this type of decision to be governed by written procedures, whatever the firm. In any firm the renewal or expansion of plant and equipment is likely to be a recurrent topic so that written procedures are evolved for it. Here the topic could be a factor as well as the U.K. bias. But that bias is much the most distinctive in unwritten procedures. They are referred to by the managers in the British owned subsidiaries alone. These unwritten procedures are the tacit taken-for-granteds such as that this kind of matter is always looked at first by Department X before ever it gets to Committee Y, but of course it must always be considered by Committee Y before anyone can take it on further—yet nowhere is all this written down. Everyone is supposed to know. After all, how else could it be done? So the decision processes in the American owned subsidiaries were not encrusted with formalized rules to the extent anticipated; it was the British owned subsidiaries which mostly followed procedures, but these were unwritten customary ones. Taken together with the possibility that the British tend to make more use of formal committees, this implies that decision-making in the British owned subsidiaries was more institutionalized in general, following comparatively unvarying custom and practice both in meetings and in the sequence of things to be done and who must be involved, which was sufficiently known and accepted as not to require formalized documentation. Recalling that the processes in US-H and US-J used working groups whereas those in UK-A and UK-M used special and standing committees, it can be suggested that in UK-A and UK-M the authority over a decision was formally institutionalized into the process by these committees. Special committees (task forces etc.) reported to standing committees directly or through managers who reported their results, the function of the standing committee then being collectively to legitimate action. In contrast, the working groups in the American owned subsidiaries did no more than collect and pool information and make recommendations. But does traditional formal institutionalization slow things down? Table IV compares the duration of the twenty processes, in months, being the period from the first remembered inception of the topic, however casually introduced, to the authorization of a decision, whether to go ahead with implementation or to abandon the idea. The table follows Butler et al. (1982) in splitting duration into gestation time and process time. Gestation time is any period from the first inception of an issue (e.g. when someone said something about it, or information came in indicating a coming problem), during which nothing is done towards arriving at a decision, but awareness builds up towards the process time. A case does not necessarily have a discernible gestation period (see table IV). Process time follows, being the time period in which an issue becomes a recognized topic for decision, from the first step in the process of moving to a decision (e.g. an arranged discussion, or the appearance of the matter on an agenda) to approved choice (i.e. authorized decision). For example, the feasibility of bypassing wholesalers and selling direct to retailers had been

WESTERN EUROPE

75

informally discussed in US-H (topic 5) among various members of management, who came and left, for a gestation period of no less than fifteen years before eventually a working party initiated a rapid process period which led to the decision. It can be seen in table IV that in UK-A and UK-M the process periods far exceed those in US-H and USJ, indeed they are twice as long (mean 14.3 months against 7.4 months). This is very stark when the equivalent topics are compared. In US-H and US-J, new products are decided upon in 5 months and 2 months respectively as against the 6 months and 27 months it took to arrive at decisions in UK-A and UK-M (table IV: topic 1 in each case). New plant decisions also were far faster in US-H and US-J at 1 month and 3 months (table IV: topics 3 and 2) as against 30 months and 24 months in UK-A and UK-M (table IV: topic 2 in each case). Moreover, gestation periods occur more often in the British owned subsidiaries. Although there are two exceptionally prolonged gestation periods in US-H4 and 5, both were due to the specific difficulties in overcoming or circumventing strong external opposed interests. The decision to stay out of a certain market was reaffirmed despite persistent American head office pressure to go in, and the decision to bypass wholesalers had to await it becoming possible to ignore them and their long connections with US-H. These two decisions are the exceptions. Far more often there are no gestation periods in the American owned subsidiaries, and they not only go right ahead with a decision process once the matter is raised but they then despatch it twice as fast, as Eggars (1977) surely believed they would. The British owned subsidiaries more often contemplate the matter for months or years before moving in on it, and then take much longer to arrive at a decision. The unmodified institutionalization of their decisionmaking does seem to slow them down. Everyone knows anecdotes about committee procrastination, and these have never been summed up better than in the couplets published by Downs (1967, p. 160): Committees of twenty Deliberate plenty. Committees of ten Act now and then. But most jobs get done by committees of one. The comparison in table IV suggests that this is true much more of the formalities of standing and special committees, especially the former, than it is of working groups. It is interesting to wonder how far the gestation period serves for the British the same integrative function as their nemawashi phase serves for the Japanese. Does it enable fears to fade away, resistance to remove itself, communication to counsel understanding? Both societies are homogeneous with immemorial traditions and so may have aspects in common in their decision-making. Perhaps so, but if so then in the British case the gestation period does not speed up the action afterwards as the Japanese is believed to do. Is it more likely to reflect hesitancy, the reluctance to embark upon change noticed by Dubin (1970)? As has already been said, the influences of American ownership and of organization size cannot be separated in the available sample. Samples of manufacturing subsidiaries of approximately the same sizes would be required for this. Among the thirty organizations of the larger study from which the subsidiaries examined here are drawn, there are four that are British owned and similar in size to the two American owned subsidiaries, and at first sight they give hopes of such a controlled comparison. Unfortunately, they are different in their outputs from the American owned subsidiaries, being a road transport firm, an insurance company, an industrial research association, and a brewery, and different in ownership status, three being

76

IMPLANTED DECISION-MAKING

independent firms and not subsidiaries. Thus the most controlled comparison available is the one made in this paper in which products and ownership statuses are similar, even though sizes are not. The interpretation that the differences found are due more to the influence from afar of corporation headquarters than to size is encouraged not only by their congruence with the implications of published research but by a lack of correlation between features of decision processes and organization size in the larger study. SOME COMMENTS This paper does not conclude with a section headed Conclusions’ for the small scale of the comparison leaves it with clues rather than conclusions. There are clues to American ownership from afar having little or no influence on the way that decisions arise, the planning horizon, the range of possibilities that are looked at, the straight amount of interaction (as distinct from it forms) that is engaged in, and the level in the hierarchy at which the decision is ultimately authorized. In the terminology of tables III and IV, the ten decision-making processes in the two American owned subsidiaries differ hardly at all from the ten in the two British owned subsidiaries in their proactivity, horizon, scan, interaction volume, and centrality. Differences are less widespread than inferences from existing literature suggested. But when it comes to the form and length of interaction, the ways in which the processes are typically arranged and conducted between those involved, differences are sharp enough to prompt further research. These are the differences in interaction formality, procedural standardization, and process duration. In brief, the clues hint that British managements in British owned subsidiaries are prone to route their biggest decisions through the formalities of standing committees in conformity with pre-existing customary procedures and taking a comparatively long time to do so, often presaged by a prolonged gestation before anything at all is deliberately done. That is, high interaction formality, procedural standardization (unwritten), and duration. Whereas British managements in American owned subsidiaries tend to rely on informally assembled working groups which help to arrive at a decision comparatively rapidly through a process which does not ostensibly follow any recognized procedure. That is, lower interaction formality, procedural standardization, and duration. These results add to those of Jamieson (1980a, 1980b) on the informality and openness of personal relationships and managerial meetings, and begin to fill in a possible picture of process characteristics alongside what has often been reported on American/British structural differences. As with the probable process differences, these structural differences are not radical, but they do consistently show American organizations to have more formalized documentation than their British equivalents (e.g. Inkson et al., 1970; Jamieson, 1980b; Richardson, 1956). This is commonly argued to be functionally equivalent to British traditionalism in effecting coordination and control, because the American ethnic miscellany requires more deliberate measures to hold it together whereas until very recent years those who had over centuries past contributed to the British mix had merged their differences into long evolved common traditions. Overall, then, the American mode of making major decisions could be characterized as informal within a formalized frame, the British mode as formal within a non-formalized customary pattern. Seen like this, the British mode is the more comprehensive in what it covers. No one in the firm, not the managing director nor the chairman, escapes control by custom. All must accept and conform. However, the formalization examined in the literature on bureaucratization (e.g. Blau, 1974; Hage, 1981; Hall, 1977; Pugh and Hickson, 1976) is of rules and procedures that govern lower echelons, including middle and

WESTERN EUROPE

77

senior managers, but do not, if the results in this paper are to be believed, govern the decision-making of the topmost élites themselves. They and their working groups pursue decisions untrammelled. The argument has now ventured beyond the confines of this paper’s coverage, subsidiaries in Britain, to expose the inference that the distinctive characteristics of decision-making in the American owned subsidiaries are indeed American (for they do plausibly accord with the other published research referred to) and that they will be found in the decision-making of American managements in the United States. This, of course, can only be confirmed by a processual study of U.S. firms in the U.S.A. Further, a fully controlled test of differences between subsidiaries would require a comparison of U.S. and U.K. subsidiaries both in a third country, as Jamieson (1980a) points out in assessing his data. Nevertheless, it appears that multinational corporations can reach beyond the horizon to affect some at least of the interpersonal elements of decision-making processes. In the subsidiaries investigated in this paper they did so even without using their own expatriates, and without any special training of the local managers who only visited the owning corporation very briefly once in years, if ever. The American voice on the phone, the American stamp on the envelope, the telex print-out, the form to be completed, were sufficient. Possibly plus one other factor. Both the American owned subsidiaries had forceful chief executives, a judgment shared by the researchers who met them as well as conveyed by their managerial colleagues. They were men with a capacity to push things along if they wished to. It cannot be determined whether individuals with this characteristic were accidental in these positions, or developed it in response to what they perceived as the style looked for by the firm’s owners, or were accurately selected for it. But selection of local managers in their own management image is obviously one means of control available to multinationals. Of course, any effects brought about by the multinationals in these cases were in the most receptive setting, subsidiaries within the broad Anglo-Saxon English speaking culture, whatever the differences between the two societies. Given this, and that the distinctiveness of the American owned subsidiaries whilst important and interesting was far from total, then it is safer to assume that multinationals can affect only limited features of processes, particularly in societies with more contrasting cultures. Even expatriate representatives on the spot then face greater linguistic and normative barriers. If process is relatively resistant, what about the decisions themselves? This paper has been wholly concerned with the ways in which decisions are made rather than with what the decisions are. However, it ends by turning to the question of the multinational’s influence on what is decided. Cray (1981) in an extensive study of American multinationals in Europe found that national preferences of the managements of the subsidiaries ‘operate within a framework of structure, coordination, communication and control dictated by the American parent’. In the subsidiaries compared in this paper, US-H and US-J, they too worked within broad parameters set by headquarters. Their chief executives said so, and in US-H it was focused in the annual ‘end of March panic’ when their results for the first quarter of their year became available and remedial action to redress budget imbalances had to be taken as these became exposed to the eyes across the Atlantic. But the American parent attended primarily to budget parameters rather than getting involved in multifarious matters. Was this borne out by the influence the American parents exerted on the ten major decisions in US-H and US-J? Their specific influence on each decision was commented on by those subject to it, the informants in the subsidiaries, and rated by them on a five-point influence scale (from ‘a little influence’ to ‘a very great deal’) which served to focus their perceptions. In both subsidiaries, multinational headquarters was seen as exerting its greatest influence on decisions which committed money, namely those on plant and equipment or the business plan (table II: US-H3; US-J2, 3, 5), and its least influence on those concerning products and

78

IMPLANTED DECISION-MAKING

marketing (table II: US-HI, 2, 4, 5; US-J1, 4). This supports the view that American multinationals do not enter into operating decisions, even those regarded as major, but rely primarily on financial controls. Thus both in decisions and in decision-making the multinational permits wide scope to its subsidiary managements. It sets ultimate limits to decisions but within these grants considerable freedom, and it affects some aspects of decision-making but probably most are typically indigenous. But whereas its effects on decisions are deliberate and known to managers in headquarters and subsidiaries alike, its probable effects on decision-making have gone unseen. ACKNOWLEDGEMENTS This research was supported financially by the British Social Science Research Council and the University of Bradford Management Centre. REFERENCES Ajiboye, Gbenga Y. (1980). Control in Nigerian Organizations: Hierarchy and Functional Differentiation. Master of Business Administration Dissertation. University of Bradford. Astley, W.Graham, Axelsson, Runo, Butler, Richard J., Hickson, David J. and Wilson, David C. (1982). ‘Complexity and cleavage: dual explanations of strategic decision-making.’ Journal of Management Studies, 19, 4, 357–75. Blau, Peter M. (1974). On the Nature of Organizations. New York: Wiley. Budde, Andreas, Child, John, Francis, Arthur and Kieser, Alfred. (1982). ‘Corporate goals, managerial objectives, and organizational structures in British and West German companies’. Organizational Studies, 3, 1. Butler, Richard J., Astley, W.Graham, Hickson, David J., Mallory, Geoffrey R. and Wilson, David C. (1979/80). ‘Strategic decision-making: concepts of content and process’. International Studies of Management and Organization, IX, 4, 5–32. Butler, Richard J., Astley, W.Graham, Gray, David, Hickson, David J., Mallory, Geoffrey R. and Wilson, David C. (1982). ‘Strategic decision-making: a large scale study’, (forthcoming). Child, John (1981). ‘Culture, contingency and capitalism in the cross-national study of organizations’. In Cummings, L.L. and Staw, B.M. (Eds.), Research in Organizational Behavior, Vol. 3. Greenwich, Conn: JAI Press. Child, John and Macmillan, Brenda (1972). ‘Managerial leisure in British and American contexts’. Journal of Management Studies, 2, 2, 182–193. Clark, Peter (1979). ‘Cultural context as a determinant of organizational rationality: a comparison of the tobacco industries in Britain and France’. In Lammers, C.J. and Hickson, D.J. (Eds.), Organizations Alike and Unlike. London: Routledge and Kegan Paul. Cray, David (1981). ‘Control in multinational corporations’. Paper presented at the meetings of the American Sociological Association, 1980: to appear in Bacharach, S.B. (Ed.), Yearbook of Organizational Sociology. Downs, Antony (1967). Inside Bureaucracy. Boston: Little, Brown. Dubin, Robert (1970). ‘Management in Britain: impressions of a visiting professor’. Journal of Management Studies, 7, 2, 183–198. Eggars, E.Russell (1977). ‘How to do business with a frenchman’. In Weinshall, T.D. (Ed.), Culture and Management. Harmondsworth: Penguin. Granick, David (1962). The European Executive. London: Weidenfeld and Nicolson. Hage, Jerald (1981). Theories of Organizations: Form, Process and Transformation. New York: Wilcy. Hall, Richard H. (1977). Organizations: Structure and Process. (2nd edition). Englewood Cliffs, N.J.: Prentice-Hall. Hickson, David J. and McMillan, Charles J. (1981). Organization and Nation: The Aston Programme IV. Farnborough: Gower.

WESTERN EUROPE

79

Hickson, David J., Butler, Richard J., Cray, David, Mallory, Geoffrey R. and Wilson, David C. (1982). ‘Decisional differences in decision-making: subject and process’. (forthcoming). Inkson, J.H. K., Schwitter, J.P., Pheysey, D.C. and Hickson, D.J. (1970). ‘A comparison of organizational structure and managerial roles: Ohio, U.S.A. and Midlands, England’. Journal of Management Studies, 7, 3, 347–363. Jamieson, Ian (1980a). ‘Capitalism and culture: a comparative analysis of British and American manufacturing organizations’. Sociology, 14, 2, 217–246. Jamieson, Ian (1980b). Capitalism and Culture: A Comparative Analysis of British and American Manufacturing Organizations. Farnborough: Gower. Kelley, Lane and Worthley, Reginald (1981). ‘The role of culture in comparative management: a cross-cultural perspective’. Academy of Management journal, 24, 1, 164–73. Kidd, John B. and Teramoto, Yoshiya (1981). ‘Japanese production subsidiaries in the United Kingdom: a study of managerial decision-making’. Working Paper, No. 203, University of Aston Management Centre. McMillan, C.J., Hickson, D.J., Hinings, C.R. and Schneck, R.E. (1973). ‘The structure of work organizations across societies’. Journal of Academy of Management, 16, 4, 555–69. Negandhi, Anant R. (1979). ‘Convergence in organizational practices: an empirical study of industrial enterprises in developing countries’. In Lammers, C.J. and Hickson, D.J. (Eds.), Organization Alike and Unlike, London: Routledge and Kegan Paul . Pugh, Derek S. and Hickson, David J. (1976). Organizational Structure in its Context: The Aston Programme I. Farnborough and New York: Saxon House and D.C. Heath. Richardson, S.A. (1956). ‘Organizational contrasts in British and American ships’. Administrative Science Quarterly, 1, 3, 189–207. Roberts, Karlene (1970). ‘On looking at an elephant: an evaluation of cross-cultural research related to organizations’. Psychological Bulletin, 74, 5, 327–50. Tannenbaum, Arnold S. (1968). Control in Organizations. New York: McGraw-Hill. Wilson, David C. (1982). ‘Electricity and resistance: a case study of innovation and polities‘. Organization Studies, 3, 2.

23 The Japanisation of British industry? S. Ackroyd, G.Burrell, M.Hughes and A.Whitaker

This article seeks to clarify the meaning of ‘Japanisation’ in the British economic context, and distinguishes at least three variants: direct, mediated and permeated or full. It is argued that a more satisfactory analysis needs to take account of the interrelationships between economic structures, economic systems, organisational units and employment practices. The primary aim of this paper is to clarify the meanings that have been and can be attributed to the idea of Japanisation in the British economic context. We shall argue that the notion of Japanisation is problematic, and, that to talk meaningfully about any putative process of Japanisation, requires a large number of questions to be considered first. One key problem is that present understanding of Japanisation is based on a ‘received model’ of Japanese economic and organisational performance, and it is clearly important briefly to consider some of the assumptions underpinning this. More generally, there is a need to recognise that what Japanisation might be, and whether it is occurring, raises many questions of comparative analysis that are at present unresolved. Although we do not conclude that the idea of Japanisation is worthless or devoid of empirical referents, we suggest that to arrive at any valid conclusions about it requires some preliminary analytical tasks. Central to our thinking is the need to analyse the British and Japanese socio-economic systems in order to establish salient points of comparison. The basis of our thinking and discussion in this paper is an analysis of economic systems which allows us to recognise four different levels of analysis. Firstly, there are fundamental differences of economic structure. Secondly, these will be related to—and will profoundly affect—the way that economic systems function. Thirdly, the distinctive shape of economic systems will be related to the organisational forms which make up the economic systems. Finally, at the lowest level of generality, there is employment and production policies and practice, which can only be understood in the context of differences in the form of economic units. Limitations of space prevent us from fully developing some of the more theoretical aspects of our analysis of economic systems and their relations to organisation forms and employment practices, though this is discussed more adequately elsewhere [1]. Even on the basis of fairly perfunctory consideration, however, certain conclusions seem clear in general outline. Once considered in terms of the comparative analysis of socio-economic systems it is immediately obvious that, in existing discussions of Japanisation, there is over-emphasis on the business enterprise or organisational level of analysis and the policies of

Source: Industrial Relations Journal (Spring 1988), 19(1): 11–23.

THE JAPANISATION OF BRITISH INDUSTRY?

81

managements or practice level. These are, in fact, the typical foci of academic analysis of Japanisation. Furthermore, it is equally clear that both the character and the possible consequences of changes at the institutional level may well be misunderstood unless their provenance is adequately known. These points are exemplified in our differentiation and discussion of three meanings or types of Japanisation. These are: direct Japanisation, mediated Japanisation and permeated or full Japanisation. We argue that adequate analysis of these different ways in which the British economy may be taken to be influenced by the Japanese, depends upon considering the connections between different levels of analysis. Anticipating our conclusions a little, we suggest that direct Japanisation is less prevalent than is commonly assumed, that mediated Japanisation is misunderstood and probably not best described as Japanisation at all. Finally, we argue that the likelihood of full Japanisation is extremely remote indeed; and depends for any plausibility it may have on a number of analytical mistakes. The most obvious of these is taking as typical, aspects of organisational change that are in fact far from being so. It is also worth noting at this point that not only is the meaning attributable to the Japanisation part of our title problematic, the same is true of the notion of British industry. Recent and ongoing debates surrounding deindustrialisation [2], post-industrialism [3], the North-South Divide [4], the ‘British worker question [5], the role of small firms in industrial regeneration [6], the spatial organisation of employment and unemployment [7] and so on, all point to the lack of consensus amongst British analysts about the nature of their own nations economic situation. And here again is a further problem. Why should the nation-state be the unit of analysis? As a socio-political conceptualisation it is a relatively recent addition to many peoples understanding of their own place in economic life and it is often a contested one. Some suggest that its saliency, in a world economy in which exchanges between multinational corporations dominate so-called ‘international’ trade, is already declining. Thus how useful, for example, is it to talk of British industry? Do we mean companies operating in Britain or is the implication that only British owned companies should be examined or is it British owned companies operating anywhere in the world that should be our focus of attention? Such questions are not idle sophistry for they have a considerable impact upon the type of analyses we might undertake and will almost certainly affect our view of Japanisation. For the time being we will utilise these notions of ‘Britain’ and of ‘Japan’ but hopefully in ways which are ever mindful of their problematic status as well as of their shorthand appeal. Why then has so much interest been generated by the comparison of our nation state with that of Japan? The ending of the post Second World War economic boom and the onset of recession intensified the concern of politicians, managers and others with the relatively poor performance of the British economy and the productivity levels of British industry [8]. As many companies struggled to survive in an increasingly competitive international environment attention in this country and elsewhere came to be focussed on the socalled Japanese economic ‘miracle’ [9]. Moreover, if anything, interest in the ‘secret’ of Japan’s industrial success was further heightened by the relative ease with which Japanese companies appeared able to withstand the worst shocks of the world recession in the late 1970s and early 1980s [10]. The nature of Japanese management along with the characteristics of the employment and production practices found in Japanese companies have become the focus of scrutiny and investigation with a view to gleaning any lessons which can be learnt in order to emulate Japanese success [11]. It is furthermore a preoccupation which has intensified in Britain as Japanese companies have established operations here [12]. Interestingly, this kind of examination of other ‘economic miracles’ has many historical precedents. As recently as the 1960s Britain was being exhorted to emulate United States’ business schools as the key to renewed economic growth through better, more professional management training. Similarly, as Kassalow [ 13] points out, this present round of comparative scrutinisation of Japanese industrial relations is not new. In

82

WESTERN EUROPE

the past those of other countries including Germany, Sweden, the United States and of course Britain have served a similar function. This point is well taken, of course, but we would add that any meaningful comparison of this kind implies a clear and detailed understanding of both sides of the putative relationship. A COMPARISON OF JAPANESE AND BRITISH ECONOMIC SYSTEMS AND STRUCTURES ‘Japanisation’ as a notion clearly contains the implication that we have some sense, however small, of Japan as a spatio-temporal entity, of its people and its social structures, of their ideologies and their economy, of their geo-political views and their financial system. One cannot understand the absence or presence of the Japanisation of British industry by looking to Britain and its experience alone. One must also look to Japan. In this regard we would endorse Sayer’s contention that what is required is ‘a major theorised history of Japanese industry’ [14] and whilst we make no claims to provide this here, our own brief discussions below have been informed by consideration of work by Japanese authors and Western literature. As Yoshihara and Yoshino demonstrate, Japans modernisation is not a miracle [15]. It had a lengthy period of gestation with its roots in the transition from the semi-feudal society of the Tokugawa period to the more obviously capitalist industrialism which is conventionally dated as following the Meiji restoration. We have not the space here to describe this history in detail but a well-established chronology of events is now available as context for debate [16]. Put simply, the period up to 1911 was characterised by very active state involvement in industrial policy, the generation of export-led growth, the increasing usage of mechanised processes, phasing out the reliance upon manufactured imports and enhancing Japan’s technological base. Following the recession in the 1920s there was a period of economic concentration which involved banking and heavy industry, leading to the predominance of the so-called ‘sinko-Zaibatsus’, which continued until the end of the Pacific war [17]. Post-war economic recovery was based on the development of new industrial and trading conglomerates out of the Zaibatsus. These, sometimes referred to as Kigyoshudans, have some novel features. Banking groups are much more important and central than they once were, and seem to have taken over many of the directing and co-ordinating functions of the family holding companies at the core of the old Zaibatsus [18]. Be that as it may, these new conglomerates represent tendencies towards orchestration of activities between different organisations within the same group that have always been characteristic of Japanese infrastructure. Kigyoshudans were able to promote post-war economic development not only because the state sponsored their development but also the way that these groups themselves were organised, promoted close involvement of finance capital institutions with organisations engaged in manufacture. The institutional organisation of Japanese capitalism is indicative of a high level of co-ordination between banking, manufacturing and trading capital, which is far less integrated in other economic systems, most notably that of the UK. We may think of the Japanese economy as a model of integrated capitalism at the level of the structure of the economy and corporate capitalism at the institutional level. If the basis of Japanese economic recovery is the presence and activity of its business groupings there can be no doubt that such success has been underwritten and given additional impetus by the activity of the state [19]. The Japanese state has added a further layer of co-ordination and direction to a system that already has such properties in considerable measure. In particular that state has balanced the domestic orientation of Japanese firms with their global internationalisation, selectively reshaping the domestic economy through regulating of investment policies, providing incentives, and giving preferential support for new technologies and small business at home whilst overseeing foreign direct investment [20].

THE JAPANISATION OF BRITISH INDUSTRY?

83

Given such an unusual, many would say unique, conjuncture of economic forces operating within Japan, one is confronted by the crucial question of whether Britain shares anything in common with such a society. In our view, a meaningful answer to this question requires an examination of the nature of economic structures in Britain and Japan. The UK has traditionally adopted laissez-faire policies quite unlike the ‘dirigiste’ economic system of Japan, and they are thus almost diametrically opposed. There are numerous very large multinational corporations in the UK and many large firms with multidivisional internal organisation. Research has also shown that there are many informal linkages between large business, so that it has been possible to identify what Scott and Griff have called ‘spheres of influence’, by which is meant loosely associated groupings amongst the major companies [21]. But there is nothing that is remotely similar to the Zaibatsus and Kigyoshudan. It is possible to argue that the emergence of holding companies such as the Hanson Trust or F.H.Tomkins, may be the beginnings of developments which have some similarities to the early Zaibatsus. For example, such groups apparently can direct the utilisation of capital between different companies in the group; but there are many indications that such conglomerates are not functionally integrated, nor are their activities co-ordinated in the manner the Japanese groups were from the period of their first development. What all of these kinds of association between companies in the UK lack by comparison to the Japanese structures has been and is an integration and cooperation. One of the key differences between the UK and Japan at the organisational level is the lack of integration between banking and other financial institutions and those of manufacturing firms. Finance capital is, of course, highly developed in the UK, but it is not orientated towards the needs and concerns of manufacturing industry. British banks do not provide the long-term, low interest loans that are available from Japanese banks. Nor is the scale of their funding of industry impressive by international standards. It has been estimated, for example, that some forty four per cent of capital for industrial investment in Japan is drawn from such sources, whilst the comparable figure for the UK is just six per cent [22]. In addition the stock market is a great deal more important as a source of finance for firms in the UK, which forces them to compete for funds in some of the most competitive capital markets in the world, a fact that contributes to the short-term profit horizon that is characteristic of the outlook of British firms. Finance capital in the UK clearly prefers the higher short-term returns on investment achieved overseas and continues to have low involvement with domestic industry. This lack of co-operation is based on the financial and political desire for short-term success which, as Cox argues, undermines long-term strategy [23]. Of course the UK has not been without state intervention. But policy has been guided by the desire to manage demand rather than directing the supply of credit to industry or orchestrating industrial development. The prevailing political ideology in the UK favours minimal regulation rather than direction, and shows a benign neglect of the effects of inward foreign investment. However, the policies of the state arguably do relate to the dominant interests in the British economy. Such writers as Longstreth and, more recently, Ingham have drawn attention to the way that particular interests in the City, primarily those associated with the financing and servicing of world trade, have, through their influence on the Treasury and in other ways, fixed the priorities of state policy with regard to the economy [24]. At the level of the structure of the economy, British capital is highly fragmented. Banking and finance capital more generally, is orientated towards the world economy. This orientation is not towards the provision of manufactured goods for the world market, but in the role of the provider of finance and financial services for world trade. Recognition of the dominance of these interests in the British economy has led some recent writers to describe it as a ‘makler’ or ‘middleman’ economy [25]. Manufacturing industry is consequently undersupplied by banking capital, and highly reliant on stockmarket equity and ploughed-back profit. The institutional organisation of British capitalism is indicative of a low level of

84

WESTERN EUROPE

integration between banking, industrial and trading capital. To adapt a concept advanced by Longstreth, one may think of the British economy as fractured into different, and partly opposed, interests at the level of basic structure, and lacking in institutional integration as a result [26]. Having briefly discussed some important points of comparison between Japanese and British economic systems and structures, we now turn to the clarification of the meaning of Japanisation in the British economic context. We have argued that the British and the Japanese economies are set up differently in respect of the articulation between finance, industrial and commercial capital, and that these dissimilarities can in turn be related to differences in specialisation in respect of the world economy. It is by reference to these differences of structure that the explanation of any differences in the policy and performance of the economic units of the respective economies must ultimately be sought. Perhaps, more importantly, the structural features we have identified set limits on the possible responses of British organisations to the challenge of Japan. Because of the structural peculiarities of the British economy, severe limits are set upon the extent to which key features of Japanese organisation and practice can be emulated. More basically, the appropriate way to see Japanisation is not in terms of attempts to copy the Japanese, but in terms of the effectiveness with which the British economy can defend itself from the challenges of Japanese capital. `JAPANISATION' Clearly the concept has been used as an umbrella category, under which a variety of developments have sheltered, and clarification is required. However, before this is attempted several caveats need to be borne in mind. Perhaps the most important is to reiterate that what is often eulogised as Japanese experience and held up as an example to follow [27] is, in fact, a deceived’ model [28] which may offer a misleading view of reality. Kamata [29], for example, in his account of life on the Toyota production line provides a convincing argument which exposes many of the ‘myths’ of Japanese industrial society. Others also reinforce the need for greater circumspection in assessment [30]. Furthermore, it has been observed by Thurley that there are different accounts and definitions of what is meant by ‘Japanese Management’ and examination of the evidence raises some ‘awkward questions’. Commenting that American consultants have filtered much of the debate about Japanese management in order to criticise American practice he offers the telling remark that ‘there is a considerable gap between the ideological level at which so much of the debate has been carried out and the realities of institutional practice and human behaviour where these decisions are taken for largely pragmatic reasons’ [31]. This gap is particularly evident when one examines the practice of Japanese management in subsidiaries in this and other countries. Here the evidence reveals, for example, that the range of employment practices regarded as typical of large companies in Japan are not utilised to the extent one might expect, and there is a readiness to adapt to local labour and product market practices [32]. That this has occurred without any lessening of the high levels of productivity and product quality associated with Japanese manufacturing organisations has inevitably raised questions regarding the centrality of such practices for their success. One consequence has been that greater attention is now paid to the detailed organisation and monitoring of production systems found within Japanese companies and, with it, increasing interest in the prospects for transferring (or borrowing) certain elements of Japanese practice for use in British-based companies [33]. THREE MEANINGS OF JAPANISATION Three possible meanings of the term ‘Japanisation’ can be distinguished each very different in its implications for British industry. Firstly, there is the penetration of the British economy and industry by

THE JAPANISATION OF BRITISH INDUSTRY?

85

Japanese firms. We may call this ‘direct’ Japanisation. The chief consequences of this is that industrial administration and economic behaviour will be influenced directly by the implantation of Japanese economic units into the economy, and indirectly in that these firms will have to deal with other firms and groups. Secondly, there is more or less deliberate or overt copying of Japanese policies and practices by British firms and organisations. Here any effects will be mediated by the orientation of British management and therefore less straightforward in their impact. We refer to this as ‘mediated Japanisation’. There are actually at least two variants of this: on the one hand, there are attempts to incorporate the best of Japanese practice and to integrate the new with the old in appropriate ways; on the other hand, there is the practice of using an appeal to Japanese efficiency as a way of legitimating the introduction of indigenous changes that are seen as necessary or desirable. It can be argued that the extent of the influence of Japan on British industry is likely to be rather attenuated in all these cases. Finally, there is the possibility that the British economy is itself actually reproducing Japanese forms of economic structure—as well as other, less central aspects of business organisation, such as production procedures and employment relations. We may call this ‘permeated or full Japanisation’, and suggest that the effect on British institutions might be extensive were this to occur on any scale. We intend to consider each of the variants of Japanisation in turn, bearing in mind the distinctions between economic structures, systems, units and employment practices which we outlined in the introduction. Direct Japanisation By this we mean the penetration of the British economy and industry by Japanese firms. As Table 1 makes clear direct investment by Japanese multinationals in this country is growing and seems likely to continue to do so. At the same time in absolute terms it remains small. Clearly, at present, penetration is still in its infancy. One authority, investigating the impact of Japanese manufacturing affiliates, calculated that at the end of March 1984 the UK accounted for only some 4% of the cumulative overseas investment of Japanese manufacturing companies. Whilst this is more than any other country in Europe it falls well short of the USA with 27%. The same writer further calculates that by 1981 sales of Japanese affiliates were only 0.4% of all foreign-owned subsidiaries in the UK and 0.08% of all manufacturing firms. Thus notwithstanding the fact that in particular sectors of manufacturing the Japanese presence is considerable, by the early 1980’s participation in UK manufacturing was ‘minute’ [34]. Moreover, Japanese subsidiaries are not major employers of UK labour. (See the figures cited by Morris p. 31 ff in this issue [sic].) The largest is S.P. Tyres which took over Dunlops tyre business and employs approximately 2,600 people [35]. The chief consequences of this form of Japanisation are likely to be felt directly in the form of an intensification of competitive pressures on British companies. This in turn may act as a stimulus to change their own organisational and economic behaviour in order to retain market share and ensure viability. Whether the long-term impact is harmful or beneficial to British industry is open to debate. Certainly one recent research investigation concluded that ‘the presence of Japanese manufacturing affiliates has been generally beneficial to both market Table 1 Inward direct investment by foreign multinationals Book value of net assets by country at end of 1974–84 (The figures up to and including 1981 exclude oil, banking and insurance companies) USA

1974

1978

1981

1984

3 666

5 468

9 559

19 691

86

WESTERN EUROPE

1974

1978

1981

1984

Netherlands 337 615 738 7 392 Switzerland 502 789 1 225 1 833 France 186 493 575 1 782 Canada 404 638 892 1 012 Japan −18 −24 324 659 Source: ‘Foreign multinationals in Britain’, Labour Research Department Fact Service, 15 July 1987, p. 115.

structure and the performance of UK competitors’ [36]. Arguably the arrival of Nissan in the North East has done just this [37], although it should be recognised that the four major car manufacturers in Britain were acutely aware of the Japanese competitive threat long before Nissan made its decision to establish its plant near Sunderland [38]. It should also be acknowledged that the presence of Japanese affiliates in this country will have an impact on those suppliers with whom they deal. Again this is likely to take the form of pressures to achieve and maintain particular standards of quality control, and to satisfy expectations with regard to price and delivery of goods [39]. If ‘direct Japanisation’ is to be the researchers’ analytical focus of attention then the evidence suggests that this is not at present of great significance in contemporary Britain. Indeed, there are perhaps more grounds for speaking of the Direct ‘Dutchification’ of British Industry—a phenomenon which has attracted little attention. However, the ‘Big Bang’ and Japanese penetration of capital markets may be of some relevance to direct Japanisation in the future. The City of London is still the worlds largest financial centre and the Big Bang, together with the present Governments removal of exchange and currency controls, has attracted a considerable number of foreign financial institutions. Now, foreign commercial banks, stock brokers and merchant banks have formed a significant presence in London by acquisition, merger or investment in British financial institutions. The shock waves from the Big Bang are still being felt and have resulted in a concentration of activity into a smaller number of corporate constellations. One of Japans largest securities houses, Nomura, a combined stockbrokerage and merchant bank, has recently established operations in London, dwarfing many indigenous and other foreign firms. This is a very direct form of penetration by Japanese capital and could be considered, like other forms of FDI, complementary to Japans export activity and evidence of an increasing internationalisation of the Japanese capital market. However, it is most unlikely that the British capital market will become more like Japans as a result of this presence. Nomura, and perhaps other Japanese securities houses of the future, are ‘here’ to gain advantage from the structures which prevail in London, not to make them like Tokyo’s. Japan’s close control over the relationships between finance, industry and the State in terms of credit supply has created a ‘push’ for liberalisation at home and effected a ‘pull’ from Western capital markets for Japanese investments. It is this which firms like Nomura are responding to by moving into each of the major Western financial centres, rather than attempting to reproduce Japanese financial systems abroad. If anything, Japanese firms are becoming more like ‘us’ in this respect, by joining in the Big Bang and competing within the UK financial system. It would be quite remarkable if Japanese securities houses were able to have any great impact upon the structure of capital markets in the West. No doubt they will become increasingly important participants, and the internationalisation of Japans financial institutions are set to match their manufacturing sector. Moreover, it is quite possible that Japanese banks in the UK may foster closer links with industry and provision of longterm credit, thereby introducing in part some aspects of Japanese financial practice. Clearly, it is far too

THE JAPANISATION OF BRITISH INDUSTRY?

87

early to tell whether or not these practices and the penetration of capital markets will be as significant as manufacturing investments abroad, since they are both relatively small in the UK. Nevertheless, it is relevant to the notion of ‘direct Japanisation’ of the UK economy and could be considered as a ‘third wave’ of penetration following exports and manufacturing subsidiaries. `Mediated' Japanisation I The second form of Japanisation we would seek to identify here are those situations where British firms have engaged in attempts to borrow or copy Japanese policies and practices. In our view such initiatives, and hence any consequences, are likely to be mediated by the orientation of British management and therefore less straightforward in their effects. It is this form of Japanisation which appears to be most common to date and at least two variants of it can be discerned. On the one hand there have been those companies who, having recognised the need for change, have sought to incorporate what they perceive as the best of Japanese practice and to integrate the new with the old in appropriate ways, and in a manner which produces the minimum of conflict and disruption. Some have preferred to introduce selective changes as is evidenced in the spread of so-called ‘quality circles’ [40], and enhanced flexibility, both numerical and functional, amongst employees [41]. Others have opted for more comprehensive change encompassing both employment and working practices. One of the better known examples of the latter would be the change programme undertaken at Jaguar. Following its privatisation from British Leyland working parties of senior managers were established to investigate what could be learnt from Japanese industry in areas such as product timing, order scheduling, improved supplier quality assurance, ‘just-in-time’ management and employee involvement. Extensive changes were implemented. The recent commercial success of the company cannot be doubted, but how much of this can be regarded as the consequence of the adoption of Japanese methods is more difficult to ascertain. As has been observed, ‘it is a company…with a long tradition of skilled labour and involvement in the firm and the steps taken are to some extent following traditional policies with a new set of stimuli’ [42]. Another innovation which has received considerable recent publicity is that of the so called strike-free deals [43]. Some six key features are said to make up such agreements, although not all are necessarily present in each. These are single unionism, flexibility, enhanced employee participation, single status, pendulum arbitration and no-strike provisions. Although often seen as being of exclusively Japanese origin, this is not in fact the case. That this misinterpretation exists is largely due to Japanese subsidiaries being involved in the first of the recent spate of such agreements [44]. However, only some of these components accord with the practice of some companies in Japan; others (such as pendulum arbitration) have deep roots in longstanding industrial relations practices in this country and elsewhere [45]. Furthermore, certain key employment practices associated with home-based Japanese companies are conspicuous by their absence (for example ‘lifetime’ employment and payment by seniority). However, whilst such agreements are perhaps better viewed as providing British solutions to British industrial relations problems, they clearly resonate with Japanese employment practices in their emphasis on stability and consensus [46]. ‘What they hold out is the prospect of stable, consensual industrial relations, and so of stable company performance, allowing companies to concentrate on production, not on ad hoc solutions to keep it going’ [47]. It is in this that their attraction lies for British companies who have chosen to follow, albeit in a form which takes account of their own particular circumstances the kind of agreements concluded at Toshiba, Hitachi, Sanyo, Nissan, Komatsu and others. At present such agreements are few in number, and although one could argue that their significance more than compensates for this, it remains the case that most Japanese subsidiaries operating in Britain do not

88

WESTERN EUROPE

feature them. There are in addition indications that all may not be well, even in the ‘showpiece’ companies such as Nissan [48]. Similar reservations can be made concerning the origins and impact of experimentation by British companies with quality circles [49]. Estimates of the extent of these vary. A recent figure cited has 400–500 operating in the UK (compared to over 1 million in Japan) [50]. Likewise, the increased flexibility and changes in working practices which have undoubtedly occurred in the UK in the 1980s [51] probably owe more to the general intensified competitive pressures experienced by companies and the need for short-term cost savings than to more radical visions of the ‘flexible firm’ based upon the Japanese model [52]. In sum, we would contend that the evidence for mediated Japanisation of this kind is not at all strong, and that arguments suggesting that changes in employers’ practices are indicative of a trend towards a more ‘Japanised’ labour market in this country, leading to the emergence of ‘enterprise unionism’ are considerably overdrawn [53]. `Mediated Japanisation' II This variant can be discerned amongst those organisations who have sought to use appeals regarding the superior efficiency of Japanese companies and methods of working as a way of legitimating the introduction of indigenous changes that are viewed as necessary or desirable to safeguard their own long term viability. In this, of course, they have since 1979 been encouraged by a government which has pursued policies aimed at curbing the so-called abuses of union power, instilling a ‘new realism’ into the- work-force and reasserting managerial prerogatives [54]. Again the techniques utilised come in different forms; sometimes on a selective basis, on other occasions as a collection of individual techniques. Currently ‘just-in-time’ management is claimed to be attracting considerable attention and (potentially) to have a wide applicability [55] . It is regarded as a form of reorganisation owing much to ‘Japanese influences’ in many cases [56]. Others would see its spread as indicative of the ‘phenomenal growth’ of interest in quality management in the UK [57]. At one level the focus of attention and attraction has been the process of ‘management by detail’ said to characterise the Japanese approach to production. The main elements of this have been summarised as an ‘organised or orderly approach, an emphasis on detail, an over-riding priority attached to quality, and a punctilious sense of discipline’ [58]. At another level, a significant objective has been to achieve a fundamental change of attitude amongst employees and to create positive commitment and involvement. The motor manufacturing industry in this country might be said to best exemplify this variant, all the more so given the argument that the ‘new approach to production organisation’ pioneered in Japan is the key factor behind what has been termed the ‘third transformation’ of the automobile industry [59]. At the same time it offers a salutary example of the difficulties of actually implementing such changes smoothly and successfully [60]. In their account of recent changes in the British car industry Marsden and his colleagues make the point that all four car manufacturing firms in the UK personalised the market threat to themselves as Japanese competition. Japanese competitors provided the ideas and productivity targets which had to be met if British industry was to survive [61]. Perhaps, more than most, Ford were explicit in this respect through their After Japan’ campaign. This essentially was ‘a process of giving publicity to the need to face up to the competition’ [62], but it encompassed a wide variety of changes from those characterising ‘management by detail’ to a softer, more consensual style of management and attempts to generate employee cooperation and involvement through the use of quality circles. In the event, as is known, the initiative foundered on the opposition of the main union involved, the TGWU, to the introduction of the latter [63]. However, it is as plausible to regard this as symptomatic of the deep-seated difficulties of attempting change within an essentially adversarial system of industrial relations. The comment of Turnbull

THE JAPANISATION OF BRITISH INDUSTRY?

89

on the problems which faced Lucas Electrical as they implemented a change programme, which included special use being made of the Japanese concept of ‘module production’, (the ‘Kanban’), is equally relevant here: ’the introduction of “high-trust” management techniques into an essentially “low-trust” environment, where management has traditionally attempted to reduce employee autonomy, discretion and influence through “Taylorist” techniques is unlikely to foster employee commitment towards managerial objectives’ [ 64]. Furthermore, the fact that such changes are often commenced in an atmosphere of crisis is hardly conducive to lasting success. It may well be that at bottom the ‘After Japan’ campaign was about reducing inventories and achieving ‘right first time production’ rather than a new form of work commitment, but the use of such changes as a means of legitimising managerial authority should also be recognised [65]. Arguably this remains the crucial issue facing British management. Acknowledging this places the process of ‘Japanisation’ in a somewhat different light. As Marsden and his colleagues conclude, within the British car industry there has been no major attempt to copy the system of labour relations characteristic of Japanese firms and, indeed, its feasibility and/or desirability is doubted. ‘Increasing the flexibility of workers has less to do with imitating Japan than with the need to improve productivity and maintain production levels with much reduced workforces and the effects of the changing technology’ [66]. Permeated or full Japanisation The idea that British economic structures and practices would come to emulate those of Japan was most clearly articulated by Ronald Dore in his early work on ‘reverse convergence’ [67]. After the publication of that book, however, such an idea was not a popular one, placing, as it did, Britain below the apex of an evolutionary scheme. Another, more fashionable view held sway. This convenient and self-serving Western view of Japans economic success has been that ‘it’s not what you do, it’s the way that you do it’. This view, tinged with culturalist analyses of ‘family-groupiness’, loyalty, obedience and consensus, propagates the myth that Japanese management practices are primarily responsible for the ‘miraculous’ post-Pacific War performance of Japan’s industries. As McMillan and others argue, these features are clearly part of the explanation [68]. However, the Japanese management ‘style’ has more to do with particular solutions to a range of adverse conditions facing industry (demographic, dependence on raw material and energy resource imports) and the capacity to modernise through highly selective absorption and adaptation of technology (often linked to ‘Late Development’ models, for example, Dore), than the conscious development of a universally applicable management model. More sophisticated appreciations of Japans economic performance are now available. The question is have these appreciations created a drive towards reproduction of Japanese economic structures within Britain? As we have already suggested, the economic system of Japan and the UK appear to be very different. As Franko [69] and Dunning [70] for example indicate, successful Japanese firms abroad are exploiting acts of omission in the host country’s industrial policy, investment strategies and domestic competitiveness, rather than gaining advantage from superior management practices. Clearly, ‘management’ is a focus of our attention in the ‘Japanisation’ of UK industry. However, it is a less important issue than the analysis of Japanese foreign direct investment strategy which is specifically targeted on sectors or industries offering Japanese firms a comparative cost and competitive advantage, complementary to Japan’s export-led growth, and which are regarded as sunset industries [71]. In which case, if anything, the UK is indeed likely to receive more inward investment from Japan, to form an off-shore rim of a ‘rust bowl’ and rapidly underdeveloping the UK’s manufacturing sector.

90

WESTERN EUROPE

This strategy is very different to the UK’s domestic and overseas investment activity. The Japanese financial system matches both their industry and state structure for domestic economic growth; and cashrich (highly liquid) Japanese firms adopt multinational strategies when they are losing competitive advantage at home, but can exploit it abroad. Thus, it can be seen that Japans domestic economic strategies are developed to support sunrise industries and effectively ‘drive’ others to invest abroad. Therefore, the key element is not the quality of Japanese management. Managerialist interpretations of Japans spectacular growth miss the crucial part played by the Japanese financial system [72] which operates long-term credit and state directed investment under a dirigiste system, in contrast to the UK (and USA) system of short-term lending and long-term deposits under an increasingly laissez-faire system. Thus the Japanese state effectively guarantees industry’s long-term credit facilities for R and D and new ‘sunrise’ industries, on a selective basis. Whereas UK banking practices have traditionally played safe in times of rapid technological change or periods of instability, preferring safer overseas investments which are now characteristic of the present UK Government’s removal of exchange controls and the subsequent flood of outward UK investments. But whilst the economic systems, corporate strategies and employment practices do not appear to be convergent to anything like the extent ‘Japanisation’ would suggest is there any evidence to suggest permeated Japanisation of economic structures in Britain? Are industrial capital and financial capital rearranging themselves into new constellations of interest remotely resembling the Zaibatsu of old? Has the growth and success of acquisitive conglomerates such as BTR and Hanson Trust set a trend in Britain towards significantly different corporate structures and strategies in direct reproduction of Japanese experience? Has the success of MITI driven the British policy making bodies to consider new roles for the DTI? Will the Big Bang and the arrival of Japanese capital in its financial rather than industrial guise influence the British financial institutions and enforce more long term credit availability? The evidence for permeated Japanisation is very slight. If direct Japanisation and the mediated Japanisations were more pronounced then the pressures upon Britain’s economic system and its structures would be greater and the impetus to develop permeated Japanisations might reach a take-off point. As it is, the very low levels of direct and mediated Japanisation suggest that permeated Japanisation too will be unlikely to thrive in the peculiar conditions which pertain in the UK. Put simply, reverse convergence is a possibility but certainly not a probability. SOME CONCLUDING REMARKS Our paper should be seen as an attempt to apply a powerful corrective to the tendency to think of Japanisation purely in organisational or institutional terms. Of course, Japanisation cannot be empirically encountered other than in an institutional setting, that is, as changes in the actual behaviour of individuals in real organisations. At the same time, the meaning of the observed behaviour of British managers and workers as it relates to Japanese models is capable of rather different interpretations. We have argued strongly that it is inappropriate and dangerous to think of British behaviour in organisations as simply and effectively reshaping itself on a Japanese model. We made the point at the outset that what the British and the Japanese models are is not entirely clear. To this we would add the point that observed behaviour is best understood by reference to theory. In this case we suggest that the observed behaviour in British institutions is appropriately interpreted by reference to theoretically salient features of the economy of which they are part. Not to put too fine a point on the matter, British managers cannot adopt Japanese practices in that they are powerfully constrained in their behaviour because they are part of the British economy. This has its own distinctive institutional pattern and, we would contend, its own distinctive articulation of the forms of capital.

THE JAPANISATION OF BRITISH INDUSTRY?

91

Our view of the structure of capital and its effects on the working of the economic system, leads us to a particular thesis in respect of Japanisation of the British economy. Very baldly stated, our thesis is that what is termed Japanisation’ is primarily the response of British capital to the challenge of Japanese capital, and, as such, is rather badly named if not misunderstood. The logic of this response is systematic and defensive and is not to be equated with behaviour in institutional settings as such. To make this point more effectively it is perhaps worth drawing an interesting historical parallel. The Japanese are not visiting upon the British economy what they themselves most feared during the centuries of the Tokugawa Shogunate, and which dictated their policy of isolationism in that period; direct economic imperialism. But the British are reacting as if they are. The Japanese response to perceived threat, which intensified after the Meiji restoration, at which point direct penetration of the domestic Japanese economy by Western firms was supposedly achieved, involved the adaptation of their institutions to the challenge of the West. Few would want to argue that what the Japanese did was simply ‘Westernification’. In a similar way, what the British are doing today is not Japanisation in any simple sense, but attempting to adapt to changed economic conditions without relinquishing established bases of profit, power and influence. To this extent the direct penetration of the British economy by Japanese firms is commonly seen to have a significance well out of proportion to its actual scale. We do not, of course, mean to imply that the British economy will deal as effectively with the economic threat of the Japanese as the Japanese did themselves with the economic imperialism of the West. The longer term outcome of the processes involved are by no means clear. But we do wish to argue that the Japanisation of Britain is a set of processes, like that of the ‘Westernisation’ of Japan, which is most appropriately analysed in structural ways. Once this is done it is clear that the most important processes are not what Japanese firms are doing in this country, but what British firms themselves are doing and attributing to Japanese practice. REFERENCES 1. 2. 3. 4. 5. 6.

7. 8.

9.

10.

See Ackroyd, S., Burrell, G., Hughes, M. and Whitaker, A. ‘The “Japanisation” of British Industry: Towards a Comparative Analysis of Economic Structures’ forthcoming, 1988. See, for example, Blackaby, F. (Ed.) De-industrialisation, National Institute of Economic and Social Research and Heinemann, 1979. See Rose, M. Re-working the Work Ethic, Batsford, 1985. See, for example, Walker, A. and Walker C. (Eds) The Growing Divide, Child Poverty Action Group, 1987. See Nichols, T. The British Worker Question, Routledge and Kegan Paul, 1986. See Storey, D. ‘The economics of smaller businesses: some implications for regional economic development’ in Amin, A. and Goddard, J.B. (Eds), Technological Change, Industrial Restructuring and Regional Development, Allen and Unwin, 1986. See Massey, D.B. Spatial Divisions of Labour: Social Structures and the Geography of Production, Macmillan, 1984. See, for example, Gamble, A. Britain in Decline, Macmillan, 1981, and for a review of the main arguments, Coates, D. and Hillard, J. (Eds) The Economic Decline of Modern Britain, the Debate Between Left and Right, Wheatsheaf, 1986. For example, O.E.C.D. The Development of Industrial Relations Systems: Some Implications of Japanese Experience, O.E.C.D., 1977 and Pascale, R.T. and Athos, A.G. The Art of Japanese Management, Penguin, 1982. Anthony, D. ‘Japan’ in Cross, M. (Ed.) Managing Workforce Reduction, Croom Helm, 1985 pp. 91–129 and Dore, R.P., Flexible Rigidities: Industrial Policy and Structural Adjustment in the Japanese Economy 1970–80, Athlone Press, 1986.

92

11. 12.

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24.

25. 26. 27.

28. 29. 30. 31. 32. 33.

34

35. 36. 37.

WESTERN EUROPE

Ouchi, W. Theory Z, Addison-Wesley, 1981. For example, see White, M., and Trevor, M. Under Japanese Management, Heinemann, 1983, and Reitsperger, W.D. ‘Japanese Management Coping with British Industrial Relations’, Journal of Management Studies, Vol. 23 (1), 1986. Kassalow, E.M. ‘Japan as an Industrial Relations Model’, The Journal of Industrial Relations, Vol. 25(2), 1983, pp. 201–219. Sayer, A. ‘New developments in manufacturing: the just-in-time system’, Capital and Class, 29, 1986, p. 70. Yoshihara, K. Japanese Economic Development, Oxford University Press, 1979; Yoshino, M. Japan’s Managerial System, MIT Press, 1968. Halliday, J. A Political History of Japanese Capitalism, Monthly Review Press, 1975. Cox, A. (Ed.) ‘The State, Finance and Industry Relationship in Comparative Perspective’ in State, Finance and Industry, Wheatsheaf, 1986. Scott, J. Capitalist Property and Financial Power. A Comparative Study of Britain, the United States and Japan, Wheatsheaf, 1986. See Scott, J., ibid, and Eccleston, B. ‘The State, Finance and Industry in Japan’, in Cox, A., op. cit. Johnson, C. MITI and the Japanese Economic Miracle, Stanford University Press, 1982. Scott, J. and Griff, C. Directors of Industry, Polity Press, 1985. Thompson, G. ‘Financial and Industrial Sectors in the United Kingdom Economy’, Economy and Society, Vol. 6, 1977. Cox, A. op. cit. Longstreth, F. ‘The City, Industry and the State’ in Crouch, C., State and Economy in Contemporary Capitalism, Croom Helm, 1979, pp. 157–190, and Ingham, G. Capitalism Divided: The City and Industry in British Social Development, Macmillan, 1984. Lash, S. and Urry, J. The End of Organised Capitalism, Polity Press, 1987. Longstreth, F. op. cit. See, for example, Hayes, R.H. ‘Why Japanese Factories Work’, Harvard Business Review, Vol. 59(4), 1981; Schonberger, R.J. Japanese Manufacturing Techniques: Nine Hidden Lessons in Simplicity, Free Press, 1982 and Ouchi, W. op. cit. Kassalow, E.M. op. cit. Kamata, S. Japan in the Passing Lane, Allen and Unwin, 1984. See the contributions in Shirai, T. (Ed.) Contemporary Industrial Relations in Japan, University of Wisconsin Press, 1984. Thurley, K.E. ‘Management in Japanese Business Corporations: Experience in Western Europe’, paper presented to the 9th International Symposium of Hosei University , 1984, p. 14. See the research findings reported in White, M. and Trevor, M. op. cit and Dunning, J.H. Japanese Participation in British Industry, Groom Helm, 1986. Takamiya, M. ‘Conclusions and Policy Implications’ in Takamiya, S. and Thurley, K.E. (Eds) Japan’s Emerging Multinational: An International Comparison of Policies and Practices, University of Tokyo Press, 1985, pp. 183–201, and White, M. and Trevor, M. op. cit. . Dunning, J.H. op. cit, pp. 15–33. He does, however, comment that 1984 was a ‘watershed year in which several very large new investments were announced; and which augur a major surge forward of the Japanese presence’ (p. 20). This is borne out to an extent by the findings of Morris, J., in his paper elsewhere in this symposium ‘The Who, Why and Where of Japanese Manufacturing Investment in the UK.’ Labour Research Department, ‘Multinationals Cut UK Employment’, Labour Research, Vol. 76(7), 1987, pp. 19–20. Dunning, J.H. op. cit, p. 149. For a more critical analysis of this development see Garrahan, P. ‘Nissan in the North East of England’, Capital and Class, 27 (winter), 1986 and the paper by Crowther, S. and Garrahan, P. in this symposium.

THE JAPANISATION OF BRITISH INDUSTRY?

38. 39.

40.

41. 42. 43. 44.

45. 46. 47. 48.

49. 50. 51.

52. 53. 54.

55. 56. 57. 58. 59. 60.

61. 62. 63.

93

See Marsden, D., Morris. T.Willman P. and Wood, S. The Car Industry; Labour Relations and Industrial Adjustment, Tavistock, 1985. Dunning, J.H. op. cit, pp. 110–115. Also see the discussion in Sako, M. ‘Buyer-Supplier Relations in Britain: A case of Japan isation?’ Paper presented at the Conference on the Japanisation of British Industry, UWIST, Cardiff, 17–18 September, 1987. Bradley, K. and Hill, S. ‘After Japan: The Quality Circle Transplant and Productive Efficiency’, British Journal of Industrial Relations, Vol. 21(3), 1983, and by the same authors: ‘Quality Circles and Managerial Interests’, Industrial Relations, Vol. 26(1), 1987. See also Robson, M. (Ed.) Quality Circles in Action, Gower, 1986. Atkinson, J. The Changing Corporation’ in Clutterbuck, D. (Ed.) New Patterns of Work, Gower, 1986 and N.E.D.O. Changing Working Patterns—How Companies Achieve Flexibility to Meet New Needs, N.E.D.O., 1986. Thurley, K.E. op. cit, p. 20. Bassett, P. Strike Free: New Industrial Relations in Britain, Macmillan, 1986, and Burrows, G. No-strike Agreements and Pendulum Arbitration, I.P.M., 1986. For example, ‘Toshiba Consumer Products (UK) Ltd—new start, new industrial relations’ , Industrial Relations Review and Report, 253, November, 1981, and Pegge, T. ‘Hitachi two years on’, Personnel Management, October, 1986. Singh, R. ‘Final Offer Arbitration in Theory and Practice’, Industrial Relations Journal, Vol. 17(4), 1986. Wickens, P. ‘Nissan: the thinking behind the union agreement’, Personnel Management, August, 1985. Bassett, P. op. cit, p. 90. Cornelius, A. ‘Sour Scenes at Nissan’, The Guardian, 8th May 1987, and P. Win tour, ‘Local Unionists Attack Nissan’, The Guardian, 19th June 1987. Interestingly the company apparently felt the need to issue a statement countering the criticisms and defending its employment practices. See the report in The Guardian 8th September 1984 (p. 4). Littler, C. ‘Taylorism, Fordism and Job Design’ in Knights, D., Willmott, H. and Collinson, D. Job Redesign: Critical Perspectives on the Labour Process, Gower, 1985. Labour Research Department, ‘Why get involved?’ Labour Research, Vol. 74(11), 1985, p. 281. See Millward, N. and Stevens, M. British Workplace Industrial Relations 1980–84. The D.EJE.S.R.C./P.S.I./ A.C.A.S. surveys, Gower, 1986 and its companion volume: Daniel. W.W. Workplace Industrial Relations and Technical Change, Frances Pinter, 1987. Towers, B. ‘Managing Labour Flexibility’, Industrial Relations Journal, Vol. 18(2), 1987. Brown, W., ‘Britain’s Unions: new pressures and shifting loyalties’, Personnel Management, October, 1983. For discussion of the industrial relations implications of ‘Thatcherism’ see Soskice, D. ‘Industrial Relations and the British Economy, 1979–83’, Industrial Relations, Vol. 23(3), Fall, 1984, and Crouch, C. ‘ZConservative Industrial Relations Policy: Towards Labour Exclusion’ in Jacobi, O., Jessop. B., Kastendiek. H. and Regini, M. (Eds) Economic Crisis Trade Unions and the State, Croom Helm, 1986. Tailby, S. and Turnbull, P. ‘Learning to Manage Just-in-time’, Personnel Management , January, 1987. Sayer, A., op. cit, p. 62. Hodgson, A. ‘Deming’s never-ending road to quality’, Personnel Management, July, 1987. White, M. and Trevor, M. op. cit, p. 128. Altshuler, A., Anderson, M., Jones, D., Roos, D. and Womack, J. The Future of the Automobile: The Report of MITs International Automobile Programme, Allen and Unwin, 1984, pp. 29–34. This is perhaps borne out by the dispute at General Motors Bedford Van works in Luton. An agreement which aimed to radically change working practices was bludgeoned through, but only after threats to close the plant. The model imitated appears to be that of the Nissan plant in the North East. See the report by P. Wintour in The Guardian 2nd July, 1987. Marsden, D. et al, op. cit, p. 115. Ibid, p. 112. Littler, C. op. cit, p. 26.

94

64. 65. 66. 67. 68. 69. 70. 71. 72.

WESTERN EUROPE

Turnbull, P. ‘The Japanisation of British Industrial Relations at Lucas’, Industrial Relations Journal, Vol. 17(3), 1986, pp. 203–204. Marsden, D. et al. op. cit, p. 116. Ibid, p. 117. Dore, R. British Factory, Japanese Factory. The Origins of National Diversity in Industrial Relations, Allen and Unwin, 1973. McMillan, C. The Japanese Industrial System, De Gruyter, 1985. Also see Yoshino, M., op. cit, and Yoshihara, K. op. cit. Franko, L The Threat of Japanese Multinationals, Wiley, 1983. Dunning, J.H. op. cit. Kojina, K. Direct Foreign Investment, Croom Helm, 1978. Eccleston, B. op. cit.

24 Industrial reorganization in Europe: patterns of convergence and divergence in Germany, France and Britain C.Lane

INTRODUCTION The 1980s have been a time of economic turbulence, intensified competition and technological transformation in all advanced economies. One of the responses to the increased uncertainty and heightened risks has been a strategy, on the part of large firms, to externalize more production and design tasks, leading to what has been termed a new division of labour between firms. The study of the changing relationship between large buyer companies and the predominantly small and medium-sized supplier enterprises (SMEs) is approached in both an historical and a comparative manner. The paper outlines the historical development of industrial structure and organization in Germany, Britain and France and examines the impact of historical formations on current transformations. It places great weight on the way in which firms have been embedded in, and shaped by, their social institutional and political environment. Particular attention is given to the different ways in which firms have been mobilizing the resources and services they need. The interaction of industrial organization with such local or national environments is characterized, in the terms of Herrigel (1989), as an ‘industrial order’. It is shown how the historically evolved industrial orders have influenced the technological and organizational competences of both large and SMEs and how this, in turn, has shaped the relationship between the two types of firm. Variations in industrial order within a society between regions/industries are acknowledged, but such diversity is not seen as precluding the elaboration of national patterns. It is argued that, due to fundamental differences in industrial order between Germany, France and Britain, divergence in current national patterns of industrial re-organization has remained more pronounced than any convergence, following from the experience of common exposure to economic and political (from the EEC) pressures. A common experience of the high incidence and fast pace of industrial restructuring should not divert attention from the high degree of continuity and even conservatism within this seemingly radical transformation. The subcontracting relationship has been theorized as one of networks and, contrastingly, as a relationship, in which large capital ruthlessly exploits small capital. Both of these formulations will be rejected in this paper. Instead, it will be argued that there is a continuum of relationships between the poles of true complementarity and complete dependence, and position on that continuum is seen to be influenced by industrial order. The degree of complementarity/ dependency varies between societies. The differential outcome of such control relationships in terms of small-firm internal reorganization and even long-term

Source: Work, Employment & Soceity (December 1991), 5(4): 515–39.

96

WESTERN EUROPE

economic viability has serious repercussions for the shape of industrial structure and its internal balance between large and small firms in the 1990s. Cross-national comparisons of categories of firms based on size are plagued by definitional problems and by difficulties of obtaining comparable data sets. The solution adopted in this paper is to take over the definitions used by the OECD.1 This by no means solves all the problems, and comparisons undertaken in the following can therefore only indicate broad trends rather than offer well-substantiated detailed analyses. In addition to size, small firms are also distinguished by more qualitative characteristics, namely legal independence and owner management. The structure of manufacturing industry in terms of firm size (measured in terms of employment) has differed significantly between the three societies over time and, in recent decades, has experienced important changes within societies. Germany’s industrial structure has been characterized by a longstanding co-existence of the large- and small-firm sectors which has brought about a significant overlap in the patterns of industrial organization and culture between the two rather than the dualistic pattern characterizing many other societies. Despite a relatively high degree of concentration2 and vertical integration, Germany’s SME sector has shown remarkable stability over time and is still significant at the present time.3 By contrast, the French large-firm sector evolved very late—in the decade between 1966 and 1975—and was the result of a state-directed merger policy to create ‘national champions’, large enough to compete on international markets. But the weight of small enterprises remains considerable, with around 70% of those employed in the manufacturing sector still in firms with less than 50 employees, excluding the very small ones (Grosse and Lueger 1989:108). The late and state-directed growth of the large-firm sector has precluded the organic growth of ties between firms in different size categories and has resulted in the development of two separate economies, existing side by side. But the long predominance of the largely family-owned SME sector has meant that its social organization has influenced large enterprises well into the post-1945 period (Trebilcock 1981:189). Even today the social and political significance of the SME sector is greater than in the other two societies. In France, too, the small-firm sector experienced a significant revival in the 1970s and 1980s. The British industrial structure has been the most polarized of the three, with a small and relatively weak SME sector facing a highly concentrated corporate sector. The large-firm sector in Britain has grown predominantly through mergers and takeovers and is characterized by a low degree of vertical integration. Although the corporate giants evolved much later than in Germany– only in the 1930s–SMEs have been less able to withstand their impact and have experienced a steady decline which has been halted only in the 1970s. Since then Britain has experienced one of the most significant shifts to smaller units among advanced societies (Sengenberger and Loveman 1988:26). There has been little interpenetration of the two size categories of firms in either cultural or organizational terms. THEORETICAL CONSIDERATIONS The subcontracting relationship Empirically, the subcontracting relationship shows a high degree of variation, depending on a number of factors: the size of buyer and supplier firms; the content of what is being subcontracted—R&D, design or merely manufacturing tasks. Here a distinction between suppliers of speciality (products, processes or functions) or capacity (extended work bench) is useful; the organization of the relationship—whether it involves exclusive or multiple ties; and on the mechanisms of control and co-ordination employed—by a computer system or by more conventional means. Any theoretical conceptualization of the subcontracting relationship employed has to be able to encompass and explain this wide degree of variation.

INDUSTRIAL REORGANIZATION IN EUROPE

97

Recent work on the new relationship between buyers and suppliers has conceived it in terms of a network which combines the advantages of market and hierarchy while reducing their transaction costs (Grabber 1988). This theoretical formulation assumes that there is complementarity between buyer and supplier firms and that, therefore, benefits accrue to both sides in similar measure. Clutterbuck (1985:10) goes even further and asserts that the large company: ‘is giving up any idea of controlling the small company. Much of the French literature on subcontracting, too, describes the new relationship between firms as a partnership. However, complementarity cannot be assumed. It is only one extreme point on a continuum of relationships which has dependency as its other pole. At that end, the subcontractor experiences the disadvantages of both market and hierarchy. The subcontracting relationship is better viewed as a control relationship, shaped by the possession of unequal resources, unless the supplier is as large or larger than the buyer. This avoids the extreme position which sees a high degree of dependency and even exploitation as the invariable outcome of the division of labour between firms, with the subcontractor being depicted as passing on this merciless exploitation by Wearing’ the labour force (Rainnie 1989). This paper will argue instead that inequality of capital ownership is mediated by the industrial order in which the firms are embedded and which, in certain circumstances, can compensate for asymmetry in capital terms. The notion of `industrial order' The concept of industrial order refers to: ‘patterns of productive organization, embedded in society’ (Herrigel 1989:186), i.e. to social and political institutions with an impact on production and its administration. Streeck (1989a:9) goes as far as calling it: ‘a production factor in the widest sense’. The industrial order consists of a number of historically evolved support systems (Sengenberger and Loveman 1988) or systems of ‘service provision’ (Sabel 1990) providing firms, particularly SMEs, with privileged access to the factors of production and/or markets or enabling them to represent their interests more effectively. Support systems can be classified according to whether services are provided by institutions of a state, intermediary (banks, universities) or communal type (e.g. craft associations, cooperative organizations or even trade associations) or, alternatively, whether they have a market character (e.g. a foster relationship with a large firm or use of consultancy). Industrial orders differ firstly, in the density of institutional structures developed and, secondly, according to the type or combination of types of support systems available. A third distinguishing characteristic is the size of firm which predominates in a given geographical area. Thus one can distinguish between orders and even whole societies which possess densely organized institutional structures and those which are institutionally impoverished (Streeck 1989a:5). In addition, one may counterpose a pattern, based on regionally co-ordinated networks of SMEs, with one based on large, vertically integrated and autarkous firms (Herrigel 1989). These two patterns are, however, insufficient to encompass the wide empirical range. A more adequate typology has been worked out by Storper and Harrison (1990) which also includes mixed patterns and, in addition to the criteria of firm size and geographical agglomeration or dispersion, introduces the dimension of governance structure or, in the terms of this paper, control relationship between firms within a network. Most of the recent literature has dwelt exclusively on the pattern, known as ‘industrial district’, publicized by the work of Piore and Sabel (1984). This pattern has been associated with exceptional economic vitality and has, therefore, fostered the assumption that it presents the only way to regional economic recovery. This fixation on the one pattern is, no doubt, also due to the current greater ideological acceptability—on both the right and the left of the political spectrum—of small firms in general and capitalist economic activity, based on co-operation between small, independent producers, in particular.

98

WESTERN EUROPE

However, the exclusive concentration on one type of industrial order is not only theoretically unwarranted but also closes off policy options before they have been sufficiently explored in empirical studies.

INDUSTRIAL CHANGE IN ITS SOCIAL AND POLITICAL CONTEXT: THE DEVELOPMENT OF INDUSTRIAL ORDERS The most decisive and pervasive influence on the development of national patterns of industrial organization has flowed from the way in which each country achieved the transition from guild-dominated artisan forms of production to industrial ones. Different notions in these societies about the role of the state and of the relationship between the individual and the state determined the scope which was given to intermediary institutions, such as guilds or craft organizations. Three main economic functions are associated with craft organizations, two of them positive and one negative in general economic effects: they ensure that skill, incorporated into standards of workmanship and products/services are rewarded; they restrict admission into their ranks to those trained to commonly agreed standards; and they operate restrictively by limiting the number of apprentices entering a given trade. They seek to protect those already trained from dilution or destruction of their skill. Hence the restrictive functions of craft organizations may serve to curtail output, increase prices and sometimes prevent technological innovation. Whereas in Germany only the two positive functions remained active, in Britain only the negative function survived. In France all three functions died out before industrialization got fully under way. Germany Germany’s more restrictive and conservative political climate during the period of industrialization, together with its economic and political fragmentation up to 1871, meant that the guild system survived much longer than in the other two societies. Even after its breakdown around the middle of the nineteenth century, some of its constituent elements maintained themselves and, by reversing some of the liberal legislation, eventually came to flourish again. Thus various pieces of legislation, from the amendment of the Industrial Code in 1881 to the establishment of the Major Certificate of Competence in 1935, reinstated craft producers (das Handwerk) as an occupational estate and served to preserve and strengthen both the craft mode of production and the institutional framework to sustain it. German political conservatisms corporatist element also contributed to a tradition of self-administration and industrial co-operation (Schriewer 1986:73; Doran 1984:131) which has outlasted its original political source. The main elements and orientations of this craft tradition are embodied in the complex system of representational and self-governing bodies, of which Chambers of Craft are the most significant (for a detailed description of the whole complex organizational structure and its varied functions see Streeck 1986). Chambers of Craft, as statutory bodies with compulsory membership for craft enterprises, are entrusted with the organization and monitoring of vocational education and training. Chambers of Industry and Commerce enjoy similar rights and obligations. A craft culture manifests itself in the strong emphasis on training at all levels of the firm and in the co-operative organization of a whole range of producer services. Chambers of Craft, financed by membership fees and by support from both local and federal political bodies, provide a wide range of business services in a very professional manner. In addition, the Chambers constitute a sectoral and trans-sectoral system of representation, as well as promoting co-operative relations between enterprises and setting up bodies to arbitrate and mediate between firms. The strong support enjoyed by Chambers and by non-statutory trade associations makes them effective inter-locutors with

INDUSTRIAL REORGANIZATION IN EUROPE

99

government, and also enables them to shape competitive and co-operative relations on a regional and sectoral basis. Instead of acting as a break on industrialization and periodic industrial restructuring and technological modernization, the pre-modern craft organizations have not only successfully accommodated themselves to modern structures and orientations but have been a vital ingredient in Germany’s post-war renaissance (Streeck 1986). In manufacturing the majority of firms (around 70%) are of the craft type (Doran 1984:2), and their share in the total has shown remarkable stability over time (Sengenberger and Loveman 1988:35).4 Their predominance in many industries has widely influenced the mode of production and the work ethos or culture prevalent in industry. Lastly, the mainly SMEs are predominantly family-owned and -managed and are associated with a clear social identity and ethos. The density of institutional networks and co-operative ties is particularly strong in such geographical regions as Baden-Wuerttemberg, the Rhineland west of the Ruhr, the Siegerland, the Allgau and parts of northern Germany (Herrigel 1989: 199) where craft enterprises are strongly represented. But even North Rhine-Westphalia, the Land which contains the industrial giants of the Ruhr area, still had a ratio of 7.3 Handwerk establishments per 1,000 of population (German Statistical Yearbook, quoted by Doran 1984:74). Craft practices and standards have penetrated large firms from around the end of World War I (Doran 1984:132) and appear in a weaker form also in more industrial sectors and in regions where large firms predominate. The capacity of large enterprises to co-operate and to engage in concerted action through the medium of trade associations is well known. It has been expressed through such varied activities as sectoral restructuring of crisis industries, participation in the formulation of governmental technology policy and the formation of united fronts against strikers’ demands (Simon 1976; Grant 1986). Of the many institutional ties of German industry, that with the state deserves particular emphasis. Historically, the state-industry relation has been very variable. At times, the state has been very interventionist —the protection of the craft sector being only one example, but in more recent decades it has mainly provided a supportive framework to an industry with a highly developed capacity to regulate itself. But the state has been consistently responsive to the needs of industry. Two contributions are particularly distinctive in the context of this three-sided comparison: the provision of an education system which perpetuates and reinforces the craft skills and ethos, and the establishment of legal frameworks which provide a stable business environment and exert a homogenizing influence on large and SMEs alike. This latter influence can be discerned in many areas, with training, pay determination and conflict regulation being the most notable examples. A further significant aspect of state involvement in industry is the existence of regional (Laender) governments with considerable budgetary power which are generally believed to be more supportive towards SMEs than is central government. The capacities of both SMEs and large firms are also shaped by relations with independent organizations, such as institutes of higher education/research and financial institutions. The relations between industry and the higher education sector are said to be much closer in Germany than in either France or Britain (van Tulder and Junne 1988). The early evolution of technical universities and their attainment (in 1899) of equal status with the traditional universities contributed to the more applied tradition in science and engineering and to the greater proximity of relations between academia and industry than has been the case in the other two societies. SMEs have developed particularly close ties with the Polytechnics (Fachhochschulen). In areas where SMEs dominate: ‘technical institutes and colleges form an integrated part of the industrial infrastructure’ (van Tulder and Junne 1989:171). The industry-financed research institutes, specific to many industries, are also a valuable resource, particularly for SMEs. The traditionally very close relations between German banks and industry and the relatively easy access to long-term funding are too well known to need further elaboration here. Although the big universal banks

100

WESTERN EUROPE

have mainly served large firms SMEs have also had much better access to funding than has been the case in Britain (Bannock 1981). This has been due partly to self-organization in co-operative banks and partly is accounted for by the greater decentralization of the banking system and the survival of many purely local banks. It is also notable that German SMEs have been more willing to borrow than their French counterparts. The distance between large and smaller firms and the relationship between them is also shaped by the system of industrial relations. Collective bargaining on an industry basis results in a relatively low differential in wage rates between firms of different size (Sengenberger and Loveman 1988:22) and the system of works councils, applying to all but the smallest firms (those with more than five employees), creates similar employment rights across different size categories. Both features prevent the development of dualism, as well as having the effect of weeding out the less competitive small firms. However, the laws on industrial representation are only enabling laws, and a large proportion of SMEs either avoid the setting up of works councils or limit their effective functioning. Weak or absent works councils, in turn, mean lack of union influence (Wassermann 1990:220f; Deiss 1989:84). Also SMEs gain advantages in labour costs by means other than wage differentials (Doran 1984:86; Deiss 1989:83). But despite all these provisos, German SMEs have higher labour costs than their British and French counterparts, resulting both from lower differentials between firms and from the employment of a higher proportion of skilled workers (Weimer 1990:89). Thus the German social-institutional framework has been conducive to the creation of a relatively strong and self-reliant sector of SMEs with favourable access to the factors of production. Both historical features of retarded political unification and present-day political federalism and ensuing economic decentralization mean that, in general, the density of infrastructural provision is more evenly developed in geographical terms than in either Britain or France. France In France, the handicraft sector in manufacturing was destroyed by political intervention in the wake of the French Revolution well before the onset of the Industrial Revolution (Trebilcock 1981:125; Sibalis 1988: 719). A combination of individualistic liberalism with etatist centralism resulted in legislation which outlawed all intermediary organizations, perceived as representing sectional interests (Schriewer 1986:75f). This legislation5 eliminated the craft guilds and made it impossible for both craftsmen and their employees to engage in any kind of collective organization of their interests. Although this legislation was repealed by 1884 it influenced French political culture at least until World War I (ibid: 76). Thus, when the Industrial Revolution got under way, from the mid-nineteenth century onwards, the craft sector, robbed of its institutional supports, did not withstand the onslaught. The apprenticeship system could not be preserved in manufacturing. Craft maintained itself mainly in small pockets of artistic or luxury production destined for international markets. When, at the beginning of the 20th century, the problem of skill training presented itself with renewed urgency the solution was sought in a state-organized system of VET— the etatist tradition coming again to the fore. Although Chambers of Commerce were founded in 1803 they became mainly general organs of consultation and assistance rather than corporate bodies representing the interests of the artisanat. Thus SMEs in France never became enmeshed in the tightly woven network of collective support and political representation organizations, familiar to their German counterparts, but depended on the more precarious basis of family and local neighbourhood ties. A suffusion of family values and ties with those of business has remained much more influential in French than in German or British society. Historically, French SMEs have been more inward-looking and

INDUSTRIAL REORGANIZATION IN EUROPE

101

less influenced by market imperatives. In the words of Trebilcock (1981:188), the family firms: ‘business activity was aimed not so much at profit as at the well-being, status and integrity of the dynasty and its assets’. But the family focus also proscribed competition at the expense of neighbours (Landes 1969:132) and thus created one precondition for the development of local networks. The pervasive influence of family values provides one explanation of the comparatively backward nature of the French SME sector, both in comparison with large enterprises (Bellon and Chevalier 1983:32; Magliulo 1983:23f) and with its German SME neighbours (Grosse and Lueger 1989:108). The relative backwardness of the French SME sector may offer an additional explanation of why apparently thriving industrial districts, as described by Piore and Sabel (1984) and Sabel and Zeitlin (1986) for the late 19th and the early 20th centuries, have not withstood the onslaught of technological change and/or of the evolvement of the large business sector. The density of SMEs and their relation to the poles structurants varies considerably according to industry and region between traditional industrial regions with a high density of SMEs and few large ones, such as the Alsace, and those which are structured by large firms, such as the Franche-Comté. It is debatable whether any of these regional/industrial complexes qualify for the term ‘industrial district’. In more general terms, institutions of co-operative self-organization appear to be less pervasive than in Germany. The Chambers, although very active in the regions, are not exclusive to a craft sector and lack important functions of mediation and arbitration between small producers. The split between the trade associations of the SMEs and the CNPF and the hostility of the former towards the latter have also weakened the institutional base for co-operation between smaller and larger enterprises. In comparison with Britain, however, both Chambers and trade associations are more able to act as focal points for SMEs in local industrial networks.6 The Chambers are able to impose a compulsory levy and provide a wide range of support services to local SMEs (Magliulo 1983: 43; Vickery 1986:42–3). As was indicated above, the state has exerted a massive and direct impact on the large-firm sector and has been a strong indirect influence in the SME sector. The close relations between state functionaries and managers of large firms has led to a strong concentration of headquarters in and around Paris and hence to an impoverishment of provincial networks as branch firms do not become very involved in the regions. Extensive state-directed restructuring has sometimes served to disrupt local networks between large and SMEs. State support for the small-firm sector has been provided spasmodically, in response to political pressure, but its effectiveness has been hampered by the highly fragmented industrial infrastructure (van Tulder and Junne 1988:172). Greater decentralization of state power under the Mitterrand governments has, however, improved the state’s ability to respond effectively to the demands of SMEs. The high degree of state control over the financial sector has further consolidated its influence over the large industrial groups, but SMEs have generally stayed aloof from financial institutions and hence out of the reach of the state (Syzman 1983). Relations between industry and the higher education sector in France are said to be distant, both in terms of industry influence over the supply of suitably qualified manpower (Oechslin 1987:653) and in terms of collaboration in the field of research. The French system is seen to be particularly deficient in the application of science to practical problems of production (Telesis 1986). According to van Tulder and Junne (1988:144), the social distance between academia and businessmen is the greatest among our three societies. The influence of the system of industrial relations on wage levels and employment rights is not as homogenizing across size categories as in Germany, nor are wages and conditions as highly variable as in Britain. The push towards uniformity, connected with centralized bargaining and the legal regulation of employment rights is less strong than in Germany. More small enterprises have been exempt from statutory requirements, and French labour has been less able to enforce the legal rights and industry-wide agreements

102

WESTERN EUROPE

than their German counterparts. This difference between Germany and France is clearly indicated by wage statistics, provided by Sengenberger and Loveman (1988:66).7 The income gap between large and SMEs gives the latter a cost advantage vis-à-vis large firms and is conducive to the development of dualism. The French industrial order is highly polarized between large and SMEs and the latter are in a considerably weaker position vis-à-vis the industrial giants than are their German neighbours. Their vulnerability lies both in weaker internal resources in the areas of skill and technological assets and in their lesser degree of embeddedness in an institutional framework, conducive to self-organization and cooperation. However, French SMEs are by no means institutionally isolated. They can call on family and neighbourhood networks, as well as on many intermediary organizations, oriented towards their needs. Much like their German neighbours, and in contrast to their British counterparts (Jones and Saren 1990), they possess a distinct social and political identity, and the weight of small owners as a political constituency still makes them a political force to be reckoned with. Britain Historically, the British SME sector appeared to be strong until the emergence of a significant large-firm sector in the 1930s. Since then, and until the early 1970s, it has exhibited a steady decline, making it the smallest and weakest among advanced industrial countries. In the last two decades there has occurred a considerable revival both of small enterprises and of a state-directed enterprise culture. The transition from the craft to the industrial mode of production occurred at a very early stage of British industrialization, and the guild system and its associated handicraft form of production were destroyed in the process. Merchant domination of manufacturing and the rapid spread of the putting-out system into the countryside bypassed and then destroyed guild controls and brought about the early subordination of manufacture to commercial interests (Landes 1969:43, 54; Fox 1985:8–9). The Tudor and early Stuart state bureaucracies, in the words of Fox (1985:12): ‘had neither the power nor the inclination to seek to rejuvenate the guilds’ and did nothing to protect them. The absence of institutional supports for the self organization of small producers interacted with the ideology of individualism and the early establishment of mass markets to weaken small and medium-sized producers vis-à-vis the larger merchant capitalists. Consequently the Industrial Revolution brought the economic collapse of the small independent craftsman as well as the loss of social status. Remaining craft fraternities were weakened by the harsh conflict which developed between smaller master craftsmen and journeymen, on the one side, and larger masters and merchants, on the other (Doran 1984:124). Journeymen societies were transformed into what became the craft unions. Although the craft ethos lived on in many small firms, particularly in the engineering industry, it lost its social support base and hence any centrality in British industrial and general culture. In contrast to France, family ownership of industrial enterprises experienced a much stronger decline in Britain, and, where it remained, did not lead to the same fusion of familial and business interests as in France, nor to the same strong involvement of owner managers as in German SMEs. According to Landes (1969:131) the British entrepreneur was more inclined to see an industrial venture: ‘as a means to an end, as a device to be rationally utilized for making money. As in France, local industrial complexes, possessing many of the characteristics of industrial districts, did persist into the 20th century (Sabel and Zeitlin 1985) but they did not survive the rise of large, mass production based firms from the 1930s onwards, or, alternatively, were hampered by unions showing themselves inflexible in the face of demands for technological innovation. A lasting legacy from this formative period of industrialization has four elements: a relatively underdeveloped sector of small, skill-intensive manufacturing firms; weak and fragmented producer

INDUSTRIAL REORGANIZATION IN EUROPE

103

organizations and a resulting absence of the collective provision and improvement of factors of production, as well as a lack of regulation of competition through the organization of specialization; a low emphasis on skill training and on the upholding of quality standards in products and processes; and a system of industrial relations, characterized by union restrictive practices in the areas of recruitment, training and work allocation and by an adversarial style. According to Doran (1984:5) in the early 1980s the craft sector was less than half the size (in employment terms) of the German one, and disparity was greatest in manufacturing industry. SMEs are unevenly distributed, with low representation in the North of Britain. Chambers of Commerce, which in other European societies are a vital intermediary institution, in Britain have no statutory powers, rely on voluntary membership and hence play a relatively marginal role in industry, particularly for smaller firms. Although both local authority-organized and market-based organizations, oriented particularly towards small firms, have grown in profusion during the 1970s and 1980s: ‘there still is no broadly based separate tier or organizations at sectoral level’ (Doran 1984:36). Instead there is: ‘confusion, duplication and competition (ibid) and often insufficient professionalization on the part of advisors. The craft heritage in unions, in contrast, survived much better and kept alive traditions and practices of medieval corporate control. Here it is significant that restrictive rather than training functions of the apprenticeship system were given strong emphasis (Fox 1985:63–4). This survival, impeding the flexible adaptation to economic and technological change, as well as increasing costs, has served to weaken rather than strengthen the SME sector. Although restrictive practices are now being abandoned in many firms they have indelibly shaped industrial organization. Skill training to a high level is given insufficient weight in firms of all size categories but training effort is particularly low in the smaller firms (Training in Britain, 1989:38). Despite a wide-spread realization of the necessity to improve skill training and periodic training offensives, the absence of a distinct social and political constituency in support of them has always led to their failure (Lane 1990). The state’s initial liberal laisser-faire stance and its piecemeal interventions in the post-war period have meant that SMEs, until the late 1970s, were completely neglected in industrial policy formation and in the distribution of state subsidies. Although policy is now explicitly oriented towards the strengthening of SMEs the fragmented nature of the small business sector makes the targeting of support measures difficult and renders effective support problematic. The latter has also been undermined by the relatively centralized nature of the political system and the uneven development of infrastructural provision resulting from it. The lack of a close relationship with both the financial and the education sector has further exacerbated the institutional isolation of SMEs and reduced their productive and technological competences, despite many improvements during the 1980s (Doran 1984:54). The nature of the system of collective bargaining and representation has ensured that inefficient SMEs can survive much longer in the British industrial relations context. Decentralized wage bargaining allows such firms to recoup costs by lowering wages, and the absence of any statutory representative bodies for labour and the lack of representation in many SMEs permits firms to impose inferior employment conditions with impunity, particularly during a time of high unemployment.8 It explains the development of dualism in such industries as clothing where increasingly strong competition has become centred on labour costs rather than skill. In sum, the British industrial order leaves SMEs relatively exposed and militates against the development of resources, strengthening them in relation with the highly concentrated large-firm sector. Institutional isolation, constituted by the virtual absence of viable communal support structures, the early erosion of

104

WESTERN EUROPE

familial support nerworks, coupled to a financial system encouraging mergers and take-overs, leaves SMEs ill prepared for the radical transformations of the 1990s. The preceding outline of the social and political institutional framework which shaped the development of enterprises in the three societies has documented a high degree of diversity in industrial order which is bound to have a strong impact on the division of labour between firms and on inter-European restructuring in the 1990s. The differential survival of the craft tradition was shown to have the most far-reaching effects on the SME sector. These may be summarised with the help of a three-fold typology of smaller firms: (i) firms of a broadly craft type, trading on their specialized expertise in product or process, employing a large proportion of skilled manual workers and making products of high quality and of low-to-medium technological complexity; (ii) firms of a broadly industrial type, producing either for market niches or functioning as extended work benches, employing a low proportion of skilled workers and concentrating on simple, standardized products of low technological complexity; (iii) ‘high-tech’ firms, concentrating on technologically complex products/ processes and employing a high proportion of university-trained staff. It is clear that Germany’s current economic strength lies in the predominance of type (i) firms whereas Britain’s weakness may, at least partly, be attributed to the weight of type (ii) firms. France occupies a more ambiguous, in-between, position where a strong state and local community networks have been able to partially compensate for the loss of the craft community. With regard to type (iii), small high-tech firms, the disparities between the three societies are less noteworthy, and Britain may even be in a lead position (AGF 1988). But the absence in Britain of a tradition of collective self-organization on a sectoral level and the low chance of transition from type (i) to type (iii) firms leaves less room for optimism in the longer term.9 The following section will examine how these differential strengths of SMEs influence the division of labour between firms and how the nature of the new subcontracting relationship may shape industrial structure and organization. THE NEW DIVISION OF LABOUR BETWEEN FIRMS The literature on the new division of labour between firms (NDLbF) in the 1980s suggests that the overall direction of change in that relationship is the same in all three societies. The content of the new relationship, however, and the consequences in terms of organizational transformation and sectoral strength differ in several ways between the three societies. The first part of this section will outline the common general developments whereas the second part will draw out the divergent consequences. Convergence in general trends The literature is divided on whether a notable increase in the externalization of production and productionrelated activities has occurred during the 1980s. While there are claims made in all three societies that a significant increase in this type of subcontracting has taken place (Shutt and Whittington 1984; IMS 1986; Enjeux 62, 1985:36, 58; Bonneau et al. 1989; Sabel et al. 1987:26; Semlinger 1989:95), other studies, particularly British ones, point out that such an increase has only occurred in a few industries (for a summary: Morris and Imrie 1991). In the absence of more general data, particularly on Germany,10 the magnitude and breadth of change must remain in doubt.

INDUSTRIAL REORGANIZATION IN EUROPE

105

There is, however, a more reliable data base on the shift in the quality of the subcontracting relationship and on the consequences of the latter for SMEs and industrial structure. It is true, though, that these data come from the study of only a few, albeit very important, industries: automotive, engineering, electronics, clothing and furniture, with a strong emphasis on the first (Morris and Imrie 1990; Hirst and Zeitlin 1989; Bonneau et al. 1989; Altmann and Sauer 1989). The transformation of the subcontracting relationship has been related to changing large-firm market strategies in the face of intensified competition and uncertainty, and one or more of the following may apply in the case of any particular firm/industry: the management of flexibility in product types and runs, dictated by demands for product diversity; shorter runs and more frequent changes in the length of runs; the lowering of costs, attained by the reduction of capital investment in inventory and specialized machinery, as well as by decreased costs for materials (reduction of scrap) and labour; the acquisition of technological know-how; and, lastly, the reduction of worker influence on management. This last influence, significantly, is mentioned only in the British literature. The qualitative change in the subcontracting relationship—either as model or as reality—has been summed up by the shorthand terms of ‘Japanization’ or partnership (van Tulder and Junne 1988:92–4; Rutherford et al. 1989; Enjeux 62, 1985). Both terms imply that buyers have become more demanding in their standards of quality, reliability, flexibility and technical capability. In return for compliance with these standards, the supplier firm may become a ‘specially favoured supplier’ and receive not only guaranteed orders but also financial and practical assistance with the introduction of new technology and training, as well as with activities in R&D and product design. A market relationship, it is suggested, has become one of long-term collaboration, based on mutual trust. The empirical evidence on all three countries confirms the more rigorous selection of suppliers and the wide-spread raising of standards by large firms. It is less equivocal on the benefits suppliers have gained from this exchange. The notion of ‘favoured supplier’, mainly current in the auto industry, entails extremely exacting demands and thus benefits only a select bunch of already sizeable firms, excluding most small firms. Many of the latter become displaced as direct suppliers and fall into a lower tier of the subcontracting hierarchy or cease trading altogether. The notion of ‘partnership’ may appropriately describe the NDLbF in a minority of cases, particularly where there is a rough correspondence in market power or technological capability, but it is not the rule. Closer organizational linkage between buyer and supplier firms, particularly as a consequence of JIT production, is seen to lead to a spatial reshuffling of supplier firms, with a ring of suppliers congregating in close geographical proximity to the larger buyer firm.11 Short and unstable batches are said to be secured in this localized way whereas large batches of standardized parts are sourced on international markets (Enjeux 62, 1985:25). JIT production and spatial agglomeration around powerful buyers are, however, mainly confined to the auto industry and are, even there, still at an early stage in all three societies although their extension seems likely. Spatial agglomeration is also promoted by the growing prominence of purchasing complete subassemblies and ‘whole system’ solutions (Pries et al. 1989). Thus the trend to an internationalization of purchasing by large firms may become counterbalanced by the establishment of local production systems or spatial agglomerations. Lastly, while it appears that the NDLbF benefits large firms more than SMEs it must not be assumed that it is always unproblematic for large firms and that SMEs cannot profit from this relationship. In some cases, the large firm does become dependent on the small specialist firm in the medium term (Grabber 1988:36f; Imrie and Morris 1989), and the latter can retaliate against earlier shifts in costs or risks at its expense. Externalization of production undermines large-firm employees’ security, including that of managers, and many of the latter connect externalization with a reduction of product quality and production flexibility (Juergens and Reuter 1989:135f). Lastly, the long-term stability and raising of general standards resulting

106

WESTERN EUROPE

from direct supplier status may lift the small firm into the more secure medium-sized category, although at the price of some loss of autonomy and flexibility. Divergence between societies in the NDLbF One crucial issue in the analysis of subcontracting is the degree of dependency of the SME and the scope for exploitation of its subordinate status by the large firm. Degree of dependency can be measured in terms of concentration of supplier sales on only a few firms, and it is further influenced by whether a supplier provides merely extra capacity or speciality. In Germany both buyers and suppliers have consciously avoided exclusive ties, and the extent of dependency is considered low by international standards (Sengenberger and Loveman 1988:45; Herrigel 1989:205). Coupled with the relatively high degree of skill and technological competency of SMEs and with the reduced scope for low-wage production, there has been both less opportunity and less incentive for exploitation of subcontractors than in the other two societies. In some industries, e.g. the automotive components industry, there is also a high degree of internationalization of production (Doleschal 1989:160) and thus a further reduction of dependency. The conflict potentially present in relationships of interdependency has also been more systematically regulated in Germany than in Britain and France. Not only have written contracts long been common in Germany, but mediation/ arbitration between supplier and buyer firms by industry trade associations has been widely practised. During the 1980s, trade associations have had to increase their involvement in this area as the NDLbF appears to have increased sources of disagreement and conflict (Semlinger 1989:105). Data on France show a higher level of dependency, a history of conflict and a different approach to the regulation of that conflict. Concerning the level of dependency, there is a varied picture. Some sources note a high level of dependency, i.e. a high proportion of production dedicated to a small number of buyers (Enjeux 62, 1985:7If; Vickery 1986:32), while others find such dependency only in some industries, such as mechanical and electrical engineering and metal working (chaudronnerie) (CEREQ 48, 1989:2). Dependency is also indicated by the fact that, in some key industrial sectors, a large proportion of firms are merely suppliers of extra capacity. In electrical engineering, automobiles and energy the proportions of capacity suppliers were 62.4%, 71.9% and 86.5% respectively, and in textile/clothing and aerospace/ shipbuilding the proportions were moderately high in the mid-1980s (Quellenec 1987:33). In the mechanical engineering and foundry industries more than three quarters of supplier firms were found to work from plans provided by buyers (Bonneau et al. 1989:94). Relations between firms have not been regulated by written contracts, and the conflict generated by them eventually called forth external regulation. Here it is notable that the state assumed a dominant role. Attempts to regulate the subcontracting relationship through law started in the 1970s (1973 and 1975) and resumed renewed urgency in the 1980s. In 1982, a special Commission Technique de la Soustraitance introduced ‘stability conventions’ which urged large firms to introduce predictability and stability into their relations with suppliers and to single out certain suppliers for privileged status (Enjeux 62, 1985:26f). In addition, a White Book provided ground rules for the new notion of partnership and listed ‘good practice’, already adopted by some firms. Publicly owned firms were expected to set an example and the notion of partnership, originating in official ideology, has more normative than descriptive force. In the British case, there is contradictory evidence on the degree of dependency. On the one hand, dependency, measured in terms of reliance on few buyers, has been relatively low (Sengenberger and Loveman 1988:44–5); on the other, dependency is still indicated by the relatively high proportion of suppliers who are mere providers of capacity. Also until recently, the subcontracting relationship has been

INDUSTRIAL REORGANIZATION IN EUROPE

107

very conflictual, particularly in the automotive industry, and neither internal nor external bodies of conflict regulation exist. Extended coverage of this dependency for the highly internationalized and atypical auto industry is provided by Morris and Imrie (1991) and by Turnbull (1989a&b). There are also short accounts from the foundry industry (Whitston 1989:24), the construction industry (Evans and Lewis 1989:62) and from textiles (Walsh 1989) which sketch out a scenario of enduring dependency and antagonism. More extended analyses of subcontracting for British Steel in Wales (Fevre 1987) and the clothing industry (Zeitlin and Totterdill 1989) also indicate a high degree of dependency. In the latter case, it is engendered by a few powerful retailers. The NDLbF in all three societies implies also the possibility of small-firm demotion in the subcontracting hierarchy and even extinction. Although pressures have been most intense for direct suppliers the latter have passed on some of the new demands to lower-tier contractors who are more ill-prepared to cope with them and share none of the privileges of the former. The resulting weeding-out process leads to some restructuring of industries, both within and across national boundaries. Analysts of the British automotive supplies industry (e.g. Turnbull 1989a: 290 express doubt about the long-term viability of some of Britain’s components manufacturers. Many firms are not equipped to meet the high demands now made by assemblers (Oliver and Wilkinson 1988:59; Rutherford et al. 1989:19f). Consequently many small suppliers are falling by the wayside or get demoted to a lower tier, leading to greater concentration and increased vertical dependence (Turnbull 1989b: 126, 135), as well as creating a widening gulf between different types of small firms (Imrie and Morris 1989:12). At the same time, there is a displacement of British by foreign suppliers. The number of UK-owned firms among the top 60 components firms has fallen from 43 in 1977 to 28 in 1989 (Rutherford et al. 1989:11). As a result, assemblers can no longer satisfy all their purchasing requirements from British suppliers, particularly where technologically sophisticated parts are concerned (Oliver and Wilkinson 1988:70; Turnbull 1989a: 29) but are now buying increasingly from foreign suppliers. Such processes of displacement have also been prevalent in the traditional industries of furniture and clothing. Thus Best (1989:196) speaks of the virtual collapse of the North London furniture industry between the 1960s and 1980s, due to imports from Italy and Germany. Zeitlin and Totterdill (1989: 167, 177) also note a partial shift to European suppliers in the clothing industry, particularly at the upper end of the market where design and quality count. The adverse long-term consequences of these developments for indigenous SM supplier firms are obvious and do not sit easily with official and even academic euphoria about Britain’s small-firm revival. Studies of suppliers in two German industries (furniture and automotive) also detect more rigorous selection procedures (Semlinger 1989:97; Doleschal 1989: 180) and predict similar trends towards concentration and hierarchization, although no supporting data are offered.12 There is, significantly, no suggestion that German SME suppliers are unable to satisfy assemblers’ demands for high quality and ontime delivery nor that they lacked skilled labour.13 Relegation of smaller firms to lower tiers is connected with insufficient capital resources to accomplish the computerization, required for JIT synchronization (Semlinger 1989:108). Domestic sourcing in the auto industry is high by international standards. In the late 1970s, around 70% of total supply purchases of German assemblers, including the foreign-owned ones, were being sourced domestically (Streeck 1989b: 120). The supplier firms for the German car assemblers are strongly regionally based (in Baden-Wuerttemberg and North Rhine-Westphalia), with BMW and Mercedes still sourcing mainly in Germany. VW has moved more to global sourcing but module assembly occurs close to its factory gates (Doleschal 1989:159). The German automotive supplies industry is considered advanced by European standards and displacement by firms from other European countries unlikely.

108

WESTERN EUROPE

In France, the reduction in the number of suppliers and the ensuing concentration process is well documented. Between 1976 and 1983 the weight of large suppliers (with >500 employees) increased by an average of 4% across a number of industries (Quellenec 1987:34).14 A lot of subcontracting is also done within industrial groups, rather than by independent SMEs (Gorgeu and Mathieu 1988). There is no information in the literature on displacement of French by foreign components suppliers. Given the relative weakness of the French mechanical engineering industry, such substitution seems likely. A last issue to be discussed is the claim that the NDLbF is leading to a fundamental organizational transformation within small firms which will narrow the existing gap between large and SMEs. This claim has two strands which point in opposite directions: (i) the NDL serves to diffuse knowledge, technological innovation, high quality standards and other ‘good practice’ from large to smaller firms and thus eliminates traditional small-firm weaknesses; (ii) the NDL undermines the essence and competitive advantage of SMEs, namely their craft methods and their flexibility. The literature on Britain and France, where the performance gap between large and SMEs has been relatively high, puts particular emphasis on claim (i), albeit with some reservations. In Germany, in contrast, where SMEs have had the advantage of the craft form of production, the literature is much more pessimistic and dwells on claim (ii). There is ample evidence, albeit only from the automotive components industry, that British surviving first-tier suppliers have gained greatly from their relations with assemblers in terms of efficiency, design capability, competitiveness and stability (Imrie and Morris 1989:13, 15; Rutherford et al. 1989:13; Turnbull 1989a: 20, 22). SMEs are, however, in a minority among direct and especially single-source suppliers. It is pointed out by Imrie and Morris (1989:15) that these positive effects result only from collaboration with ‘leading edge’ companies. Given that such companies are less dominant outside the car industry, one cannot be sure that this positive diffusion’ effect operates also in other industries. Similar changes are taking place among French subcontractors.15 Thus Bonneau et al. noted increases in quality standards, investment and product innovation, a larger client number and greater training effort, as well as raised levels of skill (ibid: 95–6, 99, 105). Gorgeu and Mathieu (1988:13f), for the automotive industry, confirm increases in training activity and in recruitment of highly qualified staff. It is, however, notable that diffusion of high standards and ‘good practice’ has not benefited French suppliers evenly. On nearly all counts, improvements were mainly confined to medium and large suppliers (with >200 employees) and small firms with less than 50 employees had not gained from the NDL (Bonneau et al. 1989:95f). In the German literature, in contrast, the perceived threat to the craft characteristics of small suppliers and the ensuing loss of valuable productive resources dominates the discussion. The alleged pressure towards synchronization of production processes and methods with those of large buyers is seen to destroy the essence of small-firm organization: the informal and personal nature of communication, the holistic and autonomous work execution and the importance of broad and transferable skill (Altmann and Sauer 1990). This gloomy prediction of the imminent demise of the German craft sector is, however, not well sustantiated by supporting evidence, and this analysis underestimates both movement in the large-firm sector towards new production concepts (Schumann et al. 1990) and the well proven adaptability of craft enterprises in the face of industrial change. All this, however, is not to say that the NDLbF will not have any negative repercussions for the craft sector but merely that these will not be as pervasive and destructive as the authors of the ISF Munich school indicate.

INDUSTRIAL REORGANIZATION IN EUROPE

109

IMPLICATIONS AND CONCLUSIONS The preceding overview has shown that, during the 1990s, we can expect significant transformations in European manufacturing industry. The general trend towards concentration among suppliers suggests that the revival of the small-firm sector will come to a halt and that medium-sized firms will experience an expansion. The slight decline of the large-firm sector in employment terms should not be taken as an indication of its general weakening and may, in any case, not continue during the next decade. Within the small-firm sector, there will occur a growing trend towards polarization, brought about by the new stringent demands on small-firm organizational and technological capabilities. Only small firms with high skill resources, suitable for innovative problem-solving and high standards of quality and reliability, will flourish or even survive. The mere suppliers of extra capacity—the ‘extended workbenches’—if they survive at all, will increasingly drop into the economically highly precarious lower tiers. The surviving SME suppliers/ subcontractors, however, will be strengthened by the NDL, albeit at some loss of autonomy. It would be ironic if the process of industrial reorganization, resulting, at least partly, from the search by large firms for greater organizational flexibility came, in the end, to destroy the flexibility potential of the small-firm sector and, hence, of the whole economy. In conclusion, the argument throughout this paper has been that, despite the common experience by all three societies of severe economic pressures and adjustment challenges, the emerging NDLbF is being handled very differently in each society. Divergent patterns of economic and social organization, forged during the period of industrialization and crystallized in distinct industrial orders, continue to shape industrial change at the present time. The traditionalism of German industrial organization has, paradoxically, translated itself into the ability to respond effectively to new market structures and technological change. British historical trail-blazing on the road to industrialism, founded on a high degree of social and political adaptability, in contrast, has destroyed the preconditions for effective response to the current industrial challenge. It is much harder to pinpoint how France’s heritage of political progressivism, mixed with social conservatism, will influence its industrial adaptation during the 1990s. NOTES 1. OECD statistics of manufacturing firms distinguish between very small firms (<20 employees), small firms with between 20 and 99 employees, medium-sized (100–499 employees) and large ones (>500 employees). 2. In 1986, of all employees in manufacturing industry, 38% worked in firms with >1,000 employees (Fritsch 1990: 243). 3. In 1986, 95.4% of all manufacturing firms still employed < 100 employees (Fritsch 1990:242). 4. Craft enterprises and individual artisans are defined by law. The definition of a craft enterprise does not depend on size—although the majority are small—but on branch of industry and degree of skill intensity. The relevant legal code, the Hand-werksordnung, operates with a very open and flexible definition of what constitutes an artisanal mode of production and thus has enabled this sector to continually adapt itself to industrial and technological modernization (Streeck 1986:7f). Craft enterprises are particularly important in mechanical engineering where, in 1985, firms with less than 100 employees, contributed just over 50% of the production volume (Herrigel 1989:188). They are also dominant in more marginal industries, such as ‘food and drinks’, clothing, wood processing/furniture and precision mechanics/optics (Grabher 1988:22). 5. The 1791 Law d’Allarde abolished all non-state corporations and their privileges. The 1791 Decree Chapelier outlawed occupational associations and coalitions of both the self-employed and the employed. 6. For a description of some of their activities, see the locality study by Raveyre and Saglio (1984). 7. The wage gap between SMEs and large ones is the widest for unskilled workers and lower white-collar workers and is relatively narrow for cadres (Magliulo 1983: 59).

110

WESTERN EUROPE

8. The abolition, in the 1980s, of Wages Councils in many low-pay industries leads one to expect an intensification of dualism in the 1990s. 9. Generally, the significance of type (iii) firms as subcontractors in the field of R&D achieves insufficient attention in the literature. 10. Manufacturing depth remains much greater in Germany, in all its major industries, than in its competitor countries (Wirtschaftswoche 38, 1989:146f). 11. A recent example is the setting up of about 30 supplier firms in a 30 mile radius around a new BMW site in Regensburg/Bavaria (Doleschal 1989:170). 12. Concentration is already high at the present time. A third of the 1.5 million employed in the automotive components industry (OE) are working for the 20 largest firms and nearly two thirds for the 150 largest (Doleschal 1989:155). 13. In the furniture industry, for example, the proportion of skilled is significantly higher than in the large buyer firms (Deiss 1989:76). 14. Large enterprises are particularly dominant in aerospace, energy, metal production and electrical engineering (Quellenec 1987:34). 15. Bonneau et al. (1989) have conducted a longitudinal survey of over 3,000 SMEs in a wide range of industries; Gorgeu and Mathieu (1988) have concentrated on the French car industry; and Grando and Verdier (1987) have surveyed the electronics industry.

REFERENCES Altmann, N. and Sauer, D. (eds.) (1989) Systemische Rationalisierung und Zulieferindusstrie, Frankfurt/New York: Campus. Anglo-German Foundation (1988) New Technology-Based Firms in Britain and Germany, London: AGF. Bannock, G. (1981) The Economics of Small Firms, Oxford: Basil Blackwell. Bellon, B. and Chevalier, J.-M. (eds.) (1983) L’Industrie en France, Paris: Flammarion. Best, M.H. (1989) ‘Sector Strategies and Industrial Policy: The Furniture Industry and the Greater London Enterprise Board’, in P.Hirst and J.Zeitlin (eds.) Reversing Industrial Decline? Oxford: Berg. Bonneau, M. et al (1989) ‘Gestion de L’Emploi et de la Formation chez les Soustraitants: Resultats Provisoires’, research report, Paris: Centre de Recherche sur L’Emploi et les Qualifications. Clutterbuck, D. (1985) New Patterns of Work, Aldershot: Gower. Deiss, M. (1989) ‘Entwicklung der Aibeitsbedingungen in den Zulieferbetrieben der Moebelindustrie’, in N.Altmann and D.Sauer (eds.), op. cit. Doleschal, R. (1989) ‘Just-in-time-Strategien und betriebliche Interessenvertretung in Automobilzulieferbetrieben’, in N.Altmann and D.Sauer (eds.), op. cit. Doran, A. (1984) Craft Enterprises in Britain and Germany, study for the Anglo-German Foundation by Economists Advisory Group, London: AGF. Enjeux (1985). Evans, St. and Lewis, R. (1989) ‘Destructuring and Deregulation in the Construction Industry’, in St. Tailby and C.Whitston (eds.), op. cit. Fevre, R. (1987) ‘Subcontracting in Steel’, Work, Employment and Society, 1, 4: 509–27. Fox, A. (1985) History and Heritage. The Social Origins of the British Industrial Relations System, London: George Allen & Unwin. Fritsch, M. (1990) ‘Die Bedeutung des kleinbetrieblichen Sektors fuer die Regionalpolitik’, in J.Berger et al. (eds.) Kleinbetriebe im Wirtschaftlichen Wandel Frankfurt/New York: Campus. Gorgeu, A. and Mathieu, R. (1988) ‘L’Application du Partenariat par des Constructeur Automobiles et ses Repercussions sur le Mode de Gestion de la Main-d’Oeuvre des Equippementiers et Sous-Traitants’, research report, Paris: Centre D’Etudes de L’Emploi.

INDUSTRIAL REORGANIZATION IN EUROPE

111

Grabher, G. (1988) Unternehmensnetzwerke und Innovation, Research Unit Labour Market and Employment, Wissenschaftszentrum Berlin. Grando, J.-M. and Verdier, E. (1987) Le Sectuer de L’Electronique Professionnelle. Entreprises et Emplois, vol. 1. Paris: Centre De Recherche Sur L’Emploi Et Les Qualification. Grant, W. (1986) ‘Why Employer Organisation Matters’, working paper no. 42. University of Warwick. Grosse, E.U. and Lueger, H.-H. (1989) Frankreich Verstehen, Darmstadt: Wissenschaftliche Buchgesellschaft. Herrigel, G. (1989) ‘Industrial order and the politics of industrial change: mechanical engineering’, in P.J.Katzenstein (ed.) Industry and Politics in West Germany. Ithaca: Cornell University Press. Hirst, P. and Zeitlin, J. (1989) Reversing Industrial Decline?, Oxford: Berg. Imrie, R.F. and Morris, J.L. (1989) ‘Large Firm-Small Firm Links: The Changing Nature of Subcontracting in Wales’, Japanese Management Research Unit working paper no. 3. Cardiff Business School. Institute of Manpower Studies (1986). Changing Working Patterns, report for the NEDO in association with the Department of Employment, London: IMS. Jones, B. and Saren, M. (1990) ‘Politics and Institutions in Small Business Development: Comparing Britain and Italy’, Labour and Society 15, 3, 287–299. Juergens, U. and Reutter, W. (1989) ‘Verringerung der Fertigungstiefe und Betriebliche Interessenvertretung in der deutschen Automobilindustrie’, in N.Altmann and D.Sauer (eds.) op. cit. Landes, D. (1969) The Unbound Prometheus. Technological Change and Industrial Development, Cambridge: Cambridge University Press. Lane, C. (1990) ‘Vocational Training and New Production Concepts in the Federal Republic of Germany: Some Lessons for Britain’, Industrial Relations Journal, 21, 4: 247–260. Magliulo, B. (ed.) (1983) Les Petites et Moyennes Entreprises, Paris: Hatier. Morris, J. and Imrie, R. (1991) Transformations in the Buyer-Supplier Relationship, London: Macmillan. Oechslin, J.-J. (1987) ‘Training and the Business World: the French Experience’, International Labour Review, 126, 6. Oliver, N. and Wilkinson, B. (1988) The Japanization of British Industry, Oxford: Basil Blackwell. Piore, M. and Sabel, C. (1984) The Second Industrial Divide, New York: Basic Books. Pries, L., Schmidt, R. and Trinczek, R. (1990) Entwicklungspfade von Industriearbeit, Opladen: Westdeutscher Verlag. Quellenec, M. (1987) ‘La sous-traitance industrielle gagne du terrain’, Liaisons Industrielles. Rainnie, A. (1989) Industrial Relations in Small Firms: Small isn’t Beautiful. Raveyre, M.-F. and Saglio, J. (1984) ‘Les systèmes industriels localises: elements pour une analyse sociologique des ensembles de P.M.E. industriels’, Sociologie du Travail, 2:157–176. Rutherford, T., Imrie, R. and Morris, J. (1989) ‘Subcontracting Flexibility? Changes in Buyer-Supplier Relations in the Motor Vehicle Industry’, paper presented at the conference: ‘A Flexible Future’, Cardiff Business School. Sabel, C. (1990) ‘Skills without a Place: the Reorganization of the Corporation and the Experience of Work’, paper presented at the annual conference of the British Sociological Association, Guildford. Sabel, C. and Zeitlin, J. (1985) ‘Historical alternatives to mass production: politics, markets and technology in nineteenth-century industrialization’, Past and Present, 108:133–76. Sabel, C. et al. (1987) ‘Regional Prosperities Compared: Massachusetts and Baden-Wuerttemberg in the 1980s’, research unit ‘Labour Market and Employment’ discussion paper, WZB Berlin. Schriewer, J. (1986) ‘Intermediaere Instanzen, Selbstverwaltung und Berufliche Ausbildungsstrukturen im historischen Vergleich’, Zeitschrift fuer Paedagogik, 32, 1: 69–90. Schumann, M. et al (1990) Breite Diffusion der Neuen Produktionskonzepte—zoegerlicher Wandel der Arbeitsstrukturen, Zwischenbericht, Goettingen: SOFI. Semlinger, K. (1989) ‘Stellung und Probleme kleinbetrieblicher Zulieferer im Verhaeltnis zu grossen Abnehmern’, in N.Altmann and D.Sauer (eds.), op. cit. Sengenberger, W. and Loveman, G. (1988) Smaller Units of Employment. A Synthesis Report on Industrial Reorganization in Industrialized Countries, Geneva: International Institute for Labour Studies. Shutt, J. and Whittington, R. (1984) ‘Large-firm strategies and the rise of small units: the illusion of small firm job generation’, working paper 15, North West Industry Research Unit, University of Manchester.

112

WESTERN EUROPE

Sibalis, M.D. (1988) ‘Corporatism after the Corporations: the Debate on Restoring the Guilds under Napoleon I and the Restoration’ , French Historical Studies, XV, 4: 718–730. Simon, W. (1976) Macht und Herrschaft der Unternehmerverbaende, Koelln: Opladen. Storper, M. and Harrison, B. (1990) ‘Flexibility, Hierarchy and Regional Development: The Changing Structure of Industrial Production Systems and their Forms of Governance in the 1990s’, unpublished paper, University of California, Los Angeles. Streeck, W. (1986) ‘The Territorial Organization of Interests and the Logics of Associative Action. The Case of Artisanal Interest Organizations in West Germany’, research unit ‘Labour Market Policy’, WZ Berlin. Streeck, W. (1989a) ‘On the Social and Political Conditions of Diversified Quality Production’, research paper, Department of Sociology, University of Wisconsin, Madison. Streeck, W. (1989b) ‘Successful adjustment to turbulent markets: the automobile industry’, in P. Katzenstein (ed.) Industry and Politics in West Germany. Towards the Third Republic. Ithaca: Cornell University Press. Syzman, J. (1983) Governments, Markets and Growth, Oxford: Martin Robertson. Tailby, St. and Whitston, C. (eds.) (1989) Manufacturing Change. Industrial Relations and Restructuring, Oxford: Basil Blackwell. Telesis (1986) ‘Competing for Prosperity, Business Strategies and Industrial Policies in Modern France’, research report, London: Policy Studies Institute. Trebilcock, C. (1981) The Industrialization of the Continental Powers 1780–1914, London: Longman. Turnbull, P.J. (1989a) ‘Buyer-Supplier Relations in the UK Automotive Industry’, paper presented at the conference: ‘A Flexibility Future?’, Cardiff Business School. Turnbull, P.J. (1989b) ‘Industrial Restructuring and Labour Relations in the Automotive Components Industry’, in St. Tailby and C.Whitston (eds.), op. cit. van Tulder, R. and Junne, G. (1988) European Multinationals in Core Technologies, Chichester: John Wiley & Sons. Vickery, L. (1986) ‘France’, in P. Burns and J. Dewhurst (eds.) Small Business in Europe, London: Macmillan. Walsh, J. (1989) ‘Capital Restructuring and Technological Change: A Case Study of a British Textile MN’, in St. Tailby and C.Whitston (eds.), op. cit. Wassermann, W. (1990) ‘Die Interessenvertretung der Arbeitnehmer in Klein- und Mittelbetrieben’, in J.Berger et ai (eds.) Kleinbetriebe im Wirtschafilichen Wandel, Frankfurt/New York: Campus. Weimer, S. (1990) ‘Arbeitsbedingungen in Kleinbetrieben—Einige Ergebnisse empirischer Forschung und neuere Entwicklungstendenzen’, in J.Berger et al. (eds.) Kleinbetriebe im Wirtschaftlichen Wandel. Frankfurt/New York: Campus. Whitston, C. (1989) ‘Rationalizing Foundries’, in St. Tailby and C.Whitston (eds.) op. cit. Zeitlin, J. and Totterdill, P. (1989) ‘Markets, Technology and Local Intervention: The Case of Clothing’, in P.Hirst and J.Zeitlin (eds.) op. cit.

25 Markets and managers [in Europe] R.Calori

PRUDENT MOVES TOWARDS EASTERN EUROPE Eastern Europe represents a potential market of 140 million people and of about 350 million including the western (European) part of the USSR. Purchasing power is low in these countries, especially in terms of foreign currency. But this global picture is misleading: there are several Eastern Europes. – The German Democratic Republic as it was until October 1990 (16.5 million people) had a GNP per inhabitant a little higher than that of Spain; the area is industrialised and does not have much debt. The reunification with West Germany (monetary since 1 July 1990, full union since 3 October 1990) makes East Germany a rather attractive market with low risk, but one dominated by West Germany even before reunification. In fact East Germany has now become a part of Germany, and thereby a part of the EC. – Czechoslovakia and Hungary are two small ‘tigers’ (together 27 million inhabitants) very close to Western Europe; their political, economic and social situation is favourable to trade development with Western Europe. – Yugoslavia is a case apart: its market of some 26 million inhabitants has been more open to the west for some years, prior to the opening up of Eastern Europe in 1989. – Poland is even more a case apart with 39 million inhabitants and a huge amount of debt (about $35 billion). – In Bulgaria and Romania, political tensions between parties and minorities make for a rather unstable situation. – Finally the USSR, with a strong core—Russia—and some turbulent republics, is politically also very uncertain, but on the other hand an enormous potential market. When European managers think about the east they mainly consider the GDR as was, Czechoslovakia and Hungary, which are ‘neighbours’, and Russia which is a big but risky market. West Germany certainly has advantages, based on culture and/or geographical proximity across what was the GDR bridge. France has some cultural links with Poland and Romania. Among EC countries, Germany, Italy and France have the strongest experience of previous business with the east. Everyone among our

Source: The Business of Europe: Managing Change, R.Calori and P.Lawrence (eds), London: Sage, 1991,Ch. 7, pp. 167–97.

114

WESTERN EUROPE

interviewees agrees that Eastern Europe is an opportunity for European development but in general, the moves of Western European firms towards the east still are very prudent. Don’t we have a memory? Six months ago, newspapers wrote about the enormous debts of most of the eastern countries, their low purchasing power. The recent political changes will not transform the economic situation so quickly. Of course things will happen but it will be slow (France, car manufacturing). Among the four industries studied, brewing will probably be less concerned with Eastern Europe. The demand for premium price western beers will be rather marginal, as will the demand for technology transfer. Some West German brewers will find an extension to their domestic market. In East Germany there is a potential of 25 million hectolitres, the breweries are obsolete, some will doubtless close, and there will be opportunities to reinvest (buy a brand) and to sell West German beer. In the book publishing industry, the French and Germans see an opportunity for future developments. The Germans are turning to the former GDR to exploit a new market and publish new authors: The biggest and newest orientation for us is towards the GDR, that is what we are concerned about; the problem which we discussed at length with the executive board this last month’ (Germany, book publishing). Or again: We start to examine the market of Eastern Europe cautiously…. We recently created two subsidiaries on a 50/50 basis with one of the main Russian publishers—Progress—one in Moscow and one in Paris. We are careful, France has an important audience in Romania, Hungary and Poland, but there is the problem of repatriation of currencies in these relatively poor countries…. The weakness of the Russians is distribution, and we are going to help them to set up a network like ours (France, book publishing). Joint ventures seem to be the best solution in order to take a position. The part of publishing concerned with ‘heavy’ products is the most concerned with these opportunities. British publishers seem to have enough to do with the English-speaking world, and observe that it is about time that Far Eastern publishers set up laws to forbid copying. Spanish publishers find Eastern Europe rather distant and are more interested in South America. In the retail banking industry, once again the Germans and the French will probably be the more active Western European actors in Eastern Europe. The German banks are in an exceptional situation as a result of German reunification (economic and monetary). They are establishing networks in what was East Germany. From this position it is likely that they will extend retail banking to peripheral countries. Corporate banking with regard to Eastern Europe will grow with the increase in industrial and commercial activity. But retail banking will probably be limited to technology for some years: Talking about Eastern Europe, it is too soon to draw conclusions from what is happening there…too unstable still. There will be liberalisation in the financial industry but we do not know if those countries will let us take positions. I would say that we would rather conclude partnerships in transfers of knowhow, in selling turnkey factories. These countries have archaic systems…. For instance one day they will need automatic payment machines, so there is an opportunity…. We have signed a contract with a Russian bank for which we will take care of the computerisation of credit cards (France, retail banking).

MARKETS AND MANAGERS

115

British managers seem to be less enthusiastic, ‘too risky still’; Spanish managers think these countries are too far away. The opportunities and the expected strategic moves in the car industry are the most significant. At present, in proportion to the population, people in Eastern Europe buy ten times fewer cars than people in the EC. Table 1 gives a comparison of the consumption of cars between Western and Eastern European countries. It is hard to forecast the future demand in eastern countries for 1995 and for 2000. The experts say that it should grow considerably and that it will depend on the growth of income per capita (it will also depend on political development and on the price of oil). In countries like the former GDR the present demand Table 1 Consumption of cars in Western and Eastern Europe 1989 figures (number of new cars bought every year) West Germany France Italy U.K. Spain

2,820,000 2,350,000 2,320,000 2,310,000 1,150,000

Bulgaria Romania Total Population

70,000 25,000 13,400,000 320,000,000

USSR Poland GDR Yugoslavia Hungary Czechoslovakia

975,000 250,000 200,000 180,000 130,000 125,000

Total Population

1,955,000 420,000,000

is certainly higher than 200,000; East Germans used to wait for several years to get their car because of production shortages. In the short term the former GDR is the targeted market: ‘The annexation of the DDR (GDR) brings substantial growth potential but this will not be realised fully for new cars for a couple of years. In the domain of used cars, the impact will be quicker…. This is favourable to the West German manufacturers anyway (Germany, car manufacturing). The Volkswagen Golf will be produced at Dresden, Opel (GM) is already in the area of the former GDR, and some other European car manufacturers set up networks of dealers. Opel (GM) now has a joint venture in Hungary to produce the Opel Kadett. Fiat is already established in some Eastern European countries, targeting the biggest markets: the USSR, Poland and Yugoslavia. Ford is taking a position in Czechoslovakia and now in Hungary to produce spare parts to be exported: I think that people are going to be reluctant to invest a lot of money in Eastern Europe in manufacturing facilities so long as the currency situation is what it is. One inexpensive way to set up in Eastern Europe might be component manufacturing to start, with a view to exporting those components to Western Europe to use in carshare to generate hard currency so that you can sell new vehicles in. That will be a step, followed by manufacturing industry (Great Britain, car manufacturing). In the next ten years the issue is smaller cars (as well as trucks), but later on the market may open up for the top car segments.

116

WESTERN EUROPE

Among Eastern European car manufacturers, Lada (mainly in the USSR), Zastava (in Yugoslavia) and Skoda (in Czechoslovakia) have started some exporting. The production of the Eastern European countries has stagnated at around 2.5 million cars. With the involvement of western car manufacturers, local production could increase to up to 3.3 million cars in 1995 (USSR 1.8 million, Poland 0.38 million, Czechoslovakia 0.19 million, and GDR 0.36 million, an 80 percent increase). This would leave a share to exports from Western Europe. But the Japanese car manufacturers have to be taken into account, for they are also aiming at Eastern Europe, including the USSR. Suzuki, for instance, is interested in Hungary, and projects are expected in Poland. Anyway the opening of Eastern Europe is like a ray of sunshine on the somewhat dark horizon of European car manufacturers: If you leave out the word western and say the European car market, it is 18 million potential units, that is to me a major dramatic change…. It will not be a quick kill, the economies are not sophisticated enough, they do not have hard currency, and it will be a struggle, but it will happen and it will be much more dramatic than 1992 (Great Britain, car manufacturing). We believe that simple exportation to Eastern Europe is a limited, short-term and arguably short-sighted strategy. As for all developing countries, local investments will be necessary, most often in joint ventures. In the car industry, the local development of component and equipment manufacturing will also be crucial in the first phase. As with all investments selectivity will be required. Some managers dream of a scenario similar to that which recently occurred in Spain; but there are two major differences: first, political instability in some of these countries and secondly, a lack of hard currency. The political and financial support of western countries for Eastern Europe may of course reduce such uncertainties. But southern Europe is another growth opportunity. GROWTH IN SOUTHERN EUROPE Southern Europe, including Spain and Portugal, a large part of Italy and Greece (although we conducted no interviews in Greece), is another area for growth right inside the EC. The late accession of Spain and Portugal to the EC followed this growth logic, and there were also cultural links between these countries and the rest of the continent. One needs to recognise that Spain’s economic situation is not much better than that of the former GDR. The GNP per capita in Spain is about $US12,000, hourly salaries are about $US2.4, industrial production represents about 30 percent of the GNP and the external debt is about $US34 billion. With 40 million inhabitants, Spain still has real potential for economic and social progress. The situation is similar in the south of Italy; in Portugal and Greece the need for development is even more acute. Before considering Eastern Europe, some of our managers prefer to go to southern Europe for growth opportunities (and sun). In the beer industry the consumption is going down in the north of Europe (minus 1 percent a year on average), whereas it is going up in the south. In the garlic belt’ (as some British people call it) during the last ten years, growth was about +10 percent a year. The consumption per capita in Spain is now superior to that of France (60 litres per year compared to 45 litres per year), and the growth is slowing down. Growth has also slowed down in Italy which still has a low per capita consumption (24 litres per year). In the southern countries the substitution of beer for wine, and fashion, were the causes of this development: ‘The present trends in growth of demand should continue for some years; that is to say stagnation or little regression in

MARKETS AND MANAGERS

117

northern Europe and a relatively high growth in southern Europe (about 5 percent a year) in countries like Spain, Italy, Greece and Portugal’ (France, brewing). In Spain, in Italy and in Greece all the major European brewers, Heinekcn, Kronenbourg, United Breweries already have a stake; but there are still a few opportunities for acquisitions and reciprocal licences: ‘The market is developing quickly, the introduction of foreign beers has boosted it. Carlsberg and Heineken have made an effort at the right time, and there are still very good prospects’ (Spain, brewing). French, German, Dutch and Danish brewers agree on this. In book publishing the French are planning to work more in the south: We sell to a big subsidiary in Spain called Salvat; they joined the group two years ago. Salvat is involved in all our businesses. Their turnover is about 600 million FF a year; it has developed in Latin America as well. …Another subsidiary in Europe is mainly based in Italy—Grollier Europe (France, book publishing). Spanish people read more and more, and Spain is also a bridge to South America: The only language which is any kind of a serious competitor to English is Spanish…. We do also publish in Spanish and we have copublishing ventures in other languages’ (Great Britain, book publishing). In this context, the biggest European groups are buying in Spain. Bertelsmann acquired Plaza y Ianès, Hachette bought Grisalbo, and there are other groups like Maxwell, Mondadori and Agostini working in Spain; they buy Spanish publishers and sign agreements. The Italian market may be less attractive for foreigners in the domain of general literature; but it often has growth potential in particular segments such as heavy products and scientific, technical and management books. In the retail banking business northern Europe is saturated, whereas there is potential for development and technological innovation in the south. For instance only one Italian in two has a bank account: ‘For French banks, Latin countries are most interesting, Portugal, Spain, Italy. Then, we will go to the UK. … The German market is too much protected for us’ (France, retail banking). The major British competitors are also in Spain, where they found a ‘loose brick’: ‘We are in Spain. Spain is a very profitable market, it is backward in terms of technology. We have the ability, therefore, to bring our expertise into that market and that is a market we will continue to develop’ (Great Britain, retail banking). Now international banks have taken up positions in Spain with large networks; including Barclays, Banque Nationale de Paris, Citibank (USA) and Deutsche Bank. They will clearly try to develop these positions. The economic development of Spain started 15 years ago with a real boom from June 1986 when Spain signed the integration agreement with the EC. When the standard of living rises, people borrow money (and pay it back). The establishment of new banks is now more controlled (as it was in Italy) but the economic and social development era is not finished yet. Transitional states like Portugal and Greece will also be attractive. In the car industry, several car manufacturers have built factories in Spain, including Renault, PSA (Peugeot), and Ford, amongst others. A new competitor has also emerged in Spain: SEAT, formerly Fiat, is now under the control of Volkswagen. The Italian market has always been occupied by Fiat, of course, holding about two-thirds of the home market, so entry to the Italian market is difficult. Because of very high purchase tax on cars in Greece that market is limited to small cars or used cars; it will not really open up unless these taxes are dramatically reduced. Considering all four industries in our study, and many others on the basis of wider knowledge, southern Europe has a significant potential for growth, with relatively low salaries for the moment and relatively good labour productivity. This may well attract companies from other countries looking for a bridgehead

118

WESTERN EUROPE

into Europe, and also of course European companies looking for growth or trying to relocate manufacturing. THE EMERGENCE OF EUROPEAN MARKETING Europe is a highly diverse cluster of countries: there is cultural diversity, differences in consumers’ behaviour, technical diversity (norms), differences in taxation systems and in regulations. This has led the majority of internationally based companies to differentiate their market strategy between countries or regions within Europe. Even when the brand is the same—international—the advertising themes may be different, the prices are different across countries for the same product (according to the competitive position of the firm and the level of taxes), and the distribution channels may be different. The Single European Market is going to eliminate some of these differences: harmonisation of the value added tax, mutual recognition of technical norms and standards and so on, but certainly not all of them. On the other hand, international mergers and acquisitions lead to multi-brand groups or federations, highly diverse and at the same time trying to create some synergies. It looks as though marketing managers are going to have to work hard in formulating and implementing European market strategies that will reconcile unity and diversity! In retail banking, European marketing is not a crucial challenge yet, simply because there is not yet any really pan-European retail bank. Some focused competitors such as ROBECO in investment funds are starting European advertising campaigns. In the case of acquisitions abroad, banks are faced with the dilemma of whether to keep the name of the acquired bank or not. There is in fact a tendency to keep the name. But keeping the name may be a barrier to changing the image when it is necessary. Direct marketing techniques and parallel distribution networks are likely to develop. European banks will need to improve their skills in these domains. With deregulation and increased competition, the managers will have to be more aware of future pricing problems. In book publishing too, the rule is to keep the names of the publishers that ‘join’ a group. Various forms of direct marketing and sales by mail are expected to develop in the 1990s. For instance the leading German publisher Bertelsmann came to France by sharing a book club, France Loisir, together with Le Groupe de la Cité. These forms of distribution demand high investments but they will surely gain importance in the next few years, requiring particular marketing skills. Anyway, the traditional Frankfurt fair will remain the marketing centre of the book publishing industry. British publishers which are more European already are concerned with the competition of US editions of their books sold in Europe. They are also concerned with the question of a more homogeneous pricing policy control. Some, like Longman, Penguin and Heinemann, have sales forces on the Continent and have begun to treat Europe as their home territory. In the car industry the European marketing problems are pricing and distribution. At the moment, car manufacturers sell their cars at different prices throughout Europe. The price in a given country depends on the competitive position of the company and on the level of taxes (VAT and others). If the position is strong and taxes are low, the price is high; if the position is weak and the taxes are high on an attractive market, the price is low. In the 1990s the VAT should be progressively harmonised, and European car manufacturers will try more and more to sell Europe-wide (they are still mainly national). So the prices in turn should harmonise to avoid the development of parallel international distribution channels, and pricing policy will be critical, especially when margins get thinner. The second marketing development will be in logistics. International strategies will require a reorganisation of distribution, more efficient Europewide; the Single European Market will facilitate it:

MARKETS AND MANAGERS

119

1992 in itself is going to change distribution. Because at the moment, for instance, we have a national sales company. We have a warehouse for parts, we have an office, a managing director in Belgium, in Holland and in Germany. And it is so because they are different countries. If you say there is a 13 million car market and I dont have to worry about national barriers …then you can get rid of half the parts, you don’t have to keep them in strategic places, you can reorganise your sales coverage and you would be able to reduce dramatically the cost of distribution (Great Britain, car manufacturing). European marketing will certainly be a key success factor in the beer industry, for leading European brands and for international niche players. Differences in consumers’ habits, tastes and representations, and differences in distribution channels across countries will have to be managed. On one hand there will be some European ‘homogenisation’: The most important change will be the need for increased skills in European marketing, pricing, distribution, packaging. Brands will become more and more European; we are busy co-ordinating our packaging at the European level. We already do it for nonalcoholic beer…. Our advertising is becoming European’ (the Netherlands, brewing). European brands are positioned as good quality beers in their original home market and they enter new markets with a position of speciality (premium price). In the 1990s, high differences in image and pricing (for the same beer between European countries) will have to be reduced; otherwise parallel distribution channels will develop (taking profit from these differences). The changes in image and price will need to be monitored carefully, as the general tendency would probably be a fall of prices and ‘thinner’ margins. These changes in strategy could come with changes in organisation: In the past, we had one organisation per country. This year (1990) we became a European organisation. The marketing will be organised with a European scope, product policies will be decided at the European level. Then the decisions will be demultiplied in each country served by the company: Belgium, France, the Netherlands, the UK, Italy and Spain (Belgium, brewing). But it will not be so simple (the ambiguity is in the word ‘demultiplied’). First, some companies growing by acquisitions are keeping the local brands (alongside their international brands) and this of course means differentiated marketing strategies. Moreover, for a given brand, some managers would recommend differentiating the advertising across countries where European consumers’ behaviours are different, as in beer consumption. According to this differentiation principle a company could build its communication on, say, humour in the UK, freshness in Portugal, friendship in France, luxury in Greece, and sensuality in Italy. Even if some marketing costs are in this case duplicated, we believe that diversity should be managed by diversity. We also agree on the future need for international competitors: (a) to concentrate and/or co-ordinate the European marketing strategy (mainly product and price), and (b) to co-ordinate distribution, sales force and communication policy. But operational marketing such as advertising (creative expression and media allocation) and sales should be decentralised at the country level (or at the level of a cluster of homogeneous countries). These suggestions are coherent with the ones of Takeuchi and Porter (1986) who claim that international marketing should simultaneously standardise and differentiate across countries. But we leave the conclusion to a German manager in the car industry: We want a unified orientation, a unified corporate identity. But the market leads implementation. Implementation includes a part of national marketing. We do not follow the idea that the advertising strategy should be the same in France and in Germany. The advertising is something that is localised.

120

WESTERN EUROPE

We can help our subsidiaries, but there is so much national mentality and uniqueness…. We cannot feel it at the corporate level so we do not want to take care of the implementation (Germany, car manufacturing). Some other elements in the value chain, the sequence of activities that companies configure to enhance value, will probably gain more from concentration; we have already mentioned in this connection logistics (in the car industry, in beer, and in book publishing); in some cases manufacturing too (for instance for high value-added beers). Diversity will slowly decrease in the 1990s; for instance when European TV will be common and when some major retailers will have European positions, when the rules will change for those selling foodstuffs. All this implies a need for international marketing skills. TRAINING: A STRATEGIC WEAPON To formulate and implement international strategies, to succeed in international marketing and development, companies will need managers who can deal with intercultural problems. To strengthen the competitiveness of the firm and use new technologies fully, the workforce will have to be more effective (especially in industries like car manufacturing and retail banking where new technologies are key success factors). So, after all, it is not surprising that European top managers believe in human resources development as a strategic challenge in the 1990s. Recruitment of high potential multilingual managers is already considered a major challenge. With regard to the broader categories of personnel, training will again be more and more seen as a strategic weapon. In the brewing industry pan-European brewers are clear that they need international managers: People must change jobs in the company, across functions and across countries; today we must be generalists, effective in different countries. For instance, I had to go back to school to improve my English. We should not recruit any manager who is not at least bilingual and mobile. When we have an international meeting for instance, we cannot afford any language problems. Interpreters are not a solution…. Recently we had a meeting where eight different languages were represented, English speaking was the only way to do it (France, brewing). Or again: We have a number of international management programmes, where we get people together from all over the world, different operating companies, different cultural backgrounds, and put them into our management training programmes for some weeks. We have that at three levels: junior, middle and senior management. You need to work along the same lines with corporate brands…. The people can tell each other about their respective experiences. So you have cross-fertilisation between operating units (the Netherlands, brewing). International publishing-media groups train international managers, but smaller book publishers have a different challenge, that of implanting management techniques and marketing in a business which was not much open to such things in the past. International experience and training will also be conditions of success in the car industry, but other specific questions have to be solved: cross-fertilisation between functions and teamwork, involving middle managers and people on the shopfloor: ‘Understanding that the power comes from the 40,000 people of

MARKETS AND MANAGERS

121

the company, and not from the board of directors, is a penny that has dropped here’ (Great Britain, car manufacturing). The Japanese style may have inspired British managers. Now most European car manufacturers include among their priorities training the mass of underqualified workers (some immigrant workers in the motor industry do not even know how to read and write). The workforce of the automobile industry is turning to a new style. Retail banking is in the same situation in that training is a priority at all levels of the hierarchy. The quality of services depends on the quality of the personnel. As consumers are more and more demanding and technologies are more and more sophisticated, retail banks have to transform’ their employees. Personal training in part was mentioned by most of the interviewed managers in retail banks as a key success factor (up to 7 percent of the salaries are spent in training in some banks). There are still steep differences between managers in our network, differences in training level. We are making a particular effort in this domain. The personnel should be trained to face the future and strengthen the bank culture. The concept of best service to clients should be based on getting the most out of computers, but also on well-trained employees (Spain, retail banking). A message echoed in Italy: I believe that customers are quite concerned with the quality of services and on the way they are sold, and so with the quality of the people in the bank. We have to be professionals and, for this reason, the training of our front office staff is a priority, as they are the first contact with the potential customer…. Last year 4000 employees participated in our training courses (Italy, retail banking). The content of training will be more and more a mix of technical and management skills, where previous training emphasised the technical and procedural aspects of bank work. Training will be increasingly mixed with other means of personal development—participative management, periods spent abroad, job rotation— in order to change competences and behaviour. Such practices show the move towards integrated and ‘strategic’ human resource management. Industries have specific needs but a common one: the development of managers who can work internationally and deal with intercultural problems (at least for the companies which have an international strategy). Business schools know there is a pressing need, and most of them proclaim the international nature of their programmes, which in fact are all too often superficial (a couple of practice periods abroad are not enough to learn to deal with multicultural problems). International companies could organise so as to satisfy their own needs, perhaps in partnership with business schools. They have to improve the strategic management of people, give more seats on board and executive committees to the human resource managers, and to recruit and promote more foreign managers. The EC has some programmes to stimulate European training— such as Erasmus and Comet—but only one manager mentioned them in our study. IMPACT OF THE SINGLE EUROPEAN MARKET (1992) Many studies of the impact of the Single European Market on the economy of EC countries have appeared in recent years. The date of 1992 (31 December) has become a symbol, the eve of a new era in European history. Most studies agree on the importance of the Single European Market as a driving force in the dynamics of European industry. Some three years after the signing of the Single European Market Act

122

WESTERN EUROPE

Figure 1 Summary of the impacts of the Single European Market on the four industries studied

(1986), and still two years before 1992, our study among managers in four diverse industries suggests that the impact will be more modest. Broadly, the impact of the Single European Market is very different across industries, and for most of the businesses it is just an accelerating force among others in the dynamics of internationalisation. While most of the managers speak about the psychological, indirect impact of 1992, many of them think it is a non-event. The political changes in Eastern Europe, thought to herald major economic changes, are perceived as at least as important as the Single European Market. Considering also the growing number of special agreements with some other countries (mainly those in the European Free Trade Association), it looks as though the frontiers of the EC are getting less and less clear. The foreign economic policy of Brussels is defined by some vague rules or recommendations such as ‘reciprocity’, and the attitudes of the member states often diverge (for instance divergences between British liberalism and French protectionism). This makes it all the more difficult for managers to foresee what will happen. We would like to consider two broad dimensions which are tightly interrelated: the internal impact of the SEM on the strategies and performances of Europe-based firms, and the external impact on the strategies and performances of third countries’ firms in Europe. This aspect of the dynamics of the four industries that we studied is presented in Figure 1. By ‘external’ impact we mean mainly that the SEM may prompt foreign competitors, such as US, Japanese or Australian firms, to enter Europe. This is likely in the sense that the SEM will reduce barriers to free trade, so it will stimulate international development strategies, which will accelerate mergers, acquisitions and alliances. The SEM is a major liberal step towards free trade and market forces. A more precise analysis of the implications is presented in Table 2. Consequences are presented in rows and reading in columns gives a picture of the combined influence of the SEM on each industry.

MARKETS AND MANAGERS

123

As the Single European Market did not aim to remove cultural and linguistic barriers, the book publishing industry will not be much affected by 1992. The main impacts expected by managers in the three other industries studied are diverse. The main impact in the beer industry will be on the harmonisation of prices (combined with the harmonisation of taxes and probably of TV advertising). So the SEM will contribute to a basic market force: the development of European marketing. In the retail banking sector the SEM deregulation will facilitate mergers, acquisitions and alliances between banks from different countries. In this domain, it has (already in 1990) had a determinant influence on the concentration process in Europe. Quotas or no quotas against Japanese imports during a transitory period, one day the liberal policy of the EC towards third countries will influence the future of the car industry in Europe. (Under the pressure of the French, Italian and Spanish car manufacturers and in spite of the initial liberal position of the EC towards third countries (and the liberal position of the German and British car manufacturers), it seems that a compromise will be reached: a transitory period of five years (starting in 1993) during which the increase of Japanese exports to Europe will be monitored.) Besides, for a few years now car manufacturers have progressed in the harmonisation of norms. This is a contribution to the international (EC and worldwide) development of markets. So it looks as if the SEM policies have been well designed to amplify market Table 2 Impact of the Single European Market, managers’ perceptions Book publishing

Brewing

Retail banking

No significant impact

It will change nothing at all because it cannot cross the linguistic and cultural barriers (FR, GB, IT, NL). It will change nothing at all in educational publishing, except for leading to more books about Europe!

It will not change much because retail banking is by nature a domestic, proximity business (IT). Because cultural differences are high (NL), national currencies are all strong in the EMS; and some countries are already very liberal (GB, NL).

Some companies already are European/ international

Big companies are already European (at least) (FR, G, NL, GB). Many have experience of agreements and co-editions (FR). The

It will not change much, nothing will be happening (NL, GB, FR). Because beer consumers are conservative in G, NL, DK. Other forces such as the growing pressure of the food channel and the MMC decision have much stronger impact (NL, GB, FR, G). The major brewers have already taken position in Europe (except Germany) (NL, FR). Foreign competitors already dominate

Banks already have experience of the other EC countries, they always had to deal internationally at least with their

Car manufacturing For many managers 1992 is a non-event.

Some companies are already European, e.g. Ford of Europe (GB).

Big international companies will not be affected.

124

WESTERN EUROPE

Psychological impact

Indirect impact

Book publishing

Brewing

Retail banking

Frankfurt fair exists; it is a way to internationalise even for small companies It creates a dynamic prompting companies to look outside (DK). It will widen our frame of reference (SP). Authors now think about adaptations of their work for other countries (F).

markets like Italy (IT).

correspondents (GB).

It raises consciousness rather than having a direct impact (GB). It will change mentalities (NL).

It had and still has a psychological impact on executives, on their strategies (FR).

The impact has been more psychological since 1987.

It will have an indirect impact through increased competition (DK). It will have an impact on the customers more than on the banks (G). Our clients Strengthening a process already going on (NL).

Indirect impacts could be important in retail banking. will go abroad and we will follow them (G, DK).

It already started in 1990 with the free circulation of money. It will be a reality in 2000, 1992 is just an episode (FR).

1992 as a progressive accelerator.

The need for training will increase and so will the need for books (GB).

Accelerator of market forces

Sensible measures will accelerate market dynamics (GB). Firms have to do things faster (DK).

Progressive impact

It will start in 1993 but changes will not be perceptible before 2000 (GB, FR).

Harmonisation of VAT

The minimum rate of VAT is

Car manufacturing

The harmonisation of

Positive impact of the

MARKETS AND MANAGERS

applied everywhere but there are still differences It is a chance for publishers to align the rate on the lowest—0% in UK—to stimulate demand (FR, SP, GB, G). The International Union of Publishers is lobbying for that (FR, SP, GB, G).

VAT (let us say 14–20%) will have a positive impact on demand and quality (FR, IT). It will stimulate the luxury car market (GB).

125

harmonisation of VAT.

Table 2 Continued Book publishing Harmonisation of excise duties

Harmonisation of regulations

Harmonisation of copyrights will simplify the market (G).

Brewing It will stimulate demand in countries where excise duties are high now. But the positions of the member states are opposite, and the wine lobby is strong; so probably nothing spectacular will happen (FR, GB, SP). In 1996 beer could be taxed in the exporting country; if taxes are high, some exporters will be disadvantaged (DK). On the protection of health and environment, the EC will take measures: – impact on the product – impact on the packaging (ex:

Retail banking

Home country control; in 1993 a bank will have to follow its home regulations in all EC countries. It will be advantaged or disadvantaged

Car manufacturing It will stimulate the luxury car market (GB) (ex: 230% taxes in DK now)

Harmonisation of excise duties could stimulate the market but it is uncertain.

Anti-pollution regulations will be a new constraint (FR). If speed limit for all Europe is decided, it will affect German cars (G).

Companies should contribute to health and environment protection.

126

WESTERN EUROPE

Book publishing

Brewing

Retail banking

reuse bottles) (NL) – impact on advertising on TV now forbidden in some EC countries (DK, GB). What will be decided in Brussels?

depending on what these are. Competition will cause a move towards minimum requirements.

Harmonisation of norms, standards

The Germans lost their battle on the purity law on 12 March 1987, but it did not change the behaviour of German consumers and brewers (FR, G).

Reduced barriers between EC countries

Should have a positive but limited impact on the opening of the German market (FR, G, NL).

Subsidies

Subsidies for the translation of books should be maintained if not increased (FR).

Prices

The system of the set price of books could be abolished, no one knows (NL, GB,FR, G). If so the pressure of big retail chains on book

You are able to set up foreign money accounts and circulate money abroad, buy investment funds (starting from June 1990 anticipating January 1993) (SP, GB, FR).

Car manufacturing

To a large extent this has been done already, but further harmonisation is going to make things easier. Unique Reception Certificate will save time and money (FR). Residual import taxes in Spain will be abolished by 1 March 1993. It will be favourable to exporting and investing in Spain (SP).

(no manager mentioned the EC contribution to R&D precompetitive programmes) Now foreign beer Prices of banking Prices will be brands are sold services are very homogenised premium in different now. throughout foreign countries Increased Europe (FR, and cheap in their international GB). Prices will home country. competition will go down at last in Differences in lead to a the UK where prices will be harmonisation they are high at reduced under and a diminution the moment.

Harmonisation of standards will lower production costs (G). Harmonisation of norms is on its way; depends on the industry.

Crucial in the retail banking business.

Few subsidies.

Harmonisation of prices will be a crucial consequence of 1992.

MARKETS AND MANAGERS

publishers will increase. The system could be harmonised (for instance aligned on the British Net Book Agreement). Tougher competition on prices (SP).

the risk of parallel distribution channels (GB, IT). Risks of reimports will homogenise prices (G).

of prices (FR, SP, IT).

Brewing

Retail banking

Table 2 Continued Book publishing Harmonisation of demand, supply

Distribution system

Harmonisation of demand and banking practices (NL, FR, SP). New channel will open up and it will facilitate the reallocation of distribution (G). German wholesalers may supply French bookshops (FR). Foreign distributors will be able to enter the Italian market more easily (IT).

Production system

Mergers Alliances Acquisitions

Car manufacturing

It will make it easier to reallocate the logistics network in a more rational way (NL). It will facilitate the international development of big food retailing chains and reinforce their pressure on brewers (GB). Transportation costs and time will decrease (NL).

It will open up opportunities to restructure distribution (fewer frontier problems) (GB). It will improve the delivery of spare parts (G). The 12385 regulation which gives European car manufacturers the control of car distribution may be questioned (FR). Transportation easier (G). It will stimulate investments in factories abroad (F, G).

It will ease the relocalisation of production (NL). There will be less protectionism towards foreign buyers in the EC (NL).

Alliances will be eased (FR). Acquisitions of big national banks will

Opportunities to rethink the distribution system and establish abroad

Big companies may relocalise production. Less protectionism towards EC buyers.

127

128

WESTERN EUROPE

Book publishing

Brewing

Retail banking

Car manufacturing

become possible (GB, G). Entries and development of foreign competitors

Not much impact on the book publishing industry, some uncertainties on the position of the EC.

Not much impact for major brewers. Health questions to follow. Pricing and international distribution to consider.

Barriers have been removed, but habits are strong. Financial products and prices will harmonise. Cross-frontier acquisitions and

The entry and development of Japanese competitors will be eased. The future of the European car industry is very dependent on the position of EC towards quotas. French, Italian and Spanish car manufacturers are protected now, but would be exposed without quotas. They ask for a ten-year transition period. They lobby for that. The decision is not taken yet. A compromise is probable so it is likely that the Single European Act will intensify the pressure from foreign competitors (sooner or later) (FR, GB, IT, SP). The principle of reciprocity is too vague. Norms are harmonised. Prices and international distribution to be determined. But first of all how to resist the Japanese and

The threat of Japanese competitors in Europe is a key issue in the car industry and one of the key questions at Brussels.

MARKETS AND MANAGERS

alliances will become easier.

129

define an external policy at the EC level?

forces and the opinion of a liberal British manager we interviewed sums up our conclusions perfectly: ‘I see it really as a bit of a sideshow to the real market pressures that are taking place. You cannot alter the market. If the measures that are taking place are sensible ones, I think they will tend to accelerate market forces. It is the marketplace which decides, it is not legislation’. Managers and policy makers are agreed on this liberal thesis. But an important divergence between the point of view of managers and the point of view of the EC Commission should be underlined. Brussels insists on potential cost reductions, economies of scale, critical mass (see Directorate-General, 1988); on the other hand, managers do not talk much about cost reductions thanks to the SEM (for them cost reduction will come from technological innovation). Managers expect price reductions! They insist on the diversity of the European market and the trend towards quality which will require innovation, segmentation of the market and differentiation strategies. The potential for scale economies in Europe due to the SEM should not be overestimated; harmonisation will take place but diversity will be strong in the 1990s: ‘1992 will be an explosion of diversity and differences more than of homogenisation’. The combination of the Single European Market and the opening up of Eastern Europe certainly increases the attractiveness of Europe for companies from other developed countries. The two events happening at about the same time do reduce trade barriers, and inspire more international strategies. North American firms rediscover Europe and the Japanese companies now take a position. In this context all competitors should have an international strategy (including the ones who will stay in their small national niches and who should have a defensive strategy to face new entries). Ninety percent of the managers we interviewed are planning to extend the boundaries of their geographical market. Since not every one can be a winner in the relatively mature markets that we studied, no new entries (in the industry) and several exits are expected and co-operative forms of international development should flourish. Based on the executives’ perceptions on the dynamics of these industries in the 1990s, we drew the managers’ cognitive map presented in Figure 2, which is a way of summarising their views. It shows the main forces they have in mind and their interrelations. As we believe that managers’ cognitions will determine the strategy of their firms, which in turn will shape the evolution of the competitive system, this is the way things could happen in the 1990s in Europe (at least in the four diverse industries that we studied). Taken together, the perceptions of managers look particularly relevant and articulate. This is not such a surprise if we consider that they are among the foremost experts in their competitive systems (and that expert consultation is one of the best ways to predict the future). The differences in perceptions that we found between industries are normal; by definition an industry has a particular set of technologies, competitors, customers and a specific history. But one point should be raised here; when looking at individual perceptions (individual cognitive maps) we noticed that a manager generally has a partial perception, probably biased by the history of his or her firm, his or her present strategy and by the particularities of the industry in the home country. For instance, two German managers in the brewing industry have a very different view of the competitive system. One believes that the German market will concentrate quickly and that German brewers will export more and more, whereas another believes that the market will remain fragmented, local and dedicated to pure German beer. The differences can be explained by the differences in strategies between the two firms (one has

130

WESTERN EUROPE

Figure 2 Dynamics of the competitive systems in the 1990s: managers’ cognitive map

grown by acquisitions, sells to the food channel and exports, the other is local and tries to hold a niche). Altogether the perceptions of German brewers are different from the perceptions of French brewers because of differences in market structures between the two countries (fragmented market with high share of bars and restaurants in Germany, concentrated market with high share of the food channel and international activities in France). We also noticed that managers in companies which are already international have a much more complete and relevant view of the future of the business. This may sound trivial, but in fact it has a major practical implication. As most of the managers want their company to go international, they need to change their frames of reference; they need to understand all the dimensions of the problem and the diversity of foreign countries or regions if they want to turn their wishes into successful realities. Several means should be combined to change frames of reference: more systematic information on foreign markets, travelling abroad, international seminars, training, job rotation in foreign countries, and above all recruiting foreign managers and having some of them on the executive committee or board of directors. From what we learned in our interviews, a few international companies actually follow the above precepts, and some of them are starting; this is the way to manage the diversity of the European market.

MARKETS AND MANAGERS

131

THE EUROPEAN PATCHWORK First, it should be noted that in each of the industries that we studied, there is always a country in the EC which is very different from the norm. For instance, the United Kingdom car industry is unusual in Europe: the Japanese have already taken a position there (a share in the Rover Group and transplants of Toyota and Nissan). For the British, the Japanese threat may be, in fact, an opportunity. In the brewing industry, the German market is very different from the other EC markets, with hundreds of small companies brewing a ‘pure beverage’. Retail banking in Spain is still regulated, with a particular system of re-financing, and with the highest density of branches in Europe and high profitability. Book publishers in the United Kingdom (publishing in English) serve the whole world market much more easily than, say, Danish publishers with their five million potential readers. These are just some extreme examples of the high diversity across countries in a given industry. Table 3 gives a more complete picture of the differences between countries. It is limited to the four industries and the seven EC countries that we studied; adding Greece, Ireland, Belgium, Luxembourg and Portugal would doubtless increase the diversity of market structures. For instance, in the beer market, two countries only— Denmark and the Netherlands—have similar market characteristics, whereas all the others have particular structures and consumption habits. In book publishing, the United Kingdom and Spain are two particular cases, considering the international scope of their potential market. The Germans read a lot, the French do not. In retail banking, the Germans still believe in the model of the universal bank, whereas the French believe in multi-specialisation. Italy is underbanked and Great Britain is overbanked. In car manufacturing the Germans are well positioned on the top segments. The British have welcomed Japanese manufacturers, whereas the Italian and the two French companies are trying to maintain barriers to protect their business against Japanese invasion. The strategic implications are clear when one considers such differences across EC countries: a competitor aiming at several countries in the EC market should tailor its strategy according to the market structure of each country. Another way to look at differences across Europe is to try to understand consumers’ behaviour. The following characteristics of the consumers’ behaviour have been identified and proposed by one of the companies which participated in the study: – – – – – – –

the German consumer is ‘chauvinistic’ and ‘cold’, the British consumer is ‘price-sensitive’ and ‘takes profit’, the Dutch consumer is ‘thrifty’ and ‘critical’, the Spanish consumer is ‘extremist’, the French consumer is ‘impulsive’ and ‘likes novelty’, the Italian consumer is ‘impulsive’ and ‘takes care of the look’, the Scandinavian consumer is ‘quality minded’ and ‘critical…even more than the Dutch!’.

Finally, it is hard to characterise Belgium consumers: ‘Wallons’ behave like the French and ‘Flamands’ behave like the Dutch (except in the eyes of the Dutch themselves). This last point suggests that regional differences may be as important as national differences. Italians from the north and the south are different. In Spain, Catalonians, Basques, Castilians and Andalusians speak different languages. One can also find important differences between the regions of France, between regions of Germany and between regions of Great Britain. The barriers of language are clear manifestations of these cultural differences (which are often combined with industrial and economic differences).

132

WESTERN EUROPE

One of the managers we interviewed argued that the Single European Market might have an indirect influence on the resurgence of ethnic local identities across Europe. Since we started to talk about united Europe, the regional cultural movements have developed! The Catalans speak Catalan, the Basques throw bombs, the Sardinians want to learn Sardinian at school, the Lombard league is developing, and so on…. Could there be something like a fragmentation of national entities induced by the European project?… I do not know (Italy, book publishing). The interest in regional cultures may have a marginal direct effect on the book publishing industry. But what should be noted here is the necessity for managers to understand these microcultural differences in order to be more effective in negotiations and working life with foreigners in Europe. Differences between ethnic groups or regions are probably more discriminant than national cultures (Hofstede, 1980). From what we know, no systematic study at this level has been published yet (though one such study has been carried out in 1989 by the Centre de Communication Avancé, Paris). Table 3 Synopsis: differences across countries in the four industries studied Brewing Denmark

• Mature market (slow decreasing demand) • High level of consumption • Concentrated • Re-use bottles only Federal Republic of Germany • Mature market (slow decreasing • demand) • High level of consumption • Very fragmented (1 100 regional and local breweries) • Low profitability • ‘Pure beer’ France • Mature market (decreasing in the north and increasing in the south) • Low level of consumption • Concentrated (1 company holds 50%) • High share of the food channel Great Britain • Mature market (slow decreasing demand) • High level of consumption • Breweries integrated downwards in pubs • Fragmented • Lager ales, stouts Italy • Growth market but limited by the consumption of wine • Low level of consumption • Concentrating under the pressure of international competitors Netherlands • Mature market • High level of consumption

Book publishing • Protected and limited by the language • High level of consumption • Distribution relies on the post

• High level of consumption • Some strong dominating multi-media groups • Strong in logistics • Distribution relies on the post

• Low level of consumption • 2 strong dominating multimedia groups (international and many small focused publishers) • High level of consumption • International market definition (world) • Some strong multi-media groups and small focused publishers

• Relatively low level of consumption • Limited by the language • Some strong multi-media groups and many small publishers • High level of consumption (including English)

MARKETS AND MANAGERS

Spain

Brewing • Concentrated (2 international competitors) • Growth market but reaching a high level of consumption • Concentrating under the pressure of international competitors • Still regionalised

Book publishing • Rather concentrated • International competitors • Growth market • Still fragmented and regionalised but concentrating under the pressure of some national groups • International market definition (South America)

Retail banking

Car manufacturing

• Concentrating

• No national champion • Market limited by high taxation • Open to Japanese imports (30% of the market) • Demand for D, E, F categories • Several strong competitors differentiated in the higher segments • Low VAT • Liberal towards the Japanese • ‘Average market’ • 2 French competitors holding a high share • Relatively high VAT • Lobbying for quotas against Japanese competition • ‘Average market’ • One national champion • Open to foreign investments and technology (including Japanese shares, imports and transplants)

Table 3 Continued

Denmark

Federal Republic of Germany • Three strong competitors going abroad • Concept of universal bank still valid • Bank+insurance • German banks much involved in industry (and vice versa) France • 4 strong competitors going abroad • Still a strong involvement of the state • High level of technology in retail banking

Great Britain

Italy

Netherlands

Spain

133

• Three strong competitors • International positions • Less frontiers between corporate and retail banking • Overbanked • Particular institutions such as building societies • Fragmented market • Underbanked • Traditional attitude of the clients (proximity…) • Still believe in the model of universal bank • Still regionalised • Some strong competitors • Fewer frontiers between corporate and retail banking • Overbanked • Growth market • Still profitable • Still fragmented and regionalised

• ‘Average market’ • Dominated by a national competitor in all segments • Lobbying for quotas against Japanese competition • Relatively high VAT • No national champion • Open to Japanese imports

• Growing market • Demand for categories A, B, C, D

134

WESTERN EUROPE

Retail banking • Too many branches • Protective regulations (to be abolished in 1992)

Car manufacturing • One newly founded national champion under control of foreign owner • Several factories of foreign competitors • Would prefer protection against Japanese invasion

Combining differences in market structures and differences in customers’ behaviour leads to a simple characterisation of the seven countries that we studied. The attributes may sound simplistic but we believe they can be helpful to managers who will have to deal with several of these European countries. Germany is the country of differentiation and regionalisation, at least in the four industries that we studied; among the European leaders in these businesses several are German (Volkswagen, Bertelsmann, Deutsche Bank). Especially in industrial businesses, German firms have succeeded in differentiating their products. Mercedes, BMW, Porsche and to a lesser degree Audi; most of the differentiated car manufacturers in Europe are German. Through the purity law, and the habits of the German customers, German brewers are also differentiated. Efficient logistics (speed of delivery) and cultural commitment are characteristics of the German book publishing industry. In service businesses, such as banking, the regional federative structure of Germany dominates and quality of service is a rule. So, to succeed in Germany, premium products and a multi-regional approach are needed. France also has strong competitors at the European level (Hachette, PSA, Renault, Crédit Agricole, BNP, BSN). French companies and consumers seem to be more innovative than the average (at least they have this reputation). They demonstrated it in the retail banking business with the high degree of automation and the emergence of home banking based on the minitel network (of the post and telecommunication). The ‘aphrodisiac beer’ recently launched by a French brewery is anecdotal but it is one of the many symptoms of innovativeness. France also is a country of strong state intervention, even if it is changing slowly. Two of the major French banks are nationalised and the state is the majority shareholder in Renault (the status of Renault had to be changed when the alliance with Volvo was instituted). Great Britain is the champion of liberalism in the EC; this has been one of the reasons for the international development of the financial sector (London). The liberalism and international scope of the UK led to a strong position in the banking sector and in book publishing (NatWest, Barclays, Maxwell, Reed, Pearson, etc.). Linked to this liberal position, the UK has become the bridgehead of the developed countries in the European market. North American car makers, publishers and banks in the past, Japanese car manufacturers and banks, Australian brewers and bankers more recently established themselves in Europe through Great Britain. The bridge could also be used the other way round, EC countries using Great Britain as a bridgehead to the English-speaking world and to the world financial markets. The Netherlands is also liberal; the limits of the home market have created the necessary pressure for international development. So the Dutch became the champions of internationalisation. Companies like Heineken and Grolsch in the brewing industry, Wolters-Kluwer and Elsevier in book publishing and ABN in banking are among the most successful in their international strategies. Related to that is the ability of the Dutch to speak several European languages. Denmark has been outside the big battles for some time, because of the small size of its market. If we except a few major competitors such as Carlsberg, one way to qualify Danish companies would be ‘small is beautiful’. But this is changing now with the important mergers in the banking sector, for instance. Another

MARKETS AND MANAGERS

135

characteristic of Denmark is the high level of taxes of all kinds which are at the origin of a national sport: transborder trade (for books and beer for instance). Italy is a dual country. The traditional duality between the north and the south is reproduced among companies. The most modern banks compete with archaic ones. The most modern breweries compete with others in obsolete plants and the distribution channels are over-complicated. On the other hand, the restructuring of the automobile industry gave birth to a powerful group at the European level, with some prestigious names (Fiat, Lancia, Alfa Romeo, Maserati, Ferrari). Spain appears to be a regionalized country still, with regional leaders for instance in the brewing industry, in retail banking and to a lesser degree in book publishing (at the distribution level). Regionalisation also means fragmentation. Except in the car industry, national leaders are emerging now in a wave of mergers and acquisitions. Managers mentioned another interesting characteristic: the Spanish lifestyle (which was very particular) is changing and becoming ‘more and more European. This change has already had an impact on the four industries that we studied. Another dimension helps us to understand the diversity of Europe: namely the historical zones of influence of some of the bigger EC countries. In other words, the place of some European countries in the world. The United Kingdom has historical—economic and cultural—links with North America and with the Commonwealth countries (stronger links for instance than with the French or with the Germans). Spain has historical— economic and cultural—links with South America. France has the same kind of links with many African countries. Finally, Germany has built strong economic relationships with Eastern Europe. These particular zones of influence or attraction could be considered as centrifugal forces; they are in a way. But, when adding up all these zones, one will discover that Europe is at the crossroads of the western world and that EC countries complement each other on the world map, excepting of course East Asia, which is under the influence of Japan and China, and which is still a case apart. Managers around the world will draw strategic and practical conclusions themselves from each of these characteristics, such as that there are opportunities to take positions and transform the market in Italy and Spain, that the UK is a perfect bridgehead to start serving Europe (besides all people speak English there and it is easier to be understood!), and that there will still be room for national niche players in some industries, as long as they reach a sufficient scale and are differentiated. We would like to offer here a more general conclusion on the necessity to deal with European diversity; in fact, to reconcile unity and diversity in a Europe-wide strategy. Three types of actors should be directly interested in this question: European companies which already do business across Europe, non-European companies in the same position, and national European companies which aim to take a position Europewide (this question has already partly been addressed in the earlier section on ‘European Marketing’). Companies will have to reconcile the progressive and indirect harmonisation of the European market (under the pressure of international competition and of some policies of the Single European Market) and the high diversity of this market (across countries). First of all, there will be several profiles of effective pan-European competitors because the profile will depend on the specific sources of competitive advantage and on the balance between globalisation and localisation forces in a given business in Europe. The first characteristic of an effective pan-European competitor will be to assess the diverse sources of competitive advantage (across segments and countries) and the globalisation and localisation forces (by product segment), considering each element of the value chain of the business. Such a systematic analysis will suggest specific formulae for the configuration and co-ordination of activities (see Bartlett and Ghoshal, 1987). For those who are looking for a simple profile we might suggest the following.

136

WESTERN EUROPE

Some elements in the value-enhancing chain activities in which companies engage could be centralised to improve economies of scale and efficiency: mainly production and logistics. Production should be located in countries which offer a competitive advantage in production (skills or costs) and a sufficient potential of consumption (in a reachable circle around the point of location). Flexible technologies could allow final variations of the product or service to adapt to specific country demands (for instance in packaging). The logistics (inbound and outbound) could be (re)defined at the European level and also be more centralised by zones. On the other hand, some of the ‘downstream value activities’ could be decentralised by country to deal with diversity. In short, marketing and sales should have national or regional perspectives: (a) keep the identity of national names in case of acquisitions, (b) adapt advertising to each country’s specificities, and (c) for some time, accept price differences between countries, then be ready to standardise pricing at the European level. This decentralisation of marketing and sales should not mean a complete autonomy of national sales subsidiaries; these diverse policies should be coordinated at the European level to avoid inconsistencies and to seize any opportunity of pan-European action to improve costs. In the beer industry Heineken, for instance, is a good example of such a European strategy. In some industries which are ready for that (high globalisation forces, low localisation forces), a strong competitor could try to play a completely homogeneous Europe-wide strategy. Maybe one of the Japanese competitors will try it in the car industry in the future. Paradoxically, ignoring European diversity may be a key force in forming a really single European market. But we do not believe that such an extreme strategy of standardisation would be effective in the short term, at least in the industries that we studied, although it is probably different in purely global industries such as consumer electronics. Of course the level of centralisation/decentralisation of a company in Europe will depend on the balance between globalisation and localisation forces. Centralisation goes with high globalisation and low localisation forces, decentralisation goes with the converse. A more subtle alchemy is needed when both globalisation and localisation forces are high. The profile of the European competitor that we suggested above could fit in such a context. Europe-wide companies, especially when they grew by acquisitions, could take more and more the form of federations of business units (by productmarket and/or by country). Federations conciliate co-ordination and synergies with a relative autonomy of the business units and slim headquarters. Some federations like Volkswagen-Audi-Seat, or Fiat-Alfa Romeo-Maserati-Ferrari in the car industry, and Hachette or Pearson in publishing, illustrate such new organisational forms. Smaller companies can also take federative forms when their businesses and locations are diverse; we found some of them in the beer industry (Le Pêcheur), in book publishing (Poeschel Verlag) and in retail banking (Lyonnaise de Banque). To reconcile synergies and diversity and to manage an international federative company, top management will have to be more and more international. It means that several nationalities should be represented at the higher levels of management, and that the managers should have international experience (and language abilities). These principles are valid also for companies of third country origin—North American and Japanese for instance—which aim to develop in the European market. Some multinationals follow these principles, but not all of them do. The new pan-European companies emerging now still have much to learn in this domain.

MARKETS AND MANAGERS

137

REFERENCES Bartlett, Christopher A. and Ghoshal, Sumantra (1987) ‘Managing across borders: New organizational responses’, Sloan Management Review. Directorate-General for Economic and financial Affairs, Commission of the EC (1988) ‘The Economics of 1992’, European Economy, No. 35. Hofstede, Geert H. (1980) Culture’s Consequences: International Differences in Work Related Values. Beverly Hills: Sage Publications. Takeuchi, Hirataka and Porter, Michael E. (1986) ‘Three roles of international marketing in global strategy’, in M.E.Porter (ed.), Competition in Global Industries. Boston: Harvard University Press, pp. 111–46.

26 Countries, cultures and constraints [in European business] J.-L.Barsoux and P.Lawrence

Throughout the book differences between countries have been mentioned. But for the most part this has been a matter of specifics, of saying that Italian brewing has this or that characteristic, that representatives of retail banking in Britain express distinctive opinions, that the car market in Denmark is different from that in Germany, and so on. The purpose now, however, is to talk about the differences between countries in a more general way, even if reference is made back to the same countries and industries that have figured in the study for illustrative purposes. In brief the argument we would like to develop here is that there are differences between countries which are significant for the way companies operate. These differences are likely to persist beyond 1992. That nationality is thus a variable in shaping or ‘contexting’ corporate strategy, and that national differences impinge directly, and indirectly, in that they sometimes shape the mental maps that managers have of their industries and markets. Hence in the first instance our emphasis in this chapter will be on heterogeneity, on differences between countries interesting from the point of view of business. And our point de depart will be how that heterogeneity manifests itself in terms of the different business philosophies they espouse. THE `LEVEL PLAYING FIELD' AND THE ANGLO-SAXON VIEW OF BUSINESS The English with their partiality for sporting metaphors like to speak of the Single European Market initiative as aiming at the establishment of a ‘level playing field’ for business and trading within the EC, one in which all ‘players’ will compete equally. Is this likely to be achieved? In all sorts of administrative and welldocumented ways it clearly will be achieved in the form of the much-vaunted abolition of non-tariff barriers. But from an Anglo-Saxon viewpoint there is an important sense in which the level playing field will not be level enough. Since the mid-1980s, the UK has served as the training ground for hostile takeovers. Britain, following in the footsteps of the US, has seen corporate raiding develop into a fine art. In the Anglo-Saxon scheme of things the freedom of companies to engage in business manoeuvres of the merger-acquisition-takeover kind is fundamental. This in turn is entirely consistent with the predominance of equity financing, ‘short termism’, and the priority given to shareholder value. A Single European Market that does not institutionalise this freedom, and equalise as between member states the possibility of initiating or resisting

Source: The Business of Europe: Managing Change, R.Calori and P.Lawrence (eds), London: Sage, 1991, Ch. 8, pp. 198–217.

WESTERN EUROPE

139

takeovers, is seen on the British side as incomplete. And it does not seem likely that the playing field will be level in this matter by 1992. As things stand, would-be foreign takeovers are not well received in mainland Europe. The chairman of the Deutsche Bank, Alfred Herrhausen, is an outspoken but otherwise fairly typical critic of takeovers conducted in an aggressive US style. He simply states that: ‘such conduct has no place in our economic culture’ (Director, June 1989:100). CROSS-BORDER ACQUISITIONS AFTER 1992 First there is the question of the small countries in the EC. Big companies in small countries tend to become national institutions, at least in a metaphorical sense. Would, for example, the Danish government allow a foreign brewer to buy Carlsberg? Or would a foreign publisher seeking a Scandinavian bridgehead be allowed to acquire the Gyldendal Publishing Company, owned by a foundation that also owns, and links in perpetuity, Gyldendal and the Louisiana Art Museum north of Copenhagen, and whose CEO is a member of the Danish prime ministers ‘think tank? Or if these Danish examples are thought to be a special case in that the organisations have fond (foundation) status then consider the Netherlands. The shares of KLM are not government-owned; in theory it could be bought. Nor is this a preposterous suggestion. Airlines are bought and sold. KLM itself has a 20 percent stake in Sabena, Belgium’s national airline (and British Airways owns another 20 percent of Sabena). And KLM also has shares in Transavia Holland, Martinair Holland, Air UK, and a muchpublicised stake in Northwest Airlines in the USA. But could anyone imagine either the Dutch government or the Dutch business community allowing KLM to be bought? Or again, would it be possible for an outsider to buy a Dutch bank? In theory it ought to be possible in terms of the relative size of Dutch as against certain non-Dutch banks. Yet again one has reservations in practice. As one of the British bankers put it: On the continent there are so many poison pills! In Holland, for instance, it is a common tactic to issue massive share options. So as soon as you go along and bid aggressively for a bank the share options are triggered and you end up paying three times the price. That is a big disincentive to go and buy a Dutch bank. Nor is it simply a question of the small countries. There was a general agreement in the sample of interviewed managers that it would be difficult to effect takeovers in (West) Germany. First, a lot of the equity of German companies is in the hands of the banks (for example, Deutsche Banks 28 percent share of Mercedes-Benz), primarily a result of the hyperinflation in Germany in the 1920s and banks’ recapitalisation of many manufacturing companies on the basis of an equity stake. Secondly, there is an interesting twist in the German scenario in that manufacturing companies also commonly own bank shares, thus having a stake in their masters! Again this is an insight that came to light in the interviews with British bankers. Thirdly, and although intangible this may be the most important consideration, there is something of a patriotic emotional bonding among German banks and companies, deriving from their role and solidarity in the post-war reconstruction period: they were re-born partners in the time of the Wirtschaftswunder, again making it difficult for foreigners to ‘break in’, disposing German firms to ‘close ranks’ in the face of a hostile (foreign) takeover attempt.

140

COUNTRIES, CULTURES AND CONSTRAINTS

THE FRENCH CONNECTION Finally in this connection is the fact that independent of the size of nation states, the government—industry relationship may vary. This is not a pro forma point. The French/British comparison is particularly striking. At the strong end of the continuum we have France. In France more companies are owned by the state since the immediate post-Second World War period, and a further spate of nationalisation occurred during the period of Frances socialist government, 1981–6. And it is not just a quantitative thing. Many of France’s most conspicuous industrial successes—from railways to telecommunications, aeronautics to energy—are state initiatives, even though it is often private sector companies that are doing the development and manufacture. It is an important feature of the French system that government is more active in shaping industrial policy. It is also the case that many firms in France have a relationship with government that is qualitatively different from that existing in Britain (or America). It further follows that the phrase and fact of ‘nationalised industry has connotations in France that are different from those in Britain. For anecdotal evidence of this, we need simply look at the way the Renault headquarters on the banks of the Seine announces in huge letters that it is Renault—Régie Nationale—under state tutelage. It is unthinkable that any British state-owned industry should similarly trumpet that fact. In France to be a public sector firm means to bask in the reflected glory of the French state—it is image-enhancing, not image-demeaning. Clearly, the threshold between the state and industry in France has always been lower; there is more common recruitment to top positions in both (from the grandes écoles), and more exchange of personnel (pantouflage), and more co-operation via state-sponsored planification. In Frances highly politicised corporate scene the heads of the private companies may well identify their jobs with the national interests of France itself. Jacques Calvet, chairman of Peugeot, epitomises the view: Remember the celebrated formula of a one-time head of General Motors that what was good for GM was good for the US? Well I consider that what is good for France is good for Peugeot. I cannot see how the French car industry can fight for interests contrary to French interests (Financial Times, 21 May 1990:32). The reversal of the GM slogan in the French case is especially poignant. It reflects the desire to do right by France (la gloire de la France). Calvet’s is symbolic of the attitude instilled in members of the French establishment who can move between the top public and private sector jobs with aplomb. The choice of company heads, the structuring of industries and the orientation of activity where the largest French firms are concerned has always been tied up with national ambitions. And although the 1980s did much to lift the administrative tutelage, French companies are still not fully exposed to the rigours of Anglo-Saxon-style business manoeuvres. This idea of an asymmetrical relationship between Britain and some of its neighbours has been developed at some length not simply as a piece of special pleading for Britain by British-based writers. There is a general feeling that British waywardness within the Common Market derives simply from wrongheadedness. It is suggested here that part of it is that Britain is the representative in the EC of a different business philosophy, one more influenced by American adventurism than by notions of continental solidarity. MANAGEMENT STYLE These countries also encompass differences in management style. A cursory look at some of Europe’s leading industrialists reveals big differences in style. If we take again France’s Jacques Calvet, head of the

WESTERN EUROPE

141

Peugeot group, for example, we see an embodiment of the ‘French dream’. First Calvet is a graduate of the Ecole Nationale d’Administration, the elite civil service college, he was head of the personal staff of former President Valery Giscard d’Estaing while Giscard was Finance Minister, and Calvet later headed the Banque Nationale de Paris, the largest state-owned bank—before ‘changing codes’ and joining the privatelyowned Peugeot. Not surprisingly, this itinerary has left its mark on his management style. Calvet himself has admitted to being sometimes, ‘too Cartesian’ in his management approach: ‘I have a fault from which I suffer greatly. I am too logical, not sufficiently directed by intuition’ (Financial Times, 21 May 1990:32). Now, although Calvet’s background is exceptional, he is representative of a French tradition which puts a premium on educated cleverness and intellectual rigour. Contrast with this Britain’s traditional emphasis on social skills and pragmatism. Is it any surprise that Britain’s best-known industrialist is probably the former head of ICI, Sir John Harvey-Jones? And consider his views on management: The manager has to be extremely sensitive—I know this, of course, makes people fall about—but nevertheless, actually management is a very sensitive job. You need to be a master of every single club in the golf bag, but the art is to continuously choose the appropriate club for that particular day in that particular situation (Take it from the Top’, Video Arts, 1990). We see in Harvey-Jones’ style a concern with interpersonal skills and persuasion. This is what British managers think management is about, both for real and in the image they like to cultivate. Or consider the archetypal Italian industrialist, Fiat’s Giovanni Agnelli. He is Europe’s most powerful businessman. Like Henry Ford in his time, Mr Agnelli lives in a country that places few limits on corporate power. Along with a number of Italy’s leading corporate lights, Mr Agnelli has a nickname, l’Avvocato (the lawyer) — some of the others include Olivetti’s Carlo de Benedetti who is known as I’lngegnere (the engineer); Silvio Berlusconi, owner of the TV-to-super-markets conglomerate, is Sua Emittentza (his ‘eminence’—a pun on a cardinal’s honorific); and Ferruzzi-Montedisons Rual Gardini is il Contadino (the farmer). This profusion of sobriquets (shades of Mussolini’s il Duce) reflects a very personalised view of management. Italian business is marked by the cult of the personality and the accompanying penchant for flair and charisma. Could this be why the Italian economy encompasses so many small businesses—each one headed by an aspiring Agnelli? Or again what about the Netherlands? Here one might take Freddy Heineken, chairman of the famous Dutch brewery. How does he incarnate the values of Dutch management? The answer is simple. Heineken is the third largest brewer in the world, behind Anheuser Busch and Miller of the USA, claiming 4.2 percent of the world market. But Mr Heineken is not satisfied with this. He talks of growth potential and eschews talk of saturated markets. He asks, ‘Why can’t we get to 8 percent of the world market?’ (Financial Times, 24 July 1989:34). In this attitude he reflects the internationalist bent of Dutch management as a whole (Lawrence, 1991). As a country with a small domestic market, the Dutch were obliged to look outside early—Heineken, for instance, was the first foreign beer allowed into the US in 1933 when Prohibition ended. But this early export orientation was merely an extension of centuries of mercantile tradition. The Netherlands has been a spectacular overachiever in international transport and freight; it has the largest harbour in the world (Rotterdam); an enterprising national airline (KLM); and a disproportionate number of the worlds leading multinationals. Its managers also display what, by Anglo-Saxon standards, is uncanny linguistic ability. Each of the leaders cited above then, arguably represents different national preoccupations, either in terms of managerial background or outlook. Now the differences in style we have outlined will mainly

142

COUNTRIES, CULTURES AND CONSTRAINTS

inform differences in managerial behaviour, which is not the primary focus of this book. But differences in style may also affect strategic choice and problem formulation. They will colour managerial perceptions and will determine what managers think of as being natural, possible and relevant. For instance, the Germans would conceive some things as possible because they are technically minded and they know that technical understanding is widespread among German managers. The Dutch might regard certain far-flung countries (Heineken have a brewery in Chad and a stake in a brewery in Shanghai) as natural markets to cultivate because of their seasoned adaptability abroad and the fact that Dutch managers, unlike some of their French counterparts, are not overawed by the prospect of going abroad. And of course, when it comes to strategy, formulation is only part of it: it has sometimes been said that effective strategy is 10 percent inspiration and 90 percent implementation, so that differences between countries in terms of management style may give rise to different behaviours, and that will affect implementation. For instance, French management with its esprit de planification formulates strategy in all its intellectual plenitude, but rather assumes implementation will follow naturally. British managers, on the other hand, will devote less effort to perfecting the abstract plan, and pay more attention to implementation using their social and political skills and their ability to ‘muddle through’. INDUSTRIAL DEMOCRACY Some of the EC countries in our study have co-determination systems, and some do not, and there were occasional references to this in the interviews. While a full consideration of the industrial democracy question would be inappropriate here, it may be helpful to make two points. First in popular discussions of industrial democracy and the Social Charter there is a tendency to dichotomise: there are the ‘good guy countries such as the Netherlands and West Germany with very credible co-determination systems, and the ‘bad guys’, among whom Britain is pre-eminent, who do not have such systems. Now Britain probably deserves to be singled out as shamelessly hostile to industrial democracy, the one country where even the trade union movement is ambivalent to this development. Our point is simply that it is not black and white. There are a lot of half-way houses. Between Britain and West Germany there is Italy, whose post-war constitution is lyrical on the subject of industrial democracy, but where nothing much exists in practice. Or France which has a recently (1981–6) enlarged body of industrial democracy legislation, but where its principal organ, the comité d’entreprise, is much inferior in the power it exercises compared to a German Betriebsrat or a Dutch ondernemingsraad. The second point relates to our earlier discussion of the ‘level playing field’, Anglo-Saxon style. There is no shortage of explanation for Britain’s hostility or lukewarm attitude to co-determination—it has to do with the class system, adversarial industrial relations and so forth. But we would like to suggest a further reason for that position. Co-determination runs counter to the easy buying and selling of companies. Simply having some works council or other body that has the right to be informed, consulted, and express its wishes takes the speed, secrecy and un-fettered market initiative out of takeovers. A recent Anglo-Dutch study, for instance, has shown the ‘deterrent effect’ of worker democracy in a clash between Dutch and American business cultures (Wenlock, 1990). So that the industrial democracy variable as between countries has wider implications— for strategy and business philosophy. And in Britain’s case, there are business policy reasons for corporate reluctance to embrace co-determination.

WESTERN EUROPE

143

SPECIAL INTERESTS The special interests that the various countries have is revealed time and again in our interviews. For the most part this is a simple point, yet one that seems all too easily forgotten (or repressed) in the 1992 euphoria. One or two examples may be helpful. The most obvious example is West Germany, as it was at the time of the research interviews. Everyone has confidently assumed that West Germany will ‘clean up’ East Germany in every sense of the phrase. Certainly, West Germany has an interest in East Germany that is unrivalled to the point of being exclusive. Yet perhaps more interesting, and more momentous, is the question: will a unified Germany come to exercise the same cultural, political and economic dominance in Eastern Europe that it did in the nineteenth century and indeed right up to the time of the Third Reich and the Second World War, when peace-ful influence was exchanged for military subjugation. Clearly this wider German influence is possible, but without being predestined. Whether or not it happens will depend as much on the expectations of the countries involved as on the economic realities. Or consider the case of Spain. A recently acceding member of the EC, seemingly putting its past behind it, with a rapidly developing economy that has attracted a lot of interest from the other countries, a fact documented at company initiative level in our interviews. Yet Spain is ‘locked in’ to one of the world’s top four languages. No other country in the world, let alone in the EC, has the same linguistic and cultural link with the greater part of Latin America. Relations between Spain and Latin America are historically strong, with many family and educational ties. And this fact emerges as a business reality in our interviews, with Spanish publishers for example speaking of their representation and market interests in South America. And although outside the scope of our study, there is the interesting case of pharmaceutical companies. The South American connection is useful to them because it saves having to go through complicated, slow and expensive drug registration procedures. Most South American countries will accept Spanish certification. The challenge of Japan gives us another line of cleavage within the EC. With one exception no one actually welcomes Japanese economic penetration in Europe, though responses vary from indifference tinged with concern to down-right hostility. The smaller countries such as Holland and Denmark tend to the view that they are too small to attract much Japanese attention (with the exception of Philips in the Netherlands). West Germany tacitly inclines to the view that they can for the most part beat the Japanese at their own game of product quality and manufacturing efficiency. The ‘Euro-Latin countries’, especially France and Italy, are much more explicitly hostile to Japanese export penetration, and in the case of the automobile in industry this hostility is quite implacable. For instance, Peugeot boss Jacques Calvet is not just in favour of introducing an EC-wide quota on Japanese cars, but he believes that quota should also include European-built Japanese cars. The ‘odd man out’ country yet again, is Britain. Not only is Britain, as usual, lacking any sense of European solidarity—it was dubbed ‘Japan’s fifth largest island’ by Jacques Calvet—but other considerations are also at work. Paramount is the view that Japan may help Britain to achieve a favourable trade balance in manufactured goods. Let the Japanese have their bridgehead in Britain, and with a bit of luck cars made in Sunderland, then Derby, will flow to continental Europe in a way that indigenous British cars have not since the 1950s. Side by side with this gross consideration is something more subtle and qualitative. It is the view that it will be good to have Japanese companies in Britain because they will set a good example and one which will hopefully have ‘knock-on’ effects for British industry. The Japanese, that is, are newly considered to be the exemplars of best practice in such matters as workplace discipline, employee commitment, the minutiae of manufacturing organisation, quality standards, and the organisation of suppliers. If all this passes down to

144

COUNTRIES, CULTURES AND CONSTRAINTS

British industry in general on a ‘drip-feed’ basis, Britain might become the economic ‘holy terror’ of Europe. And there are sometimes more esoteric historic associations for those prepared to dig diligently. One of the things which has resulted from the opening up of Eastern Europe recently is the re-emergence of the Baltic republics—Estonia, Lithuania, Latvia—which have a little-known Swedish connection. They are all on the coast facing Sweden. They all have Swedish-speaking minorities in them and Swedish settlements. And they all used to be part of the Swedish sphere of influence in their younger days’. Thus, they would all regard Sweden as their natural trading partner. Estonia in particular had the same sort of place in the Swedish psyche in the inter-war period that Paris had for Americans in the 1920s—Estonia was somewhere to go for fun and sin. Indeed a regular ferry service has now been started from Stockholm to Tallinn, the capital of Estonia, which leaves from the same terminal as boats to Finland. OVER SPACE AND TIME Most of the special interests referred to in the last section, and others less prominent—the Netherlands— Indonesia, Denmark-Greenland, Italy—Libya—are a legacy of history. But there are other ways in which the past shapes the future, or at least there are continuities of disposition and expectation. Again a contrasted example from among the countries in the study may help. The French think big; says the CEO of a French bank: ‘The major European banks will open offices in the major cities in France and Europe, which will increase competition. French bankers must set a lead to stay ahead in the globalisation game.’ But that is not a sentiment echoed for the most part by the German or Italian, British or Danish bankers. More representative of the other camp are the remarks of a British banker: ‘We can see no advantage in entering Europe, except very tentatively, focusing on the mortgage or insurance market.’ Another British banker gives a new dimension to this relative caution, arguing that it is regarded as a plus if another country is so regionalised that you can acquire a presence in a region, for example Catalonia in Spain or the Suisse Romande in Switzerland, without having to aim at a national presence. This strategy means one avoids the expense of acquiring a national stake, one is less likely to provoke a hostile response by local banks, and one does not fritter away one’s energies having five branches in every European capital but nothing to go with it. These considerations are all perfectly sensible, of course, but is it not an interesting contrast? The French see challenge and big stage drama: the British when offered international scope ‘go shopping’ for sub-national regions! Throughout, the responses of the French executives were the most ‘bullish’ in the sample. They invariably take 1992 seriously, they say it does matter, they see threats and opportunities there. Many of the French companies whose executives were interviewed had cross-border alliances in place, or were looking for them; often they had subsidiaries or ‘implantations’ in other EC countries, especially Spain and Italy. This in turn is consistent with French enthusiasm for the Channel Tunnel linking France and England, that contrasts with British apathy. Or again French acquisitions in Britain, of companies such as Metal Box, have attracted comment in the British financial press and have also been seen as evidence of France’s European demarche. This posture is historically consistent. For France this is Act Two of an exciting production whose Act One was in 1957–8 with the signing of the Rome Treaty and the inception of the Common Market. It is clear from testimonies of that period that this was regarded as a major step for the French patronat, the occasion for modernising French manufacturing in response to direct European and especially German competition.

WESTERN EUROPE

145

And now looking back, 1957–8 was a milestone on the road to greater prosperity, an indisputable part of les trentes glorieuses, the 30 years of economic advance following the Liberation of 1944. All this contrasts with the British orientation. British entry to the EC was born out of the realisation of national economic underperformance, driven by a hope that somehow or other EC membership would give Britain the dramatic economic growth rate enjoyed by, say, Italy in the years after 1958. At best a manage de convenance, with questions raised about the burden of the dowry. Nearly two decades later the British orientation does not seem to have changed so much. A common theme cross-nationally in the interviews (excepting France) is that the importance of 1992 has been exaggerated, that it will not make that much difference. This viewpoint is especially marked among the British executives who would offer often sensible and closely reasoned arguments as to why little would change. The British are not uninterested in the Single European Market, but it does not for them have the status of a rendezvous avec l’histoire. The British orientation is pragmatic, and focuses on the tangible. British publishers ask what will happen to the net book agreement, British brewers yearn for a harmonisation of VAT rates on alcohol and are haunted by the fact that a can of lager costs 17 pence in the Pas de Calais and 40 pence in the supermarket in Dover. British bankers pursue niche strategies, look for particular things that they might do better in particular foreign markets. Even if we take Britain as something of a stick-in-the-mud with regard to European unity, we can see in the response of other countries an enthusiasm born of different motives. We have already seen how France has seized on 1992 as a device to spur French industry to do what it needs to do anyway—become more self-reliant, internationally minded and responsive to market forces. In many ways France regards Europe as a vehicle for its ambitions to become once more une grande puissance. We can contrast this with the rather purer response of the Netherlands. Dutch keenness on European unification is merely the culmination of decades and even centuries of internationalist attitudes. And perhaps at the most altruistic end of the spectrum we have Spain which has embraced Europe, indeed democracy, with the fervour of a former exile. (All the buses in Spain bear the Council of Europe flag.) After decades in the wilderness, we see people relieved to find old friends. The example of Spain brings us neatly on to another interesting point regarding history and heterogeneity. Simply stated, it is that countries may have significant experiences at different times. For instance, all the Common Market countries are parliamentary democracies. But that conspectus of countries includes some that have been democratic for over 1000 years (UK), and others that have been ploughing a faltering furrow towards democracy since 1975 (Spain). And to drive home that point we have a whole new group of countries in the centre of Europe which have been parliamentary democracies only since the turn of 1989/90. Now some of these countries (notably Hungary and Czechoslovakia) are mooted as prospective EC members, yet it is clear they are not to be compared with France and Britain, Denmark and Holland, or even with West Germany in the matter of the establishment of democratic institutions. Or if we take another criterion, those former COMECON countries are also free market economies, but we all know that they are radically different as market economies from those prevailing in, say, Denmark or Italy. So it is not just a question of asking ‘has it happened?’. When it happened has significant implications for economic life and in turn for the strategy of companies. Now these rather gross comparisons can be refined and sectoralised. So that if we take the deregulation of banking as a criterion we could say, for instance, that Britain and Norway have similar systems. But in fact, Norwegian banking has only been deregulated since the mid-1980s, a decision which threw the Norwegian banking scene into upheaval. Banks switched from a very conservative, judicious lending role to being very keen to offer easy credit, discarding the usual controls and taking a rather cavalier attitude towards credit-worthiness. The upshot was that the banks lent too much, people reneged on loans, and 1988/

146

COUNTRIES, CULTURES AND CONSTRAINTS

89 saw a crisis with several banks going to the wall. If we look again at Norway in ten years’ time there will no longer be a problem, but presently there is still confusion. Or again consider publishing. Representatives of Spanish publishing say that theirs is a growth market because people are really keen to get hold of the books so long held back by the censor. There is an accumulated thirst which longs to be satiated. The example is even more striking in what used to be East Germany. What seemed on the surface to be a pretty emaciated market with poor collective purchasing power in fact turned out to be something of a goldmine for West German publishers. As it transpired, although salaries were low in East Germany, there was a high rate of savings; so when West German publishers peddled their wares in East Germany they found their books were snatched up with wild enthusiasm. Consumers even helped to unload the trucks bearing the formerly forbidden fruit! FACTS AND BEYOND We have touched on a number of contrasts between the countries in our sample that emerged in the interviews and at the same time seem to structure the perceptions of our executives. Sometimes these differences are factual, or have some factual starting point; yet the merely factual is soon transcended by meaning and interpretation, by attitude and conviction. More important than the facts is what we do with them, how they become embedded in meanings that shape our view of things, condition our understanding. Imagine a publishing executive in the USA thinking about Europe and wondering which would be desirable markets to enter. His thoughts light for a moment on one of the smaller countries of the EC— Denmark. Our putative American executive considers Denmark briefly—and dismisses it. A small country, tiny population (only five million, they have more pigs than people) and a minority language. What is more, books in Denmark carry 22 percent VAT, hardly a force for market buoyancy. Yet while in the USA 0.2 new titles are published annually per 1000 population, the corresponding figure for Denmark is 2.0. This is a fact, and a striking one. If one knew this one might think in book market terms of Denmark having a population of 50 million, or put it in the same category as France. What is more, of the two million households in Denmark, a quarter belong to one or more book clubs. Our American executive may not know these facts but at least he will know that publishing is a business like any other, and it is all about the bottom line. This notion will clearly not be foreign to the Danish publishing world, yet a consistent strain of literary patriotism and idealism emerges in our interviews with Danish publishers, crossed on occasion with long-term vision bordering on the heroic. One of the publishers has an imprint devoted to young, undiscovered Danish writers: not only is this series unprofitable, but the magnitude of its unprofitability is a source of corporate pride. Yet in 15 years’ time at least some of these loyally sponsored unknown writers will be bestsellers. This strand of idealism and professional conviction is nicely expressed by the CEO of another Danish publisher who claimed: ‘I do not think I would publish something I do not somehow feel something for. Publishing is both a matter of business and of love!’ Together with the long-term orientation of Danish publishers, ready to sponsor youthful talent and wait for mature bestsellers, is a traditionally stable relationship between writers and publishers. Danish writers do not ‘shop around’, they are not bound to their publishers by contract but by natural loyalty. All our Danish publishers volunteered this testimony, and it was common in the interviews to use marriage-based metaphors to connote this stable relationship. On one occasion the interviewer asked a publishing CEO if he was not sometimes exasperated to find a rival had snapped up a writer/title he wanted. The reply is instructive: ‘No. I have only felt that a few times. If we really looked at it in this way we would then go out and try to buy each other’s writers, and we do not do that here in Denmark.’

WESTERN EUROPE

147

From an American viewpoint there are other things which seem to be understood differently in Danish publishing. In an interview with a smaller Danish publisher the interviewer asked the CEO if he felt his publishing house had any advantage over a larger rival. This produced the modest response: ‘I do not think we can do anything which (name of rival publisher) cannot do. Maybe we are able to react faster and get a manuscript through the system faster.’ Now the USA is not included in our study, but there are some American executives in our interview sample who were heading up American companies in Europe. One of these American CEOs was asked in the interview about his company’s strengths. This question elicited a vigorous and comprehensive answer. When asked the corresponding question about possible weaknesses, he listed a number of former weaknesses, all of which had been overcome, thereby yielding a second list of corporate strengths! Is this American-Danish comparison not instructive? We began this little illustration from Danish publishing with contrasted facts about new titles per year per 1000 population. Yet interesting and relevant though the fact is, arguably more important are the differences in meaning, in what is expected, treated as usual, taken for granted. Yet successful business operations are built on this knowledge. COUNTRIES WITH MAPS The Danish publishing example is simply taken as an introduction to a wider phenomenon. Throughout our study when executives speak of their companies or industries, it is clear that they have what one might call ‘mental maps’ in the sense developed by Johnson (1987). By mental map we mean the managers taken-forgranted understanding of the way things naturally are. For instance, French publishers will take it for granted that it is their mission to be internationalist. Spanish publishers will take it for granted that it is their mission to publish in Latin America. Danish publishers will take it for granted that their mission is to publish young hopefuls. Mental maps shape managerial perceptions of what is possible in a business sense. Now, nationality is only one of a number of factors that impinge on the construction of these mental maps, but it is an important one, it has not received much prominence elsewhere, and our study seems to highlight it. Some more illustrations, crossing various industries and countries may be helpful. FRENCH PUBLISHING REVISITED At an earlier stage we referred to the relative ‘bullishness’ of the French companies vis-à-vis the Single European Market. The French seem to see 1992 as potentially important: a source of threat and opportunity, as something that should be prepared for especially by alliances, and we added that this is quite consistent with the French response to the inception of the EC in the 1950s. This general phenomenon is manifest in French publishing. Among our sample of six French publishers there were references to ‘implantations’ in France and Spain, alliances with publishers from other countries (in two cases even in Russia), and cross-border ownership of bookclubs. One of the French publishers spoke (British-style) of having over 50 percent of its business in North America, another had tried to buy the British publisher Collins. Even executives denying the importance of 1992 played up the need for internationalisation and cross-border alliances. There is another angle, perhaps less striking. It is quite simply that the French publishing industry seems to be marked by more ‘downstream’ integration. One of the publishers has a distribution centre in Paris significantly mentioned by some of the others as a force in the industry; there were various references to owning bookshops, chains in some cases, and bookshops abroad, as well as to controlled distribution

148

COUNTRIES, CULTURES AND CONSTRAINTS

through bookclubs (or the desirability of having it). Like Danish publishing statistics, these are facts of business organisation, but more importantly they structure the understanding of an industry. AMERICAN BUSINESS AND EUROPEAN INDUSTRY In the earlier discussion of takeover activity it was suggested that Britain shares an American business philosophy which emphasises profits and performance while relegating all else to the status of a means to achieve the end. This view, of course, does not lack expression in Europe; there is no black and white contrast. Yet there is a diffuse alternative orientation in continental Europe that one concentrates on excellence in the particular industry and assumes that profitability will ensue. This rather intangible difference may be apprehended sometimes in focus and lack of focus in certain industries. Let us consider brewing. The continental brewers are there to make beer. They may make soft drinks and mineral water as well, and perhaps have some supply contracts with cafés or retailers, but that is usually it. There is an interesting comparison with the British brewers, treated here as exemplars of this American business orientation. In the earlier chapter on the brewing industry it was jauntily remarked that British brewers do not seem to know whether they are in manufacturing, property, or distribution. Even more important is the fact that they do not care so long as they are making money. And to be fair they seem to make more of it, at least expressed as a proportion of turnover, than say the more product-focused brewers of West Germany. With a more American business philosophy it seems perfectly normal to British brewers that they should make beer, and other things; that they should own public houses and manage a property portfolio, that they can move in (and out!) of hotel ownership, dance halls, budget accommodation, betting shops and offlicences. One of the British interviewees expressed this much broader focus by describing his brewery as being in the leisure industry. The company mission was to fight for its share of what he called ‘the leisure pound’. German executives, to take a counter-example, do not say things like this. Or again consider the unusual perspective of the Italian brewers. As in most countries, consumption of alcohol is on the decline. There is a vigorous anti-alcohol lobby. These are not obvious causes for rejoicing in the brewing community. And yet Italian brewers display an optimism not shared by their European counterparts. The reason is that in Italy, a traditionally wine-drinking country, beer is regarded as a lowalcohol alternative. It follows that Italian brewers see beer consumption picking up as the anti-alcohol lobby gains strength. FOREIGN CHIC OR FOREIGN RUBBISH It was once observed that in Swedish vegetable markets Swedish produce is labelled as to region of origin. Non-Swedish produce is left unlabelled, thereby being tacitly consigned to the category of foreign rubbish (Lawrence and Spybey, 1986). We would like to suggest that countries vary broadly in their orientation to goods of foreign origin. Again beer is a nice example. Let us take Germany as a starting point. The famous Reinheitsgebot is one of the worlds oldest food laws and the Creed-cum-Ten Commandments of the German brewing industry. It was established in 1516 by Duke Wilhelm IV of Bavaria and decreed that beer should be made exclusively of four pure ingredients—malt, hops, yeast and water. Germany is the second biggest beer market in the world after the USA. Even this hard bold market fact hardly does justice to the seriousness with which the Germans, and in particular the Bavarians, take their beer.

WESTERN EUROPE

149

Although the EC forced West Germany to abandon the Reinheitsgebot, at least as a requirement for imported beer, this has made little practical difference in the marketplace. No self-respecting German will commit cultural treason by drinking beer that has not been brewed according to the dictates of the Reinheitsgebot. Beer is not so much a way of life in Bavaria as a religious edict. There are festivals throughout the year, from the Fasching carnival in the first few months, via the Starkbier festivities at Lent, and Biergarten time in the summer, right through to the awesome consumption of the Oktoberfest. Nor is beer patriotism the exclusive property of the Germans. This is also a Danish strength. Carlsberg of course has a large market share in Denmark, but there are other good Danish breweries and they are represented in our study. One Danish brewing executive summarised for us Denmark’s record on foreign beers: Carlsberg attempted to market Budweiser. It was a big failure, and frankly I do not think they were really sorry about it. Brugsen (Danish supermarket chain) imported Holsten beer from Germany. That did not go either. Dansk Supermarked (another chain) tried with Becks Bier (brewed in Bremen, West Germany). That was not a success either. Faxe (a Danish brewer) tried with Löwenbrau, but that did not go. Until now no foreign brewer has been successful in Denmark. There is a further twist to the Danish story. Driving down to the German border, crossing over and filling the tank with cheap German petrol and the boot with cheap beer is a national pastime for Danes. It is not German beer they buy, however, but good reliable Danish beer thoughtfully placed just over the border for them by friendly Danish breweries. For a contrast consider Britain. One of the present writers lives in the small English town of Melton Mowbray with a population of less than 25,000. In the town’s supermarkets one can buy beer from East and West Germany, from Denmark of course, from Holland, Belgium, and Luxembourg, from France, Spain, Switzerland, Italy, Czechoslovakia and Poland. Beers from Canada, the USA, Japan, Australia, Singapore and Mexico are also on sale. One store alone offers products from four Dutch and seven West German breweries. The fact that there is little in the way of indigenous British lager is of course part of the explanation. Yet this sharp contrast between Britain and some of its continental neighbours is suffused by a conviction that foreign is fashionable. FAST DRIVING IN THE CAR INDUSTRY We will end on a note of quasi-surrealism. Germany is one of the few countries with no speed limit on its motorways. This is a source of immense moral and psychological satisfaction to the Germans. When a temporary speed limit was introduced during the first oil crisis at the end of 1973 it produced a public outcry, backed by utterly spurious arguments to the effect that the speed limit (about 70 miles per hour) would not allow German drivers to get into top gear and was therefore actually wasteful of petrol. This basic German freedom also enables the Germans to patronise others—the Dutch, for example, who are rather proud of their speed limits, or the Danes who come to Germany to ‘refresh themselves on our autobahns’. Fascinatingly this conviction finds expression in some of the German car industry interviews. One manager urges that a speed limit on German motorways would increase accidents since it would render the motorways unattractive to German drivers who would switch to non-motorway roads with higher accident rates. A beautifully logical argument of course, but not one that you would hear from a Dutchman.

150

COUNTRIES, CULTURES AND CONSTRAINTS

But the German conviction goes further and enters the realms of competitive advantage and market positioning. We have further interview testimony to the effect that the absence of a motorway speed limit favours the quality and high performance segment of the German car industry. This is probably a fair claim: more fun to drive a Porsche in Germany than in Denmark. Yet the testimony goes further and urges that this is a competitive advantage abroad, that foreigners have greater confidence in German quality cars knowing that they have been designed for and proven on the unrestricted Autobahnen. Not an easy claim to confirm or disprove. But more interesting is the fact that it is not an idea one could readily come to in Tokyo or Detroit City. MAPS WITHOUT COMPASS We have explored various ways in which national differences may affect products, markets and business. We are not making any exclusive claim for nationality here. It is simply one of a number of forces which shape the mental maps that managers have. There is a last point to be made. We are dealing here with paradigms that are specific to industries, to countries, or to both. These paradigms are not easy to apprehend if one is an outsider—to the industry, the country, or to Europe as a whole. Nor are they necessarily things that will be readily revealed by formal methods of market research and business enquiry. You can look up the population of Denmark in an encyclopedia, but there is no way that you can find out that Danish publishers are more patriotic than American publishers—not unless a Danish publisher tells you, and even he or she might not realise it. The idea has been expressed by the psychiatrist R.D.Laing with his observation, ‘I don’t know what I don’t know’. This is not a simple imperative to ‘master the facts’, but an exhortation to engage in the subtleties of understanding. Our final point is a subtle one. Simply stated, it is that Europe is differently perceived from without, especially from the USA. The US view of Europe will be different from the European view of Europe. Typically, what perceptive Americans will latch on to is that there is more heterogeneity in Europe, that the Common Market isn’t really a United States of Europe, and that there are more differences between, say, Holland and Belgium than between Vermont and New Hampshire. Americans who see that are right. The difference in manners, in social assumptions, in cultural attitudes and consequently in business mores, will always be more marked in Europe. And this is what most of this chapter has been about, drawing the attention of insiders and outsiders to that manifold heterogeneity. But there is more to it than that. Europe is also different from the USA because it is marked by more conditionality in business decision making. What do we mean by conditionality? When American CEOs decide to do something, they do not need to ask anybody, they just do it. When Americans say, ‘Its a great idea, okay let’s go, let’s do it now!’ they are not just expressing a temperamental inclination towards positiveness and non-fatalism—although they are doing both of those things — they are also expressing what is institutionally possible for them. So that even the German, Danish or Dutch manager who has that same purposeful American temperament would not be able to act like this. The European reaction is more likely to be: ‘This is a great idea. We will now discuss it with the supervisory board, then we’ll discuss it with our trade unions. And we should perhaps let the worker representatives comment on it. And since we’re a fairly big company we’d better consult government. In fact we’re not just going to consult the Ministry of Employment but the Environmental Ministry too, because what we’re going to do has environmental implications.’ This is what we mean by conditionality. That European companies are much more likely to have two-tier boards, to require consultation with the labour unions which are inestimably more important than they are in

WESTERN EUROPE

151

the USA; and there will often be some form of dialogue with government. In the USA, on the other hand, talking to the government is for wimps and companies with defence contracts. To burlesque the situation, American firms do what they want to do; then hire lawyers to get them off the hook if necessary. The economy is a matter for businessmen; they know what is in the interests of America. Conditionality, then, is something that distinguishes Europe—and it is something that is little recognised from the outside. It is perhaps as important as the heterogeneity we have been preaching in the chapter. If we come back and take an intra-European view then again there are big differences in the degree of this conditionality with, say, the Netherlands— complete with co-determination, two-tier boards, government consultation, at the strong end of the spectrum—and Britain with relatively few of those things at the other end. Yet Britain would still be marked by greater conditionality in our sense than is the USA. So that European conditionality is both relative and variable. REFERENCES Barsoux, Jean-Louis and Lawrence, Peter (1990) Management in France. London: Cassell. Johnson, Gerry (1987) Strategic Change and the Management Process. Oxford: Basil Blackwell. Lawrence, Peter (1991) Management in the Netherlands. Oxford: Oxford University Press. Lawrence, Peter and Spybey, Tony (1986) Management and Society in Sweden. London: Routledge & Kegan Paul. Wenlock, Heather (1990) ‘The management of transfer of undertakings: A comparison of employee participation practices in the United Kingdom and the Netherlands’, DPhil thesis, St Edmund Hall, Oxford.

27 Decision style in British and Swedish organizations: a comparative examination of strategic decision making R.Axelsson, D.Cray, G.R.Mallory and D.C.Wilson

In this paper results from parallel large scale studies of strategic decision making in Sweden and the United Kingdom are reported. Swedish decision makers are found to employ a decision making style which emphasizes negotiation within a restricted group. This style, which involves considerable information search, leads to very long decision times. Strategic decisions in Britain are made among groups which include fewer strongly committed participants. Delays are common and often serious, but do not lengthen the process unduly. Decision styles in both countries include contrasting tendencies which produce a dynamic tension in the decision arena. INTRODUCTION Research on strategic decision making processes has seen steady development over the years, growing both in the sophistication of the models examined and the size of the empirical samples employed, yet it has remained predominately rooted in single nation studies. Mintzberg, Raisinghani and Theoret (1976) describe strategic decisions in Canadian organizations. March and Simon’s (1958) keynote studies of satisficing, the descriptions of incrementalism by Lindblom (1959) and Quinn (1980) and the investigation of phase theory by Nutt (1984) are all based on organizations in the USA. Hickson et al. (1986) based their analytical clustering of decision processes on a sample of organizations from the UK. With the notable exception of Heller and his colleagues (DIO International Research Team, 1979; Heller et al., 1988) there have been very few cross-national comparisons of strategic decision making processes and almost none on a large scale. From one perspective it would seem that whether decisions are made in Canada, the US or the UK is almost irrelevant. The results look additive and surprisingly consistent. Incrementalism or politically charged discontinuous processes can be found, for example, in the works cited above as well as other major studies of decision making (e.g. Pettigrew, 1973, 1985), again located in a single nation. It appears that the factors with the most immediate impact on the character of decision process are the topic for decision (a new product or a reorganization, for example) (Hickson et al., 1986), the particular role taken by key individual managers (Pettigrew, 1973, 1985) or the predominantly conservative influences of historical precedent and fear of uncertainty on the part of management decision making teams (Braybrooke and Lindblom, 1963).

Source: British Journal of Management (1991), 2:67–79

WESTERN EUROPE

153

Such consistency is, we believe, misleading, if it is taken to imply that decision processes generally occur in a context in which questions of national culture play a relatively minor part. Reference to research outside the specific area of strategic decision making indicates that the impact of national culture, however defined, is likely to colour the apparent homogeneity of strategic decision processes. The two relevant literatures are, first, that concerned with strategic management in a global context (e.g. Prahalad and Doz, 1987; Kogut and Singh, 1988; Lorange and Probst, 1990) and second, that concerned with the general effects of national culture on organizations (e.g. Hofstede, 1980; Bottger, Hallein and Yetton, 1985; Tayeb, 1988). Both of these substantial literatures point toward variance among national cultures as the norm. The issue of universality versus particularism across national and regional cultures has long been a concern of organizational theory. In the first instance this led to attempts to document and explain variations in managerial practice (e.g. Granick, 1962; Haire, Ghiselli and Porter, 1966; Dore, 1973). Despite considerable theoretical and methodological difficulties (Roberts, 1970; Hickson et al., 1979; Adler, 1984; Roberts and Boyacigiller, 1984) comparative research using a variety of approaches and instruments has flourished (e.g. Lammers and Hickson, 1979a; Hofstede, 1980; Hickson and McMillan, 1981; Mansfield and Poole, 1981; Joynt and Warner, 1985; Martin and Glisson, 1989). Much of this work has centred on the degree of influence exerted by national culture on the structure of organizations and the behaviour of their members. On one side of this debate are the culture-free theorists (Horvath et al., 1976; Hickson et al., 1981; Hsu, Marsh and Mannari, 1983) who argue that behaviour is constrained through the medium of organizational structure which is, in turn, dependent on the familiar contingencies of size, environment and technology and the managerial imperatives of control, co-ordination and communication. While the behaviour of individuals within the organization clearly differs due to national or regional culture, these deviations are of less interest than the regularities that occur due to the universal demands of industrial organization. For the culture-free camp the issue is not so much explaining differences across national and cultural boundaries, but revealing the regularities among organizations from countries in similar stages of economic development. Those who subscribe to the culture-bound approach (Hofstede, 1980; Lincoln, Hanada and Olson, 1981) see organizational form emerging from human preferences and decisions which are shaped by the values of society refracted through individual personalities. Therefore, the organization and the behaviour of those associated with it must reflect the characteristics of the surrounding culture. There may be structural regularities across national cultures, but they are relatively unimportant in the face of the substantial differences in the ways that individuals interact and in the views they hold of the organizations place in its environment. The debate between culture free and culture bound explanations has reached the stage at which it is more constructive to regard them as complementary than competing explanations (Lammers and Hickson, 1979b; Child, 1981). Instead of regarding the contextual imperatives found in every society as proof that culture is unimportant, one should ask to what extent does culture affect behaviour within the limits of contextual constraints. To address this question it becomes necessary to focus on specific organizational behaviours rather than general views of organizational structure. In this paper the style of strategic decision making is examined in two countries, Sweden and the UK, as a step toward understanding how such behaviours may diverge. To make this comparison, the concept of decision making style (Hellriegel and Slocum, 1975; Rowe and Mason, 1987) is adapted. In its original formulation the idea of decision making style describes the preferences of managers for certain types of situations which allow them to exercise their problem solving skills and to gain satisfaction through their successful exercise. Rowe and Mason (1987) arrived at four archetypes of decision making style through observation and evaluated individuals through a psychological

154

DECISION STYLE IN BRITISH AND SWEDISH ORGANIZATIONS

inventory. For the purposes of this paper the elements of a decision making style are related not to individual psychological characteristics, but to common patterns of behaviour which differentiate group decision making in contrasting cultures. The profile of such a national style cannot be constructed merely through observation, though of course experience provides a useful guide. By building a picture of decision making style for each country based on specific behavioural variables, the advantages of close comparisons of specific variables can be coupled with the contrast of overall styles. STRATEGIC DECISION MAKING IN CONTRASTING CULTURES Given its centrality for organizational success, strategic decision making is an obvious choice for investigation in a cross-national study. Since strategic decisions must take into account environmental conditions, including government policies, the activities of competitors and general economic climate, they will be influenced by the sedimentation of cultural values represented by these factors and found in the institutions in which they are embedded. Since strategic decisions tend to be novel, ill-structured (Mintzberg, Raisinghani and Theoret, 1976) and rare (Hage, 1980), managers will be forced to revert to generalized problem-solving techniques (Simon, 1960). Cultural values should be more clearly exposed here than in routine activities which might reflect factors which are more task specific. While the use of Sweden and the UK for this comparison stems more from the dynamics of international team research (see below) than a specific plan, the cultural differences between the two countries provide the background for a useful test of the assertion that different cultures make for contrasting decision styles. According to McMillan et al. (1973) many of the dominant values in Britain are rooted in the stability of parliamentary democracy, the monarchy and an unwritten constitution which emphasize traditional, normative methods of control. More recently Tayeb (1988) found that the English are a people wedded to tradition with a marked reluctance to change. In organizational terms this means that roles are given and that innovation is unlikely to be valued. In a comparison between decision making in British and US organizations, Mallory et al. (1983) found that in Britain strategic decisions took place within established arenas, i.e. formal and standing committees, but were guided by unwritten procedures. Granick (1972) in comparing managers in the UK with those in the US, France and Russia, found that British firms did little planning beyond what was necessary for co-ordination. As a consequence British managers operated in a decentralized system bounded by broad policy, but often accompanied by arbitrary constraints. While the intervening years and increased international competition may have forced some changes, more current work by Baier, March and Saetren (1986) found that the intrusion of several functional areas into the decision space leads to more ambiguity. Given the proclivity of British managers for functional solutions, they are likely to find their jobs and the associated complex decisions ambiguous. Control in the British context is based less on formal rules and more on reciprocal, personal trust relationships. The received stereotype of Sweden pictures a nation with a very strong commitment to social equality and human welfare. While critics both within Sweden and from abroad have argued that this picture is misleading (Korpi, 1975; Jepsson and Agren, 1979), their debunking approach underlines the power of the image. One of the points often made by critics is the strength of privately-owned companies within the Swedish economy. Although the government often intervenes in corporate affairs, relatively few Swedish firms are government owned or dominated (Fry, 1979, p. 1). The welfare state coexists with an aggressive, export-oriented private sector. In terms of management these values are expressed in a tendency toward negotiation as a means of decision making. This is found in the notion of förhandlingsrätt, the right to negotiate, which is entrenched

WESTERN EUROPE

155

in Swedish law, especially as it applies to industrial relations (Lawrence and Spybey, 1986, pp. 50–51). When compared to German practice, the Swedish emphasis on the right to negotiate over, rather than the right to decide about, certain issues becomes clear (Lawrence and Spybey, 1986, pp. 90–93). The value placed on human rights and democratic procedures exists in tension with the vesting of ultimate power in the hands of top managers. Differences between the United Kingdom and Sweden emerged in Hofstede’s (1980) large-scale investigation of cultural differences. Using data collected from employees of a single organization located in 40 countries, Hofstede situated them along four cultural dimensions. For two of these, the perceived distance between superiors and subordinates and the need to avoid conditions of uncertainty, Great Britain and Sweden were in the same cluster, showing no important differences. On the individualist-collectivist dimension Great Britain had a more individualist character. The British score on this scale was only exceeded by those of Australia and the United States. The greatest difference was observed on what Hofstede termed the masculinity index. The Swedes, who were found at the feminine end of the scale, espoused values of interdependence, quality of life and service. The British were to be found nearer the end of the scale dominated by independence, performance and ambition. From these brief descriptions certain outlines of the two decision making styles can be anticipated. Each would be expected to exhibit distinctive features, but each also contains its own contrasting elements. The British style of decision making should be marked by conservatism. Decisions take place within formal settings, but proceed by using unwritten rules which are maintained through personal connections. At the same time the individuals in the decision arena will tend to be more individualistic, task oriented and ambitious than their counterparts in other countries, specifically Sweden. Personal ambition within a conservative framework and the use of unwritten rules in formal setting ought to characterize the decision making style of British managers. The tension in the Swedish decision making style stems from a belief in negotiation and compromise coupled with aggressive corporate strategies. A tendency toward this type of decision making, especially a concern with the individuals involved, fits with the behavioural style described by Rowe and Mason (1987, pp. 49–50). Managers who use this style of decision making focus on the people aspects of decision making and operate best when ambiguity is low and the task relatively clear. Since strategic decisions are often characterized by the opposite conditions, it seems likely that demands of a competitive environment would require some deviation from the archetype. The general hypothesis which governs this paper was generated after the data were collected, but before the analysis was carried out. It can be stated quite simply. Given the contrasting values underlying the cultures of the United Kingdom and Sweden, styles of decision making should exhibit substantial differences. The Swedish decision making style will be characterized by the use of negotiation and compromise as means of making important choices, which will be limited by the demands of strategy formulation and execution. The British decision making style will reflect a conservative approach to business decisions coupled with a tendency to rely on personal rather than institutional connections. A conservative approach will be balanced by a relatively higher level of personal ambition among the participants. SAMPLES AND METHODS The empirical section of this paper is based on two studies, one of which was conducted in the UK with data collection taking place mainly during the period 1978–80 (Hickson et al., 1986; Cray et al., 1988). The second study was conducted in Sweden in 1981 by a member of the original Bradford research team

156

DECISION STYLE IN BRITISH AND SWEDISH ORGANIZATIONS

(Axelsson, 1982; Axelsson, Mallory and Wilson, 1987). The two studies were not designed as a crossnational research project. Rather, the second emerged from the first as an application of a successful methodology in a new setting. Professor Axelsson, who helped articulate the theoretical basis for the studies (Astley et al., 1982) and develop the data collection methods, applied the methodology to a sample of firms in his native country. Since they are parallel in intent and nearly identical in methodology with a collective data base which is considerably larger than any other available in the area, the data are more suited to crossnational research than much that has been previously employed. The British work, known as the Bradford Studies, yielded a data set which includes 150 strategic decisions taken from 30 organizations in Britain each of which provided five decisions for the sample (Hickson et al., 1986). The 30 organizations were selected to represent the variety of organizations found in British society. The second study drew on a sample of ten Swedish organizations with each again providing five decisions (Axelsson, 1982). The distribution of organization types for both samples is shown in Table 1. In both studies a wide variety of decisions was studied including decisions concerning floating new shares, investing in new equipment, launching new products and services, negotiating union agreements, internal restructuring and external acquisitions and mergers. As can be seen in Table 2, there is some discrepancy in the distribution of decision topics encountered. The greater incidence in the Swedish study of technology decisions involving heavy financial commitments is particularly marked and its possible effect on decision pace will be discussed below. While one cannot rule out the possibility that the contrasting distributions could affect results, a meticulous examination of differences between decision topics for the Bradford study (Hickson et al., 1986, Table 1 Types of organizations Type

UK Sweden

Examples

Public service Public manufacturing Private service Private manufacturing Totals

11 2 8 9 30

local government, health care, police university, electricity board construction equipment, chemicals, telecommunication equipment insurance, bank, entertainment, industrial research, transport chemicals, paints, brewery, paper and pulp, aluminium, textiles

3 2 2 3 10

Table 2 Decision topics Topics

UK

Sweden

Examples

Technology Organization Location Controls Outputs Domain Personnel Inputs Totals

23 33 8 19 28 18 12 9 150

15 12 8 7 4 2 1 1 50

new equipment, new buildings restructuring, mergers siting of plants, offices business plans, data systems new products, services marketing, distribution unions, job assessment finance, raw materials

pp. 131–164) showed that there were few systematic differences across ten categories of topics although there were marked differences for some specific comparisons. In any case the two samples are comparable in that

WESTERN EUROPE

157

they reflect the types of strategic decisions that were being made at the time by a variety of organizations in the two countries. The data for both studies were collected through personal interviews with participants in the decision making process. After an initial interview with the chief executive officer of the organization which provided structural and historical background, five strategic decisions were chosen in consultation with the researchers for further study. No attempt was made to define strategic for the respondents unless they requested elaboration. In this case they were told that decisions which led to important, long-term consequences for the organization should be considered strategic. Few requested such clarification. Each interview began with an extended description of the decision process from the time the issue was first raised until the outcome, positive or negative, was authorized. This was followed by a series of openended questions in which the informant amplified and clarified certain aspects of the process. Some of the questions were supplemented by five point scales on which the interviewee rated a particular feature. The most important of these were ratings of the influence of interests in the decision arena and the reliability of sources of information used in the decision. This method gave the advantage of a narrative provided in the interviewees own words augmented with more specific information on theoretically important variables. Where multiple informants were used, the separate accounts were consolidated into a single description. Operational definitions of individual variables are provided in the Appendix. Further methodological details can be found in earlier reports from the projects (Axelsson, 1982; Hickson et al., 1986). RESULTS Participation and influence The data from the two studies were analysed using a one-way analysis of variance in order to tap directly the contrasts between the two cultures (Lammers and Hickson, 1979b). The results provide a clear picture of the differences and similarities that exist in the Swedish and British styles of making strategic decisions. As Table 3 shows, making strategic decisions typically involves the same number of interests (units or individuals who have influence on the decision outcome) in both countries. There is no significant difference between the British mean of 8.25 and the Swedish mean of 7.36. The number of types of interests (diversity) showed even less difference. There is a significant difference, however, in the range of views that players bring to the decision arena. The objective of each interest in relation to the final outcome was measured on a scale from +2 (strong support) to −2 (strong opposition). Thus the range of objective scores for a decision is a measure of contention or the extent to which the views of those involved diverge. Participants in strategic decisions in Britain are significantly more likely (mean=2.57) than their Swedish counterparts (mean=2.14) to hold strongly opposing views. There is also an important difference in the extent to which parties try to sway the eventual outcome of the decision making process. In an attempt to gauge the force that interests exerted in the decision arena, a measure of total impact was constructed which weighted the influence of a participant (measured on a five point scale) by the absolute value of his/her objective. Thus a highly influential player with a strong preference for a particular outcome would receive a high impact score, while one with little influence or who was indifferent to the outcome would receive the minimum score. As can be seen in Table 3, the total

158

DECISION STYLE IN BRITISH AND SWEDISH ORGANIZATIONS

Table 3 Analysis of variance: participation and influence Variable

UK mean

Swedish mean

F

Sig.

Number of interests Diversity Contention Total impact Pressure of influence Conviction Intervention Negotiation scope Authorization level For UK N=150; for Sweden N=50.

8.25 5.17 2.57 23.58 3.12 1.23 28% 4.24 4.74

7.36 5.46 2.14 32.56 3.33 1.54 32% 2.90 5.18

2.17 0.89 4.49 12.08 4.51 26.27 1.23 32.37 4.63

n.s. n.s. 0.035 0.001 0.035 0.000 n.s. 0.000 0.033

impact of the players was considerably higher in the Swedish arena than in the British. Part of this effect comes from the significantly higher Swedish mean on the pressure of influence measure. The substantive difference is, however, small. The more important contrast, both statistically and theoretically, is that shown by the mean absolute value of the objectives scores on conviction. Those who participate in strategic decision processes in Sweden are likely to have strong opinions, whether negative or positive, about the eventual outcome. In Britain the decision arena is more likely to include those who are only mildly interested or even indifferent to the alternative chosen. To put it in a slightly different way, the British manner of making strategic decisions includes a greater proportion of those who do not feel strongly about the outcome. The explanation of the difference in the impact scores highlights a general contrast in decision making between the two samples. While the British managers show greater range in the objectives they desire so that there is more likely to be opposition to any alternative, the Swedish managers tend to hold less divergent views more strongly. One explanation of this could be the intervention of a strong party from outside the organization which causes managers to pull together. As the results in Table 3 indicate, there is no support for this explanation. The percentage of influence from outside the organization is nearly the same for both samples. There are three other possible explanations for these findings which deserve consideration. First, it is possible that the importance of external influence for Swedish decisions is underestimated by our measure. The state in Sweden plays a powerful and intrusive role in decisions relating to industrial policy (Lawrence and Spybey, 1986, pp. 50–51). Knowing that the state may intervene might cause Swedish managers to hold strong, but not very divergent positions despite the absence of the state as an active participant. Its potential role would be enough to influence managerial behaviour. The contrasting role of trade unions in the two countries might also provide an explanation. The British research (Wilson et al., 1982) demonstrated that trade unions seldom exerted important influence in strategic decisions and were often absent from the decision arena entirely. In the Swedish study nearly every decision investigated involved union representation under the nations codetermination law (Axelsson, Mallory and Wilson, 1987). The introduction of a specific, strongly held point of view into virtually every strategic decision might account, at least in part, for the higher level of influence shown in the Swedish decisions. The third possible explanation, which may complement the first two, is the existence of a strong tradition of negotiation in Sweden (Axelsson, Mallory and Wilson, 1987). Entering the decision arena knowing that

WESTERN EUROPE

159

the end result is likely to be a compromise taking into account all proposals rather than a clear choice among alternatives, has clear behavioural implications. First, when a negotiated compromise is the most likely outcome, a player with an extreme position risks losing effective influence. The contrast between the two samples on the variable negotiation scope supports the idea that there are perceived limits to acceptable positions. This variable measures the degree to which there was room for negotiation and dissent in the decision. The British managers reported significantly more scope for negotiation (mean=4.24) than the Swedish (mean=2.90). This does not mean that less actual negotiation took place, but that it occurred within narrower boundaries. A second behavioural effect implies that one might be willing to risk greater commitment to a position when the psychological and political risk of having it completely rejected is lower. Third, a strongly held position is more likely to have weight in any negotiation than one which is weakly held. Taking these three points together it would appear that a position which is not extreme in its orientation but strongly held would yield the optimal bargaining position in the Swedish context. There is also indirect support for this view in the significant difference between the level at which decisions were finally authorized. Swedish strategic decisions typically go to a board for authorization while those in Britain fall, on average, somewhere between the CEO and a board. Final authorization by a group rather than an individual underlirfes the importance of group processes in decision making. Given the small absolute difference between the two means shown in Table 3 one would not wish to put too much stress on this result, nevertheless it is consistent with an interpretation which stresses the importance of negotiation for Swedish managers. Decision pace The differences in the extent and nature of managerial participation are intriguing in themselves, but they are only part of the overall contrast in decision making between the two countries. One of the most striking differences occurs in the pace of decision making. As shown in Table 4, British managers reported that on average, an issue was apparent in the organization (gestation time) for 17.41 months before specific action was taken to reach a decision. The corresponding period in the Swedish sample was 36.54 months. Once the actual decision making process began it took an average of 12.95 months (process time) to reach a decision in Britain versus 23.02 months in Sweden. The result for Sweden is all the more striking since reports from Canada (Mintzberg, Raisinghani and Theoret, 1976), the US (Nutt, 1984) and the Netherlands (DIO International Research Team, 1983) were all congruent with the British findings. While these differences may be exaggerated by the large number of Swedish decisions involving sizeable investments in technology, it seems likely that Swedish managers do take longer to make strategic decisions. Lawrence and Spybey (1986, pp. 50–51) concluded that decision making in Sweden tended to be lengthy compared to other countries. Although strategic decision making is known to be time-consuming, an average of five years from the first appearance Table 4 Analysis of variance: decision pace Variable

UK mean

Swedish mean

F

Sig.

Gestation time (months) Process time (months) Informal interaction Formal interaction

17.41 12.95 4.24 2.25

36.54 23.02 4.30 1.78

11.12 12.51 0.09 3.42

0.001 0.001 n.s. n.s.

160

DECISION STYLE IN BRITISH AND SWEDISH ORGANIZATIONS

Variable

UK mean

Swedish mean

Delay occurrence 2.45 1.92 Delay importance 2.21 1.88 Impedance 5.06 7.62 For UK N ranges from 148 to 150 (see Appendix); for Sweden N=50.

F

Sig.

7.72 4.34 24.86

0.006 0.039 0.000

of an issue to final approval does seem rather leisurely given the pace of change in most environments. Why should this difference exist? The explanation can be sought in three general areas; the interaction among the decision makers, the delays they face and the search for information used in making decisions. The data concerning interaction yields some interesting results although mostly in a negative sense. As can be seen from the values given in Table 4, the measure of informal interaction shows virtually no difference between the two samples. Despite the prediction of more concern for group interaction and cohesion by Swedish managers, the level of informal interaction in casual meetings and lunchroom conversations was nearly the same for both samples. The number of committees and working parties used, the measure of formal interaction, showed some difference. The British averaged about half a committee more per decision, but again this was not statistically significant. Those who regularly sit on committees might argue that the presence of even half a committee extra could well extend the time taken to make a decision, but this explanation, while intuitively appealing, is not supported by the data. An examination of the delays encountered in the decision process shows more clear-cut distinctions. Even though the British tend to be much quicker than their Swedish counterparts in making decisions, they report significantly more delays and ascribe greater importance to them. Yet on the third measure of delay, impedance, the Swedish sample showed a significantly greater mean. The impedance scale taps the tractability of delays, that is, the degree to which they were under the control of those making the decision. The British managers perceived that the delays they encountered were serious and more frequent, but reckoned that they had relatively greater ability to deal with them. The Swedish managers evaluated the delays as less serious, but also felt that they had less control over manipulating these blockages. As the top two points on the impedance scale are resistance by internal and external forces, it seems plausible that the Swedish managers encountered more resistance from those in the decision arena, but did not regard this as a serious source of delay. Resistance, as part of the ethos of negotiation, is regarded as part of normal decision making in Sweden. It is in accordance with the rules of the game. This interpretation fits with the findings discussed above, that Swedish managers tended to have more strongly held objectives and greater average influence. This seems a reasonable interpretation in light of Hofstedes (1980) findings. The most powerful explanation for the differences in the speed of decision making is found in the contrast of search processes illustrated in Table 5. The number of participants in the decision arena who contributed information was much higher for the Swedish sample than for the British. Indeed the average number of parties providing information for Swedish decisions is marginally higher than those exerting influence, indicating that some individuals or groups provided information without exerting influence. In the British decisions this was a rare occurrence; it was much more common for individuals to exert influence without providing information. This would seem to indicate some prohibition on the exercise of influence without information to buttress one’s position in Sweden. It also points up the strong commitment to rationality by Swedish managers. More information is thought to improve the quality of decisions.

WESTERN EUROPE

161

Table 5 Analysis of variance: information search and evaluation Variable

UK mean

Swedish mean

Expertise 4.82 7.38 Search effort 2.76 3.94 Alternatives considered 2.88 4.84 Criteria 2.16 6.32 For UK N ranges from 145 to 150 (see Appendix); for Sweden N=50.

F

Sig.

52.01 87.84 3.37 277.50

0.000 0.000 n.s. 0.000

The central role of information in the Swedish decision making processes is also reflected in the search activities undertaken. On a four point scale of search effort, on which the simple recall of similar decisions was the lowest point and the integration of diverse research efforts the highest, the Swedish managers averaged nearly a full point higher. This reflects a Swedish tendency to appoint commissions or special working groups to investigate particular aspects of complex problems. Such a search strategy would naturally bring more interests into the decision arena as a consequence of including more providers of information. A wider search for information does not seem to be associated with the consideration of more alternatives. Although the Swedish decision makers did examine nearly two additional alternatives per decision, the difference is not statistically significant. The higher number of criteria that Swedish managers employed may be interpreted either as a stimulus for gathering more information or as a result of more information being available. The most likely explanation is that it is related both as cause and effect to search effort.

DISCUSSION The results of this study support the hypothesis that Sweden and Britain display contrasting styles of strategic decision making. To a great extent the styles which emerge from the examination of differences on particular variables are in line with the expectations outlined above. The Swedish style of strategic decision making is marked by higher levels of influence and conviction, but lower levels of contention. Those in the arena negotiate within a narrower scope, but each individual participant tends to have more impact on what is eventually decided. Not unnaturally this is a slow moving process in which delays are seen as inevitable and not particularly serious. The negotiation process is fuelled by a greater emphasis on searching out more information and comparing alternatives on a larger number of criteria. British strategic decision making involves more parties who are only marginally interested in the outcome. On average there is less effort expended in the British decision arena, but what is there is concentrated in fewer hands. The picture that emerges is the inclusion of a number of individuals or groups who monitor the decision process with little influence and no information to contribute. These interests may be acting out of personal ambition, as a means of keeping abreast of the informal distribution of power, or simply out of a concern for the status quo. This results in less effort to uncover new information and a much quicker pace of decision. These results indicate how important it is to focus on specific variables in building an image of managerial style. If one were to examine, for example, only the obvious variables of interests and diversity, the number and types of actors in the decision arena, one would conclude that the level of participation did not differ significantly between the two nations. Closer examination of the process through additional

162

DECISION STYLE IN BRITISH AND SWEDISH ORGANIZATIONS

variables discloses a quite different pattern of interaction by the individuals and groups involved. Most of those participating in a strategic decision in Sweden have both influence and input. In Britain there appears to be an inner group which exerts proportionately more influence and provides most of the information. The outer group merely monitors developments and perhaps protects local interests. When levels of influence and commitment are distinguished from mere participation, the apparent similarities disappear. Though there is little in the literature which bears directly on strategic decision making cross-culturally, there is some support for these findings. As discussed above, Lawrence and Spybey (1986, pp. 50–51) also observed very long decision times in Sweden and attributed it to basic democratic values of the society. To this they added the intervention of the state. This is important in strategic decisions because government approval, formally or informally given, is often necessary. If such approval requires the same type of slow discussion and search as the decisions studied here, then the overall effect will be a very slow decision process indeed. Lawrence and Spybey (1986, pp. 42–46) also refer to the high technical qualifications of Swedish managers when compared with their British counterparts. Greater technical competence would, at least in part, explain the tendency for search to be much more important in Swedish decisions. First, each individual, given the negotiation framework, would expect his/her special interests to be considered. Second, greater technical expertise would allow participants to access more sources of information. For the British managers, with their narrower, functionally-based outlook, search for new information is apparently less important than protecting the interests of the department. From the evidence gathered in this study we cannot demonstrate that Swedish decision making is more technically oriented and the British more politically oriented, but this would seem a reasonable hypothesis for future investigation. The placement of Sweden and Britain in Hofstede’s (1980) worldwide comparison reinforces the findings of this study. Britain’s location at the individualist end of the individualist-collectivist continuum is congruent with a decision making style which focuses decision making influence while the Swedish style disperses it more uniformly. This is underlined by Hofstede’s finding that Sweden and Great Britain differed little on the perceived power distance between superiors and subordinates. The narrower focus in British decisions is not due to the existence of a smaller elite, but to more selective entry, perhaps based on the relevance to functional interests, into the heart of the decision making process. Great Britain and Sweden also show an important contrast on Hofstede’s (1980) ‘masculinity-femininity’ scale. The Swedes are more feminine in the espousal of values of interdependence, quality of life and service. British managers were placed toward the masculine end of the scale which is characterized by values of independence, performance and ambition. The findings reported in this paper help provide further interpretation of this contrast. The negotiation-based Swedish style is feminine in the sense that full participation is encouraged, but this does not mean that opinions are more weakly held or expressed less forcefully. Contention is lower, but the difficulties arising in terms of impedance are greater than for the British managers. What seems to be ‘feminine’ about the Swedish style is its tolerance of these costs rather than any reluctance to enter fully into the decision process. A study by Horvath et al. (1976) compared a matched sample of organizations from Sweden, Great Britain and Japan on a number of structural dimensions. Swedish organizations scored lowest on formalization but highest on both specialization and centralization. The British firms scored lowest on specialization and centralization but were between Sweden and Japan on formalization. Because the three countries are at roughly the same stage of development and because the organizations were closely matched on industry and size, the authors argue that these differences are ‘culturally conditioned’. The findings on formalization and specialization do not contradict the findings from this study, but the placement of Sweden as most centralized and Britain as least does not at first glance fit with the picture

WESTERN EUROPE

163

developed here. However, the measures of centralization used in the Horvath et al. study cover mainly routine decisions. Thus it would seem that a group at the top of Swedish organizations makes a greater proportion of all kinds of decisions than in British organizations, but for strategic decisions in particular, the inner circle in Britain has a narrower compass. CONCLUSION The results reported in this paper demonstrate that the consistency in strategic decision making processes found by comparing previous, single country work masks very different practices. We have no reason to believe that the cultural differences that exist between Sweden and the United Kingdom are more dramatic than those between other countries. Therefore, contrasts that are similar in scale if quite different in character can be expected when other countries and other cultures are compared. In addition to the specific conclusions about the decision making styles in Britain and Sweden, there are two more general conclusions to be drawn from this research. First, there is the substantive issue of complexity and tension within decision styles. While both decision styles discussed above fit with what was known about the underlying values of the societies, neither is a simple function of a single value or even a cluster of values. Each style is formed by the action of several basic values with contradictory implications. Attempts to characterize national cultures or their effects on managerial behaviour through a focus on single values are bound to be of little empirical or practical use. The second point is the methodological implication of the first. No one who has studied organizations could seriously advocate the primacy of a particular methodology. Modern organizations are too complex and operate at too many levels in both hierarchical and theoretical terms to be encompassed by a single approach. The findings reported here, based on the measurement of specific variables taken in the context of narratives of managerial experience, illustrate the equal necessity of rigorous measurement and a holistic approach to managerial experience. Comparative work, if it is to be anything more than a series of disjointed vignettes, must marry the virtues of these two approaches. ACKNOWLEDGEMENTS Many thanks to Richard J.Butler and David J.Hickson for their help.

APPENDIX Number of interests The number of internal units/departments and external units/organizations named as having been involved. Diversity of interests The variety of interests, indicated by the number of categories of internal and external interests involved from 14 categories of interest.

164

DECISION STYLE IN BRITISH AND SWEDISH ORGANIZATIONS

Contention of objectives How far the interest units that exerted influence did so in opposite directions, indicated by the range of scores on a five point scale of opposition to, or support for, the eventual decision (−2=strong opposition; −1=qualified opposition; 0=neutral; +1=qualified support; +2=strong support). Total impact The total potential effort made to effect the outcome of the decision, indicated by multiplying the absolute value of the conviction score by the influence score and summing over all the interests present in the decision arena. Pressure of influence How great a weight of influence was exerted, indicated by the mean for all interest units of ratings by informants of the influence of each interest involved (1=little; 2=some; 3=quite a lot; 4=a great deal; 5=a very great deal). Conviction The overall strength of feeling toward the final decision indicated by the mean of the absolute values of ratings on the contention of objectives scale (see above). Intervention How far external influence was exerted, indicated by the percentage of the sum of influence ratings for all interest units that was due to external units. Negotiation scope How far there was room for negotiation and dissent, indicated by a score on a seven point scale (1=decision not open to negotiation; 5=negotiation only in final stages; 3=negotiation possible on choices but one person chooses the course of action; 4=collective decision; 5=negotiation including dissenting parties, but subsequent consensus; 6=negotiation resulting in limited consensus to the exclusion of dissenters; 7=decision reached with dissent remaining such as in voting). Authorization level How high in the hierarchy did the process culminate, indicated by a score for the level at which implementation was authorized and could commence (1=below divisional level or equivalent; 2=divisional level or equivalent; 3=chief executive; 4=chief executive and ratified by board; 5=board or equivalent top governing body; 6=board and ratified at higher external level; 7=outside and above the organization). Gestation time How long it took for a topic to emerge, indicated by the number of months from first recognition of a potential topic to the commencement of process time. Process time How long it took to arrive at the approved choice (or process outcome), indicated by the number of months from first deliberate consideration of a topic to an authorized decision. Informal interaction How much discussion, toing and froing, or arguments took place, indicated by the highest score for the process on a six point scale (1=none; 2=little; 3=some; 4=quite a lot; 5=a great deal; 6=a very great deal). Formal interaction How many kinds of prearranged meetings were included in the process, indicated by the total number of general committees/boards/ councils, etc., specialized committees, e.g. finance or sales, and special purpose working parties/project teams. Delay occurrence To what extent were there interruptions, delays or reconsiderations during the decision process, indicated by the score on a five point scale (1=not at all; 2=a little; 3=some; 4=quite a lot; 5=a great deal). Delay importance To what extent were the delays encountered perceived as serious, indicated by ranking on a four point scale (1=no delays; 2=delays were minor; 3=delays were moderate; 4=delays were serious). Impedance How far the process encountered impediments, indicated by the highest score for the process on a ten point scale (0=no identifiable impediments; 1=sequencing; 2=coordinating; 3=timing; 4=searching; 5=problem solving; 6=supplying; 7=recycling; 8=internal resistance; 9=external resistance). Expertise How many sources of data were drawn upon, indicated by the number of internal and external units providing information or views.

WESTERN EUROPE

165

Means, standard deviations and N’s for British and Swedish samples Britain Variable Number of interests Diversity Contention Total impact Pressure of influence Conviction Intervention Negotiation scope Authorization level Gestation time Process time Informal interaction Formal interaction Delay occurrence Delay importance Impedance Expertise Search effort Alternatives considere Criteria

Sweden

Mean 8.25 5.17 2.57 23.58 3.12 1.23 28% 4.24 4.74 17.41 12.95 4.24 2.25 2.45 2.21 5.06 4.82 2.76 ed 2.88 2.16

SD 3.22 1.97 1.17 15.40 0.62 0.37 0.18 1.37 1.30 36.06 11.70 1.24 1.48 1.16 0.96 3.29 2.34 0.86 1.74 1.25

N 150 150 150 150 150 150 150 150 150 148 149 150 150 150 149 148 150 150 145 150

Mean 7.36 5.46 2.14 32.56 3.33 1.54 32% 2.90 5.18 36.54 23.02 4.30 1.78 1.92 1.88 7.62 7.38 3.94 4.84 6.32

SD 1.72 1.49 1.40 17.05 0.57 0.38 0.18 1.63 1.08 31.89 28.42 1.31 1.73 1.92 1.04 2.63 1.69 0.42 12.55 2.16

N 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50 50

Search effort How readily information was accessible, indicated by a score on a four point scale (1=information available from personal knowledge or opinions; 2=information obtained readily from records; 3=information researched by scanning, for example by a market survey; 4=information synthesized by integrating disparate information from diverse sources). Alternatives considered The number of distinct options considered in the course of the decision process. Criteria The number of categories of criteria used to judge the correctness of the decision from 11 possible categories (profit, quality, output, costs, scales, return on investment, service rendered, morale, personnel benefits, image, market share). REFERENCES Adler, N.J. (1984). ‘Understanding the Ways of Understanding: Cross-cultural Management Methodology Reviewed’, Advances in International Comparative Management, 1, pp. 31–67. Astley, W.G., R.Axelsson, R.J.Butler, D.J.Hickson and D.C.Wilson (1982). ‘Complexity and Cleavage: Dual Explanations of Strategic Decision Making’, Journal of Management Studies, 19, pp. 357–375. Axelsson, R. (1982). ‘Strategiska Beslut och Strategiskt Beslutsfattande’, Erhvervsokonomisk Tidsskrift, 46, pp. 173–182. Axelsson, R., G.R.Mallory and D.C.Wilson (1987). ‘Bureaucracy, Decision-Making and Leadership in Private and Public Organisations’, Scandinavian Journal of Management Studies, 3, pp. 185–195.

166

DECISION STYLE IN BRITISH AND SWEDISH ORGANIZATIONS

Baier, V.E., J.G.March and H.Saetren (1986). ‘Implementation and Ambiguity’, Scandinavian Journal of Management Studies, 2, pp. 197–212. Bottger, P.C., I.H.Hallein and P.W.Yetton (1985). ‘A Cross-National Study of Leadership: Participation as a Function of Problem Structure and Leadership Power’, Journal of Management Studies, 22, pp. 358–368. Braybrooke, D. and C.Lindblom (1963). A Strategy of Decision. Free Press, New York. Child, J. (1981). ‘Culture, Contingency and Capitalism in the Cross-National Study of Organizations’, Research in Organizational Behaviour, 3, pp. 303–356. Cray, D., G.R.Mallory, R.J.Butler, D.J.Hickson, and D.C.Wilson (1988). ‘Sporadic, Fluid and Constricted Processes: Three Types of Strategic Decision Making in Organizations’, Journal of Management Studies, 25, pp. 13–39. DIO International Research Team (1979). ‘Participative Decision Making: A Comparative Study’, Industrial Relations, 18, pp. 295–309. DIO International Research Team (1983). ‘A Contingency Model of Participative Decision Making: An Analysis of 56 Decisions in Three Dutch Organizations’, Journal of Occupational Psychology, 56, pp. 1–18. Dore, R. (1973). British Factory-Japanese Factory. George Allen and Unwin, London. Fry, J.A. (1979). ‘Introduction’, pp. 1–9. In J.A.Fry (ed) Limits of the Welfare State: Critical Views on Post-War Sweden. Saxon House, Farnborough. Granick, D. (1962). The European Executive. Doubleday, New York. Granick, D. (1972). Managerial Comparisons of Four Developed Countries: France, Britain, United States and Russia. MIT Press, Cambridge, Massachusetts. Hage, J. (1980). Theories of Organizations: Form, Process and Transformation. Wiley, New York. Haire, M., E.E.Ghiselli and L.W.Porter (1966). Managerial Thinking: An International Study. Wiley, New York. Heller, F., P.Drenth, P.Koopman and R.Veljko (1988). Decisions in Organizations: A Three-country Study. Sage, London. Hellriegel, D. and J.W.Slocum, Jr. (1975). ‘Managerial Problem-Solving Styles’, Business Horizons, 18, no. 6, pp. 29–37. Hickson, D.J., R.J.Butler, D.Cray, G.R.Mallory and D.C.Wilson (1986). Top Decisions: Strategic Decision Making in Organizations, Blackwell, Oxford and JosseyBass, San Francisco. Hickson, D.J., G.R.Hinings, C.J.McMillan and J.P.Schwitter (1981). ‘The Culture-Free Context of Organization Structure’, pp. 3–17. In D.J.Hickson and C.J. McMillan (eds.) Organization and Nation: The Aston Programme IV, Gower, Farnborough. Hickson, D.J. and C.J.McMillan (eds.) (1981). Organization and Nation: The Aston Program IV, Gower, Farnborough. Hickson, D.J., C.J.McMillan, K.Azumi and D.Horvath (1979). ‘Grounds for Comparative Organization Theory: Quicksands or Hardcore?’, pp. 25–41. In C.J. Lammers and D.J.Hickson (eds.) Organizations Alike and Unlike, Routledge and Kegan Paul, London. Hofstede, G. (1980). Culture’s Consequences: International Differences in Work-Related Values. Sage, Beverly Hills. Horvath, D., C.J.McMillan, K.Azumi and D.J.Hickson (1976). ‘The Cultural Context of Organizational Control’, International Studies of Management and Organization, 6, pp. 60–86. Hsu, C.K., R.M.Marsh and H.Mannari (1983). ‘An Examination of the Determinants of Organizational Structure’, American Journal of Sociology, 88, pp. 975–996. Jepsson, O. and G.Agren (1979). ‘Work Milieu—Part II’, pp. 204–15. In J.A. Fry (ed.) Limits of the Welfare State: Critical Views on Post-War Sweden, Saxon House, Farnborough. Joynt, P. and M.Warner (eds.) (1985). Managing in Different Cultures. Universitetsforlaget, Bergen. Kogut, B. and H.Singh (1988). ‘The Effect of National Culture on the Choice of Entry Mode’, Journal of International Business Studies, 19, pp. 411–432. Korpi, W. (1975). ‘Poverty, Social Assistance, and Social Policy in Post-War Sweden’, Acta Sociologica, 18, pp. 120–141. Lammers, C.J. and D.J.Hickson (eds.) (1979a). Organizations Alike and Unlike, Routledge and Kegan Paul, London. Lammers, C.J. and D.J.Hickson, (1979b). ‘Are Organizations Culture-Bound?’, pp. 402–19. In C.J.Lammers and D.J.Hickson (eds.) Organizations Alike and Unlike, Routledge and Kegan Paul, London.

WESTERN EUROPE

167

Lawrence, P. and T.Spybey (1986). Management and Society in Sweden. Routledge and Kegan Paul, London. Lincoln, J.R., M.Hanada and J.Olson (1981). ‘Cultural Orientations and Individual Reactions to Organizations’, Administrative Science Quarterly, 26, pp. 93–115. Lindblom, C. (1959). ‘The Science of Muddling Through’, Public Administration Review, 19, pp. 79–88. Lorange, P. and G.Probst (1990). ‘Effective Strategic Planning Processes in the Multinational Corporation’, pp. 144–163. In C.A. Bartlett, Y.Doz and G.Hedlund (eds.), Managing the Global Firm, Routledge, London. Mallory, G.R., R.J.Butler, D.Cray, D.J.Hickson and D.C.Wilson (1983). ‘Implanted Decision Making: American Owned Firms in Britain’, Journal of Management Studies, 20, pp. 191–211. Mansfield, R. and M.Poole (eds.) (1981). International Perspectives on Management and Organization, Gower, Farnborough. March, J.G. and H.A.Simon (1958). Organizations, Wiley, New York. Martin, P.Y. and C.Glisson (1989). ‘Perceived Structure: Welfare Organizations in Three Societal Cultures’, Organization Studies, 10, pp. 353–380. McMillan, C.J., D.J.Hickson, C.R.Hinings and R.E.Schneck (1973). ‘The Structure of Work Organization across Societies’, Academy of Management Journal, 16, pp. 555–569. Mintzberg, H., D.Raisinghani and A.Theoret (1976). ‘The Structure of “Unstructured” Decision Processes’, Administrative Science Quarterly, 21, pp. 246–275. Nutt, P. (1984). ‘Types of Organizational Decision Processes’, Administrative Science Quarterly, 29, pp. 414–450. Pettigrew, A. (1973). The Politics of Organisational Decision-Making. Tavistock, London. Pettigrew, A. (1985). The Awakening Giant: Continuity and Change in ICI. Blackwell, Oxford. Prahalad, C.K. and Y.L.Doz (1987). The Multinational Mission: Balancing Local Demands and Global Vision. Free Press, New York. Quinn, J.B. (1980). Strategies for Change: Logical Incrementalism. Irwin, Homewood, Illinois. Roberts, K.H. (1970). ‘On Looking at an Elephant: A Review of Cross-Cultural Organizational Research’, Psychological Bulletin, 74, pp. 327–350. Roberts, K.H. and N.A.Boyacigiller (1984). ‘Cross-national Organizational Research: The Grasp of the Blind Men’, Research in Organizational Behaviour, 6, pp. 423–475. Rowe, A.J. and R.O.Mason (1987). Managing with Style. Jossey-Bass, San Francisco. Simon, H.A. (1960). The New Science of Management Decision. Harper and Brothers, New York. Tayeb, M. (1988). Organizations and National Culture: A Comparative Analysis. Sage, London. Wilson, D.C., R.J.Butler, D.Cray, D.J.Hickson and G.R.Mallory (1982). ‘The Limits of Trade Union Power in Organizational Decision Making’, British Journal of Industrial Relations, 20, pp. 322–341.

28 Industrial democracy in Europe revisited: summary and conclusions IDE—International Research Group1

At the congress on Participation and Self-Management in Dubrovnik (then Yugoslavia), a group of some 25 social scientists from a dozen countries decided to conduct jointly an international comparative study on the impacts of rules and regulations on participation in companies. This international, interdisciplinary network: ‘Industrial Democracy in Europe (IDE)—International Research Group’ has now cooperated in joint research for two decades. A first major study was conducted in 1975–7 (IDE, 1981). The following report covers a replication of that research ‘ten years on’. Some 80 publications resulted from the work of the IDE team (see IDE, 1992, in press). The first collective IDE report on theory, design and methods was published in this journal (IDE, 1976). Hence, with its present paper, the IDE group reaches the termination of a longstanding research cooperation. OBJECTIVES The present study had a number of objectives. The overall and primary aim was to have another opportunity to look at the same organizations in the same countries in Europe ten years after the first survey, and learn about any changes that might have occurred. More specifically, we wanted to see whether the external and formal influence and power structures and the extent of participative behaviour inside organizations had changed and whether the previous finding of a positive relationship between formal power structures and de facto participation was still true in the 1980s. The most ambitious and most difficult aim was to see whether a longitudinal link between the two crosssectional studies might give us some insight into possible causal relationships over time. To do justice to this ambitious endeavour, we had to try to select a group of contingencies which could be hypothesized as strengthening or weakening the relationships between our major dimensions and, in addition, assess the impact of selected economic and technological changes (in particular the rate of unemployment) over the intervening period, up to 1987. Not all our aims could be accomplished. The downturn in economic conditions which affected our sample of companies also reduced the availability of research funding and, consequently, we had to be content with a less complete schema than we would have wanted to use. However, the replication study benefited from our analysis of the 1977 results (see IDE, 1981), where we found that some aspects of the enquiry were relatively unimportant and could be dispensed with. At the same

Source: Social Science Information (1992), 31(4):773–85.

WESTERN EUROPE

169

time, although we had to economize our resources, we wanted to introduce a few variables that had gained salience in the intervening years. In this summary, we report selectively on a number of findings that are thought to have strategic relevance for future research as well as for industrial relations policy. THE VALUE OF REPLICATION In spite of the limitation of resources available to carry out the 1987 study, we are convinced that replication studies are of considerable scientific and practical value. We can, however, understand why the vast majority of industrial relations and organizational studies use a cross-sectional design without wishing that this state of affairs should continue indefinitely or is considered adequate for scientific or policy purposes. A replication study with only two measurement points may not be as interesting as one that has three, or even more, and for the purpose of understanding behavioural dynamics, longitudinal studies have to use methods of tracing structural, social and psychological processes over prolonged periods of time (Heller, 1984). Nevertheless, the results from the present replication study show very clearly that, while some findings from 1977 were confirmed and can consequently be considered more secure, other conclusions have to be modified in the light of the evidence from an analysis of the available 1977–87 data. This possibility undoubtedly enriches our understanding of the interaction between aspects of organizational behaviour and the economic—political environment. We were also fortunate that after such a long interval of time the majority of researchers who had taken part in the earlier study were still available to carry out the second study, and that most of the companies had survived and agreed to work with us again. While a decade is always a long time in an organizations life, the period 1977–87 was in some respects unusually turbulent. It included a major oil crisis which precipitated a significant downturn in economic activity, an increase in competition—particularly from Japan—and a noticeable increase in unemployment, which affected all countries in our sample, but some much more severely than others. In addition, the decade was characterized by very substantial changes in technology in manufacturing as well as in service industries. In most countries the political balance had moved to the right, attitudes towards trade unions had become less favourable, and the role of employers was more dominant. These and other factors have, of course, varied somewhat from country to country. OUTLINE OF THE STUDIES The principal focus of both research studies was the distribution of influence at all levels of organization, its antecedents and consequences (IDE, 1976). Both studies were based on an examination of sixteen decisions covering short-term operational, mainly shopfloor issues, as well as longer term strategic decisions. The respondents were key senior management and trade union respondents within each of the 72 companies that were involved in 1977 as well as in 1987. The replication study included ten out of the original twelve countries: Belgium, Denmark, Finland, Germany, Britain, Israel, Netherlands, Norway, Sweden and Yugoslavia. In addition, the 1987 study included Poland and Japan. In each organization, respondents were interviewed and filled in a number of questionnaires. The answers to the set of sixteen standardized decisions covered an influence-distribution continuum on a scale from 1 (no influence); 2 (little influence); 3 (moderate influence); 4 (much influence); 5 (very much influence). This distribution of influence (abbreviated PO) was assessed for all levels of the organization (worker, first-

170

INDUSTRIAL DEMOCRACY IN EUROPE REVISITED

line supervisor, middle management, top management, and representative bodies: works councils or joint consultative committees plus some which will not be reviewed here). The major antecedent variable was participative structure (PS). This was a measure of formal prescribed participation based on laws or recognized collective agreements, measured on a scale from 1 to 6. FINDINGS FROM COUNTRY DATA • The overall pattern and distribution of influence (PO) in the 72 organizations from ten countries did not change very much over the decade. Some changes in influence at the lowest level of organization were found in four countries. Worker influence increased slightly in Israel, Sweden and Finland, but declined in Yugoslavia. • There were more substantial changes for representative bodies (PO). In Britain and Yugoslavia their influence declined, while in other countries, particularly in Israel and Sweden, and to a lesser extent in Finland, it increased. • At the level of top management, the influence scores (PO) between 1977 and 1987 were identical for Yugoslavia and Finland. They declined very slightly in Belgium, Britain, Denmark, Netherlands, Norway and Sweden, and increased slightly in Israel. In Germany the drop in top management influence was fairly large. • The changes in formal participative structures (abbreviated PS) over the same period showed substantially more variability. Most movements were in an upward direction (see Table 1). Participative structures supporting senior management registered consistent increases in every country except Britain, where it declined slightly. The increase was very large for Israel; substantial for Denmark and Norway; moderate in the Netherlands, Sweden and Finland; and small in Yugoslavia. • At the lowest level of organization, there were increases in formal participative structures (PS) in Britain, the Netherlands, Israel, Norway and Finland. In Yugoslavia and Belgium, such formal support declined and there was no change in Denmark and Germany. • An important objective of the present research is to test the assumption, derived from the 1977 study, that participative structures (PS) could have a determining influence on participative behaviour at the lowest level of organization measured by our Influence-Power-Continuum (PO). It is therefore interesting to look at the difference in participative structure scores between top management and workers over the tenyear period. This difference has increased in six out of the ten countries (Belgium, Denmark, Israel, Norway, Sweden, Yugoslavia), most noticeably in Belgium and Norway. In four countries, the difference has decreased (Germany, Britain, Netherlands and Finland). • If we examine the changes in participative structures (PS) and de facto participation (PO) over the ten years, country by country, we find no consistent relationship in the pattern of changes. Two explanations may spring to mind. One is that participative structures (PS) do not determine the amount of influence (PO) available at the level of workers. Alternatively, it is possible that changes in formal participative structures (PS) take a long time to work through the system and affect shopfloor behaviour. Our data do not tell us when in the decade 1977–87 the structural changes took place. If, for instance, many of the changes took place in the mid-1980s, then one would not expect the consequences to have cascaded down to behavioural changes at the lowest level of organization by 1987. In other words, there may have been a time-lag in the system.

WESTERN EUROPE

171

Table 1 Changes over the decade 1 977–87 in participative structures (PS) and de facto influence (PO) for workers and top management Worker level PS 1977–87

Top management PO 1977–87

Belgium + − Denmark 0 + Germany 0 0 Britain + 0 Netherlands + 0 Israel + + Norway + − Sweden 0 + Yugoslavia − − Finland + − −=less; += more; ++ =much more; 0=unchanged.

PS 1977–87

PO 1977–87

+ ++ + − + ++ ++ + + +

− − −− − − + − − 0 0

• In each country, the highest level of prescribed formal influence (PS) is given to senior management, except in Britain. Britain is unusual in this sample for having very few well-defined formal or legal rules relating to participation. Nevertheless the de facto power of senior management in Britain is substantial and about the same as in other countries. From another research project which followed up the 1977 Industrial Democracy research, we also know that in addition to externally prescribed format structures (PS), there are company-level prescribed or sanctioned norms (which we call status power) that have a strong determining influence on the de facto distribution of influence (DIO, 1979). AGGREGATE ANALYSIS We now come to report on the more global analysis for which country data are aggregated, in order to explore the extent to which patterns of de facto influence distribution (PO) are affected by formal power structures (PS). The calculations were carried out separately for the 1987 data, as well as for the strictly comparable variables from 1977. Finally, a longitudinal analysis was carried out to trace the relationship of formal power structures (PS) on the distribution of de facto influence between 1977 and 1987. The only macroeconomic factor in these analyses is the annual average percentage of unemployment between 1985–7 and 1975–7. Some important policy-relevant conclusions are reported below: 1. To make the two time-periods comparable, it was necessary to re-analyse the 1977 data by leaving out variables not covered in 1987 and removing France and Italy because they did not take part in the replication, largely because of the unavailability of research funding. (a) This new 1977 analysis re-confirmed the earlier conclusion that formal power structures (PS) predict the overall influence distribution (PO) between management and labour. This prediction was particularly strong for the impact of PS on the influence (PO) of representative bodies. (b) A high rate of unemployment is usually assumed to reduce the influence of labour and this was confirmed for nine countries. However, it is of some interest to report that, under certain circumstances, a

172

INDUSTRIAL DEMOCRACY IN EUROPE REVISITED

high degree of unemployment does not have this negative effect on workers, which in fact was the case with Yugoslavia. It is very likely that the robustness of that participative system was a function of its having been very firmly embedded in the socio-political system at that time, although this may now be changing (Warner, 1990). (c) If we leave Yugoslavia out of the 1977 re-analysis, unemployment is a stronger predictor of worker influence (PO) than formal power structures (PS). Workers in the service sector have more influence than in manufacturing, but other contingency factors, like size of organization or product complexity, made no impact. (d) The 1977 statistical analysis provides a fairly clear picture of the de facto influence of top managers and worker representative bodies. In both cases, the impact of formal power structures (PS) and unemployment are strong predictors. In the case of representative bodies, the unemployment rate has a negative effect, but in predicting the influence (PO) of top managers, it has a positive effect. 2. Analysis of the 1987 data has to be approached with caution, but a number of conclusions and comparisons with 1977 can be made. (a) In spite of the substantial economic and social changes over the decade separating the two measurement periods, there are important similarities in the overall results. (b) In particular, the apparently causal impact of formal participative structures (PS) on the pattern of influence (PO) for workers and representative bodies is repeated in 1987. In both time-periods, we can observe a similar prediction between participative structures (PS) and the difference in the extent of influence (PO) between top management and labour. (c) Unemployment strengthened the position of management in 1977 as well as, more weakly, in 1987. Unemployment weakened the influence of labour in 1977 and, to a lesser extent, also in 1987. FINDINGS FROM LONGITUDINAL ANALYSIS Thus far we have confined ourselves to a somewhat static analysis of the results of the two periods of research and a comparison between them. Finally, it is important to make use of the longitudinal data in an attempt to introduce a dynamic pattern of relationships into the discussion of industrial relations over the decade 1977–87. This was achieved by combining the statistics from the two periods and conducting various analyses with this new two-period data set. One objective was to see whether the pattern of influence (PO) at the end of the decade was conditioned by factors derived from the material collected ten years previously. Furthermore, the two-period data could also be used to study changes in patterns of influence distribution (PO) between 1977 and 1987 and related to three factors: (i) changes in formal participative structures (PS); (ii) changes in the general rate of unemployment over the decade; and (iii) the extent to which different groups in the organizations exercised influence (PO) at the beginning of the decade in 1977. The procedures for carrying out these analyses are complex and again we report only the most important, policy-relevant findings. • Perhaps the most important result of the longitudinal analysis is to demonstrate that it leads, in one or two important respects, to different conclusions from the cross-sectional analysis. • In particular, it shows that formal participative structures (PS) are less important predictors for the pattern of influence distribution than the indices of unemployment. This conclusion substantially amends the conclusion derived from the 1977 study alone (IDE, 1981). It is, of course, important to bear in mind that the 1977–87 period was fairly exceptionally turbulent, in that its turbulence combined a major oil

WESTERN EUROPE

•

• •

•

173

price-generated economic recession, with substantially increased economic competition and changes in technological sophistication. One consequence of these indicators of turbulence was the increase of unemployment in each of the ten countries. It would be important to repeat such a longitudinal analysis during a less turbulent decade, when the impact of participative structures (PS) on the de facto distribution of influence (PO) may very well turn out to be dominant. An important refinement was introduced into the longitudinal analysis by testing two alternative models of accounting for changing patterns of influence between the different organizational groups over time. A system ‘inertia model’ would predict that groups that were powerful in 1977 would be able to survive well even under unfavourable conditions, while groups that started off weakly would lose ground. An alternative ‘management strategy model’ assumes that, during a recession, management would actively seek to reduce the power of the influential groups which could appear to threaten the managerial prerogative, while they would not be concerned to take steps against weaker groups. In both models, the strategy would also have to take account of changes in the rate of unemployment and the strength of participative structures (PS). The statistical analysis strongly supports the management strategy model. Over the ten-year period, labour tended to lose ground in organizations where it had been strong in the 1970s, rather than where it started off without posing a threat to management. The management strategy of reducing the strength of labour, which it might have seen as a threat to its own position, was facilitated in places where unemployment was high. Where unemployment was not high and labour was not particularly strong in the 1977 research, the influence (PO) of workers did not change very much. In these circumstances it is quite likely that management initiated quasi-participative human resources measures, like briefing groups and various employee involvement programmes, including quality circles. INTERPRETATION AND DISCUSSION

The arguments in favour of measures to support organizational democracy or in opposition to it have been prominent over several decades. In the United States, the argument in favour of participation of employees is sometimes advocated as a way of increasing the competitiveness of American industry vis-à-vis Japan (Cole, 1979; Lawler, 1986:10). In Europe the arguments against participation by some managements, particularly in Britain, are the reverse: namely, that companies would lose competitiveness. However, in general, the debate in Europe is conducted as much on the political as on the economic level (Foundation for the Improvement of Living and Working Conditions, 1989). The academic and research literature is very extensive (see for instance the series of Yearbooks and Handbooks; Crouch and Heller, 1983; Wilpert and Sorge, 1984; Stern and McCarthy, 1986; Lammers and Szell, 1989; Russell and Rus, 1991). There is no agreement about what increases in organizational democracy should achieve (Wagner and Gooding, 1987). Employers and some academics would like to see increases in profitability or a reduction of conflict, while political scientists see organizational democracy as a 20th-century extension of political democracy and therefore as something worthwhile in itself. Some trade unions are concerned that through co-optation, successful participative practices would undermine the power of collective bargaining and managers are concerned that organizational democracy will usurp their right to manage. Against the background of these controversies, our research produces some useful evidence, which is relevant for the formulation of policy. To begin with, the research in the ten countries separated by ten years shows that, on average, neither de jure participative structures (PS) nor de facto participative behaviour

174

INDUSTRIAL DEMOCRACY IN EUROPE REVISITED

(PO) are very highly developed in the majority of our studied countries or organizations. In the 5-point influence and power continuum (PO), the highest score for workers is 2.44 for Yugoslavia. This signifies a position half-way between ‘little’ and ‘moderate’ influence. Most scores are much closer to ‘little influence’ and six are between ‘no influence’ and ‘little influence’. Is this amount of influence-sharing a matter of concern? Could this evidence give objective support to management’s fear of usurpation or trade unions’ anxiety of weakening an adversarial policy? Furthermore, given such a very low level of participation, even in Germany where legally supported codetermination has existed since the early 1950s, is it reasonable to expect participation to produce measurable improvement in an organization’s profitability or a reduction in conflict? Of course, the figures we cite are means and our sample did not include the most advanced companies in terms of participation policy. The figure for the influence (PO) of representative bodies, for example, is higher; in Yugoslavia it reaches 3.44, that is to say, half-way between ‘moderate’ and ‘much’ influence, but in Germany, with its forty-year tradition of Works Councils, it is only 2.69 (between ‘little’ and ‘moderate’ influence). The formal, often legal prescription (PS) to induce participative behaviour shows a wide variation between countries. The 1987 data give the representative bodies in Yugoslavia an average score of 4.79 (on a 6-point scale). This result signifies that they are close to achieving joint decision-making rights with management. In the case of Germany, with 3.99, it almost reaches the obligatory right of a group to be consulted before a decision is taken. The legal prescription for Poland almost reaches such a position, but in Japan, Finland and Britain, the formal structures fail to provide even the right to receive information. This finding of the very low average level of de facto participation (PO) and the moderate but very varying formal supportive structures (PS) must be borne in mind when drawing policy-relevant conclusions about the current and future role of participative behaviour in organizations. The European Economie Commission has tried to achieve a common policy on information sharing and consultative rights since 1972, but progress has been very slow in the face of heavy opposition from management. The original proposals, which were based on the German system, have been very considerably scaled down. One of the practical problems facing the European Commission is the great variety of participative structures (PS) and practices in its member countries. Our finding, that there are very few contingencies that affect the relationship between participative structures (PS) and influence-sharing behaviour (PO), may turn out to be a useful support in the formulation of national or cross-national policies. In 1977, as well as in 1987, factors like size of organization, level of automation, skill requirements, product complexity, perceived market dominance and political instability were of little significance in understanding the dynamics of participative behaviour. This result would suggest that a single framework of requirements within a European Company Law structure could be applied to information disclosure and participation in organizations of different sizes (though our sample extends only from 100 to 2000 employees), skill requirements, and so on. Similar considerations apply to policy at the level of organizations. Findings in support of the ‘management strategy model’ suggest that under the umbrella of an economic recession and high unemployment, companies may deliberately have reduced the influence of labour where it had previously been relatively strong. It is possible that such a strategy was based on an emotional rather than a factual interpretation of the strength of labour’s real influence in the decisionmaking process. In support of this is the finding from the 1977 research that when respondents are asked how much influence they would like to have, compared with what they currently have, the increase is very moderate (IDE, 1981:191–4). Other research has reported similar findings (Wall and Lischeron, 1977). In looking at the overall result of the longitudinal replication study reported here, it is reassuring that over a turbulent ten-year period, the basic pattern of results shows substantial stability.

WESTERN EUROPE

175

It would seem that some formal prescriptive or legally supported participative structures (PS) lend support to participative behaviour (PO) reaching down to the lowest level of organization. The very high unemployment rate in the decade 1977–87 undoubtedly made its own major impact on reducing the influence of labour during this period, and it is therefore necessary to look at these relationships again during a less turbulent decade. It would also be important to explore the length of time it takes in the different countries for structures to affect behaviour. In this connection, it is worth reporting briefly on a longitudinal research following the 1977 field work. Three countries from the Industrial Democracy in Europe team (IDE, 1981) were able to carry out a fiveyear in-depth study in seven organizations using the same influence-power measuring instruments, but adding several output measures and refinements which can only be tackled in a continuous-monitoring type of longitudinal research. The study, called ‘Decisions in Organizations’ (DIO) took place in Britain, The Netherlands and Yugoslavia (DIO, 1979; Heller et al., 1988). Several findings from the DIO research are relevant for the replication study. In the first place, once again the overall distribution of Influence (PO) over the different levels of organization was similar to the results reported here and did not differ significantly over the five years of the research. The DIO study followed 217 tactical and strategic decisions from start-up to implementation. Instead of measuring formal participative structures (PS) at the national level, it used a structural measure called status power (SP), which assessed the formal authority of each group or committee in each organization. The measure was based on written evidence or long-established policy. The predictive potential of status power on de facto participation of top management and workers was very substantial and significant. The finding reinforces the evidence on the importance of structures in the decision-making processes of the 1977–87 replication study. Taken together with the DIO results, it seems that a reasonable amount of influence distribution (PO), down to the lowest level of organization, probably requires formal structural support, either at the national or organizational level, or at both. It has important policy implications and weakens the argument in favour of voluntaristic ad hoc arrangements in support of participation. It may also add to our knowledge of organizational behaviour by emphasizing the importance of formal structures as a key variable in attempting not only internal but also societal change. We may also generalize these findings with respect to predicting longitudinal shifts in behaviour over time and the difficulties in achieving this. NOTE 1. This paper was drafted by Malcom Warner, Cambridge University, on behalf of the IDE—International Research Group.

REFERENCES Cole, R. (1979) Work, Mobility and Participation. Berkeley, CA: University of California Press. Crouch, C. and Heller, F., eds (1983) International Yearbook of Organizational Democracy, Vol. 1. Chichester: Wiley. DIO (Decisions in Organizations) (1979) ‘Participative Decision Making: a Comparative Study’, Industrial Relations 18:295–309. Foundation for the Improvement of Living and Working Conditions (1989) New Information Technology and Participation in Europe. Shankill, Eire: Longhlinstown House. Heller, F.A. (1984) ‘The Role of Longitudinal Method in Management Decision Making’, in J.G.Hunt, D.Hosking, C.Schriesheim and R.Stewart (eds) Leaders and Managers: International Perspectives on Managerial Behaviour and Leadership. New York: Pergamon Press.

176

INDUSTRIAL DEMOCRACY IN EUROPE REVISITED

Heller, F.A., Drenth, P.J.D., Koopman, P. and Rus, V. (1988) Decisions in Organisations: A Longitudinal Study of Routine, Tactical and Strategic Decisions. London: Sage. IDE—International Research Group (1976) ‘Industrial Democracy in Europe (IDE) —An International Comparative Study’, Social Science Information 15: 177–203. IDE—International Research Group (1981) Industrial Democracy in Europe. London: Oxford University Press. IDE—International Research Group (1992) Industrial Democracy in Europe Revisited. London: Oxford University Press. Lammers, C. and Szell, G. (1989) International Handbook of Participation in Organizations, Vol. 1. London: Oxford University Press. Lawler, E.E. (1986) High Involvement Management: Participative Strategies for Improving Organizational Performance. San Francisco, CA: Jossey-Bass. Russell, R. and Rus, V. (1991) International Handbook of Participation in Organizations, Vol. 2. London: Oxford University Press. Stern, R.M. and McCarthy, S. (1986) International Yearbook of Organizational Democracy, Vol. 3. Chichester: Wiley. Wagner, J.A. and Gooding, R. (1987) ‘Effects of Societal Trends on Participation Research’, Administrative Science Quarterly 32:241–62. Wall, T.D. and Lischeron, J.A. (1977) Worker Participation: A Critique of the Literature and Some Fresh Evidence. London: McGraw-Hill. Warner, M. (1990) ‘Management Versus Self-Management in Yugoslavia’, Journal of General Management 16:20–38. Wilpert, B. and Sorge, A. (1984) International Yearbook of Organizational Democracy, Vol. 2. Chichester: Wiley.

29 Banking on flexibility: a comparison of the use of flexible employment strategies in the retail banking sector in Britain and France J.O’Reilly

This paper examines the flexibility debate with reference to an empirical study conducted in the retail banking sector in Britain and France. The first part of this paper discusses the theoretical context within which this research was conducted and argues that the dichotomous categories formulated in previous debates are too simplistic to explain the diversity of employer rationales for developing flexibility. The second half examines the use of functional flexibility, temporary work, subcontracting and part-time work on the basis of evidence collected from the case studies in each country. The paper concludes that in order to examine employers’ strategies and the comparative organization of work a wider perspective is required which not only takes account of business needs and developments, such as product market competition and new technology, but which also looks at the social and regulatory factors which affect the terms in which different labour arrangements can be used by employers in different countries. INTRODUCTION This paper sets out to examine two theoretical concerns: first, it explores the issues raised in the debates on labour market flexibility; and, second, it analyses the extent to which this theory can be applied across national boundaries, on the basis of case-study evidence collected in the banking sector in Britain and France. Discussions on flexibility have received an incredible amount of attention in the European as well as the Anglophone literature on labour markets and organizational decision making in the 1980s. Proponents of the concept of flexibility often claim to have identified ‘new’ employer strategies, as well as offering a fresh perspective for conceptualizing the labour market and organizational practice. However, the concept of flexibility has been criticized for being poorly founded on empirical evidence, and for being no more than a revised version of previous debates in dual and segmented labour market theory. It is widely felt that some of these models are in need of reformulation because they inadequately describe current labour practices (Rubery, 1988; Lui, 1990; Gallie and White, 1991). The aim of this paper is to examine these debates, to analyse the underlying assumptions on which these major theories have been constructed and to present the evidence collected in this study. Finally, in assessing this evidence, it seeks to point out how a new model of labour market flexibility needs to be developed to include a wider set of explanations

Source: The International Journal of Human Resource Management (May 1992), 3(1):35–58.

178

WESTERN EUROPE

which accounts for the diverse motivations for seeking flexibility and incorporates the social and economic conditions in which these employers’ policies are shaped. Cross-national comparisons Comparative research is usually concerned with drawing distinctions in terms of commonality and difference or, put another way, between convergence and divergence (Kerr et al., 1964; Maurice et al., 1982; Lane, 1990; Gregory, 1990). One of the advantages of conducting comparative work is to allow the researcher to identify factors which are specific to a particular society, which in a single country cannot be so easily identified. One major contribution to this area of research by Maurice, Sellier and Silvestre (1982) stresses the importance of cultural variables and the ‘societal effect’ on the organization of work in France and Germany. They emphasize the importance of national specificity, and they argue that skill attainment, for example, is affected by the relationship between the educational system, the organizational structure and the sphere of industrial relations. Each dimension has a degree of autonomy but also forms part of an interdependent structure. Their approach departs from the traditional, culturefree perspective which argues that it is the level of technological advancement which affects the pattern of workplace hierarchy regardless of cultural conditions. Maurice et al. argue that commonality is attributable to belonging to a particular country, where social relations have developed historically, and industrial organization will therefore vary between countries. Although Maurice et al. offer a fresh perspective for conducting comparative research, they could also be criticized for their functional explanations, although they would deny this (1982:374). They claim that commonality within a country is due to ‘the systematic structure of social factors influencing both the formation of the actors and the development of the industrial work system, factors that are at once the result of those relations’ (1986:79). This touches on the enduring problem of structure—agency relations in explaining causal change. Rose (1985) has argued that their approach allows only a limited role for individual action; it also fails to incorporate an analysis of how change comes about. Their analysis also takes no account of the gendered construction of skill. The importance of technology and local labour markets is pushed to the fringes of their analysis. In seeking to bring down the bastions of Marxist laws of economics and the work on convergence and technological determinism, they over-emphasize the differences they found (Benoît-Guilbot, 1989), a tendency which is inherent in their methodological perspective (Maurice et al., 1984: 263). The problem we are then faced with, when conducting comparative work, is how to account for structural similarity or difference, and the way actors behave within these constraints. How can we explain why actors may adopt similar strategies within different structural configurations, or, conversely, do actors use different strategies under similar structural arrangements? In this paper the central focus will be to look at the use of employment flexibility as a strategy in the retail banking sector in Britain and France. Strategic analysis The idea of strategy is fundamental to these discussions and, although it is a concept which has received extensive popularity, it needs to be used with caution (Crow, 1989; Morgan, 1989; Purcell and Sisson, 1983; Silverman, 1987; Bernoux, 1985); there has been considerable debate on how this concept should be operationalized. Child (1985) is resistant to the use of a strict definition of strategy, which restricts analysis to cases where one can identify coherent policy rationales, that are focused on ‘key labour process dimensions such as control, discretion and skill’, and where a direct line from policy to implementation can

BANKING ON FLEXIBILITY

179

be identified (Child 1985:109). Instead, the chain, from formulation to implementation, is subject to variability and the co-operation and the influence of lower-level managers and workers. Child advocates a perspective which takes account of the possibility of variation and the effect of ‘actors, processes and contextual conditions’ that can explain such variation (Child, 1985:112). Hodson and Kaufman (1982) avoid the term strategy altogether and advocate a perspective examining the resources and vulnerability of actors. While this evades the knotty problem of trying to locate strategy formulation and implementation, and the implicit claims of identifying causality, it provides a useful starting point to examine the power relationship between the different social actors. The advantage of adopting an approach with the perspective of strategies in mind can allow a researcher to avoid being ensnared in the classic mire of debates on agency versus structure (Crompton and Sanderson, 1990). It also has the advantages of unpicking the often complex rationality and motivations of actors. Too often actors are attributed with simplistic motivations. Instead, these actors should be seen as active subjects capable of formulating their own rationale. Employees, for example, are often seen as the victims of employers’ policies without any recognition of the choices that are available to them in relation to paid employment. The concept of strategy has to be seen in terms of a process of interaction, and this can highlight the complexities of the context within which actors operate. Although this research looked at the interrelationship between employers’ policies, workers’ preferences for paid employment, trade union initiatives and state interventions, this paper concentrates specifically on the factors which shape employers’ policies within a broad social and economic context.

THEORETICAL ISSUES From segmentation to flexibility The current contentions surrounding the discussions on flexibility have emerged from the earlier debates between neo-classical economists and dual labour market theorists. Dual and segmented labour market theories moved the emphasis away from individual outcomes and drew attention to the role of employers’ policies in shaping labour market opportunities. Within the school of dual and segmented labour markets numerous definitions have been given of how the labour market is structured, with an equally wide-ranging number of explanations given for the causes of segmentation. At the cost of simplification these theories, in general, have argued that the labour market is divided into distinct sectors of advantaged and disadvantaged workers. Many of these theories over-emphasize single cause explanations, whether technology, training or systems of managerial control, and the aim of this paper is to argue that these outcomes are the product of a configuration of factors which allows us to account for variability between different organizations. Before examining how we can develop a new model let us look briefly at the theories which have instigated these debates. Initial distinctions in terms of company size were directly correlated with the differential conditions offered to workers as an explanation of labour market divisions. Large companies using advanced technology required a high level of skill from their workers which they obtained through in-house training and internal labour markets (Doeringer and Piore, 1971). Internal labour markets developed preferential terms and conditions to maximize on this training and to reduce turnover in the primary sector. Smaller, less technologically advanced companies requiring lower skilled workers could obtain these from the external labour market. Behavioural characteristics distinguished the types of workers found in each of the labour markets (Doeringer and Piore, 1971). According to Nolan (1983), Doeringer and Piore’s argument was

180

WESTERN EUROPE

based on linking technology to the organization of work, and this formed a causal link with the structure of the labour market (Nolan, 1983:306). Managerial control strategies in different historical periods also play their part in creating differentiated forms of employment (Edwards, 1979; Gordon, Edwards and Reich, 1982). However, control as an explanation of employer policy was unidimensional and ignored other factors of production, and it over-simplified managerial strategy: ‘the many ways of gaining compliance are reduced to a few straightforward rules’ (Nolan and Edwards, 1984:214). To reduce employers’ motives to methods of control is to simplify the complexity of class struggle, according to Nolan and Edwards (1984), who criticize Gordon et al. (1982) for their poor conceptualization of the role of the state, and the sharp periodization which could benefit from cross-national comparative analysis. Moreover, this simplistic typology of employers ignores the diverse range of labour strategies used within the same firm to distinguish between employees with advantageous positions and those in less secure jobs. It attributed to management a coherent conspiracy strategy and gave limited attention to the role played by workers in segmenting the labour market. These theories have been revised to include the role of trade unions (Rubery, 1978) and the distinctions created by legal regulation (Berger and Piore, 1980; Michon, 1981) in perpetuating these forms of labour market differentiation. The work of Lui (1990) has marked a further turn in the literature to take account of the effect of supply side preferences for flexible working patterns on the type of policies employers can effectively utilize. And, Hodson and Kaufman (1982) have argued that a more fruitful discussion of developments in the labour market can be developed from a perspective which emphasizes the resources and vulnerability of the actors involved, rather than the static and structural approach of early theorists. Finally, the question of gender and flexibility has been scarcely touched upon in the literature, except for a few notable examples (Beechey and Perkins, 1987; Walby, 1989; Maruani and Nicole, 1988a, 1988b, 1989; Gregory, 1987). The debate has moved on from a simple explanation of persistent labour market differentiation to ask how these boundaries have been created and adapted in relation to changing product and labour market conditions: The issue became not the explanation of the persistence of stable differences in employment rewards between sectors and organizations, but the analysis of how boundaries between primary-type and secondary-type employment were being redrawn as employers responded to changing product and labour market conditions by developing new employment strategies. (Rubery, 1988:256) The changing terms of the debate are a reflection of the turbulent economic environment. It has become increasingly difficult for employers to divide up the product market into stable and unstable sectors, product demand has become increasingly fragmented, added to the increased costs for permanent employees who had gained social and employment benefits in the post-war period (Berger and Piore, 1980; Piore and Sabel, 1985). This shift in interest has moved analysis to the level of the firm, to examine how employers divide up stable and precarious forms of employment within the company in what has been called the search for flexibility. The term flexibility has been used to refer to a wide range of developments to such an extent that its utility as a conceptual tool has been considerably weakened. One of the major concerns of the flexibility debates has been to look at the issues of multiskilling and the adaptability of work-force skills; attention has also been drawn to the mobility of workers and the increase in precarious forms of employment. Both of these issues have also been examined with regard to wage flexibility, and the impact of legislative protection and tax contributions instigated by state intervention in the economy.

BANKING ON FLEXIBILITY

181

The `flexible firm' In Britain, the flexibility debate has focused on the model of the ‘flexible firm’ which will be the central model considered here. Atkinson and Meager (1986) concentrate on specific employment contracts: ‘nonstandard’ contracts like part-time work, self-employment, temporary work, job sharing, trainees and shortterm contracts which are all allocated to the secondary sector, compared to multiskilled workers who are in the primary labour market. They focus on employment status, rather than on the specific social characteristics of the workers who make up the flexible work force or the types of control operated by various employers. To some extent their work provides a healthy break from the established dual and segmented labour market approach because it focuses on the firm and looks at the diversity of contractual arrangements in the core and periphery sectors, thereby identifying the possibility of choice between different forms of flexibility (Nolan, 1983; Rubery, 1988). The evidence of variability has meant recognizing how contemporary actors operate within a distinct historical and cultural context; and that the framework, within which actors make decisions and act, is itself the product of the interaction of social forces (Hodson and Kaufman, 1982; Reynaud, 1989). Functional flexibility is a strategy used to broaden the range of skills among the permanent, core work force to meet changing product market demands (Atkinson and Meager, 1986:38). In contrast to the arguments of deskilling put forward by Braverman, technological change, according to the flexible firm model, can encourage the development of functional flexibility. Market uncertainty can also be a causal factor in the development of this policy. Atkinson and Meager claim that there are two approaches a company can take to developing this strategy: either they can introduce a piecemeal extension of job descriptions or they can take on a whole-hearted acceptance of the principle by dispensing with specific tasks and job descriptions. This strategy reduces traditional forms of workers’ control based on job-specific skills, and this allows companies greater freedom to change the terms of the employment contract to their own advantage, leaving a worker with little basis on which to control the conditions and terms of their work. The concept of numerical flexibility, a strategy developed among secondary-sector workers, explains how employers match workers to work-load fluctuations. This can operate in either of two ways: they can bring in ‘additional workers’, with the assumption that they can get rid of them when work levels are low; or, employers can use their existing workers to reorganize working time to cover these fluctuations (Atkinson and Meager, 1986:14). A wide range of employment contracts can be used to achieve numerical flexibility: these include temporary work, part-time work, permanent staff working overtime and/or an alteration of shift patterns and flexible working time. The use of certain types of flexible workers can have the advantage of reducing overtime costs and meeting trade union demands for a reduction in working time for full-time, permanent employees. Temporary staff can be used to meet the benefits gained by permanent staff, without entailing any subsequent commitment to them by employers: numerically flexible workers provide cover for permanent staff on sick leave, holidays or maternity leave. Atkinson and Meager claim that, while it was easy enough to reschedule shift patterns, the use of arrangements like intermittent contracts1 meant rescheduling entire blocks of time; work-force opposition to such a flexible measure was seen as potentially hostile.2 Nevertheless, they argue, this will be a key issue for the future. Atkinson and Meager attempt to account for subcontracting and the anomalies of high paid, short-term work contracts with the concept of distancing. This in effect means substituting the employment relationship for a purely commercial one.

182

WESTERN EUROPE

Why attempt to be more flexible to deal with these pressures (greater competition, market pressures, volatility, uncertainty) if it’s easier to pay some one else to deal with them? (Atkinson and Meager, 1986:54) Distancing covers a gamut of contracts including subcontracting, in-store concessions, franchising, selfemployment, homeworking and networking. However the extent of these developments has been limited, for example with regard to networking it has had only a limited impact in a handful of multinational companies working in the computer field (Huws, 1984; Upton, 1984). Pollert argues that the motivation for subcontracting may come about from the desire to reduce inventories and costs rather than as an active project to introduce flexibility itself (Pollert, 1987:15). Although such a criticism ignores that this is often the motivation behind the search for flexibility in the first place (Piore and Sabel, 1985:214–20), it points out the problem of attributing to management a coherent strategy, when this may be tangential to other aims (Rubery, 1988:271). Conceptual problems with the model of the flexible firm and research questions Despite the success of the model of the flexible firm in academic and commercial circles, it has come under considerable criticism for conflating diverse elements under generalized categories, and it suffers from the problems of comparing heterogeneous groups, allocated on the basis of functional or numerical flexibility to the primary or secondary labour market respectively. It has also been criticized for concentrating on the problem of labour allocation and paying less attention to other issues with regard to product market competition, product design, retail and after sales service. Pollert (1987) argues that functional flexibility bears close resemblance to traditional productivity-enhancing measures associated with rationalization and job enlargement in the 1970s (Pollert, 1987:14). This would suggest that the concept of functional flexibility is little more than a renaming of traditional practices. Numerical flexibility covers a wide range of working patterns. Employers’ criteria for using these forms of employment are reduced to a simple motivation of matching staff to work-load levels according to the flexible firm model. The concept has also been criticized for not making a sufficient distinction between existing staff and additional workers who provide numerical flexibility. This raises problems concerning the definition of numerical flexibility (Hakim, 1987; Casey, 1988). The model has been criticized for overemphasizing the growth of peripheral employment (Pollert, 1987:13). Hakim (1987) has also been accused of exaggerating the size of the peripheral work force by compounding a diverse range of contracts under the category of the flexible work force (Gallic and White, 1991). If numerical flexibility is essentially about using additional workers and dispensing with them, i.e they have little job security which is characteristic of secondary forms of employment, is it appropriate to argue that temporary workers (additional workers) offer the same type of flexibility as permanent workers who may be working overtime or on part-time contracts? The question revolves around the concept of job security which is not fully brought out in the analysis, and confuses the nature of flexibility that is offered by these different forms of employment contract. Pollert (1987) has also criticized the concept because she says it confuses ‘time and numbers’. It is argued here that an important distinction needs to be made in terms of external and internal forms of numerical flexibility which are not fully accounted for in these debates. The distinction between core and peripheral workers is particularly blurred by allocating highly skilled, specialized workers on short-term contracts to the secondary sector. As a result of demand for their skills they may find themselves in a position to secure high wages in the external labour market. The contradictions posed by this category of staff put into question the validity of a strictly dual model. However, it still has relevance within a

BANKING ON FLEXIBILITY

183

perspective of labour market segmentation which emphasizes the role of employer’s policy in structuring the market. The gendered construction of flexibility, seen for example in the use of part-time work which is predominantly female, has received scant attention in these debates. The emphasis has focused wholly on the role of employers’ policies (Robinson and Wallace, 1984), with no consideration given to the differing characteristics of the people employed on these contracts, and how this may affect employers’ ability to introduce flexible forms of employment. One further weakness of the flexible firm model is its neglect of the impact of institutional segmentation and the importance of the role played by the unions and state intervention on employers’ attempts to introduce flexibility and restructure the work force. This is an important aspect which offers a wider perspective on how social actors interact in the employment relationship and is particularly relevant for cross-national research. One of the advantages of this model is that it focuses attention at the firm level (Baron and Bielby, 1980; Nolan, 1983), and this can allow us to identify a range of choices open to employers. However, in order to understand the circumstances in which employers use certain forms of numerical or functional flexibility we need to have a broader appreciation of the economic and social pressures that formulate the context within which these strategies are developed. Gallic and White (1991) have argued that employers’ policies need to be analysed in relation to structural factors like the type of industry, its size and labour market location. Contextual considerations related to product market strategy and competitive pressures also need to be included. This can establish the arena within which to assess whether or not employers are looking for flexibility and how the strategies developed are related to changes in the product market and the introduction of new technology. Having outlined the theoretical concerns which shaped this research let us turn now to examine the evidence collected from the case studies in Britain and France to see how we can develop a theory of the factors affecting labour flexibility on the basis of comparative research. THE STUDY: THE BANKING SECTOR IN BRITAIN AND FRANCE There are several good reasons why this sector should attract the attention of a researcher interested in the flexibility debate. The literature on industrial sociology has traditionally been fascinated by male car assembly workers, maybe because they epitomize the Taylorian model of scientific management. However, this infatuation has gradually been wearing off as more attention has been directed to the growth of the service sector and women’s employment. It is often assumed that the service sector is homogeneous, although it encompasses a wide range of job types and qualifications, ranging from highly skilled professional occupations and white collar administrative jobs to low-grade manual workers (Austrin, 1991). While it is beyond the scope of this paper to examine the variety of job types, it is important to recognize this degree of differentiation if we are interested in examining the varying type of flexible job contracts offered. This study concentrated on two areas: the jobs of cashiers in direct client contact in the branches and low-grade administrative jobs performed in the clearing operations, where the administrative work generated in the branches is processed. Although this is limited it brings out some of the differences in the banks’ labour force requirements. This research is based on a comparative, empirical case study of the retail banking sector in Britain and France using data collected from interviews with managers, supervisors, part-time and full-time employees and trade representatives and observational methods. Managerial interviews were conducted with senior personnel managers in most of the major banks in each country. One major bank in each country was selected for detailed case-study analysis. This selection was determined by size and market share, to make the banks as comparable as possible within the confines of comparative research. Approximately sixty

184

WESTERN EUROPE

managers/ supervisors were interviewed on several occasions in the banks where detailed observations were conducted. These data were also complemented by observational analysis. A total of 126 part-time and fulltime female employees were interviewed, using a structured questionnaire, for both countries. Where obstacles to conducting these questionnaires were encountered I had to rely on the access obtained to another bank in France. Interviews were also conducted with trade unionists at the national and local level in each country. Secondary documentation was provided by the banks research department and the trade unions. Stimulus for change Banking has traditionally been associated with permanent employment and the possibility of career progression through well-established internal labour markets (Savage, 1989; Strober and Arnold, 1987). However, in more recent years the stable comfortable atmosphere in the banks has been shaken up by increased competition and deregulation which has increased the number of competitors offering financial services. As Rajan (1984) starkly predicted, the introduction of information technology has had serious consequences for the restructuring of employment practices and the services banks, and other financial services, can offer. The heavy burden of mundane paper work has been replaced by the use of information technology and computer terminals requiring a knowledge of programs using abstract codes and symbols. Bertrand and Noyelle (1987) argue that the rigid authoritarian employment structure is being broken down as staff are given greater autonomy and responsibility; individualized work is being replaced by team work with a greater emphasis on client contact. To a greater or lesser extent banks have been seeking to reduce the numbers involved in administrative tasks and place greater emphasis on the selling and commercial aspects of bank jobs. Female employment in the banks is concentrated in these low-grade administrative positions (BIFU, 1985; Crompton, 1989) which are threatened by the changes being introduced with the use of new technology and the impact of competitive pressures. The effect of flexible employment policies on female employment has been given scant attention in the literature, although it is an area which is likely to undergo considerable change. It is for these reasons that the banking sector is particularly interesting with regard to the flexibility debate: to what extent are forms of secure employment being broken down and restructured as the flexibility debate suggests? If this is happening, what has caused this development? Although the banks in both countries have been experiencing similar pressures in terms of competition and technological change, there are, nevertheless, important differences between the organization of the two systems which suggest that the banks are likely to adopt different strategies. The French system of retail banking is more decentralized than in Britain (Lasfargue, 1980). In the post-war period French banks have been subject to greater state control than in Britain which has left them relatively undercapitalized, because they have been used as a tool in government economic policy. In France the personal accounts market is completely saturated whereas in Britain the effects of competition have been curtailed because the limited degree of market penetration has left the banks room to compete for new clients. For example, in 1981 in France 90 per cent of adults had a bank account compared to 60 per cent in Britain. By 1988 the gap had narrowed with 99.3 per cent market density in France (Graham, 1988) compared to 80 per cent density in Britain in 1989 (Bailey, 1990). The range of services the banks offer has expanded but to what degree does this encourage the development of functional flexibility? Banks face greater instability from long- and short-term fluctuations. Due to increased competition, banks have tried to meet customer demand by extended opening hours; to what extent have they used numerical flexibility to achieve this? We have also seen how the banks are reshaping their personnel requirements and how this has also led to the introduction of voluntary

BANKING ON FLEXIBILITY

185

redundancies; to what extent are jobs previously considered to be in the core sector of the labour market now threatened? It is clear that the banks are in a process of change but to what extent does their conception of change correspond to the model of the flexible firm? EVIDENCE Functional flexibility re-examined In interviews conducted with French managers they were more likely to say that they wanted to develop ‘polyvalence’ or functional flexibility among their staff, compared with the British managers. These attitudes were backed up by evidence collected in the employee questionnaire: 78 per cent of the French staff interviewed described their job as varied compared to only 18 per cent in Britain. The British respondents were more likely to say that their job was routine and repetitive. To measure change and the development of functional flexibility the same staff were asked if they thought their task variety had increased. The difference between the two countries was less marked on this issue: 69 per cent of French staff and 61 per cent of the British respondents gave a positive response to this question. This might suggest that although employers are starting from a different base there has been a move to increase the tasks performed by staff in both countries. The development of functional flexibility is closely associated with the size of the work unit. Where this is small it is more likely that staff will be expected to perform a wide range of tasks; the larger an operation the more likely it is that there will be a more extensive division of labour. Bank work has never experienced the same degree of task decomposition as in the manufacturing sector, although with increased bureaucratization there has been a tendency to extend the division of labour in large operations like clearing, where the administrative processing of cheques is performed. In Britain the clearing system is operated on a more unitary basis compared to other continental countries, which is partly attributable to the historical role of the City of London. In Britain clearing operations were centralized in London, in France the system was far more decentralized at the level of the region or department (Lasfargue, 1980). The London clearing department was more affected by weekly fluctuations compared to French clearing. For example, in Britain, on average, they would have three and a half million cheques passing through the system on a Tuesday, the busiest day, compared to two million on Friday, the quietest day. For a comparable bank in France the volume of work was less intense, they cleared 200,000 cheques on an average day and 270,000 on a Tuesday. This difference in the volume of work and intensity of fluctuations posed different labour requirements. In France staff in smaller work units were expected to perform a variety of tasks, whereas in Britain there was a more extensive division of labour and greater use was made of part-time shifts to meet these fluctuations. The size of operations and the degree of centralization have an impact on the level of fluctuations and labour requirements. A second important difference between the two countries was with encoding work, which involves typing the written amount onto the bottom right hand corner of the cheque so that it can be read by the electronic sorters. In Britain this work was performed by a morning shift of part-timers at the London clearing centre. More recently the task variety of the permanent part-timers in Britain had increased because of a decision by senior management to decentralize some encoding work to the branches, which had reduced the amount of work coming into the clearing department. This strategy of task enlargement had been developed as an ad hoc temporary measure to fill up the contracted hours of these employees. In France this work was either subcontracted or done in the branches.

186

WESTERN EUROPE

In France functional flexibility developed in clearing as a result of staff shortages. The intense competition in this sector and the impact of technological change have placed greater pressure on the banks to reduce staff numbers; in Britain this need has been vocalized only since the early 1990s. The emphasis is on reducing the number of staff employed on purely administrative tasks and promoting those with commercial experience, concentrated in the branches. As a result of staff shortages sections in the clearing department in France often had to borrow staff to meet peaks in the work load so staff were expected to be functionally flexible. In the branches in France cashiers performed a wider variety of tasks compared to their British equivalents. There was a more conscious strategy to develop functional flexibility in France than in Britain. In France all cashiers, in the banks studied, had direct access to a computer terminal, which was not the case in Britain. The banks in France were seeking to develop a more integrated service policy so that one cashier could provide a wider range of services. In Britain the banks had segmented their service policy, splitting up cashier jobs: cashiers worked on quick service tills (staffed Automatic Teller Machines) for transactions of less than £300, other cashiers, located at the back of the bank behind glass counters, offered more traditional services, and staff at the front of the bank provided enquiry and advice services. The banks in each country appear to have moved in different directions on this strategy. This could be explained because in France, after a series of armed hold-ups in the 1970s, security arrangements in the branches were tightened to make it more difficult to enter a branch. In Britain the same security question did not arise. Because it is easy to walk in and out of the branch low-risk transactions can be treated in the central lobby and high-risk transactions can be more easily protected at the back of the branch behind glass panels. In France all cashiers could handle high-risk transactions because once inside the branch it was more secure for the staff. Second, the French staff had a higher level of education and higher expectations of promotion, compared to their British equivalents: only 55 per cent of employees in Britain said they wanted promotion compared to 76 per cent in France. Functional flexibility served to increase the task variety and job interest of these staff in France. This is also facilitated by the higher provision of training in France where there is evidence to suggest a more extensive development of functional flexibility. Functional flexibility is also associated with core employment, although there was some suggestion that this was being undermined by the threat of job losses. Most employees had considerable length of job tenure, although their expectations of promotion opportunities were mixed, and a significant number considered that their job security had decreased, especially in France. There is evidence to suggest that the banks are restructuring their operations, but it is not as neat as the model of the flexible firm would suggest. On one hand, in the branches, especially in France, employers have been keen to develop a policy of functional flexibility which is related to providing an integrated service policy facilitated by more highly qualified staff, using counter terminals. On the other hand, functional flexibility has developed in an ad hoc way to meet staff shortages in the banks or, where work levels have fallen off, staff have been given extra tasks to fill up their contractual hours, as in the case of the encoders in Britain. With regard to managerial strategy, there does not appear to be a consistent development of the use of functional flexibility, except in the branches in France. Managerial strategy tends to develop in an incremental manner, adjusting to new developments rather than being worked out in a very precise way. Service policy, counter terminals, educational level of the staff, decentralization, the size of operations and the impact of fluctuations are the central factors which effect the use of functional flexibility.

BANKING ON FLEXIBILITY

187

Temporary work and subcontracting Temporary work offers employers numerical flexibility by matching ‘additional workers’, from the secondary sector, to variations in the workload. Secondary forms of work have been poorly conceptualized in these debates, conflating a variety of workers and forms of employment. Lui (1990) is critical of the crude peripheralization thesis which associates these contracts with secondary forms of employment. One important fact to come out of this study is the recognition that temporary work is not always synonymous with secondary, precarious forms of employment and employers have a variety of sources they can draw upon to fill temporary requirements. The banks have been increasing their use of agency staff and fixed-term contracts, especially in France. These staff range from lowgrade clerical workers to highly skilled computer programmers (BIFU, 1988). The precariousness of these contracts is a result of labour market conditions: in periods of skill shortages these workers can be confident of having permanent employment, although in periods of recession it is easier for employers to dispense with their services. Thus certain forms of temporary employment are legally defined in the precarious, peripheral labour market, when in reality these workers are in a relatively secure position, depending on labour market circumstances (Casey, 1988). No account of the gender differences between different forms of temporary work is made in the model of the flexible firm which puts temporary clerical workers in the same category as computer contract workers, on the basis of their de jure temporary status. Clerical temps are predominantly women compared to the large number of male computer analysts, who usually have longer contracts. As Casey (1988) has shown, this distinctiveness is seen quite plainly in the tax system: clerical temps in Britain usually pay tax as ‘dependent employees’ compared to computer contract workers who often define themselves as ‘selfemployed’, together with the higher social status and other pecuniary benefits3 which this entails. The banks have developed alternative internal means of obtaining ‘additional workers’. In the French bank studied a system of permanent full-time employees, organized in relief teams, was used to fill in for short-term absences in the branches, as required. In the British bank this system had been disbanded and an informal on-call scheme was used. This was a list of former employees who were willing to work intermittently. These on-call staff were usually ex-employees who had either retired or had left to have children. This is another way of providing the banks with cheaper reliable and qualified temporary staff with company specific experience, rather than using the intermediary of an agency. Temporary staff have also been used as means of labour selection most notably in France, rather than in Britain: seeing the person in the work environment for a sufficiently long period reduces the amount of risk in recruitment. The model of the flexible firm takes no account of how these permanent employees move in and out of core and secondary status. Nor does it account for the importance of company attachment, company experience and the constraints imposed on employers who require good quality, trustworthy labour from staff who are defined as belonging to the secondary labour market. With regard to subcontracting, the banks, particularly in France, and to some extent in Britain, appear to be using this as a way of reorganizing their services and reducing their core staff who are protected by collective agreements. In the restructuring process the banks are reconsidering which staff are essential to the bank and which jobs can be performed more efficiently by outside companies. Subcontracting is used for jobs varying from maintenance and messenger staff to highly qualified computer system designers. One difference noted in this research was that subcontracting was more developed in France for mundane, bulk work, like cheque encoding, whereas in Britain the same predictable excess work-loads were treated by parttimers. The motivation to restructure is in part the result of competitive pressures and the specialist expertise generated by sophisticated information technology systems. The concept of numerical flexibility cannot be fully understood if relegated only to the secondary peripheral sector. We have seen that there are internal as well as external means to obtain numerical flexibility. The

188

WESTERN EUROPE

use of relief teams and former employees are important internal sources of numerical flexibility. While change is no doubt taking place in the banking sector this is considerably more conservative than the flexible firm model suggests. Traditional reasons for using temporary staff predominate, i.e. covering holidays, sick leave and maternity leave, and unexpected increases in work. With increased, continuous, female labour market participation and improved benefits, temporary staff are often needed to replace women on maternity leave. Temporary staff have been used in economic restructuring, where operations are being closed down and permanent staff relocated. Privatization shares issues have also generated temporary forms of employment in the banks, especially in Britain. The use of temporary staff is affected by the nature of the work performed, the level of skill, the length of time required to perform the specific tasks and the cost and capacity to perform the task in-house. The diversity of temporary contracts makes it difficult to pigeon-hole temporary employment neatly into the category of numerical flexibility or the secondary labour market: quality and cost are significant considerations, as well as the impetus to meet fluctuations in the way suggested by the flexibility debate. Part-time work Britain has traditionally had a higher level of part-time work than France which has been attributed to the limited protection and relative cheapness of part-time work for employers in Britain. The limited child-care facilities in Britain have also been cited as reasons why women in Britain choose this form of employment. In 1988 part-time work in the financial sector represented 14 per cent of all employees in Britain compared to 9.6 per cent in France. In the banks cost is not the only criterion for the use of part-timers. The numerical flexibility which these contracts offer is also cited as a reason for its use. In Britain part-time workers were employed in the branches on Mondays and Fridays and during the lunch period to meet predictable peaks in customer demand. In the clearing departments in the British bank studied, after the advice of a management consultant, two or three days a week part-time shifts were designed to meet peaks on a Tuesday. These uses of part-time work come closest to the model of the flexible firm. Part-time work as an auxiliary work force was a conscious management strategy and measured by the Clerical Work Improvement Programme (CWIP), time and motion, study which allowed managers to measure the number of auxiliary staff needed to meet local needs. However, part-time work was also used in periods of a tight labour market: when employers found it difficult to attract full-timers, they could redesign the job to attract part-timers, for example in the use of week on week off’ contracts in clearing departments. Where it was difficult to recruit full-timers these contracts effectively provided full-time cover. The predicted sharp fall in the number of school leavers, especially in Britain, was also encouraging the banks to offer part-time jobs as a way to retain skills and overcome the difficulties of a shortage of labour. This concern was less intense in France where the fall was less severe. In France the picture is somewhat different. The development of a service policy which encourages bank staff to be more functionally flexible poses an obstacle to the use of part-time work. Part-time work is more closely regulated and more expensive for employers in France than it is in Britain. The banks in France are also more restricted in the shifts they can use because of the 1937 government decree on working time. This decree entitles bank employees to two consecutive days off one of which must be a Sunday, and it forbids the banks to use overlapping or twilight shifts. The banks therefore cannot use part-timers to cover lunch breaks in the same way they are used in Britain. Part-time workers are also less flexible in France because of the high demand for 80 per cent part-time contracts, with Wednesday free. Part-time work has initially been at the request of employees, although the banks are increasingly beginning to see the strategic

BANKING ON FLEXIBILITY

189

advantages this contract can offer them to control the long-term size of their labour force. This can be seen in the case of the Crédit Lyonnais, where a deliberate policy to offer part-time contracts to reduce staff numbers has been introduced. More recently in the branches requests for part-time work are being tailored to business needs, so that part-timers are allocated to a branch where business growth, measured in the number of accounts held at the branch, does not justify a new full-time employee. Part-timers on these contracts work two and a half days a week, negotiated according to local business needs and busy periods. The evidence suggests that the use of part-time work is more complex than accounted for in the concept of numerical flexibility. Part-timers are used to meet long-term predictable fluctuations, which leads us to ask how this affects their ascription to secondary status. The results from the employee questionnaire brought out some very important questions with regard to the use of part-time work and the concept of a secondary sector. On one hand, part-timers are in a disadvantaged position compared to full-timers in terms of benefits, training and promotion, although this varies slightly between the two countries. In France parttimers have greater employment protection compared to those in Britain, and they receive benefits on equal terms with full-timers. On these terms it is possible to argue that part-timers have secondary sector status. When we look at the degree to which they are confined to this status we see that most part-timers have previously worked for the bank as full-timers. This suggests that conceptualizing employment status in terms of dichotomously opposed categories is misleading. In reality the relationship is more fluid than the literature suggests. It would, therefore, be more useful to think in terms of a continuum which captures the degree of mobility between the sectors. This then raises questions with regard to the nature of movement along this continuum. From the data collected in the questionnaire and in the strategy being adopted by the Crédit Lyonnais we can see that parttime work represents a movement out of core full-time employment into the secondary sector. At the Crédit Lyonnais this has been used to reduce overall staff numbers. In Britain recruiting part-timers from former fulltime employees reduces the risk for the employers in the quality of staff they are employing, it retains the skills of former employees and it allows the banks to deploy skilled staff, on a part-time basis to meet fluctuations in the work-load. Thus the motivations for using part-timers are quite distinctive in the two countries. Part-time work is less likely to be used for meeting fluctuations in customer demand in France, although incentives to encourage this type of contract are leading the banks to reconsider their labour management strategies, as can be seen from the use of part-timers in branches. If mobility exists from the core to secondary sector employment this leads us to ask if mobility can operate in the opposite direction; i.e., to what extent can part-timers move up into full-time positions? There was little evidence to support this supposition in the data collected from full-timers; although the sample was relatively small (a total of sixty-four full-timers were interviewed), there were individual cases where this had happened. Part-time work was commonly perceived, by both employers and employees, as a way for women to re-enter the labour market after time spent bringing up a family; and this was particularly true for Britain, with limited child-care provision and discontinuous patterns of female labour force participation. This leads us to ask how free employers are to shape their labour force requirements: to what extent are employers constrained by the labour force preferences of employees and the demands of domestic constraints on their labour force participation? These questions go beyond the immediate scope of this paper which has concentrated on employers’ policies and the factors which shape them, but this also highlights the need to take account of the impact of domestic circumstances on labour force patterns.

190

WESTERN EUROPE

CONCLUSIONS Having reviewed some of the findings of this research let us turn again to the theoretical issues raised at the beginning of this paper. The central concern of this study was to see if employers were developing strategies in the way outlined by the literature on flexibility, and, second, how a comparative study could contribute to understanding how and why these policies were being developed. One of the major problems with the literature on flexibility is its simplistic conception of dual and opposing categories of functional and numerical flexibility inextricably tied to the core and secondary sector respectively. This research has shown how specific contractual forms of flexibility can be used to meet diverse requirements. For example, part-time work in Britain is used to meet peak work-loads, and in France there are cases where it has been used as a long-term strategy to reduce the overall size of the work force. An analysis purely in terms of contractual arrangements tells us little about the motivations for using these forms of employment and the factors which condition their use. With regard to employers’ strategy this paper has sought to show how the flexible firm model presents the alternatives open to employers in a rather simplistic ‘either/or’ formula. In fact, employers develop strategies in an ad hoc and incremental manner. Even where there is evidence that a more conscious and measured assessment has been developed by one group of managers the repercussions of these decisions can produce unforeseen consequences which are dealt with, as they arise, by another group of managers. From the evidence presented for this research we have seen how the banks in France have been under greater competitive pressure than their British counterparts, until quite recently. This pressure has encouraged them to re-assess their staffing needs and restructure operations. These reconsiderations have taken place under the auspices of greater state control and involvement in France, where the banks are more restricted in what they can do compared to those in Britain, for example the 1937 legislation on opening hours and more recent restrictions on the use of part-time and temporary work. The system in France is more decentralized than in Britain which affects the size of operations, the impact of work-load fluctuations and staffing requirements. The banks in France have also sought to provide a more integrated service policy, whereas in Britain they have segmented the services provided by different staff in the branches. The French banks have chosen this path because of the constraints of security arrangements and the extensive use of computer terminals for cashiers. They have also been able to recruit more highly qualified staff compared to the British banks and employees in France have a higher career motivation. The educational system also operates to restrict the flexibility French employers can obtain from their part-timers: because children do not attend school on Wednesdays this is the day most part-timers choose not to work. This research also set about to offer a new model in which to analyse these developments. One of the central points to emerge is that employment relations need to be seen in terms of a configuration rather than as opposed ‘either/or’ choices. The advantage of this perspective is its ability to account for variability and change. A new way of looking at this subject requires a framework which takes account of how employers develop flexible employment strategies not only in terms of business objectives like product market competition, work-load fluctuations and the use of new technology, which are all important to any analysis, but which also integrates the social and nationally specific factors including sector regulation and the role of the state, the level of employee qualifications, supply side preferences and the impact of gender on labour market and domestic activities, as for example in the organization of child-care. ACKNOWLEDGEMENT This research was funded by grants from the ESRC and the Leverhulme Trust.

BANKING ON FLEXIBILITY

191

NOTES 1. This is where employees are contracted to work a specified number of hours over a year or a season. Companies like Christian Dior, in France, have been successful in introducing this form of contract when, faced with the unexpected demand for their new perfume ‘Poison’, a rapid increase in production was required to meet this demand (Autrand, 1987). 2. See Gregory (1987) for case-study evidence of this in French supermarket attempts to organize a fixed late evening shift. Eventually employers had to compromise with staff demands for a rotating staff. 3. Casey (1988) points out that for the self-employed the ability to raise loans is greater, ‘the opportunities for setting off and writing off business expenses are more generous and, because tax to be paid at the end of any one financial year is assessed in relation to the previous year’s results, organisations with a growing turnover have a lower effective tax rate than they would if tax were assessed on current activities’ (p. 88).

REFERENCES Atkinson, J. and Meager, N. (1986) Changing Working Patterns: How Companies Achieve Flexibility to Meet New Needs. London: NEDO. Austrin, T. (1991) ‘Flexibility, Surveillance and Hype in New Zealand Financial Retailing’. Work, Employment and Society, 5, 2:201–21. Autrand, A. (1987) Les Syndicats et le Temps de Travail: Revendications confédérals et pratiques des acteurs dans trois secteurs industriels. Paris: CRESST. Bailey, E. (1990) ‘Banking on Everything but Money’. Daily Telegraph, 23 April. Baron, J. and Bielby, W. (1984) ‘The Organization of Work in a Segmented Economy’. American Sociological Review, 49, August: 454–73. Beechey, V. (1989) ‘Women’s Employment in France and Britain: Some Problems of Comparison’. Work, Employment and Society, 3, 3:369–78. Beechey, V. and Perkins, T. (1987) A Matter of Hours: Women, Pan-time Work and Labour Markets. Oxford: Polity. Benoit-Guilbot, O. (1989) ‘Quelques réflexions sur l’analyse sociétale: l’exemple des régulations des marchés du travail en France et en Grande-Bretagne’. Sociologie de Travail, 2–89. Berger, S. and Piore, M. (1980) Dualism and Discontinuity in Industrial Societies. Boston, MA: Cambridge University Press. Bernoux, P. (1985) La sociologie des organisations. Paris: Editions du Seuil Points. Bernoux, P., Cressey, P., Eldridge, J. and Macinnes, J. (1990) New Technology and Employee Relations in a Scottish and a French Bank. Summary report of a research project undertaken by the Department of Sociology and Social Economic Research, University of Glasgow, and Group Lyonnaise de Sociologie Industrielle. Université de Lyon II, May. Bertrand, O. and Noyelle, T. (1987) ‘L’emploi dans les banques et assurances: comparaison internationale et perspectives d’evolution’. Economie et Humanisme, mai-juin. BIFU (1985) Jobs for the Girls? The Impact of Automation on Women’s Jobs in the Finance Industry. BIFU Research. BIFU (1988) Survey of Terms and Conditions for Part-time, Temporary and Casual Staff. BIFU Research, August. BIFU (1990) Temporary Working in the Finance Sector. BIFU Research, April. Casey, B. (1988) Temporary Employment: Practice and Policy in Britain. London: PSI. Child, J. (1985) ‘Managerial Strategies, New Technology, and the Labour Process’. In Knights, D., Willmott, H. and Collinson, D. (eds) Job Redesign: Critical Perspectives on the Labour Process. Aldershot: Gower. Crompton, R. (1989) ‘Women in Banking: Continuity and Change since the Second World War’. Work Employment and Society, 3, 2:141–56. Crompton, R. and Sanderson, K. (1990) Gendered Jobs and Social Change. London: Unwin Hyman. Crow, G. (1989) ‘The Use of the Concept of “Strategy” in Recent Sociological Literature’. Sociology, 23, 1.

192

WESTERN EUROPE

Doeringer, P. and Piore, M. (1971) Internal Labor Market and Manpower Analysis. Massachusetts: Heath Lexington. Edwards, R. (1979) Contested Terrain: The Transformation of the Workplace in the Twentieth Century. London: Heinemann. Gallic, D. (ed.) (1988) Employment in Britain. Oxford: Blackwell. Gallic, D. and White, M. (1991) Employers’ Policies, Employee Contracts and Labour Market Structure. Paper presented at the 2nd Nuffield/PSI Conference, 11 January, Nuffield College, Oxford. Gordon, D.M., Edwards, R. and Reich, M. (1982) Segmented Work Divided Workers: The Historical Transformation of Labor in the United States. Cambridge: Cambridge University Press. Graham, G. (1988) ‘Stagnation on the Plateau’. Financial Times, 18 May. Gregory, A. (1987) ‘Le Travail à temps partiel en France et en Grande-Bretagne: temps imposé ou temps choisi?’. Revue Française des Affaires Sociales, 3, juillet-septembre. Gregory, A. (1990) Patterns of Working Hours in Large-scale Grocery Retailing in Britain and France: Convergence or Diversity after 1992? Paper presented at the Work, Employment and European Society Conference, Newton Park, Bath, 6–8 September. Hakim, C. (1987) ‘Trends in the Flexible Workforce’. Employment Gazette, 95, 11. Hodson, R. and Kaufman, R. (1982) ‘Economic Dualism: A Critical Review’. American Sociological Review, 47, December: 727–39. Huws, U. (1984) The New Homeworkers: New Technology and the Changing Location of White Collar Work. Low Pay Unit No. 28. Kerr, C., Dunlop, J., Haribson, E. and Myers, C. (1964) Industrialism and Industrial Man: The Problems of Labor Management in Economic Growth. Oxford: Oxford University Press; first published by Harvard University Press, 1960. Lane, C. (1989) Management and Labour in Europe: The Industrial Enterprise in Germany, Britain and France. Hants: Edward Elgar Publishing. Lane, C. (1990) Industrial Re-organisation in Europe: Patterns of Convergence and Divergence in Germany, France and Britain. Paper presented at the Work, Employment and European Society Conference, Newton Park, Bath, 6–8 September. Lane, C. (1991) Gender and the Labour Market in Europe: Britain, Germany and France Compared. Paper presented to the Gender and Labour Market Seminar, Nuffield College, Oxford, 5 February. Lasfargues, R. (1980) ‘La Compensation départementale des chèques: nouveau régime applicable à partir du 1er octobre 1980’. Banque, 399:103–6. Lui, Tai Lok (1990) The Social Organisation of Outwork: The Case of Hong Kong. Thesis presented for the Degree of Doctor of Philosophy at the University of Oxford. Maruani, M. and Nicole, C. (1988a) Au Carrefour de la flexibilité, condition d’emploi et politiques de gestion de la main-d’oeuvre dans le commerce. Rapport AIRESSE/CNAM juin. Maruani, M. and Nicole, C. (1988b) La flexibilité dans le commerce: temps de travail ou mode d’emploi? Paper presented to the Colloque International sur les formes d’Emploi, Paris, 3–4 November. Maruani, M. and Nicole, C. (1989) Au labeur des dames: métiers masculins, emplois féminins. Paris: Syros Alternatives. Maurice, M. (1989) ‘Méthode comparative et analyse sociétale: Les implications théoriques des comparaisons internationales’. Sociologie du Travail, 2–89. Maurice, M., Sellier, F. and Silvestre, J-J. (1982) Politique d’education et organisation industrielle en France et en Allemagne. Paris: Presses Universitaires de France. Translated (1986) as The Social Foundations of Industrial Power: A Comparison of France and Germany. Boston, MA: MIT Press. Maurice, M., Sellier, F. and Silvestre, J-J. (1984) ‘The Search for a Societal Effect in the Production of Company Hierarchy: A Comparison of France and Germany’. In Osterman. P. (ed.) Internal Labour Markets. Boston, MA: MIT Press. Michon, F. (1981) ‘Dualism and the French Labour Market: Business Strategy, Non-standard Job Forms and Secondary Jobs’. In Wilkinson, F. (ed.) The Dynamics of Labour Market Segmentation. London: Academic Press.

BANKING ON FLEXIBILITY

193

Morgan, D. (1989) ‘Strategies and Sociologists: A Comment on Crow’. Sociology, 23, 1. Morris, T. (1985) Innovations in Banking: Business Strategies and Employee Relations. Beckenham: Croom Helm. Nolan, P. (1983) ‘The Firm and Labour Market Behaviour’. In Bain, G.S. (ed.) Industrial Relations in Britain. Oxford: Blackwell. Nolan, P. and Edwards, P.K. (1984) ‘Homogenise, Divide and Rule: An Essay on Segmented work, Divided Workers’. Cambridge Journal of Economics, 8:197–215. Piore, M. and Sabel, C. (1985) The Second Industrial Divide: Possibilities for Prosperity. New York: Basic Books. Pollert, A. (1987) ‘The Flexible Firm: A Model in Search of Reality or a Policy in Search of a Practice?’ Warwick Papers in Industrial Relations, 19, December. Pollert, A. (1989) ‘L’entreprise flexible: realité ou obsession?’ Sociologie du Travail, 31: 1–89. Purcell, L. and Sisson, K. (1983) ‘Strategies and Practices in the Management of Industrial Relations’. In Bain, G.S.’ (ed.) Industrial Relations in Britain. Oxford: Blackwell. Rajan, A. (1984) New Technology and Employment in Insurance, Banking and Building Societies: Recent Experience and Future Impact. Brighton: IMS. Reynaud, J.D. (1989) Les Régles du jeux: l’action collective et la régulation sociale. Paris: Armand Colin. Robinson, O. and Wallace, J. (1984) ‘Part-time Employment and Sex Discrimination Legislation in Great Britain’. Department of Employment Research Paper, 43. Rose, M. (1985) ‘Universalism, Culturalism and the Aix Group: Promise and Problems of the Societal Approach to Economic Institutions’. European Sociological Review, 1, 1. Rubery, J. (1978) ‘Structured Labour Markets, Worker Organization and Low Pay’. Cambridge Journal of Economics, 2:17–36. Rubery,J. (1988) ‘Employers and the Labour Market’. In Gallic, D. (ed.) Employment in Britain. Oxford: Blackwell. Savage, M. (1989) Career Structures and Managerial Hierarchies: The Case of Lloyds Bank 1870–1950, mimeo, University of Surrey. Silverman, D. (1987) The Theory of Organisations: A Sociological Approach. Aldershot: Gower. First published in 1970 by Heinemann Educational Books. Strober, M. and Arnold, C. (1987) ‘The Dynamics of Occupational Segregation amongst Bank Tellers’. In Brown, C. and Pechman, J. (eds) Gender in the Workplace. Washington, DC: The Brookings Institution. Upton, R. (1984) ‘The “Home-Office” and New Homeworkers’. Personnel Management, September. Walby, S. (1989) ‘Flexibility and the Changing Sexual Division of Labour’. In Wood, S. (ed.) The Transformation of Work? London: Unwin Hyman.

30 The Europeanization of manufacturing and the decentralization of bargaining: multinational management strategies in the European automobile industry F.Mueller and J.Purcell

In their search for productivity and quality improvements, multinationals increasingly make use of their integrated operations in order to win agreement in local bargaining, on issues such as machine running time, the shift system and flexible working practices. In this situation, local bargaining between the industrial relations actors takes on a strategic role. A common multinational strategy is to link success in local bargaining to investment policy. National differences in industrial relations systems only seem to affect the mode of local negotiation, rather than the trend towards decentralization. Convergent forces in the shape of the globalization of markets, European legislation and common product standards, as well as the easing of cross-border shipments of components or half-finished products, have led to the emergence of remarkably similar operational requirements in management policies in various countries. This new dimension of multinationals’ corporate strategy has not yet been sufficiently explored in the literature. It appears that it has particularly relevant consequences for the German national bargaining system, where national and regional employer solidarity may become modified by local bargaining, induced by strategic decisions on corporate level. It is a matter of debate how far this trend in European motor manufacturing, the subject of this paper, will be reflected more widely. It is argued that industries characterized by comparable technological and cost constraints and product market pressures are likely to develop convergent patterns of employee relations at the plant level irrespective of national location. The debate about the convergence of industrial relations systems has recently reemerged (Due, Madsen and Stroby-Jensen, 1991) in the context of a European pattern for labour relations and human resource management. This may be seen in the attempts by the EC to harmonize the Social Dimension of the Single European Act or in trends in the decentralization of collective bargaining and the emergence of the common agenda of flexibility. The pressure for such a convergence is most likely to come from multinational companies operating in a global or an integrated European market. Trends in such companies can have profound effects in weakening industrial relations systems from the bottom with national-level actors forced to respond by relaxing previously entrenched patterns of behaviour if only to preserve jobs and remain attractive for investment which is increasingly mobile across national boundaries. The early signs of convergence are likely to be found in industries with integrated European product markets, strong

Source: The International Journal of Human Resource Management (May 1992), 3(1):15–34.

THE EUROPEANIZATION OF MANUFACTURING

195

competitive pressures and high capital costs forcing productivity improvements at plant level. A prime case is the automobile industry, and within it the capital-intensive engine plants. This article is based on a research project in the European automobile industry. The research was carried out in nine European engine plants, belonging to four different corporations (Ford, General Motors, Volkswagen and Rover) and located in four different countries (Austria, Germany, Spain and the UK). More than 250 interviews were conducted in 1989–91 mainly with production management, supervisors and personnel management at factory level as well as at the European headquarters of the companies. The companies are all mass producers, faced by similar competitive pressures. The technology of engine manufacture is very similar in all these companies and technological innovation tends to spread rapidly with machine tools and transfer lines produced by a very small number of suppliers for all the manufacturers. The interview results were linked to an analysis of company documents, secondary reports and previous research in the car industry. We report here on one aspect of the research, namely the way in which pressure to increase machine running time and capital utilization has led to the decentralization of collective bargaining and an overt link between manufacturing strategy and the management of labour relations. In the first section the pressures for a convergent response to capital utilization are assessed. This is followed by an exploration of the ways in which companies have used their investment muscle to reward and punish both plants and countries to gain acceptance to new work arrangements, for example through the use of comparative productivity and performance data. The third section describes and analyses the way in which continuous working was achieved by focusing on Germany and the UK. The summary and conclusion raise questions on the extent to which the experience of this industry is symptomatic of declining employer solidarity within countries leading to a broader convergence within Europe. Although the sample was intentionally designed to select cases from only a very narrow segment of the manufacturing industry, there may be a wider applicability of results in an indirect way. There is good reason to believe that other companies/plants, where similar technological constraints (capital-intensive, where high machine utilization is essential) and product market constraints exist (shortening product life cycles, increasing competition, internationalization of manufacturing), are adopting similar strategies to maximize productivity, plant utilization and improve quality. The pressure to extend machine running time has had profound effects on the management of industrial relations and is associated with a common trend towards local bargaining. EUROPEAN MANAGEMENT STRATEGIES AND THE PRESSURE FOR CONVERGENCE There is clear evidence that high technology, capital-intensive plants increasingly need to maximize machine running time in order to stay competitive. The higher the capital content of any new equipment, the more pressing is the need to decrease the capital costs per unit by extending the available production time of the equipment. There is nothing particularly new or surprising in this. Indeed, it has been shown that between 1965 and 1975 the capital intensity of equipment per employee increased more in percentage terms than it did between 1975 and 1985 (Bosch, 1987:715). Although these data are for German manufacturing industry, similar developments are likely to have taken place in other countries too. It was the intense pressure from competition in the last decade, and the over-capacity of the industry, which added the extra dimension to reduce costs while raising quality standards. Competitive advantage came more from programmes to improve plant productivity performance through better management than efforts to gain market share as the basis for profitability, if not survival. In these circumstances firms looked increasingly

196

WESTERN EUROPE

to ways of utilizing plant continuously. At the same time there was mounting union pressure to reduce the length of the working week. The combination of these two factors meant that the management of industrial relations inside the plant took on greater significance. Thus in engine plants with transfer line technology becoming more sophisticated and expensive, there was clearly a need to justify such a high capital expenditure through a long machine running time, while simultaneously finding means to reduce the length of the working week towards 35 hours. In Germany, new shiftwork arrangements have allowed both management and unions to achieve some of their respective objectives: unions could increase the employment level, while management could improve the utilization of machinery (Jacobi and Mueller-Jentsch, 1990:144). If companies wanted to keep pace with the development of the Japanese competitors they had to invest in the most modern and most sophisticated production equipment requiring substantial sums of investment. The reduction of the contractual working week could only be achieved in these circumstances through changes in shift patterns, the introduction of night shifts and efforts to improve output per person employed through multi-skilling and flexibility. The emergence of ‘global’ production technology has limited managements’ freedom of choice, and at the same time made cross-national, intercompany and intra-company comparisons easier. There are different means available to increase machine uptime: to replace production equipment, to extend the maximum possible machine running time, to keep more stocks along the line in order to minimize the effects of breakdown, to improve the quality of maintenance. The need for a higher quality maintenance—which can be provided through on-line maintenance stations, complemented by operator maintenance—is partly due to the increasing electrical and electronic content, which has made machinery more sensitive, and often more prone to disruption. In European assembly plants on the Continent, a double day shift is still the norm, while in UK assembly plants a double day/night shift has remained as the standard. In powertrain and stamping plants, 24-hour production has become the norm in Europe, mainly in the form of three shifts (3×8=24 hours), but sometimes in two shifts (2×12=24 hours), as at Rovers Longbridge operations. Four factors can be identified to account for such a development: the increase in competition, faster changing product markets, internationalization in production technology, product development and manufacturing operations and the ‘Japan factor’. The internationalization of markets, the development of a European sales market through common product standards, as well as the easing of cross-border shipments of components and half-finished products has also increased the pressure for organizational change, because high technology car plants find themselves in continuous competition for new investment, which is essential for their viability. The automobile industry has internationalized in four areas (Jones, 1985; Enderwick, 1986; Dankbaar, 1989). First, product development both for car bodies and powertrain has become international in the sense that there are some themes which are common to most manufacturers. Most important, there has been a convergence in regard to an aerodynamic shape, smaller cars and better fuel economy. Second, the market becomes more international, partly because of a convergence in the wide variety of different emission standards. Third, companies not only have to sell in different markets on different continents, but increasingly they also spread their manufacturing operations over countries in order to combine the advantages of economies of scale with the advantages of local manufacturing presence which opens markets and makes use of low-cost bases. Fourth, production technology has become very similar in the various plants. For mass producers, there is not much choice other than buying the latest state-of-the-art production equipment from a very limited range of machine tool suppliers. There is consequently both high investment intensity

THE EUROPEANIZATION OF MANUFACTURING

197

and high technology intensity. These trends and the ‘competitive bidding between aspiring host governments’ (Wilks, 1984/88:236) explain trends of internationalization and integration. There is also a trend of internationalization in labour matters seen in a tendency towards the harmonization of conditions across Europe (e.g., holidays), growing co-ordination among unions in the automobile industry and the attempts by the European Commission to establish a European Social Policy. In this sense the internationalization of product markets and the growth of cross-border manufacturing strategies exert pressure for the convergence of employment policies and industrial relations practice. These developments explain why the automobile industry has moved further towards the need for transnational integration in Prahalad and Dozs Integration/Responsiveness Grid (1987: Chapter 2; cf. Bartlett and Ghoshal, 1989; Doz, 1986). The maximization of machine running time and the use of flexible shift arrangements have become two areas where technology sets common parameters for all companies, and where the adopted arrangements show only slight variations within a broadly similar trend. While a three-shift system has become standard in capital-intensive areas, a two-shift system remains dominant in labour-intensive areas, such as assembly, where nightshifts with additional bonuses and dearer maintenance cannot be justified on a cost per unit basis (Lehndorff, 1991), This trend is common to all European countries. The differences that remain in labour relations are explained more by the speed with which manufacturers are able to gain agreement and implement their strategies than to fundamental differences in approach between countries. CORPORATE INVESTMENT DECISIONS AND MULTINATIONALS' POWER TO REWARD AND PUNISH Over the last few years, a ‘Europeanization of the auto industry (Financial World 22 August 1989) has taken place, partly in response to the liberalization of trade, partly in anticipation of the European single market in 1992. Companies such as Ford, General Motors and Volkswagen have manufacturing plants and strong marketing organizations located throughout the EC. Both Ford and General Motors have a more broadly based sales market than the other European manufacturers, which means that their sales are more evenly distributed across European countries, and they are much less dependent upon one particular country than Fiat, Peugeot or Renault. With the progressive realization of the 1992/single market programme, both Ford and General Motors can be expected to reap further benefits, because they will be able to ship components, body kits and complete vehicles across borders without losing time through border procedures. It has been argued that such simplification of cross-border flows will allow those manufacturers with integrated operations to develop a Just-in-time system on a European basis in addition to internal plant JIT arrangements (Rhys, 1990:10). Manufacturers with integrated operations are, however, particularly vulnerable to strike threats by the unions since any disruption is more likely to have cross-national consequences. The main consequence of this vulnerability is that manufacturers themselves use threats—namely to withhold future investment — in order to secure compliance to their needs and to put pressure on local bargainers. Such ‘reward-and-punish tactics’ can be backed up by regular cross-border quality and productivity comparisons. Local agreements on longer machine running time, reached successively in various European plants from 1988 onwards, are a striking example of this. The decentralization of bargaining and the internationalization and integration of manufacturing develop in parallel. Towards the end of the eighties, General Motors started a review of labour relations and work organization in its European plants. Radical changes were first introduced at GM’s plant at Antwerp, Belgium, with two ten-hour shifts and best working practices. As a consequence, the Antwerp plant

198

WESTERN EUROPE

overtook German plants in terms of productivity (Financial Times 14 June 1988). General Motors Europe was also the first manufacturer to introduce round-the-clock, seven-day continuous shift production at its plant in Zaragoza, Spain, in 1988. GM’s plant in Kaiserslautern, Germany, introduced longer machine running time in March 1988, and the other German General Motors plants in Bochum and Rüsselsheim followed in September and December 1988 respectively. In each case, agreement at one plant increased the pressure upon the other plants. At Kaiserslautern the rationale of the works council was to secure the long-term viability of the adjacent component plant. This broke new ground in the German automobile industry since changes in working hours were seen to be the province of regional industry negotiations between employers’ associations and the industrial union, IG Metall. The works council had to argue the case among the workforce and win their backing before it concluded the agreement with management. The works council agreed to far-reaching and —in German industry—nearly unheard-of concessions, mainly because management had explicitly linked the prospect of new investment in the plant to this agreement. In fact, such co-operation did help to bring new investment to Kaiserslautern, and for a while the plant seemed favoured among GM’s European operations. The works councils extremely co-operative attitude caused some strain inside the IG Metall both between local and central levels and between plants (Weinert, 1988; interviews). The agreement at Kaiserslautern and the other GM plants tended to cast doubt on the strong influence IG Metall headquarters have traditionally exerted on local works councils. In 1987 an IG Metall representative predicted that any decentralization of bargaining over machine running time would accelerate the trend towards an uncoupling of working time and machine running time (Bosch, 1987:726), and the last three years have shown this prediction to come true. The competition between plants is continuous and the concessions achieved at one plant can be surpassed by another. Plants can quickly win favourable treatment from multinationals, but they can lose it equally fast. In 1990 far-reaching concessions on workplace reform, flexibility and productivity improvement in GM’s British plants improved the image of the UK as an attractive investment opportunity, and showed that industry observers’ concern about General Motors’ long-term commitment to Britain (Financial Times 30 January 1990) was misplaced. This was strikingly demonstrated when, in its decision on the location of a new £128mn–£200mn European engine plant, GM gave Ellesmere Port preference over Kaiserslautern. The Ellesmere Port agreement includes single table bargaining, teamworking with practically no restrictions on flexibility and labour mobility, a new disputes procedure, ability to use temporary personnel and a reduction in the number of employee classifications from thirty to eight (Financial Times 6 April 1990). The plant, next to the assembly factory in the Wirral in north-west England, is planned to produce around 100,000 engines a year in the 2–3 litre range of V6 engines. This engine type may also figure prominently in the future product programme for Saab Automobile (Financial Times 20 January 1990). General Motors plans to boost its European engine capacity by 33 per cent by 1995 (which means 2mn units), but wants to achieve this with only one further new assembly plant (i.e. the Eisenach plant in Eastern Germany). At other GM plants across Europe, nightshifts will be progressively introduced. The image of the UK as a place to manufacture vehicles has substantially improved over the last decade. In part this was due to the achievement of better machine utilization. In 1988, three-quarters of all Ford sales in Britain were manufactured in the UK, a figure which had been as low as half. In July 1988, it was stated that UK quality had improved by 30 per cent; UK productivity was increasing faster than Ford’s European average of 8–9 per cent; and Halewood was meeting utilization of over 90 per cent (Caulkin, 1988). Ford Britain also demonstrated a direct link between further investment, machine running time and productivity gains. An investment decision in 1986 was directly linked to the productivity gains reaped from

THE EUROPEANIZATION OF MANUFACTURING

199

the 1985 deal. The contribution of improved machine running time to increased productivity was often pointed out by our interviewees. The strike in 1988 at Fords UK plants is an appropriate demonstration of the potential drawbacks of an integration strategy and its ‘increased dependencies’ (Wilkinson and Oliver, 1989). After one week the strike, resulting in a reported loss of 2,500 vehicles a day, led to a serious shortage of 2.5-litre diesel engines to be shipped from Dagenham to Genk. As a result, the production of 270 vans a day was stopped at Genk. After another few days, assembly at Saarlouis, which receives engines from Bridgend, was disrupted. The same happened to Fiesta assembly in Cologne, which depended upon engine supply from Dagenham (Financial Times 9 February 1988). Ford suffered substantially from the interdependence between its European manufacturing operations when the British trade unions exploited Fords vulnerability because of its high manufacturing integration. The story repeated itself in 1990, when production at Genk was halted because of interruptions in the supply of 2-litre petrol engines from Dagenham, the sole European source of this type of engine (Financial Times 6 February 1990). When, as a consequence, corporate management at Ford Europe and Ford US level decided not to concentrate engine production in the UK the complexity of corporate motives became clear: Bridgend had only recently accepted farreaching labour flexibility and other reforms; Britain was attractive from a cost point of view; on the other hand, with new markets in the east, Ford wanted to give some signal of its willingness to invest in Germany and perhaps east of it; and, Ford did not want to become overly dependent on the British manufacturing operations (cf. Financial Times 11 April 1990). Until the 1988 strike Ford Europe had invested substantial sums in Britain during the 1980s in part because of progress in improving productivity, unit costs and industrial relations. The investment sums were around £500mn in Bridgend for the Zeta engine project, and £204mn for the 1.8 diesel and DOHC at Dagenham. The engine plants are particularly dependent on a continuous flow of new investment, and the pressure upon them is accordingly higher, in terms both of productivity and quality comparisons and of machine running time. Ford’s engine operations performed well in the mid-1980s, and Britain emerged as Ford’s European engine specialist. This was observed by national unions in other countries and they exerted pressure when they detected significant shifts in investment policy. Both the German and Spanish unions used a centrally organized overtime ban and the rejection of the introduction of a third shift in order to get a reconsideration of investment plans. It is not clear whether it was the UK strike, the pressure from the German and Spanish unions or some other reason which led to a change in investment policy in March 1990. It seems clear, however, that Ford wanted to teach the British trade unions a lesson. In Ford’s official language, the strike confirmed that Britain still suffered from an industrial relations disadvantage. Ford corporate management also pointed out that productivity improvements in the British plants had again slowed down towards the end of the 1980s, with the result that the traditional gap between German plants and British plants was again widening (Interview, Ford Europe). Thus, while General Motors redirected its investment to the UK, Ford switched to favour its German plants. The explanation for this cannot be found by comparison of the macro, national characteristics of industrial relations. It is the quality of industrial relations, and labour productivity, inside the companies which is of influence. Of course, plant- and company-level behaviour may reflect and be historically deeply influenced by national systems, but it is the ability of the companies to put pressure on intracompany arrangements which counts. This in turn may influence the adjustment of national systems from below, and lead to greater diversity between industrial sectors, for example between those sectors facing intense international competition and those sheltered within national boundaries. Investment decisions are increasingly based on the use of comparative performance data in the extent to which individual plants have been able to implement productivity improvements. Both GM and Ford make

200

WESTERN EUROPE

systematic use of continuous productivity and quality comparisons, and use these figures in local bargaining. National producers, like Rover, use widely available data comparing the main companies for the same purpose (such as in Womack, Jones and Roos, 1990), and in Rover’s case the direct comparison with Honda can be used. For example, Ford productivity figures for body and assembly typically compare vehicles produced per employee. However much it may be argued by the unions that these data distort the real picture, or are highly selective, taking no account of historical investment levels or vehicle mix, it remains the case that within Ford they provide a powerful rationale for judging plant performance and putting pressure on the ‘poor performers’. In the light of the figures in Table 1, Ford management at the British Dagenham plant made clear to the workers and the unions that ‘the survival of Table 1 Ford of Europe, vehicles per employee (1988/1989 forecast) Plant

Vehicles per employee per year

Dagenham Halewood Genk Cologne Valencia Saarlouis Source. Ford Management Report.

1988

1989 (est.)

22 29 34 34 38 42

28 32 37 35 39 47

this plant depends totally upon achieving improved quality, reliability of supply and productivity’ (Financial Times 26 June 1990). Plant productivity comparisons and corporate pressure for improvements set the agenda for collective bargaining at plant level with such issues as machine running time, shift arrangements and flexible working practices coming under scrutiny. The trend towards plant bargaining (cf. Roberts, 1985; Kinnie, 1987; there is also evidence for this trend from the US, Kochan and Katz, 1983, and Germany, Weinart, 1988) is fuelled by the need to negotiate issues of increasing importance. This shift in the agenda of bargaining beyond the subjects covered by national or company-wide machinery allows the corporations to utilize their reward and punish tactics in the link with investment decisions. Machine running time in excess of 140 hours per week has been progressively introduced into powertrain plants. It may be no coincidence that in Europe it was the plants of General Motors that were the first to achieve continuous machine running time, not those of national producers such as Peugeot, Renault or Fiat. LOCAL BARGAINING OVER MACHINE RUNNING TIME AND WORK ORGANIZATION Local bargaining and the use of plant comparisons make it easier for a multinational to influence the direction and speed of change, moving towards the ‘ideal’ which corporate staff and management have identified as best for productivity. It is the case that local worker representatives, the shop stewards or works councillors, show generally a stronger identification with the plant’s survival than national union officiais (Düll, 1989). The fact that at all plants management has come to the conclusion that the most appropriate level to bargain for the introduction of changes in machine running time and work organization

THE EUROPEANIZATION OF MANUFACTURING

201

is the plant level does not deny Sisson’s judgement that in the typical case multiemployer bargaining has more appeal to the employers (Sisson, 1987). In Germany, this centralized arrangement is still in place for agreements on basic pay, and basic terms and conditions of employment. But two-tier bargaining has developed in addition to these structures, and the advantages of plant bargaining have become more prominent. Management can argue that each plant has to stand on its own feet, the actual, as opposed to the basic, terms and conditions of employment must be such that the plant is able to pay for them, and it fits in the overall trend towards the formation of business and cost centres (Purcell and Sisson, 1983; 108–12). It also means that the precise details for productivity arrangements can be hammered out in the light of national or company-wide enabling agreements. Similarly, Weinert (1988) found that plant bargaining in Germany has become the most important agenda for the negotiation of protection measures against rationalization (Rationalisierungsschutzpolitik), and that in this process the works councils take over management responsibilities, such as the extension of machine running time. Collective bargaining in Germany is based on the principle of bargaining autonomy. There is a dual structure of centralized bargaining at regional level between unions and employers’ federations on the one hand—in the old West Germany there were sixteen regional bargaining areas in the metal-working industry —and statutory negotiations at plant level between management and works councils, on the other hand. In Germany, the industry-level agreement would typically specify wages and conditions of employment, holiday arrangements, grievance procedures, new technology arrangements and the basic working week. This has traditionally meant weaker control for the unions at the workplace, particularly if compared with the situation in Britain. In addition, bargaining takes place at plant level with the works council. According to the Collective Contracts Law, all agreements reached directly between employers and employees or works councils must provide terms and conditions which are more favourable than the conditions specified in the higher-level collective agreement (Güntigkeitsprinzip)—therefore the latter specifies minimum wages which are exceeded by actual wages by a substantial margin. All these agreements are legally enforceable. A consensual rather than conflictual mode of job regulation and joint decision making is prevalent in Germany, and the system is more inclined towards developing institutionalized patterns of trust (for example, Sorge and Warner, 1980; Marsh, Hackmann and Miller, 1981; Lane, 1989). In Germany a shift of jurisdiction and power towards the local representative bodies (works councils) was observed to be inherent in the system (Streeck, 1987:8), but was additionally reinforced by the framework agreements which have increasingly been seen in the 1980s. According to Streeck these ‘cafeteria’ or ‘menu agreements’ will increasingly be limited to giving guidance to the negotiators at the plant and enterprise level, charging them with regulating centrally specified matters, circumscribing their range of discretion, and offering them a set of alternative solutions among which they can, and have to, choose. (Streeck, 1985:20) There has been increasing criticism of the industry-wide agreement in Germany, particularly in the metalworking industry, which includes sectors as diverse as ship-building, mechanical engineering, electrical industry, aerospace and automobiles. International competition is not of equal intensity in all of these sectors, and the companies in high competition areas may have to shoulder an unacceptable burden (Süddeutsche Zeitung 7/8 April 1990). In his ‘Outlook’ in 1984, Fürstenberg argued that there would be a greater need for flexibility in centralized collective bargaining agreements in order to allow for works-level agreements and to cater for diverse demands and expectations among young people. Certain actions have

202

WESTERN EUROPE

already been taken. The industry-wide agreement increasingly specifies only certain minimum conditions while plant agreements cover important issues, such as machine running time, shift-working arrangements, detailed implementation of working hours reduction and work organization issues. In 1990, the IG Metall tried unsuccessfully to close the option of Saturday, thereby ‘protecting’ the works councils from management demands and pressure. Opel, for example, threatened to transfer investment to Antwerp in Belgium, if this were to happen, thus making Saturday shifts impossible. During the 1990 wage negotiation round, where a strike seemed possible, the Opel works council suggested that the company should follow VW in having its own company agreement and break away from the regional system of collective bargaining (Süddeutsche Zeitung 31 March/1 April). One of the main motivations for this was the works council’s belief that it could negotiate flexible interpretations of agreements. This would benefit both parties in that the company would gain more flexibility and the employees’ desire for higher wages would be satisfied (Süddeutsche Zeitung 10 May 1990). Another example of local differentiation of an industry-wide agreement is provided by the 1984 compromise on working hours in the German metal-working industry. Working time reduction was implemented in different ways in the plants included in this study, ranging from daily working time reduction to additional annual holidays. Although bargaining arrangements are different in Britain, a similar trend of bargaining decentralization has been observed both from multi-employer and company-wide arrangements (Kinnie, 1987; Purcell, 1991). As in Germany, the need has often been to implement longer machine running time and appropriate shift arrangements and introduce elements of flexibility: issues which are more appropriate for local negotiation. While pay settlements, holiday, sick leave, pension arrangements and the length of the basic working week are still discussed in company-wide bargaining in the British motor industry, very important issues including the implementation of flexible working practices and team-work arrangements are discussed at plant level. This means that conflicts over changes in working practices are partly centralized, partly decentralized (IDS study, April 1986). Interestingly, these considerations apply to some degree to all countries, in spite of quite different systems of collective bargaining in Britain, Germany, Austria and Spain. National factors may, however, have a reinforcing effect. In the German case, works councillors are under a peace obligation and are encouraged by law to enter into trustful co-operation. Companies in countries with works council systems have traditionally tried to utilize the special outlook and orientation typically displayed by works councillors. One German author observes that ‘the activities of the works council are shaped and absorbed by immediate problems which affect the representation of workers’ interests at plant level: increasing emphasis is being placed on the safeguarding of jobs’ (Düll, 1989:202). However, a similar perspective exists in Ford Britain’s Joint Works Committees at plant level or Rover’s Shop Stewards Committee. In Germany and Austria, the company is obliged by law to get the agreement of the works council on work organization issues and machine running time, and these issues are normally not negotiated at industry level. In all countries manufacturers have had to negotiate the details of the shift system at the plant level in order to achieve longer or even continuous machine running time. The experience of a company like Ford suggests that the difference between the German pattern of negotiations between management and works councils and the British pattern of negotiations between management and plant committees or local union representatives can become very small indeed. Ford managed to avoid the fragmentation of industrial relations common in other British companies, partly due to its early reliance on company bargaining, a refusal to join the Engineering Employers Association and follow national agreements in engineering and by allowing, under pressure, the creation of consultative bodies at company and plant level. Ford Britain has adopted a pattern which resembles the German arrangement to some degree, and it consists of a combination of company and plant-level

THE EUROPEANIZATION OF MANUFACTURING

203

bargaining. The company agreement is negotiated between management and the union side of the national joint negotiating committee. To some extent, Ford has overcome some of the disadvantages of multiunionism by establishing a joint negotiating committee at company level. The progress towards a reform of working practices at Ford plants in Belgium and Germany was responsible for ‘The pressure grow[ing] on Ford UK to conform’ (Financial Times 11 February 1988). At Genk, maintenance workers had already started doing some work on the line. In Germany, progress had taken place in the form of the industrial mechanic, a multi-skilled craftsman orientated towards the needs of production. Production teams had also already started at Belgium and German plants. Despite the volume of new labour legislation in Britain in the 1980s, there is very little evidence in Ford that it played any part in the development of the new employee relations. This was not completely the case at Rover where injunctions were taken out in the 1982–3 strike which indicated the problems that national union leaders had in enforcing a strike in all plants. Legislative changes were not mentioned in any of our interviews in any of the countries as a factor either initiating change or helping to facilitate it. At Rover, as a national company, the introduction of long machine running time was not linked overtly to corporate investment strategy. The company had fewer choices especially since the closure of a number of plants in the early 1980s. In 1989/90, Rover management did use the argument at its Longbridge plant that the substantial investment made in the previous years needed the best possible machine running time arrangements. However, after management had failed to get the agreement from the workforce, it threatened to impose the shift pattern, rather than reinvest elsewhere. Rover management evaluated different alternatives of shift systems according to criteria such as ‘Required on Roll’, ‘Hours per Power Unit’, ‘Hours available for Maintenance’ and decided on the following shift system: there is a four-crew, two-shift, 6.5-days work arrangement with 11.5 (gross) or 11 (net, i.e. without breaks) hours per shift and 13 shifts per week. Instead of working twenty eight-hour shifts a month, employees will now work thirteen 11.5-hour shifts over a four-week cycle which would allow the engine and transmission plant to operate seven days a week. This means a maximum possible machine running time of 136.5 hours per week. There would be continuous machine running except for the Saturday night shift and workers are guaranteed one run of seven consecutive days off in every four weeks and never work more than three consecutive night shifts. Relief workers can be used to remove bottle-necks and extend machine running time even further: these are typically highly trained, multi-skilled production staff with the task of operating machines while their colleagues are having lunch or relief breaks. This makes maximum operating times of 144 hours possible. The drive by the unions for a 37-hour week in 1989 at national level became intertwined with negotiations over the new shift pattern at local level at Longbridge. An agreement with the unions had not been reached by the end of November 1989. At this point Rover management announced that the new shift pattern would be imposed despite union opposition. It was argued that new shifts were integral to the planned continuous 24-hour production. Rover Group management was quoted in the Financial Times as saying: ‘To get the benefit we require from this £200m investment, we need operations as near as possible to 24 hours a day (28 November 1989). This refers to the engine and transmission plant where the K-engine is produced for the new Metro and the Rover 200 series. With 24-hour working, engine production could be increased from 5,000 to 6,000 a week. Longer machine running times were also sought at another part of the Longbridge operation. The demand for the new medium-sized Rover 200 and 400 series was running very high and investment in new facilities at the assembly plant would not have been implemented fast enough to meet this demand. The proposed three-shift system would have raised output from 4,000 to 5,500 cars a week. The deal was basically to concede a shorter working week to the unions —which they had increasingly wanted—and to get

204

WESTERN EUROPE

productivity improvements in return. Austin Rover has made it clear that it expects the final deal to be selffinancing and that the working practice changes required to vary at each factory’ (Financial Times 28 February 1990). When agreement with the union representatives was reached, the workforce rejected the compromise. Only after repeated threats to impose the new system and a joint campaign by management and union representatives to persuade the workforce to accept it was agreement reached. When Rover management conceded the 37-hour week at the end of February 1990 it was regarded as a ‘precedent’ in the protracted battle between the unions and the employers (Financial Times 28 February 1990). Ultimately, the pattern will apply to 10,000 workers, but initially it will be introduced only into the engine and transmission areas. These workers will work on a seven-day-a-week shift system with a total of 31.5 weekly working hours. Once agreement on self-financing measures is reached at plant level assembly workers will work 36 or 37 hours over five days a week. These self-financing measures include better machine utilization which is linked to issues such as skill development, multi-skilling, building up flexibility and devising a new teambased work organization. Thus, a breakthrough in one area, machine running time, requiring plant based, local negotiations becomes progressively linked to broader issues of employee relations and human resource management. This is seen in all of the companies and all of the countries studied. There are differences in the precise content of what is achieved, in part because of broader social differences, such as the supply, or lack of it, of skilled labour, but the approach of the companies has been remarkably similar. National variations and historical patterns of union—management relations provide different starting points, but pressure to achieve productivity improvements, seen in machine running time and the associated changes in employee relations practice, points toward a convergence of outcomes. EVALUATION AND CONCLUSION In summary, there are various factors which shape companies’ policies for organizational change in a convergent direction. The internationalization of markets, the development of a European sales market through common product standards, as well as the easing of cross-border shipments of components and halffinished products has also increased the pressure for organizational change. High technology car plants find themselves in continuous competition for new investment, which is essential for their viability. In addition, the maximization of machine running time and the use of flexible shift arrangements have become two areas where the environment sets common parameters for all companies, and where similar arrangements were adopted, across companies and countries. Capital-intensive areas, such as engine plants, transmission plants or stamping areas are clearly different from labour-intensive assembly areas, where a two-shift system remains the dominant pattern. This trend is common to all European countries, and there are differences only in minor details. While in some cases a three-shift system may initially have been adopted in response to unexpected continuing high demand, there emerged additional economic and strategic reasons which provided a justification for the continuation of continuous working in unit cost terms. The multinationals’ heightened bargaining power is partly due to their ability to exert pressure on the national industrial relations actors, and often a decentralization of bargaining goes hand in hand with this. The trend towards two-tier bargaining, with framework agreements at national or company level and detailed negotiations at plant level was found in all countries. It allows management to link the negotiation of issues such as work organization or machine running time to reward-and-punish tactics in investment decisions. Continuous productivity and quality comparisons become used as an additional factor to spur cross-border imitation of apparently successful approaches to the achievement of productivity.

THE EUROPEANIZATION OF MANUFACTURING

205

In order to account for such a striking similarity in approach, it is necessary to take account of the corporate strategies of multinational producers. The integration of operations, reduction in economies of scale and better machine utilization in smaller plants have become strategic priorities. Multinationals have realized that the pursuit of economies of scale is no longer the most obvious route to the achievement of competitive advantage. The integration of operations, and an emphasis on plant productivity is more important and this, in turn, leads to pressure being placed on industrial relations and long established labour practices. Paradoxically it appears that, while manufacturers increasingly seek to integrate their operations across Europe, this is leading to a fragmentation of the formal mechanisms of industrial relations and a diminution of the authority of national union leaders in many countries. Given the substantial influence of multinational corporate strategies on both the British and German system of industrial relations towards the end of the 1980s, there is some reason to think that these developments may pose a challenge to the national system of industrial relations in the various countries. This is likely to depend on the extent to which the single European market impacts on product market integration throughout the (enlarged) community and the capital intensive nature of the production processes required. Our study of a capital-intensive sector in an industry where integrated markets have emerged in the last decade (what might be seen as the first entrants into the pan-European scene) leads us to suggest that in those industries faced with similar pressures, and where there is a dominance of multinational companies, it is likely that the pressure for common standards of productivity and performance will mount, irrespective of national systems of industrial relations. The unresolved question is how national industrial relations systems which seem to serve the small and medium-sized domestic producers well will find means of surviving once the bigger players have withdrawn. Does multi-employer bargaining make sense if the bigger employers are no longer bound by agreements? It may be that two ‘systems’ of industrial relations emerge in Europe: the one for large integrated companies where the focus is on plant activity and active works councils; the other serving the smaller domestic producers and those firms in sheltered markets based on the varied traditions and practices of national industrial relations arrangements. This is speculation. What seems clear from our research in engine plants is that the need for capital utilization in capital-intensive operations is leading to an emphasis on plant relations, and the achievement of very similar employee relations practices, irrespective of national location or ownership. This in turn is placing pressure on the traditions embodied in national industrial relations systems. ACKNOWLEDGEMENT The support of the Leverhulme Trust (London) is gratefully acknowledged. REFERENCES Baglioni, G. and Crouch, C. (eds) (1990) European Industrial Relations: The Challenge of Flexibility. London: Sage. Bartlett, C. and Ghoshal, S. (1989) Managing Across Borders: The Transnational Solution. London: Hutchinson Business Books. Bosch, G. (1987) ‘Entkoppelung von Arbeits- und Betriebszeiten’. Zwischenbilanz WSI Mitteilungen, 12:713–26. Caulkin, S. (1988) ‘Ford Tunes Up Europe: Ford of Europe is the Key Component in the Steady Move Towards a System of Truly Global Manufacturing Integration’. Management Today July: 38–44. Daily Telegraph (1988) ‘Ford’s Need to Talk about Change’. 18 February. Dankbaar, B. (1989) ‘Sectoral Governance in the Automobile Industries of West Germany, Great Britain and France’. Maastricht: MERIT Working Paper 89–108.

206

WESTERN EUROPE

Desatnick, R.L. and Bennett, M.L. (1977) Human Resource Management in the Multinational Company. Aldershot: Gower. Doz, Y. (1986) Strategic Management in Multinational Companies. Oxford: Pergamon. Due, J., Madsen, J.S. and Stroby-Jensen, C. (1991) ‘The Social Dimension: Convergence or Diversification of IR in the Single European Market’. Industrial Relations Journal, 22/2 (Summer). Düll, K. (1989) ‘New Forms of Work Organisation: Case Studies from the Federal Republic of Germany, France and Italy’. In Grootings, P., Gustavsen, B. and Hethy, L. (eds) New Forms of Work Organization in Europe. New Brunswick, NJ: Transaction Publishers. Enderwick, P. (1986) ‘Trends in the Internationalisation of Production’. Employee Relations , 8/6:9–16. Financial Times (1988) ‘Germany will be Next, Say Ford Pickets’. 9 February. Financial Times (1988) ‘Belgians to be Laid off as Ford Strike Bites’. 9 February. Financial Times (1988) ‘Domino Effect Hits West German Car Plants’. 10 February. Financial Times (1988) ‘The Pressure Grows on Ford UK to Conform’. 11 February. Financial Times (1988) ‘GM Planning Shake-up at Belgian Factory’. 14 June. Financial Times (1988) ‘Ford Unions to set up European Group’. 28 November. Financial Times (1989) ‘Gearing up for the Race of the 1990s’. 25 January. Financial Times (1989) ‘Dagenham’s Decline is Genk’s Gain’. 30 January. Financial Times (1989) ‘GM sets Deadline for Change to Working Practices’. 1 November. Financial Times (1989) ‘Vauxhall Unions get Pay Deal Ultimatum’. 28 November. Financial Times (1990) ‘GM Likely to Build Plant on Merseyside’. 20 January. Financial Times (1990) ‘Car Makers Face Overcapacity’. 30 January. Financial Times (1990) ‘Ford Production at Genk Halted by British Dispute’. 6 February. Financial Times (1990) ‘Electricians Throw a Spanner in the Works’. 6 February. Financial Times (1990) ‘Harmonious Talks Open Way to Round-the-Clock Work’. 28 February. Financial Times (1990) ‘Rover Group Shorter Hours Deal Sets a Precedent’. 28 February. Financial Times (1990) ‘Vauxhall Introduces Ellesmere Port Reforms’. 6 April. Financial Times (1990) ‘UK’s Push, Europe’s Pull’. 11 April. Financial Times (1990) ‘Time to Do or Die at Dagenham’. 26 June. Financial World (l989) ‘Car Wars’, 158/17 (22 August): 31–47. Fürstenberg. F. (1984) ‘Recent Trends in Collective Bargaining in the Federal Republic of Germany’. International Labour Review, 123, 5:615–30. IDS Study (1986) ‘Flexibility at Work’. 360 (April). IRS Employment Trends (1990) ‘Working Time Arrangements in the European Motor Industry’. 471 (5 September). Jacobi, O. and Mueller-Jentsch, W. (1990) ‘West Germany: Continuity and Structural Change’. In Baglioni, G. and Crouch, C. (eds) European Industrial Relations, London: Sage. Jones, D.T. (1985) ‘The Internationalization of the World Automobile Industry’. Journal of General Management (Spring). Jürgens, U., Malsch, T. and Dohse, K. (1989/91) Moderne Zeiten in der Automobilfabrik: Strategien der Produktionsmodernisierung im Länder- und Konzernvergleich. Berlin: Springer. (To be published under: Modern Times in the Automobile Industry— Strategies of Production Modernization in a Country and Company Comparison. Cambridge: Cambridge University Press.) Katz, H.C., Kochan, T.A. and Keefe, J.H. (1988) ‘Effects of Industrial Relations on Productivity: Evidence from the Automobile Industry’. Brookings BPEA 2:88 (Paper). Kinnie, N. (1987) ‘Bargaining within the Enterprise: Centralized or Decentralized?’. Journal of Management Studies, 24/5. Kochan, Th. A. and Katz, H. (1983) ‘Collective Bargaining, Work Organization, and Worker Participation: A Return to Plant-level Bargaining’. Labour Law Journal 34 (August): 324–9. Krulis-Randa, J.S. (1990) ‘Strategic Human Resource Management (SHRM) in Europe after 1992’. International Journal of Human Resource Management, 1/2 (September).

THE EUROPEANIZATION OF MANUFACTURING

207

Lane, C. (1989) Management and Labour in Europe. Hants: Edward Elgar. Lehndorff, S. (1991) ‘Arbeitszeiten und Betriebszeiten in der europäischen Automobilindustrie’. Köln (unpublished report to the European Commission, April). MacDuffie, J.P. and Kochan, Th. A. (1988) Human Resources, Technology, and Economic Performance: Evidence from the Automobile Industry, Industrial Relations Research Association Series, Proceedings 41st Annual Meeting, New York, 28–30 December. Marsh, A., Hackmann and Miller (1981) Workplace Relations in the Engineering Industry in the UK and the FRG. London: AGF. Prahalad, C.K. and Doz, Y. (1987) The Multinational Mission: Balancing Local Demands and Global Vision. New York and London: The Free Press. Purcell, J. (1989) ‘Managing Decentralized Bargaining’. Personnel Management, February. Purcell, J. (1991) The Rediscovery of the Management Prerogative: The Management of Labour Relations’. Oxford Review of Economic Policy, 7, 1. Purcell, J. and Sisson, K. (1983) ‘Strategies and Practice in the Management of Industrial Relations’. In Bain, G.S. (ed.) Industrial Relations in Britain. Oxford: Blackwell. Rhys, D.G. (1990) ‘An Industry in Flux’. Unpublished manuscript. Cardiff Business School. Roberts, B.C. (ed.) (1985) Industrial Relations in Europe. Beckenham: Groom Helm. Sisson, K. (1987) The Management of Collective Bargaining: An International Comparison. Oxford: Blackwell. Sorge, A. and Warner, M. (1980) ‘The Context of Industrial Relations in Great Britain and Germany’. Industrial Relations Journal, March–April. Streeck, W. (1985) ‘Industrial Relations and Industrial Change in the Motor Industry: An International View’. Public Lecture. University of Warwick. Streeck, W. (1987) ‘The Uncertainties of Management in the Management of Uncertainty’. Work, Employment & Society, 1/3. Süddeutsche Zeitung (1990) ‘Tarif-Kontroverse in der IG Metall’. 31 March/1 April 1990. Süddeutsche Zeitung (1990) ‘Gefangen im Tarifgeflecht’. 7/8 April 1990. Süddeutsche Zeitung (1990) ‘Tarif-Kompromisse, mit denen sich leben lässt’. 10 May 1990. Weinert, R. (1988) ‘Betriebliche Rationalisierungsschutzpolitik. Ein Beitrag zur “Dezentralisierung” kollektivvertraglicher Regelungen’. Soziale Welt, 39/3:279–91. Wilkinson, B. and Oliver, N. (1989) ‘Obstacles to Japanisation: The case of Ford UK’. Employee Relations, 12/1. Wilks, S. (1988) Industrial Policy and the Motor Industry, paperback edition (1st edition 1984). Manchester University Press. Womack, J.P., Jones, D.T. and Roos, D. (1990) The Machine that Changed the World. New York: Rawson & Collier.

31 Management development in Europe: a study in cultural contrast P.Lawrence

Our starting point is that the management of human resources (HRM) is essentially an Anglo-Saxon construct. It has been ‘grafted on’ rather than ‘taken root’ in Continental Europe, where the classic HRM functions—recruitment, socialisation, training, development—are rather more determined by different conceptions of management, underpinned by related values. These same underlying beliefs and assumptions also colour the varied approaches which are taken to the making of managers in these countries. The purpose of this article is to throw the different European approaches to management development into sharp relief first by making the contrast with the American situation clear and then by drawing out the differences within Europe—most notably France and Germany. MANAGEMENT'S AMERICAN ORIGINS Discussion of the origins of management is sometimes obscured by the fact that management is at the same time an activity, an idea, and a subject (Lawrence, 1986:2–5). As an activity, management has clearly existed for centuries. Past instances of the discriminant deployment of resources and the effective coordination of manpower abound, from the building of the pyramids to the organising of the army that Napoleon took to Moscow in 1812. But engaging in it is different from having an idea of it, and it is the latter which is the American démarche. It was in the USA, that is, that the idea of management crystallised. Management was first identified and labelled in the USA, seen as a phenomenon that could be extrapolated, analysed, and made the subject of generalisation. The most potent cause of this development, no doubt, was the unusual circumstance of America from the end of the War of Independence (1783) until the last unclaimed land was distributed at Fort Sill, Oklahoma (1890): namely, a vast, empty continent was ‘filled in’—too much space and too many resources crossed with too few people and too little time. And the shortage of people betokened an even more acute shortage—of drive, entrepreneurialism, versatility, adaptability, and the opportunistic exploitation of circumstance and resource; that is to say, a shortage of (some of) the ingredients of management. And the sense of shortage led to a corresponding valuing, indeed valorisation, of these qualities. It is a short step from the conceptualisation and valuation of management to the conviction that it is teachable: the Americans took this step. The world’s first business school, at Wharton, Pennsylvania, was established in 1881 (cf the London Business School established in 1965). Wharton was the first of many. By

Source: Human Resource Management Journal (1992), 3(1):11–23.

MANAGEMENT DEVELOPMENT IN EUROPE

209

the 1950s business education, as we know from William Whyte’s Organisation Man (1956), was not only a mass phenomenon but a mature one, inviting satirical treatment (management education has yet to become an object of satire in Europe). The transition from a concept of management to the teachability of management itself expresses a variety of American values, with proactivity, a drive to efficiency, and equality of opportunity all playing a part. The American world view is active not contemplative, oriented to the here and now not the life thereafter, and above all to the conviction that man can and must shape his destiny. All this inclines an efficiencyconscious people to: – – – –

be aware; work out how; formulate if possible; pass it on (teach).

So far we have argued for management’s American origins, but in general terms. It is possible to go further and see the emergence of HRM and ‘management development’ as pre-eminently American phenomena. There are a number of issues here. First is the general consideration that Americans, having invented management, espouse all its specialisms, techniques, and the ‘supporting cast’ of business school teachable subjects. Thus the Americans invented mass production, marketing, and corporate strategy, just to take three lead examples. But more than this, the USA is the land par excellence of social science. While Britain, and to a lesser extent Continental Europe, discovered sociology in the 1960s and scrambled to establish sociology departments at universities, these had routinely existed in the USA for half a century. This tends to be obscured by the fact that it was the Europeans who produced all the ‘founding fathers’ —Weber, Marx, Durkheim, Simmel, and so on—with the Americans making a systematic contribution to social theory only in the mid-twentieth century. But if Europe had the ‘officers’ the USA had ‘enlisted men’ in abundance. Indeed the inter-war period is something of a golden age in American empirical social science with a plethora of community studies, research on stratification systems, ethnic minorities, race relations, poverty, crime, and juvenile gangs. This empirical outpouring did not end with the 1930s. When the Japanese bombed Pearl Harbor in December 1941 they unleashed not only an American military response but also a sociological one! A distinctive feature of the American war effort was its reflexive nature; it studied itself in the making. Americans wanted to understand the human and organisational dimensions of belligerence, and to profit from the understanding. It is sometimes said that the Second World War in the United Kingdom gave birth to operations research: in the United States it gave rise to group dynamics and leadership studies. In the post-war period the American preoccupation with people and groups enjoyed a new flowering. Consider that all the theories of motivation are American, so are virtually all the leadership studies, so is group dynamics, studies of supervisory effectiveness, informal organisation, work group behaviour, and much organisation theory and analysis. All this is a powerful thrust to the development of HRM, and to management as a teachable activity. There is also an important facilitating factor. This is the absence in the USA alike of European-style class consciousness, a serious socialist movement, and any penetration of Marxist ideology. In ‘old Europe’ these have variously served to structure both the perception and reality of superior-subordinate and managementworker relations in industry. But the American comes to these with an open mind. In the absence of any prestructuring these phenomena must be seen in their own terms, their own irreducible human and social terms.

210

WESTERN EUROPE

So that group dynamics, supervisory styles, context-specific leadership, and formal and informal systems have a greater relevance and immediacy. One obvious manifestation of these tendencies is the American fascination with the organisation itself. Precisely because it is a man-made construct, ‘the organisation’ is endlessly fascinating to Americans. Whereas the Germans, for example, see the organisation as a secondary consequence of engaging in manufacturing activity, in the American view the organisation is both primary and perfectable. Because people have made it, people can improve it, endlessly linker’ with it (=OD) to get improvements in efficiency, effectiveness or enhanced interpersonal cooperation. Managerial leaders can be taught how the system works and thus be equipped to modify it. Finally, the American concern with people—as individuals, in groups, as organisational members—is also heightened by American rejection of European élitism. As the land without monarchy, aristocracy or papacy, the USA is the society where people are primary, equal and important. People cannot be judged secondary to an idea, are less easily relegated to the status of role incumbents. So if people are primary, and equal, there must be a greater concern with their motivation, leadership, satisfactions and concerns, and with the dynamics of their cooperation. For such reasons the USA is the country par excellence of HRM and formal management development, both in terms of practice and of the academic, research-driven underpinning. A major contention of this article is that these conditions and values, and therefore their results, are not replicated in Continental Europe in the same plenitude. But what of that ‘intermediate state’, Britain? HRM, MANAGEMENT DEVELOPMENT AND THE BRITISH VIEW OF THE HUMAN CONDITION There can be little doubt that HRM is ‘alive and well’ in Britain. It is included on every conceivable management course from DMS to MBA, there is a flourishing Institute of Personnel Management which acts as a qualifying body as well as an interest group, and while it would probably be unrealistic to expect any staff function/department to enjoy the highest prestige, low esteem has traditionally been reserved for engineering (Gerstl and Hutton, 1966), design and production (Gill and Lockyer, 1978) rather than personnel. It must be equally clear that this is not because Britain shares with the USA any of the features or values explored above. Indeed, the only thing that Britain in this connection would appear to share with the USA is not being Continental European. So how is this parallel development of HRM in Britain to be explained? It seems to this writer that the answer must lie in a number of intersecting negatives, but let us at least begin on a more positive note. For most of this century Britain has recognised that industry and management are not national strengths and there has been a corresponding tendency to look up’ to other countries whose superior economic performance was attributed in part to quality of management. For most of the twentieth century the USA has been the business role model. If you wanted to know how to do it you went to the USA to observe the professionals, and came back and did it in Britain—if you had the nerve and the trade unions would let you. This sustained British admiration of American business lasts at least until the 1970s, and is manifest in a number of shared enthusiasms—short termism, equity financing, mergers and acquisitions, financial planning, budgetary control, strategy, and management education. For all of these the enthusiasm evinced in Britain is observable, but later on less so than in the USA. So this standing of HRM and management development in Britain is in part a reflection of extended mid-century admiration for that dominant transatlantic economy. But there are other considerations.

MANAGEMENT DEVELOPMENT IN EUROPE

211

A number of writers have identified an anti-industrial strain in British culture and society (Barnett, 1972; Wiener, 1981) and this anti-industrialism is also a well-worked theme in the ‘industrial novels’ of the midnineteenth century, for example Disraeli’s Sybil and Dickens’s Hard Times. The essence of this genre is that industry is variously rejected as soulless, depersonalising, calculating, and overly-materialistic. Not an enterprise for the gentleman, or the intellectual, or for anyone with finer feelings. But note that the critique implies a plea for HRM, where the mission of personnel is to re-personalise a dreary and mechanistic operation. It also implies a vital need to teach managers ‘interpersonal skills’, communication, leadership, and so on. A similar thesis-antithesis may be perceived in the British undervaluation of Technik. Engineers have traditionally enjoyed lower standing in Britain than in Continental Europe (Hutton and Lawrence, 1981), the technical functions, including production, have lower relative status in British industry (Lawrence, 1980; Lockyer and Jones, 1980). Furthermore, the tendency in Britain has been to stereotype the engineer pejoratively as interpersonally inadequate, at ease only when communing with his machines. Here again the playing up of the human side of enterprise as a crucial managerial role is a very British response. There are further antithetical elements. The persistence in Britain of subjective class consciousness renders communication (across class lines, in industry across authority lines) more problematic. Hence people, managers and supervisors, need to be coached in it, need to be made aware of the barriers by means of case studies and role plays. Or again the traditionally poor industrial relations in British industry are a stimulus to professional HRM. Poor industrial relations ‘flag up’ a need for training—in communication again, in supervisory skills, in negotiation, and in being familiar with ‘the British system of industrial relations’, a common course component. It also shapes the consciousness about the priorities to be included in management education, training and development processes. Furthermore, a number of elements already canvassed— anti-industrialism and class consciousness, aristocratic disdain and employee intransigence—all render motivation relatively more problematic than in other industrial societies. Once again, it is a challenge for management development. Finally, this negatively induced concern with communication, negotiation, supervision and motivation in British industrial society is paralleled and sustained by a positive conviction. If there is one thing that ‘our glorious history’ teaches us, it is that great men matter—from Clive to Churchill, from Wolf to Dowding. The British tendency to reject technology as depersonalising and administrative systems as mundane is matched by a valorisation of the human and individual. Human qualities, individual talents, creativity, social ease and political grasp are what matter; the ability to move others is decisive, leadership is at a premium. Again, it is a national inclination that works in favour of HRM. Personnel is the function charged with the selection, recruitment, and development of human talent, with ‘the care and feeding’ of leaders. This is not a disposition that one finds, for instance, in matter-of-fact Sweden, or in the anti-heroic Netherlands. We have deliberately spent some time exploring the differential underpinning of HRM and the nature of managerial priorities in the two key Anglo-Saxon countries as a backdrop to understanding Continental Europe. It is in fact because so many of the considerations explored in the British and American connection do not apply in mainland Europe, that HRM does not have the same élan there, indeed is in part socially and culturally by-passed. Let us begin with France.

212

WESTERN EUROPE

PERSONNEL MANAGEMENT AND THE MAKING OF MANAGERS IN FRANCE It should be said at the outset that the distinctions made in this article between countries are not of a ‘black and white’ kind. In these discussions of the origin, standing, and nature of both the personnel function and role of management development we are dealing of course in matters of relative importance and national emphasis. With this qualification let us begin to situate the personnel function and French conceptions of management with a brief historical reference. In the previous discussion of Britain it was suggested that part of the raison d’être for the personnel function was a need to civilise industry, to give manufacturing a human face. These arguments are not inapplicable to France but they are less important for that country. In the British case the humanising mission of personnel derives long term from the black imprint of the industrial revolution on the folk memory. Say ‘industry’ to a British school child and he/she thinks of slums, squalor, and child labour in the cotton mills. All this applies rather less to France. In that country the industrial revolution started later than in Britain, and was far less comprehensive. France remained persistently if not predominantly rural until after the Second World War. It is generally agreed that industrialisation was only completed in France in the 1950s, part of the development connoted by the phrase les trentes glorieuses, the thirty years of growing prosperity after the Liberation. There are occasional French novels decrying the ills of industrialisation, but ‘the industry novel’ is not a genre as in nineteenth century Britain. Or again the civilising mission of personnel, very obvious in the British case, is inappropriate in the case of France. In that society industry has been civilised from within by the quality and educational élan of the management élite, an idea that will be developed in the next section. Another part of the raison d’être for the personnel function in general, and the management development activity in particular, is the conviction that industry has ‘special needs’ in terms of the skills and capabilities of those who staff it. At the blue-collar level this simply means the development of craft skills and operating capabilities, but at management level there is an implicit distinction. This is that the skills of the manager (private sector, profit making) will need to differ somewhat from those of the administrator (public sector, non-profit making) where the former is historically recent and the latter, like the poor, has always been with us. The present writer has argued elsewhere (Lawrence, 1986: 17–19) that the distinction is valid, that both the ambiance and values of public and private sector organisations differ, and that different capabilities are required by those who run them. But interestingly, this distinction is less salient for France, which country is distinguished by projecting a valorisation of public service models into the later twentieth century. The heroes of French history have been authoritarian centralisers; one looks in vain for a Disraeli extending the franchise to industrial workers or for an Andrew Jackson articulating populist aspirations. In the French case the centralisers range from Cardinal Richelieu, Cardinal Mazarin and Louis XIV in the seventeenth century, through Robespierre’s 1792–93 Committee of Public Safety during the Revolution and Napoleon shortly after, to Clemenceau and of course General de Gaulle in the twentieth century. And what these centralisers have done is to centralise power and decisions in the hands of a state bureaucracy, whether royal, revolutionary, imperial or presidential. In other words, France has long standing as a bureaucratic state. It is more bureaucratic than its neighbours, and bureaucratic forms are given more credence. Indeed it has been argued by Crozier (1963) that the French actually like bureaucracy, their individualism making them prefer the impersonal dictates of bureaucratic regulation to the wilful direction of a physically present superior. Historically, there is an interesting twist to this story. The Fourth Republic in France (1946–1958), from its inception until its transformation into the Fifth Republic with enhanced presidential power to the benefit of Charles de Gaulle, was unstable. Marked by too many political parties, unstable and fluctuating coalition

MANAGEMENT DEVELOPMENT IN EUROPE

213

governments and short-lived ministries, the Fourth Republic is viewed by the French as something rather shameful (although it presided over effective post-war reconstruction and growing prosperity, and enacted some desirable reforms) and there is a sense of national relief when de Gaulle comes to power. The interesting thing is that throughout the period 1946–1958 ministerial instability is compensated by bureaucratic continuity; it is the state service rather than a succession of short-lived premiers who ran France; the triumphs of the period are the triumphs of a technocratic civil service rather than those of parliamentarians. And the role of the state service raises its standing and even its esteem with the public at large. The thrust of these remarks is that whereas in other countries management, coming later, felt a need to differentiate itself from civil administration, coming sooner, this dysjunction is much less in France. There the state service enjoys higher prestige than in the Anglo-Saxon countries, is regarded as a suitable or at least plausible model for industrial organisation, with the result that the public sector v private sector distinction is much less marked. The relative closeness is furthered by the fact that senior posts in both the state service and in private industry are staffed by people with the same educational background, of which more in the next section. In addition, there is also mobility between the sectors, from public to private, whereby civil servants in mid-career may move to posts at or near the top in private industry; this institution is known as pantouflage. The result of this greater public sector v private sector closeness is a diminished role for management development, in a milieu less inclined to view the demands of industrial management as distinctive. MANAGEMENT DEVELOPMENT AND FRENCH UNDERSTANDING In the previous section we have explored ‘the outer edges’ of management consciousness in France. It has been argued that industry in France did not in the twentieth century need to combat the negative image of early industrialisation, as was the case in Britain. That French industry was seen at an earlier stage than British as offering an appropriate career to intelligent and educated people, and therefore had less need to be ‘civilised’ by a personnel function that would ‘respectably relate’ it to the wider society. Furthermore, less discontinuity is perceived in France as between civil administration and industrial management, the standing of the former is high, and the two are linked by recruitment from a common educational source reinforced by some mobility from the state service into industry. What is more, profit-making companies in France differ less in terms of both organisational structure and modus operandi from the state bureaucracy. All these considerations imply a different and modified role for the personnel function in France and for the management development responsibility. But there is more. Management development is less salient in France because in that country management is regarded more as a state of being than as the result of fashioned development processes within the company. It is or connotes an identity, more than an activity or set of capabilities. This is signalled in the term cadres by which managers are collectively known. This term was adopted in the 1930s, a period of troubled relations between organised labour and the patronat or class of business owners. With regard to these tensions the cadres were meant to be disinterested, impartial, distinct also from the owning class, devoted in technocratic style to the efficiency of the company. It is a solidaristic concept. It is an important label. Being a cadre cuts you off from other groupings, and automatically means you have things in common with all other people who are cadres. This solidarism is reinforced by the military ring (and origin) of the term, cf quadri in Italian, though this is less widely used to designate managers in Italy than the ubiquitous cadres in France.

214

WESTERN EUROPE

It is sometimes said that France has gone further towards making management a profession than have other industrial societies, and there is some truth in this. The reference here is not so much to professional excellence (though there is absolutely no suggestion that French managers are inferior) but again to selfidentity. The entity cadres in France is not ‘fuzzy at the edges’. One does not have debates in France as in Britain, about whether or not the foreman is part of junior management. In French companies people know who is, and who is not, a cadre, an understanding that is readily reflected in remarks such as ‘en deux ans j’espère passer cadre’ (in a couple of years I hope to make it into the ranks of the cadres). This quasi professional unity is reinforced by other factors. The cadres have benefited much from the post-war economic development and rise in prosperity, the trentes glorieuses referred to earlier. The cadres are viewed if not exactly as the architects of this achievement then at least as those who presided over it and made it happen, and are thus further differentiated from the patronat (owners), many of whom were discredited by collaboration with the Nazis in the 1940–44 occupation period. Or again cadres are treated separately by the state for the purposes of unemployment administration. They have for decades been the focus of attention by advertisers and especially advertisers of luxury and fashionable goods and services. This, of course, is not unknown in other countries, but there is a difference in France. This is that there the cadres have a stronger claim to be an educational and cultural élite as well as a disposable income élite. A further feature which is definitely French is that the cadres have been courted by the political parties in France. One speaks indeed of trying to capture the cadres vote (the nearest and much narrower equivalent in English, now discredited, would be going for the Yuppie vote). But the most powerful factor acting upon the management development issue in France is that society’s distinctive understanding of the management task. In France management is seen much more in ratiocinative terms, as being about analysis and rational decision. The qualities sought in cadres are correspondingly powers of analysis, synthesis, evaluation, and articulation. French management adverts are peppered with calls for such qualities as la rigueur and l’esprit de synthèse (Barsoux and Lawrence, 1990: 47). There is a general ‘playing up’ of these qualities at the expense of the Anglo-Saxon qualities of drive, pugnacity, self-starting, motivating communication. In the French case, the demand is matched by the supply. France is unusual in having a two-tier system of higher education, where the ‘mere universities’ are outclassed by the superior grandes écoles. From the standpoint of the able and ambitious, the system works like this. One attends a lycée (selective part of a secondary school), and works towards the baccalaureat exam, the equivalent of ‘A’ levels in England or of Abitur in Germany, which is taken at the age of 18 and admits to university. But significant choices have already been made. There are different versions of the baccalaureat in the sense of different groupings of subjects and subject emphasis. Though there is an economics and business subjects baccalaureat, someone aiming at an eventual career in management would not take it! Instead the able and ambitious go for ‘bac C’, the option that includes most maths and natural science, since these are thought to be the best test of intellectual and reasoning ability. Having passed the bac one might go to university, but again the able and ambitious candidate, especially if male, will not do this (except for subjects such as medicine or computer science only offered at university). Instead our future manager will have his or her sight fixed on entry to one of the grandes écoles. To this end one enters an école préparatoire (known colloquially as a prépa) for an intensive twoyear preparatory course. This is the most testing time in the aspirants life, and (ex) prépa students speak routinely of working 70 and 80 hours a week. These labours culminate in taking the concours, nationally competitive exams that admit to the grandes écoles. This is the most important hurdle one ever has to scale; when it has been cleared, one is made for life. While the course at the typical grandes école is not a rest cure and the final examination there is taken seriously, the system is ‘front end-loaded’: it is

MANAGEMENT DEVELOPMENT IN EUROPE

215

getting in that is difficult and important, once there one is likely to succeed, educationally and occupationally. The grandes écoles are élitist and exclusive. They admit not only on the basis of intense competition but also in small numbers—hundreds not thousands. There is no completely agreed list of the grandes écoles, but they are generally thought to number 140 to 160 or so establishments. Many are technical; engineering schools, both general technical and engineering subject specific. Others are commercial or business schools, known commonly as Sup de Cos (=école supérieur de commerce); and there are a few specialist schools such as the Ecole Normale which trains selective secondary school teachers. The grandes écoles are arranged in a prestige order that is clear to French people. The most prestigious of the engineering schools is the Ecole Polytechnique, the most prestigious of the Sup de Cos is HEC (Haute Ecole de Commerce), one of the three that are situated in Paris and known collectively as the trois grandes parisiennes. The grandes écoles are the gateway to both management careers and to higher posts in the state service. Not every cadre is grande école educated, but most are. They are massively over-represented in the ranks of the chief executives: a 1990 L’Expansion survey of 100 chief executives found indeed that 28 of them came from the Ecole Polytechnique alone. Most name companies recruit exclusively from the grandes écoles, technical and commercial. To enter a company from the grande école means achieving cadre status early and being on what is known as the voie royale (royal road) to success. Non-grande école graduates who become cadres will variously do it at smaller, less renowned companies, it will take them longer; their career ceiling will be lower, and their cadre status will be tied to seniority and performance in the company that ‘ennobled’ them. They will not possess ‘portable’ credentials. The thing to emphasise is that there is a high congruence between the French understanding of the essential nature of management on the one hand and the output of the education system on the other hand. From lycée to grande école the emphasis is on formal learning, the development of educated cleverness, numeracy, literacy and a stylish competence with the French language, together with a high level of formal reasoning ability and culture générale. All this fits very nicely in a milieu that conceives of management as being about ordering and deciding on the basis of analysis and synthesis, rather than about interpersonal manoeuvring, motivating, and implementing. This is not to say that there is no ‘management development’ of the graduates of the grandes écoles that companies recruit. But it tends to be more of a validating and grooming exercise. Young graduates are sent on assignments abroad, go out on fact-finding missions to the manufacturing facilities in the provinces, or serve as an attaché de direction (PA to senior management). There is also a diagonal promotion route from research and development into general management; serving as the head of research units, or of planning, strategy, or development entities is all seen as an opportunity for the upwardly bound recruits to play their strengths and to cultivate the generalist label so important for progress into the higher ranks. Thus there is management development, but its role is modified by an assumption that the important act of selection has already taken place at the concours (entry to the grandes écoles) and been reaffirmed by grande école graduation. The task of management development is further simplified by the conviction that all the most important qualities the successful manager should possess are already in place and have been publicly certified by the education system. So far in this article emphasis has been given to the deep-seated contrasts between the understanding of the nature of management in France and that existing in the Anglo-Saxon countries. These differences, it has been suggested, have a profound impact upon the ways in which managers are made and upon the content of the knowledge transmitted to them. The thrust of the argument can be further elaborated if we now also bring into the picture an account of management development in another European country. At this point therefore it is worth looking briefly at the situation in Germany.

216

WESTERN EUROPE

MANAGEMENT AND MANAGEMENT DEVELOPMENT IN GERMANY As with the previous analyses of Britain, America and France, it is worth beginning with a view of the general HRM scene before looking more closely at the conception of ‘management’ and hence the way management might be learned. Germany offers a very interesting contrast with the USA and indeed is virtually a mirror image of the American norm. (Our discussion here refers to the personnel function in West Germany as it existed from 1949 to 1990; what are now called the New Federal States [East Germany] required separate treatment.) It should be said straight away that this does not imply any criticism of German personnel managers, they are not lacking in some way compared with their American and British counterparts. It is rather that a range of institutional factors have turned German personnel officers into a body of reactors, implementers, and law-enforcers. The first of these constraining factors is the force of law. In Germany tradition, diffuse expectations, and custom and practice count for less, and the law counts for more. This reflects not only the relative newness of the (West) German state with its written constitution and Basic Law (1949) but also the much vaunted low tolerance for ambiguity (Hofstede, 1980). It is difficult to express such notions as ‘grey area in German, and the German language in general does not lend itself to ‘fudging’. More soberly a wider range of employment issues are legally regulated in Germany than in Britain, wage agreements have the force of law, and there is a system of labour courts. German personnel officers are much more concerned to do what the law commands, are more disposed to ask themselves in any exercise of discretion what it would look like in the labour court. It is not for nothing that the traditional qualification set of the German personnel manager is the equivalent of an LL.B plus a PhD in Law, although a small survey revealed the de facto range of qualifications to be somewhat wider (Lawrence, 1982:31–3). Second, there is the weighty matter of wage negotiations. In Germany wages are typically negotiated at a level above that of the individual company/employer between employers’ associations and trade unions on a Land (state) by Land basis. This system does not in fact cover all German companies: smaller ones may not be members of the relevant employers’ federation, and some very large ones, such as Siemens, may go it alone. With these exceptions German personnel managers seldom do what their British colleagues often do and their American colleagues invariably do—negotiate wages. But if they do not have authority, they do have responsibility. The wage agreements that emerge from the negotiations referred to above are in the form of endless pay scales, to which individual employees have to be fitted. This in turn necessitates complicated systems of job-grading, valid independently of particular job incumbents. All this is hard work, and it falls on personnel. So although the authority of initiative may be absent, the burden of implementation is very much present. Third, there is the codetermination system, established in (West) Germany by law in the early 1950s, and in particular the institution of the elected Betriebsrat (works council). While there are clearly benefits to management from the German industrial democracy system of which the Betriebsrat is a central part, it does not serve to enhance the proactivity of the personnel function. Indeed the Betriebsrat decides some things in its own right, and is a watch-dog for all things that interest it. The personnel department in a sense services it, anticipates its concerns, provides up-front information, offers clarifications as demanded, and takes away critical issues raised in the Betriebsrat to work on them’ and provide ‘a management response’. The other half of the equation is that this loss of proactivity by personnel in Germany tends to ‘free up’ line management and particularly production managers. The general drift of the arguments advanced in this section is to suggest that these several factors cast personnel management in Germany into a reactive mode, which, in turn, militates against an Anglo-Saxon style valorisation of the management development activity. But there is more. One of the earliest accounts of German management has as its major theme the idea that the German tradition venerated the entrepreneur and not the manager (Hartmann, 1959). Indeed the term manager came into use late, and was originally used

MANAGEMENT DEVELOPMENT IN EUROPE

217

to designate people running prize fights and road shows rather than industrial enterprises. It is also worth noting that the Germans never developed their own general-purpose term for manager, but simply say ‘manager’ (with a capital M) —clearly indicative. Again tracing out these language peculiarities, the Germans cannot quite bring themselves to say ‘managerial’ which should be managerhaft in German. Instead they say unternehmerisch (entrepreneurial) which has very positive connotations. Management education of a general kind also came late to Germany. There is an undergraduate course that approximates to our first degree in management or business administration, the subject being called Betriebstuirtschaftslehre or business economics. The interesting thing is that throughout most of the postwar era it was regarded as a bit inferior, something for second rate students. First rate people, on the other hand, did Volkswirtschaft or political economy, although it had less relevance for a career in management; industry followed the public estimation by hiring graduates in Volkswirtschaft on the grounds that they would be brighter. This state of affairs has now changed, but only in the 1980s, with Betriebswirtschaftslehre rising in esteem and increasing its enrolments substantially. At the next level up, that of the MBA, Germany until very recently had nothing at all. The problem is compounded by the fact there are no Masters degrees in Germany anyway in the sense of a degree between the bachelor’s and the doctors (though some German universities call the first degree an MA to confuse foreigners!). In the last few years some MBA courses have sprung up in Germany, and revealingly some of them are franchised by universities in other countries (it is one of our invisible exports). To round out this picture of management rejection it might be added that there is no equivalent in Germany of the BIM (British Institute of Management) nor any general management course/qualification akin to the DMS (Diploma in Management Studies). Germany does have an approximate equivalent of the IPM (Institute of Personnel Management) but it is a rather low profile affair compared with the British organisation: the present writer has interviewed personnel managers at patently respectable German companies who have not even heard of it. This relatively weak concept of management, together with the belated emergence of general management education, does not, of course, bode well for management development. But there is another, and important element in this set of problems. The Germans typically have difficulty with the idea of management as something general, as something that can be viewed in the round, taken apart, and generalised about. When Germans look at a company they do not see a need for management: they see a variety of departments and functions requiring specialised knowledge and experience. This specialist view of management also informs the German view of manager mobility. Germany is not a country where inter-company mobility is viewed as bad, as it is, for instance, in the Netherlands. But Germans expect that the mobility will take place within the same industry. In their view you cannot go from being, say, a purchasing officer in a machine tool company to an equivalent job in textiles: you would forfeit your expertise and have wasted the last ten years. The same sort of thinking informs mobility between functions. It simply does not make much sense, except for mobility between contiguous technical functions (design, production, maintenance, engineering, quality control). This specialist understanding of the management task is also perceptible in the organisation structure of German companies. These tend to be structured in big functional slabs with only a thin layer of general management at the top. Nor do German companies share the British predilection for breaking companies down into smaller units (profit centres) with generalist managers in charge of them. All of the issues canvassed here militate against a flourishing management development activity in Germany. This does not, of course, mean that it is nonexistent. It is often there in German companies but it is less widespread, less salient, more restrained by the reactive mode of the personnel function, and above

218

WESTERN EUROPE

all it gets away to a slow start because of the traditional German conviction that it is specialist knowledge (especially technical) and experience that are crucial. CONCLUSIONS We have looked at Britain and the USA as a springboard for focussing on personnel and management development in France and Germany. In neither of these countries is the Anglo-Saxon model to be found, albeit for different reasons in each case. There is no suggestion that this makes either the French or the Germans ‘worse managers’ or ‘less professional’. The non-universality of the Anglo-Saxon norm is attributable rather to two other considerations. First, these nation states have different configurations of institutions—educational, political, and economic—that impinge on management. Second, they exhibit different understandings of what management ‘is all about’ and of the necessary qualities that managers should bring to it. It is worth noting how much difference has surfaced from this simple line of inquiry: management development in two European countries. This result should be seen as salutary at a time when there is an increasing tendency towards rather facile ‘internationalism’. REFERENCES Barnett, Corelli. 1972. The Collapse of British Power. New York: William Morrow. Barsoux, Jean-Louis and Peter Lawrence. 1990. Management in France. London: Cassell. Crozier, Michel. 1963. The Bureaucratic Phenomenon. London: Tavistock Publications. Gerstl, J.E. and S.P.Hutton. 1966. Engineers: The Anatomy of a Profession. London: Tavistock Press. Gill, R.W.T. and K.G.Lockyer. 1978. The Career Development of Production Managers in British Industry. London: Report to the Joint CBI/BIM Advisory Panel on Management Education. Hartmann, H. 1959. Authority and Organization in German Management. Princeton, NJ: Princeton University Press. Hofstede, G. 1980. Culture’s Consequences. Beverly Hills: Sage Publications. Hutton, S.P. and P.A.Lawrence. 1981. German Engineers: The Anatomy of a Profession. London: Oxford University Press. Lawrence, P.A. 1980. Managers and Management in West Germany. London: Croom Helm. Lawrence, P.A. 1982. Personnel Management in West Germany: Portrait of a Function. Berlin: Report to Internationales Institut für Management und Verwaltung. Lawrence, P.A. 1986. Invitation to Management. Oxford: Blackwell. Lockyer, K.G. and S.Jones, 1980. The Function Factor’. Management Today, September, 53–64. Whyte, William H. 1956. The Organisation Man. New York: Simon & Schuster. Wiener, Martin. 1981. English Culture and the Decline of the Industrial Spirit 1950–1980. Cambridge: Cambridge University Press.

32 HRM: the European dimension C.Brewster

INTRODUCTION Some of the old cinemas, with what was then high-tech, wrap-around screens, used to show a sequence which started with a bird s-eye view of a small child. Then, through the use of telephoto lenses merging with satellite pictures, the camera slowly pulled back so that the child lost a little definition and became first one of a group of children and then gradually disappeared as the group became part of a street scene. The camera continued to pull back to reveal the street to be successively part of a suburb, a city, a conurbation, a country, a continent, and eventually an invisible dot on the planet Earth. This chapter uses this extended focus-pulling as an analogy for examining human resource management (HRM) in Europe. The focus of much of the research and analysis of HRM, particularly in the UK, has been at workplace level. There is also a strong tradition comparing HRM in organizations of different size, sector or ownership within one country. At the other extreme, there are commentators who state, or imply, that their analysis is universal. This chapter adopts a mid-focus position, concentrating upon HRM in Europe. It is unnecessary here to emphasize the growing economic integration of Europe. Most readers of this text will be well aware of developments in the region. One question that is worthy of attention, however, is whether the developing economic integration of Europe is being accompanied by a convergence of human resource management practices. How different are these countries, and does it make sense to speak of ‘European’ HRM? The chapter addresses this issue by focusing in quickly from the universality argument to identifying what distinguishes HRM in Europe from that in certain other regions of the world. A further turn of the focusing mechanism adds possible regional clusters within Europe. And a final turn brings into focus the different European countries. The chapter identifies common trends and variances between European countries on five topics in HRM that currently have a high profile in the literature, and which are exercising the European Union. These topics are: developments in pay and benefits; flexible working patterns; equality of opportunity; training; and employee relations. The subjects, and much of the data presented here, are drawn from a major research project exploring HRM in employing organizations throughout Europe. Data were collected from the senior personnel executives of public and private sector organizations employing over 200 people in fourteen countries. In total, over 16,000 questionnaires were returned over a three-year period—full details are available in

Source: Human Resource Management: A Critical Text, J.Storey (ed.), London: Routledge, 1995, Ch. 12, pp. 309–31.

220

HRM: THE EUROPEAN DIMENSION

Brewster and Hegewisch (1994). Figures used in this chapter are for the most part taken from the twelve countries in the 1992 data: Table 1 indicates the countries, country abbreviations and base number of returns —other tables in the chapter are in percentages of this data base, and use the same country abbreviations. Table 1 The research data base Country

No. of responses

Usable responses

West Germany (D) Denmark (DK) Spain (E) France (F) Finland (Fin) Greece (GR)* Italy (I)** Ireland (IRL) Norway (N) The Netherlands (NL) Portugal (P) Sweden (S) Turkey (T) United Kingdom (UK) * 1993 data ** 1991 data

920 470 290 766 246 122 203 269 326 230 100 369 142 1343

878 329 266 661 226 90 188 130 280 127 93 322 123 1260

EUROPEAN HRM There is, of course, one level at which HRM is universal. All organizations have to utilize, and hence to manage, human resources. Two of the classic texts identified four areas (employee influence, human resource flow, reward systems, work systems, in Beer et al. 1985) or a five-step cycle (selection, performance, appraisal, rewards and development, in Fombrun et al. 1984), which they imply can be used to analyse HRM in any organization anywhere in the world. However, HRM practices vary across the world. One question is whether there are common trends and whether, if such trends exist, they fit the concept of HRM as it was developed, originally, in the USA. Is European HRM—our focus here—distinctive from that of, for example, Japan and the USA? The latter case is particularly important, given the power of the US version of human resource management. There are strong arguments that the US is an inappropriate model for Europe (see Cox and Cooper 1985; Thurley and Wirdenius 1991; Pieper 1990). The vision of HRM that has come to us in Europe from the USA is culturebound (Trompenaars 1985; Adler and Jelinek 1986) and in particular a view of HRM as based on the largely unconstrained exercise of managerial autonomy has been attacked as being peculiarly American (Guest 1990; Brewster 1993). In Europe, organizations are not autonomous. They exist within a system which is constrained (or supported), first, at the national level, by culture and by extensive legal limitations on the nature of the contract of employment, and second, at the organizational level, by patterns of ownership (by the State, by the banking and finance system and by families) which are distinct from those in the USA.

WESTERN EUROPE

221

Additionally, at this level of HRM, there are constraints of trade union involvement and consultative arrangements. Within Europe, selecting a slightly narrower focus, it is possible to distinguish distinct regional clusters. One analysis found evidence of ‘three clusters: a Latin cluster [which includes Spain, Italy, France]; a central European cluster…and a Nordic cluster’ (Filella 1991:14). Possibly the central European cluster could be split, with Ireland and the UK on one side, and continental central Europe on the other. The Latin style of HRM is characterized, inter alia, by efforts to modernize HRM, a greater reliance on an oral culture and the presence of subtle ‘political’ structures which unconsciously nurture docile, dependent attitudes to authority. The Nordic approach to HRM would include the substantial, visible authority of the HR department, extensive written strategies, a widespread collective orientation to management, and extensive consultation. The continental central European model would involve lower authority for HR departments, extensive line management involvement in HR issues and legal support for collaboration with trade unions. Whether there is an ‘offshore central European’ model is open to question: it has been argued that in industrial relations, for example, the series of national-level agreements of the last few years has moved Ireland towards a continental pattern (Gunnigle et al. 1993). However, the UK model—with still-entrenched unions but no ‘social partnership’ approach, little legal intervention or support, and extensive decentralization of personnel issues, but little devolvement to line management (Brewster and Soderström 1994)—remains distinct. The UK is, more than geographically, somewhere between continental Europe and the USA. In a particularly fascinating part of his analysis, Filella (1991) argues that the regional groupings may correspond to stages of socio-economic development. This would put the Latin countries at the lowest stage, the UK (and Ireland) at the next stage, continental central Europe at the penultimate stage and the Nordic countries at the top. There is a correlation between how seriously countries take people issues in the management of enterprises and their economic success (see Porter 1991; Brewster and Holt Larsen 1992). Below the regional level, using the telephoto lens analogy for the last time, the distinctive nature of HRM in individual European countries is explored best by examining a number of issues in more detail. Developments in pay Pay is a central issue in human resource management. Trends in this area include, in particular, the increasing decentralization of pay determination and the growth of flexible pay systems. The decentralization of bargaining structures has taken place both in countries with highly centralized systems of pay determination, such as Denmark and Sweden (although not without some alternating moves towards recentralization), and in countries with greater decentralization, such as the UK and France. In the latter two countries, only a minority of private sector organizations now negotiate over basic pay at national or industry level, for any staff groups, including manual workers. These trends have been encouraged by employers’ federations in both countries; in some countries, and in some industries, they have withdrawn from industry negotiations, thus forcing company-level bargaining (Hegewisch 1991). National or industrywide bargaining in some European countries is now mainly a public sector practice. In the UK, for example, only 22 per cent of private employers negotiate at industry level for manual workers, whereas 82 per cent of public sector employers implement national agreements. Even in the UK, where there has been a concerted effort by government and employers’ associations and by many employers to drive pay determination down to the company level, there are still 37 per cent of organizations where basic pay for manual workers is established in national industry bargaining. This is consistent with other evidence from the UK. The Marginson et al. (1988) research in the private sector and the WIRS surveys (Millward et al. 1993) both show a continuing degree of centralization in pay and other

222

HRM: THE EUROPEAN DIMENSION

related HR issues, while reflecting moves towards decentralization. The Marginson et al. work also shows that, in a typically informal way, many multi-site UK businesses maintain a considerable involvement from head office in HR decision-making. These conclusions are not uncontroversial; in a summary of these surveys, and his own research on the topic, Kinnie (1989) concludes that, although there is some evidence of a move towards the decentralization of management and of bargaining structures in the UK, ‘these changes do not necessarily lead to an increase in decision-making discretion for establishment managers’ (ibid.: 33). Morris and Wood (1991), however, have argued that this may underestimate the extent of change. The situation is of course fundamentally different in Denmark, Finland, Ireland, the Netherlands and Sweden, where over 60 per cent of employers still bargain at industry or national level (see Table 2). There has been a shift within multi-employer bargaining in Scandinavia from national to industry level, with agreements which leave greater scope for company implementation (Ahlen 1989; Hegewisch 1991; Scheuer 1992; Visser 1992). Nevertheless the commitment to multi-employer bargaining with trade unions remains high. Least change can be discerned in Germany. Pay and conditions in Germany are regulated by collective agreements which are binding, through their membership of employers’ associations, on 90 per cent of employers (Gaugler and Wiltz 1992). They allow, and even provide for, company-level bargaining over implementation in several areas. However, the relationship between industry-wide and company-level bargaining has been stable and there have been few signs of decentralization. The drastically new situation caused by reunification may put this system under some pressure. Levels of pay determination are one issue: the substantive pay arrangements made at the various levels are another. Reward management has been the subject of much change and discussion over the last decade. The late 1970s and early 1980s were, in several European countries, a period of concern with high inflation, leading to increased government attempts to restrict wage agreements; in Italy and France at least there were also linked policy objectives of greater pay equality, expressed through flat-rate increases, or agreements to higher increases for employees on lower grades. During the second half of the 1980s and the early 1990s the pendulum swung the other way. Human resource management theories stress the need to make pay more performance-related, whether at individual or company level (despite the lack of evidence that PRP is correlated with organizational performance). Lower inflation has given companies greater scope for the introduction of performance rewards on top of cost of living increases; increasing competition and cash limits in the public sector have led more and more organizations to look for a direct link between rewards and contribution, and in some cases tight labour markets have increased the power of individual employees to negotiate particular deals. Variable pay, merit and performance-related pay have spread across Europe. More than one-third of organizations in all countries surveyed (apart from Ireland) increased variable pay (Filella and Hegewisch 1994); the number of organizations decreasing variable pay is very small everywhere, nowhere reaching even 10 per cent. There has been a corresponding, though slightly lower, growth in the number of organizations offering increased non-money benefits (with the marked exception of France, where there is a cultural and traditional preference for money payments and comparatively little development of fringe benefits). The research shows some correlation between those organizations which increased pay and benefits in response to recruitment difficulties and those which increased variable pay (Filella and Hegewisch 1994), thus encouraging the assumption that at least some of the increases were a response to market pressures, rather than a more fundamental shift in underlying payment philosophies. This impression is confirmed by organizations’ use of merit or performance-related pay and other incentive payments. The practice of merit

WESTERN EUROPE

223

or performance-related pay is least common in the Scandinavian countries; even for managerial staff, Swedish, Norwegian and Finnish organizations report 12 per cent, 15 per cent Table 2 The level at which basic pay is determined for manual staff Country

D

DK E

F

FIN GP I

IRL N

NL P

S

T

UK

National/industry-wide collective bargaining Regional collective bargaining Company/division, etc. Establishment/site Individual Key. NI=not included. Source: Brewster and Hegewisch (1994)

NI NI NI NI NI

64 18 15 7 13

25 7 36 25 11

86 7 16 23 13

71 8 18 13 6

80 NI 29 14 9

73 10 27 10 18

55 26 15 6 7

41 6 29 30 7

43 20 26 18 3

26 38 39 2 6

59 2 45 12 9

80 25 16 11 17

55 2 34 3 15

Table 3 Percentage of organizations offering certain incentives Country

D

Employee share options 11 Profit-sharing 60 Group bonus schemes 3 Individual bonus/commission 48 Merit/performance-related pay 21 Key. NI=not included. Source. Brewster and Hegewisch (1994)

DK E

F

FIN

GR I

IRL N

NL

P

S

T

UK

NI 6 7 20 54

12 70 34 44 70

13 14 13 36 31

7 13 19 52 37

28 15 16 28 51

18 38 7 59 21

8 29 11 18 60

10 18 12 26 12

1 11 7 20 52

37 26 25 32 65

11 17 9 36 56

15 6 16 55 84

14 5 10 12 14

and 31 per cent respectively using this form of incentive (Table 3). Merit pay is most widespread in the UK and Denmark, and in the southern countries (Spain, Portugal and Turkey). In Italy it has been estimated that the share of merit pay in white-collar wage packages between 1983 and 1988 grew from 13 per cent to 20 per cent (IDS Focus 1989: 10). The uptake in France has increased, encouraged partly by taxation policies. Marsden (1989) suggests that much of this increase in performance-related pay has been a reaction to pay policies at the beginning of the 1980s, which in both Italy and France led to a flattening of differentials. Overall, however, while there is an area of considerable cultural difference across Europe, undoubtedly the practice has become popular during the second half of the 1980s, with obvious consequences for both collective bargaining and the role of management. There has been much less uptake of other forms of incentive pay, particularly those forms that link pay awards to company performance. Practices such as profit-sharing or employee share options in most countries are offered by only a minority of employers, even at managerial level. Employee share options have become popular in the UK, while in France over two-thirds of organizations offer profit-sharing to all levels of staff—a result largely of favourable tax incentives. In Germany, 60 per cent of organizations have profit-sharing schemes for managers (with much lower proportions for other staff groups). The issue of incentive payments thus illustrates that, in spite of some common trends towards more variable pay and pay decentralization, national and cultural differences remain strong in remuneration policies across Europe. The trend towards pay flexibility should not hide the continuing importance of institutional pay bargaining systems and even legislation in the field of pay determination—a common feature of pay bargaining in Europe, where most countries have some form of national minimum wage (or a system

224

HRM: THE EUROPEAN DIMENSION

of generalizing collective agreements across an industry). In most countries in Europe, legislation sets a framework for collective bargaining, by regulating the levels of bargaining, the status of agreements, the role and rights of bargaining partners as well as mechanisms of arbitration (Brewster et al. 1992; IDS/IPM 1992). While the 1980s might have seen a shift in the power of the negotiating partners, our data provide little evidence of a major threat to the overall systems of bargaining. It remains to be seen how far flexibility in payment structures and decentralization can survive the recession that hit most of Europe, and whether there will prove to have been a lasting shift towards a more performance-related pay culture or whether flexible pay was a reaction to good times and tight labour markets, which only works when it leads to increases in basic pay. Flexible working practices ‘Atypical’ work patterns or contracts, such as temporary, casual, fixed-term, home-based and annual hours contracts, are continuing or are on the increase in every European country, despite differing legal, cultural and labour traditions (Brewster et al. 1993). Many of the highest increases (i.e. where more than half of all the organizations in the country have increased their use of a particular form of flexible working) have occurred in countries where there has traditionally been less use of such forms, indicating a levelling out and more widespread use of flexibility across Europe. Flexible working patterns tend to be used as a response to the changing demographics within the labour market. The lack of a skilled labour force in some countries has forced a greater use of time flexibility. Schemes offering all or certain groups greater access to part-time work, job-sharing, term-time employment and career breaks have been seen as a means of retaining or enticing back into the labour market categories of staff who are unable to work full-time, particularly working mothers, carers or older workers. However, recent years have seen a replacement of this demand-led rationale (especially in times of high unemployment) by a focus on organizational cost-effectiveness. People employed are the major operating cost for most organizations, so a focus on more efficient ways of working has led to a challenge to ‘typical’ employment contracts. In the private sector, much of this challenge has arisen from increased international competition. The effect of this trend has been to put additional pressure on managements to increase productivity with reduced wage costs. In the public sector, reductions in public spending see organizations using flexible working practices as one contribution to maintaining services. The same practices have been used in both private and public sectors as a response to cost-saving measures which result in cuts in permanent posts or ‘headcount’. The innovative use of working arrangements means that organizations can make better use of their capital equipment and resources by extending working hours to cope with increased demand. The increase in variable work patterns increases the cost effective use of labour by reducing employee costs and matching work provision more closely to work requirements. Of course, the provision of labour on this basis does not always benefit the employees. Indeed, in many cases it operates directly against their interest, leaving many flexible workers with substantially reduced pay and with reduced protection in terms and conditions of work. The potential for exploitation of some workers on these forms of contract is causing increasing concern within the Commission of the European Community. The Social Charter includes a provision to extend workers’ rights to individuals on atypical contracts, and the European Court of Justice has been making judgments under the equal opportunities legislation which are restricting the cost advantages of employing workers on these contracts. The debate about these practices has been influenced by the ‘flexible firm’ model developed by Atkinson and associates at the Institute of Manpower Studies (Atkinson 1985). This argues that firms could be seen as

WESTERN EUROPE

225

developing a core of full-time permanent workers (who provide the competitive or central proponent of the organizations work, and are therefore treated as a key asset, with appropriate terms and conditions of employment, training and careers) and a periphery of ‘atypical’ workers (who are, in effect, dispensable). The flexible firm model has been the source of considerable controversy (see e.g. Atkinson and Meager 1986; Pollert 1987, 1991; Rubery 1988; Casey 1991). Much of the debate turns around how ‘strategic’ the move to flexibility has been. It has to be said, however, that many of those who have looked for evidence of strategies here have taken a somewhat simplistic and naive view of what would constitute or indicate a strategy. Certainly there is evidence that organizations have responded to environmental pressure by increasing flexibility, and there is little evidence that this is related to any formalized policy documentation (Brewster et al. 1994). One simple fact stands out: despite variations between countries, sectors, size of organization and types of flexibility, this is a continuing picture of growth (Table 4). Ten of the twelve countries in this survey showed their largest growth figures to be in the use of part-time, temporary or fixed-term contracts, rather than, for example, in shift working, overtime working or weekend working. Atypical contracts frequently apply to workers who enter the labour market for the first time, or who re-enter after they have had a break, for example to have children. Shift-working, overtime or weekend work (at least outside the retail sector) are much more often used for traditional workforces. However, other forms of ‘atypical’ contracts such as homeworking or annual hours, which were widely predicted to increase rapidly, continue to be used by only a small minority of organizations, across all countries surveyed. The lowest percentage of increase was in the use of homeworkers; where no country had more than 10 per cent of organizations increasing their use. Only in Sweden, where a larger proportion of the working population have part-time employment than anywhere else in Europe, has there been a significant decrease in part-time working. In that country, parttime work is being converted into full-time work. A quarter or more of all employers in Germany, Denmark, Spain, France, Finland, Ireland, Norway, Netherlands, Portugal, Sweden and the UK increased either temporary or fixed-term employment during the previous three years. (There is some trade-off between fixed-term contracts, where the date of the end of the contract is known from the outset, and more open temporary or casual contracts—this depends partly on local legal requirements. For an individual on a short fixed-term contract, however, the distinction may be of little importance.) A reduction in the use of these forms occurred in only a minority of organizations. However, in the large majority of organizations, the use of temporary or fixed-term employment, even with the high rates of increase, remains rather marginal (see Table 5). Employers who make substantial use of temporary work still represent significantly less than 20 per cent of organizations in most countries. Analysis of the data indicates variations in the spread of certain forms of flexible work within countries. Public and private sector employers use flexible working in different proportions and in different ways, the contrast being Table 4 Organizations having increased or decreased the use of certain working arrangements over the last three years (percentage organizations) Country

D

DK

E

F

FIN

GR

I

IRL

N

NL

P

S

T

UK

Part-time work

49 6 24 13 47

13 34 24 3 5

15 5 29 11 29

27 5 28 21 32

22 6 18 46 26

9 6 18 7 20

49 6 19 6 43

31 4 38 9 38

28 10 30 20 37

49 2 40 9 20

5 7 19 12 29

14 24 32 20 20

0 2 10 7 13

39 8 39 19 29

Temporary/ casual Fixed-term contracts

226

HRM: THE EUROPEAN DIMENSION

Country

D

DK

E

F

FIN

GR

12 2 8 19 44 3 (Bold figures represent increases: normal figures are decreases) Source. Brewster et al (1993)

I

IRL

N

NL

P

S

T

UK

5

4

13

20

27

4

7

6

Table 5 Percentage of organizations having more than 10 per cent of employees on forms of atypical contracts Country

D

Part-time 23 Temporary/ casual 2 Fixed-term 7 Source: Brewster et al (1993)

DK

E

F

FIN

GR

I

IRL

AT

NL

P

S

T

UK

37 4 7

6 24 26

2 9 12

6 6 14

2 12 18

6 3 10

12 14 13

37 6 9

20 18 92

– 1 35

51 13 1

4 3 37

26 7 5

particularly marked in the UK (Bruegel and Hegewisch 1993). While part-time work, for example, has grown particularly in the public sector, there are still stark differences between countries in the utilization of part-time workers, reflecting varying employment norms operating within public administration systems. It has already been noted that while flexible employment contracts might benefit the individual employer, the same does not necessarily hold for the employee. Nor are such working practices costless for the economy as a whole, given that the State is likely to have to fund the bill for unemployment due to interrupted working patterns or training for workers whose lack of attachment to any one employer makes investment in their training unlikely. The European Commission has expressed its concern at the social consequences of flexible contracts and has put forward a number of proposals for greater protection of flexible workers. Disadvantages for managements of flexible working within the organization have been paid less attention in the past, but in certain areas are very real. Administratively, flexibility is more complicated, requiring greater complexity in such areas as recruitment, training and work organization. Recent research has shown that ‘flexible workers’ can be more expensive overall than ‘standard workers’ (Nollen 1992). Furthermore, the commitment of flexible workers may be less certain. By definition these workers have a lesser time commitment to an organization, and often a lesser psychological commitment too. This in turn raises issues of motivation, confidentiality and communication between managerial and non-managerial employees. All of the results emerging from our survey suggest that organizations across Europe are moving towards greater flexibility, even if they are starting from different positions. The assumption is that the benefits of flexible working outweigh the disadvantages. At an organizational level, flexible patterns require a more definite focus on the actual work rather than the job, with costs providing a greater competitiveness and the practice also opens up opportunities for new sources of labour. In the clear majority of organizations across Europe the disadvantages are outweighed by the advantages. It seems likely that the total dominance of ‘standard’ working contracts has gone forever and that we can anticipate a continuing spread of atypical working. Equality of opportunity The equality of men and women in employment is one of the key tenets of European social policy, set out in the pay equality section of the Treaty of Rome in 1957 and expanded by several equal treatment directives in the 1970s. As a result, all EC member states have sex discrimination and equal pay legislation. Nevertheless, the area of equal opportunities, of practices and of support for working women, is one of the

WESTERN EUROPE

227

most divergent within Europe. In countries such as Denmark and France, and in the non-EC Scandinavian countries, childcare facilities are widespread; most women with children combine paid work with domestic responsibilities; in the Scandinavian countries, womens participation in paid work is now very nearly as high as that of men. At the other end of the spectrum are the more southern European countries, such as Greece or Spain, where women are only a third of the labour force and where public childcare and caring provisions are limited. Whatever the proportion of women in the workforce, vertical and occupational segregation of women is a feature of all European countries, including the Scandinavian countries. Women work in female-dominated jobs, and they rarely reach positions of senior management. Another characteristic common to most European countries is womens predominance among part-time workers, although levels of part-time work vary substantially between countries (Bruegel and Hegewisch 1993). Added to this, at least in countries such as Germany and the UK, there has, since the late 1970s, been increasing political and social pressures on companies to change employment practices and give a more prominent role to women. This has encouraged, for example, some of the larger banks in both Germany and Britain from the early 1980s to re-examine their graduate entry programmes and try to increase the number of women in senior positions. Even more active have been local authorities, which, from that time, have started to develop equal opportunities policies, positive action plans and to set targets for changes in the composition of their workforce. However, it has only been in the second half of the 1980s that such initiatives have been taken up by a broader number of organizations. Over one-third of organizations in Germany, Ireland, Norway, the Netherlands, Portugal, Sweden, Turkey and the UK monitor the share of women in recruitment and, even though the numbers are smaller in all countries, around a third of organizations also monitor the gender distribution of training and promotions. Such activities in the field of equal opportunities are markedly lower in France, Italy and Spain—significantly so for France, where although employers are legally bound to establish these statistics, there is little enforcement to ensure that the legislation is complied with. Equal opportunities policies, of course, do not refer solely to gender inequality. In the English language the term is generally understood as including discrimination on the basis of race and ethnic background, as well as disability. Most European countries have some quota system for the employment of people with disabilities (although there is no general anti-discrimination legislation on the grounds of disability). Discrimination on the grounds of race or ethnic origin in employment is much less of a concern in most European countries, although there is strong evidence that because of discrimination, black and ethnic minority people are not utilized to their full potential. In Britain and the Netherlands, the issue of race discrimination in employment has been more prominent with employers during the last few years, although much less so than equal opportunities for women. The level of migrants, immigrants and black and ethnic minority people in the workforce in European countries varies from about 5 per cent in the UK and the Netherlands to 8 per cent in France and Germany and 25 per cent in Switzerland. But awareness and concern among employers about race discrimination in many countries remains low. Training The field of training provision in Europe is one of relatively great government intervention, but also one where levels of provision vary considerably between countries. In most countries the issue of training is seen as critical in the longterm strategy of organizations in terms of manpower planning, human resource allocation, fulfilling skills needs in the light of change, the development of management succession and career path planning, and as a means of aiding or substituting for recruitment (Holt Larsen 1994). Our data

228

HRM: THE EUROPEAN DIMENSION

show a Europe-wide increase in investment in training at all levels, particularly for managerial and professional staff. Whether training is treated as a cost or, as many organizations now claim it should be, as an investment, details of both expenditure and benefits are important. However, across Europe (with the exception of France, where the law requires organizations to spend at least 1.2 per cent of their pay bill on training: Bournois 1992), many organizations are unable to identify the actual percentage of wages and salaries spent on training. Being unable to calculate these figures could be in part a consequence of the move to more decentralized training provision and the devolution of HR responsibilities as a whole. The increased responsibility of line management for training may result in a lack of centrally gathered information about the subject. This lack of information is not only found in European organizations. Grosseilliers (1986:46) revealed that in the USA, ‘31 per cent of education directors at the largest corporations said they didn’t know how much their companies spent on Training and Development’. This raises questions about how organizations actually evaluate the effectiveness of their training programme when this basic information is not available. Of those organizations that do know how much they are spending, many are spending considerable amounts of money on training (2–4 per cent of wages and salaries bills on average; see Holt Larsen 1994). They are devoting substantial amounts of time to this purpose, as well. Table 6 uses manual workers, the group that receives least training, as an example. Even here, in eleven out of fourteen countries, more than 10 per cent of the organizations devote more than five days —out of a presumed working year of around 200 days—to training. Table 6 Percentage of organizations (excluding ‘don’t knows’) providing more than five days’ training per year for manual workers D

DK

E

F

FIN

GR

9 16 35 25 8 32 Source: Brewster and Hegewisch (1994)

I

IRL

N

NL

P

S

T

UK

8

29

23

17

35

19

56

16

To some extent, differential training provisions reflect the situation that employers are in with regard to the educational system from which they draw their employees. The high number of days employees spend on training in Spain, for example, is due to a level of state education which is insufficient for organizations’ requirements—they have to supplement training internally. Similarly, the high quality of state provision in Germany explains the comparatively low level there. Information on expenditure or on days spent on training is not enough: organizations also need to be able to assess the benefits—the need for training and the extent to which such needs are met. More than half of all organizations across Europe stated that they systematically analysed employee training needs. However, the methods most frequently used for this assessment tended to be the less formal ones, such as line management and employee requests. A slightly smaller overall percentage of organizations go on to evaluate training, once given. Once again, where organizations do evaluate training it tends to be done in an informal manner. Evaluation is more likely to be conducted by informal feedback via line management or the trainees themselves, than by tests or formal evaluation. These informal methods of analysis and evaluation could be linked to growing line management responsibility in this area. A more cynical interpretation is that much training is still done as an act of faith, with no real expectation that the organization will be able to measure the resultant benefits. Where is this training commitment most intensive? Managers in general receive more training than any other occupational group. Around one tenth of organizations provide management training of ten days or

WESTERN EUROPE

229

more. Further, the amount of money spent on management training over the last three years has increased in half or more organizations in every country except Finland (Holt Larsen 1994), even in a time of economic recession. Trade unions Compared to most other parts of the world, Europe is heavily unionized, and the trade unions are not ‘going away. Despite the view (fears or hopes?) of some commentators, relationships with trade unions are still a key issue for personnel departments in most European organizations. Union membership varies considerably of course—from nine out of ten employees in Norway, to no more than one in eight in France. However, individual membership is not a good indicator of trade union influence within organizations. Recognition levels are higher in the UK—for example, more than half of all establishments with more than twenty-five employees recognize trade unions (Millward et al. 1992): our survey shows that among organizations with more than 200 employees, more than seven out of ten organizations in Denmark, Spain, Italy, Ireland, Portugal, Turkey and the UK deal with unions. (The information was not collected in Germany and France, where negotiation is legally determined.) Trade unions are still an issue to be managed by European personnel professionals (Gunnigle et al. 1993). In terms of the (usually American) theories of HRM, and even according to some European commentators, this may be something of a disappointment. In practice the picture is mixed: union influence is stable in most countries, sharply reduced in others (the UK, France, Italy) and, in some countries such as Germany more organizations report that union influence has increased than report it as having decreased. Overall, trade unions continue to play an important part in European personnel management. The reasons for this are complex: in part it is because of the trade union role in communication and consultation, which is legally determined in many European countries; and in part because of the attempts by some European governments and the European Community to emphasize the position of the ‘social partners’, as the EC calls them. This last point is instructive. One of the main reasons that the trade unions continue to exert such an influence in Europe is that in most countries the unions are not seen, and do not see themselves, as ‘adversaries’. Rather, they are seen as partners. They work with the organization for the success of the enterprise and those who work in it. These issues of the trade union position are closely linked to the issue of communication with employees. This is a central strand in many theories of HRM, as well as being a live issue for trade unions, employers, governments and the European Community. Are employing organizations replacing representative channels with direct communication? This is not a matter of organizational choice in many European countries. Germany and the Netherlands have legislation which covers most organizations above a certain size, requiring them to establish works councils. These councils of employee representatives have considerable power to constrain managerial action. Similar, though less powerful, works councils operate in countries such as France—and some states such as Sweden give considerable legal codetermination powers to trade unions. Some of our major findings on increases in the use of channels of communication are presented in Table 7. Decreases have been left out, as they are in nearly all cases negligible. The table shows a significant increase in all forms of communication: through representative bodies (trade unions or works councils), by direct verbal communication and by direct written communication. The latter two channels in particular have expanded considerably. To a degree, increases in direct communication to employees can be explained by the development of technology: word processors and mail-merge systems have opened up the possibility

230

HRM: THE EUROPEAN DIMENSION

of sending Individual’ letters to all employees. However, possibility is one thing: the desire to take advantage of it is another. Clearly there is a widespread move across Europe to increase the amount of communication to employees. The fact that this communication continues to utilize staff representative bodies, as well as going directly to employees, indicates that the objective is passing information. The assumption appears to be that passing a message through several channels increases its chances of being received. This inevitably reduces the importance of the union channel. The evidence here, however, suggests that employers in Europe are not using individual communication to replace trade union channels; rather, they are using both forms of communication. Table 7 Channels of employee communication: percentage of organizations which have increased their use of selected methods Country

D

Trade unions/ collective staff bodies 36 Verbally, direct to employees 47 Written, direct to employees 47 Source: Brewster and Hegewisch (1994)

DK E

F

FIN GR I

IRL N

NL P

S

T

UK

52 65 54

24 58 62

62 66 57

12 58 41

49 43 58

16 63 58

25 33 37

12 63 59

34 43 41

16 44 30

21 51 44

43 47 24

8 45 40

In sum, the evidence on the trade unions is that they continue to be a significant feature of the European scene and that, whilst their influence may be declining currently in certain countries, there is little evidence of a concerted move against them by employers. However, national differences in extent, style and trends remain. THE ROLE OF THE HR FUNCTION Of course, developments in pay, flexibility, equality, training and union relationships are only part of a wide range of changes going on in Europe. What does this mean for the personnel department? Does the research show convergence in the way these departments operate? The answer, simply, is no. The research data (Brewster and Bournois 1991; Brewster and Holt Larsen 1992; Brewster 1993) show considerable stability over time, and considerable variation between countries. Spain and France, for example, consistently report seven or eight out often organizations having an HR director on the board (or equivalent), while in Italy and Germany only two or three out often organizations are in the same position. Most other European countries, including the UK, show a little less than half of the organizations with HR departments directly represented at the top decision-making level. The 1990 WIRS survey in the UK reports a similar finding (Millward et al. 1992). When it comes to a question—perhaps the key question—of HR influence on corporate strategy, there is more uniformity: in most countries the personnel departments are involved from the outset in strategy formulation in around half the organizations. Some of the reasons for the variations are clear. Germany tends to have more ‘administrative’ personnel departments, but with personnel issues being brought into corporate thinking through employee representation at the top level. Italy has personnel departments that are focused more on industrial relations issues (Cooper and Giacomelli 1992). Issues concerning the decentralization of personnel management and the devolvement of personnel tasks to line management vary widely. Most larger organizations have policies on various aspects of HR determined mainly at the level of the national HQ (more so for pay and industrial relations; less so for

WESTERN EUROPE

231

Figure 1 Percentage of heads of personnel/HR with a place on the board (EC countries only) Source: Brewster and Hegewisch (1994)

recruitment and selection and health and safety). The UK tends to be at the more decentralised end of the personnel management spectrum—that is, the role of corporate HQs in personnel management policy is lower than in most other countries but, contrary to some assumptions, it is not the most decentralized —Denmark is. Even more of a surprise is its rating on sharing responsibility for personnel issues with line management. This has been more widely discussed in the UK than anywhere else in Europe. In fact, however, Britain is one of the countries where senior personnel specialists consistently report that primary responsibility for a range of personnel issues is least likely to be given to or shared with line managers. On a range of personnel issues it is the Italians who are most likely to lodge responsibility with the personnel department; the British come next. This stands in sharp contrast to the Danes, for example, who, on all issues, tend to give much greater responsibility to line managers. Furthermore, when asked about changes in responsibility, about half the European countries have been increasing line management responsibility faster than the UK. THE `EUROPEAN' MODEL OF HRM It has been argued elsewhere (Brewster 1993) that a new ‘European’ model of HRM is required, one that takes account of State and trade union involvement —a concept of HRM which takes us back to the industrial relations system approach first outlined by Dunlop (1958). This changes the nature of the debate.

232

HRM: THE EUROPEAN DIMENSION

Figure 2 Percentage of HR departments involved in corporate strategy from the outset (EC countries only) Source: Brewster and Hegewisch (1994)

Any attempt to deny the reality or the integrity of the HRM concept is probably doomed to failure. The terminology is too widely entrenched, in practitioner and in academic circles, for it to ‘go away. In these circumstances, suggestions that HRM is in some sense less legitimate’ than, say, the discipline of industrial relations is a vain attempt to turn the clock back. However, to answer the question posed at the beginning, the evidence presented in this chapter is that current trends do not fit comfortably with the original US concepts of HRM. The trends show some areas (pay, flexibility, training) where the US approach works and others (such as trade union recognition and communications) where it does not. Rather than debate whether this means that HRM or personnel management or industrial relations is the more explanatory model, a more positive way forward is to redefine a ‘European’ approach to HRM; one that includes a significant role for the State and for trade unions. Thus, in this way, the industrial relations proponents can reclaim the area, insisting that, in Europe at least, it is crucial to view HRM as covering a wider field than just managerial behaviour. Without some adaptation to take account of the European (and perhaps other?) non-American situations, the HRM concept will continue to attract fundamental critiques, even in its most sophisticated form, for its failure to accept different degrees of managerial independence, different approaches to working with employee representatives and governmental involvement and, most damagingly, its inability to link HRM to economic performance (Brewster 1993).

WESTERN EUROPE

233

Building on the arguments in this chapter, it is suggested that these simple approaches are, in practice, increasingly less adequate as explanations of what is happening. The HR challenge to personnel management has arisen partly as a way of expounding, or propounding, a new role for the personnel/HR department, as the previous one is seen to be inappropriate to changing times. The evidence of data collected across Europe is that HR is not developing as a straightforward opposite, or negative, of personnel management. What is happening in Europe is that there is a move towards the HRM concept but one which, within a clearly established external environment, accepts the duality of people management. Thus objectives include both organizational requirements and a concern for people; the focus on both costs and benefits means fitting organizational policies to external cultures and constraints; union and nonunion channels are utilized; the relationship with line managers at all levels is interactive, rather than driven by either specialists or the line. In this context, the specialist department requires the ability to manage ambiguity and flexibility—issues which the management strategy gurus tell us are going to become ever more important: and perhaps issues where Europe has a lead. This chapter has argued from European data and hence has restricted the analysis to Europe. It is believed that the ‘European’ approach projected here accords much better with the reality of current and developing practice than many of the more straightforward personnel management or HRM approaches elsewhere. And it may be that it is closer to reality in other continents and countries too. REFERENCES Adler, N.J. and Jelinek, M. (1986) ‘Is “organisational culture” culture-bound?’, Human Resource Management 25(1): 72–90. Ahlen, K. (1989) ‘Swedish collective bargaining under pressure: inter-union rivalry and incomes policies’, British Journal of Industrial Relations 27: 330–46. Atkinson, J. (1985) ‘Flexibility, uncertainty and manpower management’, IMS Report No. 89, Institute of Manpower Studies. Atkinson, J. and Meager, N. (1986) ‘Is flexibility just a flash in the pan?’, Personnel Management 18(9): 26–9. Beer, M., Lawrence, P.R., Mills, Q.N. and Walton, R.E. (1985) Human Resource Management, New York: Free Press. Bournois, F. (1992) ‘France’, in C.Brewster, A.Hegewisch, L.Holden, and T.Lockhart (eds) The European Human Resource Management Guide, London: Academic Press. Brewster, C. (1993) ‘Developing a “European” model of human resource management’, International Journal of Human Resource Management4(4): 765–84. Brewster, C. and Bournois, F. (1991) ‘A European perspective on human resource management’, Personnel Review 20 (6): 4–13. Brewster, C. and Hegewisch, A. (eds) (1994) Policy and Practice in European Human Resource Management: the Evidence and Analysis from the Price Waterhouse Cranfield Survey, London: Routledge. Brewster, C. and Holt Larsen, H. (1992) ‘Human resource management in Europe— evidence from ten countries’, International Human Resource Management Journal 3(3): 409–34. Brewster, C. and Soderström, M. (1994) ‘Human resources and line management’, in C.Brewster and A.Hegewisch (eds) Policy and Practice in European Human Resource Management: the Evidence and Analysis from the Price Waterhouse Cranfield Survey, London: Routledge. Brewster, C., Hegewisch, A. and Mayne, L. (1994) ‘Flexible working practices: the controversy and the evidence’ in C.Brewster and A.Hegewisch (eds) Policy and Practice in European Human Resource Management: the Evidence and Analysis from the Price Waterhouse Cranfield Survey, London: Routledge. Brewster, C., Hegewisch, A., Holden, L. and Lockhart, T. (eds) (1992) The European Human Resource Management Guide, London: Academic Press.

234

HRM: THE EUROPEAN DIMENSION

Brewster, C., Hegewisch, A., Lockhart, T. and Mayne, L. (1993) Flexible Working Practices in Europe, London: IPM. Bruegel, I. and Hegewisch, A. (1993) ‘Flexibilisation and part-time work in Europe’, in R.Brown and R.Crompton (eds) The New Europe: Economic Restructuring and Social Exclusion, London: UCL Press. Casey, B. (1991) ‘Survey evidence on trends in “non-standard” employment’, in A. Pollert (ed.) Farewell to Flexibility?, Oxford: Basil Blackwell. Cooper, J. and Giacomelli, G. (1992) ‘Italy’ in Brewster et al (eds) The European Human Resource Management Guide, London: Academic Press. Cox, J. and Cooper, L. (1985) The irrelevance of American organisational sciences to the UK and Europe’, Journal of General Management 11(2): 27–34. Dunlop, J. (1958) Industrial Relations Systems, New York: Henry Holt & Co. Filella, J. (1991) ‘Is there a Latin model in the management of human resources?’, Personnel Review 20(6): 15–24. Filella, J. and Hegewisch, A. (1994) ‘European experiments with pay and benefits policies’, in C.Brewster and A. Hegewisch (eds) Policy and Practice in European Human Resource Management: the Evidence and Analysis, London: Routledge. Fombrun, C.J., Tichy, N.M. and Devanna, M.A. (1984) Strategic Human Resource Management, New York: John Wiley. Gaugler, E. and Wiltz, S. (1992) ‘Germany’ in Brewster et al. (eds) The European Human Resource Management Guide, London: Academic Press. Grosseillier, L. (1986) ‘What companies do to evaluate the effectiveness of training programs’, in H.B. Bernhard and C.A. Inglois, ‘Six lessons for the corporate classroom’, Harvard Business Review 66(5): 40–8. Guest, D. (1990) ‘Human resource management and the American dream’, Journal of Management Studies 27(4): 377–97. Guhnigle, P., Brewster, C. and Morley, M. (1993) ‘Changing patterns in industrial relations: evidence from the Price Waterhouse Cranfield Project’, Journal of the European Foundation for the Improvement of Working and Living Conditions 7. Hegewisch, A. (1991) ‘The decentralisation of pay bargaining: European comparisons’, Personnel Review 20(6): 28–35. Holt Larsen, H. (1994) ‘Key issues in training and development’, in C. Brewster and A. Hegewisch (eds) Policy and Practice in European Human Resource Management: the Evidence and Analysis, London: Routledge. IDS/IPM (1992) Pay and Benefits: European Management Guides, London: IPM. Kinnie, N. (1989) ‘The decentralisation of industrial relations? — recent research considered’, Personnel Review 19(3): 28–34. Marginson, P., Sisson, K., Martin, R. and Edwards, P. (1988) Beyond the Workplace: the Management of Industrial Relations in Large Enterprises, Oxford: Blackwell. Marsden, D. (1989) ‘Developments of pay level patterns and flexibility in Western Europe’, paper to the Eighth World Congress of the International Industrial Relations Conference, Brussels. Millward, N., Stevens, M., Smart, D. and Hawes, W.R. (1992) Workplace Industrial Relations in Transition, Aldershot: Dartmouth. Morris, T. and Wood, S. (1991) ‘Testing the survey method: continuity and change in British industrial relations’, Work, Employment and Society 5(2): 259–82. Nollen, S.D. (1992) ‘The cost effectiveness of contingent labor’, Proceedings 9th World Congress, Vol. 6 (Communication Abstracts), Geneva: International Industrial Relations Association. Pieper, R. (ed.) (1990) Human Resource Management: An International Comparison, Berlin: Walter de Gruyter. Pollert, A. (1987) ‘The flexible firm: a model in search of reality (or a policy in search of a practice)?’, Warwick Papers in Industrial Relations, no. 19. — (ed.) (1991) Farewell to Flexibility?, Oxford: Basil Blackwell. Porter, M. (1991) The Competitive Advantage of Nations, New York: Free Press. Rubery, J. (1988) Women in Recession, London: Routledge.

WESTERN EUROPE

235

Scheuer, S. (1992) ‘Denmark: return to decentralisation’ in A.Ferner and R.Hyman, Industrial Relations in the New Europe, Oxford: Blackwell. Thurley, K. and Wirdenius, H. (1991) ‘Will management become “European”? Strategic choices for organisations’, European Management Journal 9(2): 127–34. Trompenaars, A. (1985) ‘Organisation of meaning and the meaning of organisation: a comparative study on the conception of organisational structure in different cultures’, unpublished PhD thesis, University of Pennsylvania. Visser, J. (1992) The Netherlands: the end of an era and the end of a system’, in A. Ferner and R.Hyman (eds) Industrial Relations in the New Europe, Oxford: Blackwell.

Part IV Eastern Europe

33 What do Russian managers really do? An observational study with comparisons to U.S. managers F.Luthans, D.H.B.Welsh and S.A.Rosenkrantz

Recent events have generated considerable interest, but little empirical evidence, in Russian management. This observation study of a sample of managers (N=66) in a large textile factory in Russia used the same definitions, methodology and procedures as a stream of research conducted by Luthans and his colleagues on U.S. “Real Managers” (see Luthans, Hodgetts and Rosenkrantz [1988]). Similar to American managers, the Russian managers in this factory were observed, in order, to perform traditional management, communication, human resources and networking activities. Also similar to the managers studied in the U.S., the Russian managers’ networking activity generally related to their success. The relationship between the Russian managers’ various activities and their effectiveness was less clear, but, like the American managers, the communication activity was a significant predictor across analysis techniques. The implications these findings have for Russia’s transition to a market economy are discussed. Recent events in Eastern Europe have given new meaning to the term dynamic change. Since the demise of the Soviet Union, much attention in the popular press has focused on the dramatic challenges facing managers of enterprises in the emerging Russian Republic. However, there is still very little empirical information about what Russian managers really do or any comparisons with U.S. managers. The assumptions coming out of the news media are that the Russians are failing badly because they know little about modern management techniques and, in fact, U.S. and Russian management systems are quite different. The time has come to assess these assumptions. The activity of Russian managers is of unprecedented interest due to the major upheavals and explosive situation that currently exist in that part of the world. Understanding Russian management is important to international management in the expanding global economy. The field of international management can no longer just assume what Russian managers do, nor what relative emphasis is given to the various managerial activities. Neither can it be assumed that Russian managers are right or wrong, effective or ineffective. Rather, at this point, an empirical analysis with cross-cultural comparisons seems desperately needed to develop an understanding and benchmark for the Russian approach to management.Building such a knowledge base seems important not only for Russia’s successful transition to a market economy, but also, because Russia is such a large, developing country, this information is important to the rest of the world.

Source: Journal of International Business Studies (1993), Fourth Quarter: 741–61.

238

EASTERN EUROPE

For example, such knowledge would be valuable to the U.S. and others wishing to enter into joint ventures with the Russians. One of the most common assumptions that needs to be investigated is represented by the observation in the popular press that, “The whole business of running the system may be up for grabs, because the Soviets lack the manaagement depth to do it themselvel” [Stewart 1990]. Additionally, the failed coup of August 1991 wing the resulting breakup of the Soviet Union and the emergence of new, independent republics under the yet-to-be-defined Commonwealth of Indepnds of bureaucrats out of Russian economy have beed stalled [Brady 1992]. The freeing of prices has resmend in tremendous pressures on Russian managers to meet market demands. These pressurs points and challenges suggest the neet for better nuderstanding of Russian management so that it can become more effective. The purpose of the present study is not to test specific hypotheses drawn from theory and the Russian culture, but to descibe, analyze and compare the results of an obsevation stuby of the activities of a sample of menagers from a large textile factory in Russia. This could be called “Level 1” cross-cultural research that Arvey, Bhagat and Salas [1991] characterize as emic (as opposed to etic; see Morey and Luthans (1984) for this distinction), descriptive and comparative.Besides addressing the question of what do the Russian managers really do in this factory, particular attention is also gived to the analysis of the activities of the successful and effantive managers. To answer the call for cross-cultural research [Adler 1991], comparisone from the present study are made to previous U.S. research on managial activties that used the same definitions, methoodology and measures. THE PREVIOUS STUDY OF RUSSIAN MANAGEMENT Recent attention in the management literature has been given to Eastern Europe [Lee, Luthans and Hodgetts 1992; Luthans 1993; McNulty 1992; Pearce 1991], and Russia in particular [Forker 1991; Ivancevich, De Frank and Gregory 1992; McCarthy and Puffer 1993; Shama 1993; Welsh, Luthans and Sommer 1993a, 1993b], but empirical information about the nature of Russian management or how it compares to the U.S. has been lacking. Although some general books about management in socialist countries with emphasis on Russia have come out (see Kiezun[1991]; Puffer[1992]; and Berliner [1968, 1972,1976]) and others have made analyses of Russian industry and management prior to perestroika, to date the only systematic evidence(although qualitative) about modern Russian management is the book, Behind the Factory Walls [1990], edited by Paul Lawrence and Charalambos Vlachoutsicos. Both this book and a widely read Harvard Business Review article [Vlachoutsicos and Lawrence 1990] are based on a study by a Harvard research team and Soviet counterparts who in 1988 went to four truck engine and electrical equipment plants for two weeks in the U.S. and then the Soviet Union, respectively. The team of U.S. and Soviet scholars conducted in-depth interviews at many levels, attended management meetings, and had access to official documents. To their knowledge, this study represented the first time U.S. researchers had been able to conduct in-depth analysis of the management of Soviet factories. The book reports on managerial decisionmaking concerning four major areas: business planning, hiring and firing, capital equipment acquisition, and new product introduction. Lawrence and Vlachoutsicos [1990] call for further investigation of their generalizations between U.S. and Soviet management systems because their discussion is really just hypotheses based on limited data from personal observations and interviews. However, their findings serve as a useful backdrop and point of departure for the present study. Lawrence and Vlachoutsicos [1990] suggest that the problems and failures of Russian managers are more a result of dealing with years of shortages compared to the excess capacity managers have had in the U.S., rather than that the Russians are incompetent. They conclude that the Russian “management system (as

WHAT DO RUSSIAN MANAGERS REALLY DO?

239

opposed to their economic system) may not have served them as badly as Western business-people assume. Given the economic realities of peremptory centralized planning, state monopoly, and constant shortage, a remarkable number of Soviet enterprises produce usable, sophisticated products and care for their workers as well” [Vlachoutsicos and Lawrence 1990:5]. Although theoretical discussions of cross-cultural and cross-national analysis in general can contribute to the reasons for the similarities and differences between U.S. and Russian management (see Bhagat, Kedia, Crawford and Kaplan [1990]), to date, the only other fairly recent databased study of Russian management has been the Soviet Interview Project. This latter study was based on interview data supplied by former Soviet citizens who immigrated to the U.S. between January 1, 1979 and April 30, 1982 [Millar 1987]. One article out of this database that related to management reported that managers had the freedom to respond to local labor market conditions by allocating bonuses, premiums, piece rates, and reclassification opportunities. Also, it was found that the Soviets had a common practice of rewarding and penalizing political behavior that is external to the firm [Gregory and Kohlhase 1988]. It should be noted that a number of articles have been published comparing Soviet and U.S. management systems without an empirical research base (for example, see Vidmer [1981]). One particularly interesting comparison made recently looked at common aspects of the new external and internal environment in Russian organizations and in AT&T [Shaw, Fisher and Randolph 1991]. Internal environment similarities included: entrepreneurship climate, decentralization, managers expected to plan, surplus employees dismissed, performance-based reward systems, efficiency measured and rewarded, individual responsibility and accountability stressed, and uncertainty regarding roles and responsibilities. THE COMPARISON STUDY OF U.S. MANAGERS Over the last several years, we have been involved in a stream of research studies that used data drawn from the direct observation of the activities of U.S. managers [Luthans and Lockwood 1984; Luthans, Rosenkrantz and Hennessey 1985; Luthans and Larsen 1986; Luthans, Welsh and Taylor 1988]. These studies were aimed at answering the questions, What do managers do, what do successful managers do, and what do effective managers do? Observational methodology was used to answer these research questions and formed the basis for our book, Real Managers [Luthans, Hodgetts and Rosenkrantz 1988]. The U.S. managers studied came from all types of organizations and all levels of management (thus the term “Real Managers”). Unlike the previous Harvard qualitative study of Russian management [Lawrence and Vlachoutsicos 1990], in the present study we wanted to conduct an empirical investigation utilizing observational data supplemented by questionnaires that permitted statistical analysis. This methodology can begin to answer what a sample of Russian managers from one large factory really do and in particular what the successful and effective ones do. We also wanted to replicate as closely as possible the study design and analysis techniques of our previous studies of the activities of U.S. managers so that we could make some crosscultural comparisons. In particular, we chose to depend heavily on direct observational measures in order to avoid, or at least minimize, some of the translation and resulting reliability and validity problems commonly associated with cross-cultural research that only uses questionnaires and/or interviews.

240

EASTERN EUROPE

METHODOLOGY The study site In the late spring of 1990 (well into perestroika, but before the failed coup attempt and the breakup of the Soviet Union), the study took place in the Tver Textile Mill in the city of Tver (formerly Kalinin), located 90 miles northwest of Moscow. With about 8,000 employees, this factory at the time of the study was generally recognized to be one of the most efficient and largest textile mills in Russia. In other words, it is important to note that this study site was not representative of all Russian factories and, of course, conditions have changed since the time of the study. The factory was celebrating its 100th year of operation. The factory had had a labor union since the 1917 revolution, but under communism this union had little real power. The factory is located in the textile manufacturing district, which includes approximately 25% of the working population. The factory grounds could be compared to a self-contained town. Behind the factory walls at the time of the study were a large grocery store, bakery, housing (single-family units, apartments, and dormitories for single workers), schools, day-care centers, a birthing house where pregnant women were cared for through delivery, recreation centers, an auditorium, social center, and a sanitarium. The birthing center had a good supply of medication and was considered one of the best in the area for gynecological care. The sanitarium could be compared to a guest hotel. Employees could make reservations to stay there during vacation time. It also was used by sick employees during recuperation. Those needing treatment took a bus back and forth to their jobs and stayed at the sanitarium on their off time. It contained dental facilities, a medical clinic, an exercise room, and therapeutic treatment rooms (shock therapy, mud baths, whirlpools, etc.). There are five major work buildings at this factory complex in addition to numerous service buildings. The spinning mills are housed in two buildings and had 1,200 workers at the time of the study. The weaving mills are housed in two buildings and had 1,900 and 500 workers, respectively. Another building is for fabric dying and employed 1,400 workers. In addition to these 5,000 production workers, 3,000 auxiliary and service workers were on the job. These included those in secretarial positions, computer support (one entire building) and maintenance. The sample There were about 2,000 managers at this factory and a random sample consisting of 66 managers was drawn from all levels (first-line managers to the general director). None of the management population was ruled out or ineligible for sample selection. In addition, 132 of their subordinates (two randomly picked per target manager) were used in the analysis. The average age of the managers was 42, ranging from 29–59 years. The average age of the subordinates was 39 and ranged from 22–61 years. Education level among the managers averaged 14.7 years (this included trade schools). There were 35 male and 31 female managers and 70 male and 62 female subordinates. Measures used As in our previous study of “Real Managers” in the U.S., three measures were used to obtain data for the analysis in this study—the directly observed frequencies of managerial activities, a success index and an effectiveness index. Trained Russian student observers from the local university used the Leader

WHAT DO RUSSIAN MANAGERS REALLY DO?

241

Observation System (LOS) developed by Luthans and Lockwood [1984] to measure the frequencies of the Russian managers’ activities in their natural work setting at the factory. The LOS categories and their directly observable behavioral descriptors are shown in Table 1. A twelfth category of disciplining/ punishing was dropped in Table I The categories and behavioral descriptors of the LOS† 1.

Planning

a.

setting goals and objectives

b.

defining tasks needed to accomplish goals scheduling employees, timetables assigning tasks and providing routine b. coordinating activities of different subs organizing the work

c.

d.

instructions e.

f.

2. a.

Staffing developing job descriptions for position openings 8. b. reviewing applications c. interviewing applicants d. hiring e.

being hired or not f. 3.

contacting applicants to inform them of d.

e. informational nature (e.g., status updates, new company policies, etc.) 7.

Controlling

a.

inspecting work

walking around c.

monitoring performance data (e.g.,

computer printouts, production, financial reports) preventative maintenance Motivating/Reinforcing a. allocating formal organizational rewards d.

b. c.

giving credit where due e.

“fiiling in” where needed Training/Developing

asking for input participation conveying appreaciation, compliments

listening to suggestions f.

giving positive feedback performance

conducting staff meetings of an

242

EASTERN EUROPE

a.

training seminars, etc. b.

c.

subordinates through task

orienting employees, arranging for h.

clarifying roles, duties, job descriptions coaching, mentoring, walking j.

g.

delegating responsibility and authority i.

increasing job chellenge

letting subordinates how to

do their own work sticking up for the group of superiors

4.

Decisionmaking

a.

defining problems choosing between two or more b.

9.

and others, backing a subordinate Interacting with Outsiders

a.

public relations

handling day-today operational crises d. weighing the trade-offs; cost benefit 10. actually deciding what to do

c.

b.

alternatives or strategies c.

as they arise d.

analysis e.

f.

efficiency

developing new procedures to increase b.

5. a.

Paperwork processing mail

customers contacts with suppliers, vendors

external meetings e. community service activities Managing Conflict a. managing interpersonal conflict between subordinates and others appealing to higher authority to resolve a dispute c. appealing to third party negotiators

WHAT DO RUSSIAN MANAGERS REALLY DO?

b.

reading reports, in-box

d.

c.

writing reports, memos, letters, etc. routine financial reporting and

between conflicting parties e.

d.

bookkeeping e. 6. a.

b.

information

c.

d.

over the phone

subordinate and self general desk 11. work Exchanging Information answering routine procedural questions receiving and disseminating requested c.

conveying results of meetings giving or receiving routine information e.

243

trying to get cooperation or consensus

attempting to resolve conflicts between

Socializing/Politicking a.

nonwork-related “chit chat”

(e.g., family or personal matters)

b.

discussing rumors, hearsay, grapevine d.

informal “joking around,” “B. S.”

complaining, griping, putting others

down

politicking, gamesmanship † This table is adapted from Luthans and Lockwood [ 1984: 1221. Their article makes a statistical assessment of the reliability and validity ofthese categories of leader behavior.

the present study as well as in the U.S. studies because the on-site personnel were uncomfortable with this category being observed by outside researchers. The Russian student observers used a translated version of this LOS. Using a retranslation procedure, a native Russian with a degree from Leningrad University who had recently become a U.S. citizen did the original translation. Then an American professor of Russian language and a Russian native who was employed in a joint venture with a U.S. firm and extremely proficient in English, jointly retranslated, and any discrepancies were resolved. The intense two-day observer training was given by the on-site researcher for the study, Dianne Welsh, with assistance from bilingual Russian faculty and students, in a workshop format that covered the general background of the study, the LOS categories, the procedures to be followed (such as to be as unobtrusive as possible). During this training, relevant factory personnel also provided the Russian student observers with

244

EASTERN EUROPE

a clear understanding of the functions, terminology, and nature of the work being performed by the target manager they would be observing. The procedure was the same as the previous U.S. studies of Real Managers. Specifically, for each target Russian manager, the observer filled out the LOS check list eighty times during a two-week period. The observations took place during a predetermined, random, ten-minute period of each working hour over two weeks. Several times throughout the two weeks, a second observer would independently but simultaneously record the target managers’ activities. Although statistics were not kept, the on-site researcher carefully monitored the degree of agreement and found them to be almost identical (high interrater reliability). Any discrepancies that did appear would be resolved on the spot. The target managers in the sample consented to be observed as part of a research study and everyone involved in the study, in the spirit of glasnost, was very helpful and cooperative. To make meaningful cross-cultural comparisons, manager success and effectiveness were operationalized and measured the same way as they were in the earlier study of U.S. Real Managers (see Chapter 3 for success and Chapter 4 for effectiveness in Luthans, Hodgetts and Rosenkrantz [1988]). Both the literature on modern Russian management [Kiezun 1991; Lawrence and Vlachoutsicos 1990] and discussions with personnel at the factory site indicated that these measures were relevant. However, even though these measures were deemed to be applicable to the Russian managers, the results obviously could be different in the U.S. and Russia. This is what the study was trying to determine, A brief review of these measures of success and effectiveness will be helpful to interpret the present study. How manager success was operationalized

To measure manager success in a stream of previous research, Hall [1976] used a “manager achievement quotient” (MAQ). This is an index relating a managers age to his or her rank or level in the organization. This approach assumes that the higher a managers level in the organization, and the lower the manager’s age, the more successful that manager is. Halls success index is computed as follows:

Hall includes the number 5 in the numerator to reflect “a constant progression factor—the time-in-grade per number of career moves available if one were to spend his work life in an eight-level organization—which reflects potential mobility upward in the absence of any other forces such as politics and chance” (p. 7). Using another approach, McCall and Segrist [1980] in their research calculated a simple promotion index, measuring success by dividing the manager’s current level by his or her years of service or tenure in the present organization. Hall’s measure of success is more relevant to the manager’s career life as an indicator of success, integrating long-term effects across organizations. The McCall and Segrist measure is more an indicator of promotion velocity. It restricts itself to a single organization, which seems more consistent with other effects of how the manager is doing in the current organization, i.e., his or her success. The manager success index (MSI) used in the previous Real Managers study in the U.S. and this Russian study is a hybrid of the Hall and the McCall and Segrist measures, computed as follows:

The MSI uses the quantity 5(6– level) in the numerator for the same reason Hall [1976] used it. However, the denominator of organizational tenure is taken from McCall and Segrist [1980] and represents the time

WHAT DO RUSSIAN MANAGERS REALLY DO?

245

available for promotion within the managers current organization. We did not use the managers age for the denominator because it could be misleading when managers move across organizations. This was done to minimize the potential problem of the mobility of the sample. Lawrence and Vlachoutsicos found that the Russian managers in their study [1990:284] and the sources in this factory in particular reported some mobility. The present study, as did the previous study of successful U.S. managers, uses each managers tenure (time) in the organization for the denominator. Thus, the MSI in this study can be described as the number of promotions per year of employment that the manager received in this factory. The multiplier of 100 is simply used to avoid dealing with decimals. A multiple regression analysis was performed on the MSI with number of subordinates, manager level, organizational tenure, position tenure, age, and education. Even though manager level and organizational tenure are components of the MSI, only age was significantly related in this analysis. This suggests that age is probably a covariate in one or both of the MSI components and that there is no need to include the managers age as a discrete component of the formula. How manager effectiveness was operationalized

Just as there are many ways to define and measure success, there are also numerous ways to define and measure managerial effectiveness. In fact, a brief review of the literature found over fifty prescriptions for effective managers and nearly 2,000 available measures for managerial effectiveness [Luthans, Hodgetts and Rosenkrantz 1988:63]. The available measures are often job-specific, creating a dilemma as to which measures to use in field research across organizations and cultures. A general consensus from both the research and practitioner literature appears to be that effective managers elicit high performance productivity and quality from their units and satisfaction and organizational loyalty from their subordinates. Although this discussion is based upon the managerial effectiveness literature in the U.S., the literature on modern Russian management would generally support these dimensions as being important and relevant to the effectiveness of Russian managers as well (see Ivancevich, et al. [1992]; Kiezun [1991]; Lawrence and Vlachoutsicos [1990]; Puffer [1992]). To tap the three dimensions of unit performance and subordinate satisfaction and commitment, and to avoid the problems of a single measure of effectiveness, the earlier Real Managers study and this one used a multiple measure index that included the following: (1) organizational unit effectiveness in terms of quantity and quality of performance, (2) subordinate satisfaction with supervision, and (3) subordinate organizational commitment. Widely recognized, standardized questionnaire instruments with high reliabilities and considerable backup psychometric analysis were used to measure these three dimensions in the U.S. studies and the present study. Specifically, the Organizational Effectiveness Questionnaire or OEQ [Mott 1972] was used to measure performance, the Job Diagnostic Index or JDI [Smith, Kendall and Hulin 1969] was used to measure satisfaction with supervision, and the Organizational Commitment Questionnaire or OCQ [Mowday, Porter and Steers 1982] was used to measure commitment. These three questionnaires are commonly used in organizational behavior research in the U.S. (see Bass [1990] for some of the research that uses these measures), and discussions with the on-site personnel and translators indicated that these three instruments were also relevant to the Russian sample at this factory. All three questionnaires were translated into Russian (using the same retranslation procedure described earlier). The on-site researcher administered the questionnaires to the 132 subordinates (two filled out for each of the sixty-six target managers). The reliabilities of these measures for this sample were as follows: These Cronbach alphas are within the conventionally acceptable range [Nunnally 1967].

246

EASTERN EUROPE

Because each of the three questionnaires has a different mean and because the three dimensions were intended to have equal weight in the multiple measure of managerial effectiveness, the raw scores for each instrument were rescaled to a mean of 10 and then summed to provide an effectiveness index mean of 30. The Manager Effectiveness Index or MEI for each target manager was computed as follows:

The raw scores came from the target managers’ subordinates. RESULTS The data for determining the relative frequencies of this sample of Russian managers’ activities came from the trained observers filling out the checklist based on Table 1 eighty times (a predetermined, random, tenminute period each working hour over two weeks). In the earlier research with the U.S. managers, eleven observational categories from the LOS shown in Table 1 were collapsed into four categories of managerial activities. These categories were deemed to make a conceptual fit with the management literature [Luthans, Hodgetts and Rosenkrantz 1988]. These categories are also deemed to be relevant and compatible with the Russian managers’ activities from both the literature [Kiezun 1991; Lawrence and Vlachoutsicos 1990; Puffer 1992], and discussions with relevant personnel at the factory site. These four categories of managerial activities are identified as follows: 1. Traditional Management activities, which include planning/co-ordinating, decisionmaking/problem solving, and monitoring/controlling performance; 2. Communication activities, which include exchanging routine information and processing paperwork; 3. Human Resources Management activities, which include motivating/ reinforcing, managing conflict, staffing, and training/developing; and 4. Networking activities, which include interacting with outsiders and socializing/ politicking during working hours (see Luthans, Hodgetts and Rosenkrantz [1988, Ch. 1]). The relative distributions of these four major categories of activities of the Russian managers are shown in Table 2. The Russian managers in this factory spend over three-fourths of their time and effort in traditional management and communication activities, give some attention to human resources management activities, and very little is devoted to networking during working hours. This observational data presented as relative frequencies of major activities, answers the first question of what this sample of Russian managers does. However, it should be emphasized that these data only represent one factory and should not be generalized to all Russian management. In addition, even with these particular factory managers, the results do not answer why they engage in these activities. It is not within the scope or intent to answer the why or should questions. Rather, this is an exploratory descriptive study to begin to answer the question of what Russian managers do in this one factory at this point in time. Table 2 also shows how the relative frequencies of the activities of the Russian managers in this factory compare cross-culturally to the activities of a wide cross-section of U.S. managers. Although no statistical inference is possible, descriptively it is interesting to note that the order of the frequencies (percentages) of

WHAT DO RUSSIAN MANAGERS REALLY DO?

247

the four activities is the same, but the Russian managers gave relatively more time and effort to both traditional management and communication activities and relatively less to human resources and especially networking activities during working hours. Furthermore, like the previous U.S. research, the activities of these Russian managers do not appear to be related to level or function. For example, networking on the surface may seem to be more related to the top-level Russian managers in this factory, but there was no evidence in this study that such a relationship existed. Table 2 Descriptive summary of the relative frequencies of activities of samples of managers from a large Russian factory and a cross-section of U.S organizations Managerial activities

Russian sample (N=66)

U.S. sample (N=248)

Traditional Management 42.5% 32% Communication 34.2% 29% Human Resources Management 14.8% 20% Networking 8.5% 19% Note: The U.S. data was gathered from a large number of diverse organizations by the same methods as the data from the Russian factory. The U.S. data is reported in Luthans, Hodgetts and Rosenkrantz [1988]. These data are only descriptive and do not imply statistical inference/ generalizability.

Results of the analysis of successful Russian managers The MSI had a range in the total sample (N=66) of 28–1,500 and a grand mean of 135. Closer examination of this sample indicated that five of the managers had much higher scores on the MSI than the others. When they were excluded from the sample (N=61), then the range became 28–214 and the grand mean, 88. These five are not really “outliers” in the traditional statistical use of the term, but, by definition, are very successful and could be called “fast trackers” (i.e., they have a highly accelerated rate of promotion in this factory). Such a percentage (8%) of “fast trackers” is typical of American firms and apparently of this Russian firm as well. However, we will present the data analysis with them included and excluded. Another methodological issue concerns the regression analyses. Based on the managerial activities literature and because we wanted to make comparisons with the previous U.S. Real Managers study, a case could be made for hierarchical entry of the variables in the regression model. However, as the matrices of the variables in Table 3 show, the concern for multicollinearity makes a case for doing stepwise regression analysis. Therefore, we will present the results for both the success and effectiveness analyses both ways. Table 3 Correlation matrix of the managerial activities† All managerial activities of the LOS Staff TrnDev DecMak Paper ExInfo Control

Plan

Staff

TrnDev

DecMak

Paper

Exlnfo

.08 .07 .48 −.22 −.03 .40

.02 .10 −.14 .38 .15

.12 .19 .17 −.10

−.23 .22 .40

.19 −.37

.10

Contro

Motivat

Outside

Control

248

EASTERN EUROPE

All managerial activities of the LOS Plan Motivat .12 Outside −.06 Conflict .09 SocPol −.30 † See Table 1.

Staff

TrnDev

DecMak

Paper

Exlnfo

Contro

Motivat

Outside

Control

.09 .39 .18 .04

.43 −.04 .21 .02

.19 −.11 .04 −.10

.14 −.18 −.38 .16

.35 .15 −.02 .53

.14 −.16 −.03 .02

−.06 .21 .01

−.06 .11

−.23

The major categories of managerial activities Traditional Communication Networking

HumRes

Tradtnl

Commo

−.17 −.21 −.21

−.71 −.50

.13

Various statistical analyses were performed on the data collected from the direct observations of the activities of the target managers and their success index. Based on the literature on how managers get ahead in organizations and the previous findings from the U.S. Real Managers studies, the four activities were entered into the regression model in the following order: (1) networking, (2) communication, (3) traditional, and (4) human resources. Tables 4 and 5 present the results of this hierarchical analysis with and without the outliers or “fast trackers.” As shown in Table 4, only the “networking” activity (made up of the interacting with outsiders and socializing/politicking categories in Table 1) significantly contributed to the success of the overall sample. This networking activity accounts for 35% of the effect on success of all managers in the sample. The analysis in Table 5 without the highly successful outlier/fast track managers again indicates that networking is a significant predictor accounting for half of the variance, but the communication activity is also significant, adding 17% to the variance explained. Table 4 Hierarchical regression analysis of the activities of the complete sample (N=66) of Russian managers as predictors of success† Activity Networking Communications Traditional Human Resources Other † effects where **

Cumulative R2 .3482 .3891 – – – is not presented

F

df

P

Increment to R2

Beta

34.7 3.2 – – –

1,65 2,64 – – –

.0000** n.s. n.s. n.s. n.s.

.3482 .0309 – – –

.43 .09 – – –

WHAT DO RUSSIAN MANAGERS REALLY DO?

249

Table 5 Hierarchical regression analysis of the sample without the outliers/fast trackers (N=61) of Russian managers as predictors of success† Activity Networking Communications Traditional Human Resources Other † effects where **

Cumulative R2 .5030 .6695 – – – is not presented

F

df

P

Increment to R2

Beta

62.74 13.19 – – –

1,60 2,59 – – –

.000** .000** n.s. n.s. n.s.

.5030 .1665 – – –

.89 .13 – – –

To account for the concern for multicollinearity, stepwise regression was done next, with and without the outliers/fast trackers. In the stepwise with the whole sample, only networking was a predictor of success ( ), accounting for 34% of the variance. This is almost identical to the hierarchical analysis and is comparable to what was found for U.S. managers. However, when the outliers/ fast trackers were removed from the sample, then the communication activity ( ), accounting for 76% of the variance, and to a lesser degree human resources ( ), adding 2% to the variance, predicts the success of the remaining managers of the sample (N=61). Networking was not a significant predictor of success when the outliers/fast trackers were excluded from the sample. Results of the analysis of effective Russian managers The data in the success analysis used the observational measures and direct measures of level and tenure in the index; no questionnaire data were used. However, the effectiveness analysis depends on questionnaire data for the index and thus several tests were performed to assess the quality of these data. Even though these questionnaires were deemed to be relevant to the Russian managers in this factory, this is still a new population being surveyed on translated U.S.-based standardized questionnaires. We wanted to minimize the possibility that the data being collected was misleading or that the results could be dismissed as other than study-relevant effects. A one-sample Kolmogorov-Smirnov test was performed which confirmed normal distributions for each of the analyzed variables. This test compares each empirical data distribution with a theoretically normal frequency distribution, the mean and standard deviation of which may be set to the observed values. The effectiveness data in this study do conform to a theoretically normal distribution. The data also passed the Ramsey multiple test for heteroskedasticity and for specification error (omitted variables) in the regression model. A second “differences” test for specification error in the regression model was done as well. The data passed all tests. The Managerial Effectiveness Index or MEI had a range in the total sample of 20.4–36.7 and, as described earlier, a scaled mean of 30. As in the previous research on the U.S. managers and the success analysis, the eleven categories from the LOS shown in Table 1 were collapsed into the four conceptual managerial activities of communication, human resources management, traditional management and networking. To make a comparison with the earlier study of U.S. managers, these conceptual categories of Russian managerial activities were rescaled as percentages of each Russian target managers total activity. Statistical analyses were performed on the frequency data collected from the direct observations of the target

250

EASTERN EUROPE

managers and their effectiveness index scores derived from the multiple measure. Specifically, similar to the success analysis, both hierarchical and stepwise multiple regression techniques were used. The logic of the hierarchical analysis is based on the managerial effectiveness literature and the previous findings from the U.S. Real Managers studies. In order to make a comparison, the four activities were entered into the regression model in the following order: (1) communication, (2) human resources management, (3) traditional management, and (4) networking. As shown in Table 6, the hierarchical analysis indicates that communication and, to a lesser degree, the human resources activities of the Russian managers in this sample significantly related to their effectiveness. Communication accounts for 91.5% and human resources management adds another 7.7% of the variance, while the other two activities of traditional management and networking have no significant relationship when the hierarchical entry of variables was employed in the regression analysis. When stepwise regression analysis is conducted, the results for effectiveness change somewhat. As shown in Table 7, the traditional activities now account for 93% of the variance, followed by communication adding 5%. Although both networking and human resources are also significant, they add only very slightly to the variance explained. Table 6 Hierarchical regression analysis of the activities of Russian managers (N=66) as predictors of effectiveness† Activity Communications Human Resources Traditional Networking † effects where * **

Cumulative R2 .9150 .9922 – – is not presented

F

df

P

Increment to R2

Beta

721.92 6.60 – –

1,66 2,65 – –

.000** .013* n.s. n.s.

.9150 .0772 – –

2.55 .12 – –

Table 7 Stepwise regression analysis of the activities of Russian managers (N=66) as predictors of effectiveness† Activity Traditional Communication Networking Human Resources † effects where ***

Cumulative R2 .9299 .9789 .9839 .9873 is not presented

F

df

P

Increment to R2

Beta

876.0 152.1 20.86 17.97

1,65 2,64 3,63 4,62

.000*** .000*** .000*** .000***

.9299 .049 .005 .0034

1.15 .88 .68 .51

DISCUSSION AND CONCLUSIONS Contrary to common assumptions from the popular press, but in many ways supporting the Harvard study [Lawrence and Vlachoutsicos 1990], the sample of Russian managers in this factory was observed to be doing the same ordering of activities as was found in the more comprehensive U.S. studies of Real Managers. Specifically, both these Russian factory managers and the American managers had the following order of observed activities:

WHAT DO RUSSIAN MANAGERS REALLY DO?

251

1. traditional management activities of planning/coordinating, decision-making/problem solving, and monitoring/controlling performance; 2. communication activities of exchanging routine information and processing paperwork; 3. human resources management activities of motivating/reinforcing, managing conflict, staffing, and training/developing; and 4. networking activities of interacting with outsiders and socializing/politicking. The difference between the Russian and American managers was the relative emphasis given to these four activities. The Russian factory managers gave relatively more emphasis to traditional management and communication activities and relatively less attention to human resources management and networking. Again, it must be remembered that this is only a sample from one, not necessarily even representative, factory, but the results may help provide some beginning empirical evidence on what Russian managers really do. Equal, if not more important, however, is that this study begins to provide some insight into what successful and effective Russian managers do and how they compare to U.S. managers. The relationship between these Russian managers’ observed activities and their success is obviously complex. Nevertheless, it is interesting to note that in both hierarchical and stepwise regression analyses of the whole sample, networking activities have a highly significant relationship to the success of these Russian factory managers. Their other major activities of traditional management, communication and human resources management, failed to show such a statistically significant relationship with success. However, it should be noted that when five outliers that were very successful or “fast trackers” were removed from the sample, then in the hierarchical analysis networking was still significant but communication also becomes significant, and in the stepwise analysis the communication activity becomes the best predictor, followed by human resources, and networking drops out. In other words, as one would expect, there are complex relationships between managerial activities and managerial success in this Russian sample. However, as defined in this study, the so-called “outliers” are really quite successful, and when they are included, then in both the hierarchical and stepwise analyses, networking becomes a very significant predictor of success. Comparatively, it is interesting to note that networking was the only statistically significant predictor of success of the American managers studied [Luthans, Rosenkrantz and Hennessey 1985]. The effectiveness analysis also indicated quite complex relationships. However, the communication activity was found to be the most significant predictor in the hierarchical regression, and, after the traditional activities, was also significant in the stepwise regression. Once again, this importance of the communication activity for predicting these Russian managers’ effectiveness compares with the studies in the U.S. The communication activity was found to make the strongest relative contribution to the effectiveness of the American managers studied [Luthans, Hodgetts and Rosenkrantz 1988]. From a cross-cultural perspective, some differences were found between this study’s Russian managers and the U.S. managers. For example, the traditional management activities may be relatively more important to the Russians’ effectiveness. However, there are more similarities than differences. As pointed out above, the relationship of the networking activity to the managers’ success and the relationship of communication to the managers’ effectiveness held across cultures. Another interesting parallel with the U.S. successful and effective managers is that the defined successful Russian managers in this factory are not necessarily doing the same activities as the defined effective Russian managers.

252

EASTERN EUROPE

LIMITATIONS OF THE STUDY The findings for both the comprehensive U.S. studies and the single-factory Russian sample in this study depend on how success and effectiveness are defined. One could argue with these measures, but they are empirical, operational definitions and are deemed to be at least somewhat relevant across the two cultures in order to make some beginning descriptive comparisons. For the future, expanded definitions and methodologies that include not only the quantity (observed frequency of occurrence) of the managerial behaviors on the job, but also the quality of the behaviors on and off the job outside working hours would be interesting. For example, particularly networking behaviors relating to success and effectiveness have many qualitative dimensions that may often occur off the job, after working hours in social settings. Besides the restrictive definitions and on-the-job constraints, there are a number of other limitations in this study. To make a more meaningful cross-cultural comparison ideally there should have been observational data from a number of different Russian organizations as was the case with the U.S. studies. Unfortunately, it was not possible within the resources of this study or the realism of the political and economic conditions of the country to sample a wide cross-section of Russian organizations. In addition, the language, logistics, changing political and economic climate and other such problems gave new meaning to doing field research that gathered direct observational data on sixty-six managers in a Russian factory. Other concerns with this study revolve around the uniqueness of the Russian culture in doing comparative analysis. For example, even though the translated, standardized questionnaires used in determining the effectiveness index were deemed to be relevant to this Russian sample, cultural differences could be a threat to the validity of these measures. For instance, the organizational commitment questionnaire measures, among other things, a strong desire to remain in the organization [Mowday, Porter and Steers 1982]. Yet, in Russia at the time of this study, even though there was evidence of some mobility, the subjects may feel much more constrained to change jobs than their counterparts in the U.S. The Russian cultural heritage of staying ones lifetime in a job, perceived or actual constraints of physical location, and the specter of mass unemployment may have had an impact on the way the subordinates of the target managers answered the commitment questionnaire. Not only may such general cultural differences pose problems for cross-cultural studies such as this one, but it must be remembered that the Russian factory used in the study is also somewhat culturally unique. As stated earlier, this factory at the time of the study was generally recognized as one of, if not the, largest and most efficient in the Russian textile industry. Because of this size and performance, this factory is not representative of Russian organizations and may be more “Westernized.” In other words, this study site combined with the time when the study was conducted (late spring of 1990, well into perestroika, but before the demise of the Soviet Union), severely limits the generalizability to current Russian management. Because of the limitations, there is no intent to make any definitive conclusions about the nature of managerial work in Russia, in general, or specifically, about successful and effective Russian managers. Generalizations about Russian management are not possible on the basis of this exploratory study in one factory. Rather, this “Level 1” descriptive, comparative study represents a first step. It provides only beginning understanding of Russian managers’ observed managerial activities, and the successful and effective ones in particular, and how they compare to U.S. managers observed under the same procedures and using the same definitions. By a similar token, except for the Harvard study using qualitative analysis [Lawrence and Vlachoutsicos 1990], to date there have been no other comparable studies, let alone an observational study using statistical analysis of Russian managerial behavior.

WHAT DO RUSSIAN MANAGERS REALLY DO?

253

Practical implications for the future As with the Real Managers study in the U.S., this Russian study has some practical implications. It may provide some useful insights for Russian managers, despite the fact that Russian culture and present political situation are obviously much different from that experienced by American managers. For example, in the short run, to help meet the tremendous challenges that lie ahead, Russian organizations such as the one in this study may need to move toward a more effective performance-based reward system, at least in terms of promotions. The results of this study would suggest a need for cultural values and specific techniques that support and reward Russian managers not only for doing the traditional activities of planning, decisionmaking and controlling, but also for giving relatively more attention to employee-oriented activities such as communication and human resources management. The results of this study also can provide important information on identifying training needs and, because the subject is one of the best performing Russian organizations, the study serves as a “benchmark” for management development as Russia makes the transition to a market economy. Perhaps most important is that, as did the previous Harvard study [Lawrence and Vlachoutsicos 1990], this one can contribute to the better understanding of Russian management and provide some insights on how Russian and American managers are similar and different. Future research is obviously needed to expand the generalizability of the findings and get at the why and should questions of Russian management. Not only is such research important to the future of Russia, but it is also important to the United States and the rest of the world.

ACKNOWLEDGEMENTS The researchers would like to thank the Tver Cotton Mill and Tver State University faculty and students of the departments of Economics and Foreign Languages for their assistance. This research was partially funded by grants from the NWIAS and the Eastern Washington University Foundation and the University of Nebraska Research Council and the Center for Technology Management and Decision Sciences. REFERENCES Adler, Nancy J. 1991 (second edition). International dimensions of organizational behavior. Boston, Mass.: Kent Publishing. Arvey, Richard D., Rabi S.Bhagat & Edwardo Salas. 1991. Cross-cultural and cross-national issues in personnel and human resources management. In Kenneth M. Rowland & Gerald R.Ferris, editors, Research in personnel and human resources management, 9:367–407. Greenwich, Conn.: JAI Press. Bass, Bernard M. 1990. Handbook of leadership. New York: The Free Press. Berliner, Joseph S.1968. Factory and manager in the U.S.S.R. Cambridge, Mass.: Harvard University Press. —. 1972. Economy, society, and welfare: A study in social economics. New York: Praeger Publishers. —.1976. The innovation decision in Soviet industry. Cambridge, Mass.: The MIT Press. Bhagat, Rabi S., Ben L.Kedia, Susan E.Crawford & Marilyn R.Kaplan. 1990. Cross-cultural issues in organizational psychology: Emergent trends and directions for research in the 1990s. In Cary L.Cooper & Ivan T.Robertson, editors, International review of industrial and organizational psychology, 59–99. Chichester: John Wiley & Sons Ltd. Brady, Rose. 1992. Will Yeltsin get thrown from the train? Business Week, June 22: 52–53. Forker, Laura B. 1991. Quality: American, Japanese, and Soviet perspectives. Academy of Management Executive, 4: 63–74.

254

EASTERN EUROPE

Gregory, Paul R. & Janet E.Kohlhase. 1988. The earnings of Soviet workers: Evidence from the Soviet Interview Project. Review of Economics and Statistics, 70:23–25. Hall, Jay. 1976. To achieve or not: The manager’s choice. California Management Review, 18:5–18. Ivancevich, John M., Richard S.De Frank & Paul R.Gregory. 1992. The Soviet enterprise director: An important resource before and after the coup. Academy of Management Executive, 6:42–55. Kiezun, Witold. 1991. Management in socialist countries: USSR and Central Europe. New York: Walter de Gruyter. Lawrence, Paul R. & Charalambos A.Vlachoutsicos. 1990. Behind the factory walls: Decision making in Soviet and U.S. enterprises. Boston, Mass.: Harvard Business School Press. Lee, Sang M., Fred Luthans & Richard M.Hodgetts. 1992. Total quality management: Implications for Central and Eastern Europe. Organizational Dynamics, Spring: 42–55. Luthans, Fred. 1988. Successful vs. effective real managers. Academy of Management Executive, 2:127–32. —. 1993. A paradigm shift in Eastern Europe: Some helpful management development techniques. Journal of Management Development, in press. —. Richard M.Hodgetts & Stuart A.Rosenkrantz. 1988. Real managers. Cambridge, Mass.: Ballinger. Luthans, Fred & Janet K.Larsen. 1986. How managers really communicate. Human Relations, 39:161–78. Luthans, Fred & Diane L.Lockwood. 1984. Toward an observation system for measuring leader behavior in natural settings. In James G.Hunt, Diane Hosking, Chester Schriesheim & Rosemary Stewart, editors, Leaders and managers: International perspectives on managerial behavior and leadership, 117–41. New York: Pergamon Press . Luthans, Fred, Stuart A.Rosenkrantz & Harry Hennessey. 1985. What do successful managers really do? An observational study of managerial activities. Journal of Applied Behavioral Science, 21:255–70. Luthans, Fred, Dianne H.B.Welsh & Lewis A.Taylor. 1988. A descriptive model of managerial effectiveness. Group & Organization Studies, 13: 148–62. McCall, Morgan W., Jr. & Cheryl A.Segrist. 1980. In pursuit of the manager’s job: Building on Mintzberg (Technical Report No. 14). Greensboro, N.C.: Center for Creative Leadership. McCarthy, Daniel J. & Sheila M.Puffer. 1993. Soviet managers view organizational change in large state enterprises. Journal of Organizational Change Management, in press. McNulty, Nancy C. 1992. Management education in Eastern Europe: “Fore and after”. Academy of Management Executive, 6:78–87. Millar, James R., editor. 1987. Politics, work, and daily life in the U.S.S.R.: A survey of former Soviet citizens. Cambridge, U.K.: Cambridge University Press. Morey, Nancy & Fred Luthans. 1984. An emic perspective and ethnoscience methods for organizational research. Academy of Management Review, 9:27–36. Mott, Paul E. 1972. The characteristics of effective organizations. New York: Harper & Row. Mowday, Richard T., Lyman W.Porter & Richard M.Steers. 1982. Employeeorganizational linkages: The psychology of commitment, absenteeism, and turnover. New York: Academic Press. Nunnally, John C. 1967. Psychometric theory. New York: McGraw-Hill. Pearce, Jone L. 1991. From socialism to capitalism: The effects of Hungarian human resources practices. Academy of Management Executive, 4:75–88. Puffer, Sheila M., editor. 1992. Russian management revolution. Armonk, N.Y.: M.E.Sharpe. Shama, Avraham. 1993. Management under fire: The transformation of managers in the Soviet Union and Eastern Europe. Academy of Management Executive, 7:22–35. Shaw, James R., Cynthia D.Fisher & W.Alan Randolph. 1991. From materialism to accountability: The changing cultures of Ma Bell and Mother Russia. Academy of Management Executive, 5:7–20. Smith, Patricia C., L.M.Kendall & Charles L.Hulin. 1969. The measurement of satisfaction in work and retirement. Chicago, Ill.: Rand McNally. Stewart, Thomas A. 1990. How to manage in the new era. Fortune, January 15: 58–62. Vidmer, R.F. 1981. The management theory jungle in the U.S.S.R. International Studies of Management and Organization, Fall—Winter: 3–22.

WHAT DO RUSSIAN MANAGERS REALLY DO?

255

Vlachoutsicos, Charalambos & Paul Lawrence. 1990. What we don’t know about Soviet management. Harvard Business Review, November–December: 4–11. Welsh, Dianne H.B., Fred Luthans & Steven Sommer. 1993a. Managing Russian factory workers: The impact of U.S.based behavioral and participative techniques. Academy of Management Journal, 36:58–79. — 1993b. Organizational behavior modification goes to Russia: Replicating an experimental analysis across cultures and tasks. Journal of Organizational Behavior Management, in press.

34 How Russian managers learn M.Warner, E.Denezhkina and A.Campbell

To what extent are Western approaches to management education helping Russia in its transition to a market economy? Russian enterprises are currently facing challenges for which their training in the skills and systems associated with a planned economy will have ill-prepared them. Where prices were formally set centrally, they are now set by enterprises; where firms had a high degree of vertical integration, they may become increasingly segmented, and where labour was previously cheap and relations paternalistic, there are now pressures for large-scale rationalisation and redundancies. Such trends have their roots in the initial reform programme initiated by Gorbachev between 1986 and 1990 [1]. The management skills and traditions of the former USSR are not however wholly obsolete. The management theory of the centrally-planned system was, according to some observers, more sophisticated than is sometimes realised [2], Similarly, the practical difficulties engendered by the system provided substantial challenges for an increasingly resourceful management elite [3]. However, the gradual erosion of the centrally-planned system after the passing of the Law on State Enterprises of 1987, and its wholesale abandonment since 1991, has created a need for the establishment of a whole new training infrastructure. Soviet managers are faced with ‘a problem of mind-set, a continued failure to break with the priorities of the past’ [4]. The 1987 Law, at a stroke of the pen, reduced the level of guaranteed state orders going out to most enterprises. Enterprises would increasingly have to find markets for their goods. The late 1980s also saw the abolition of almost all the sectoral ministries (nearly one hundred in all) which planned and controlled the industrial economy (the vast Atomic Industry ministry was spared) although many were replaced by groups of large enterprises (kontsern) which operate their sites across the country in a style much like the older generation of Western multi-national holding companies. It is, incidentally, a role which the more farsighted of the industrial nomenklatura have long identified with, hence their disagreements both with the radicals whom they see as wishing to break up industry and start again, and with the traditionalists who want to turn the clock back. Far from being ideological hard-liners, the industrial nomenklatura, as represented by those who agreed the Industrial Unions manifesto in July 1992, are frequently of a type not wholly foreign to their Western counterparts—they want a sympathetic government, generous credits and to be left to manage without political interference in a Tree market’ designed to suit them. The industrial lobby has

Source: Journal of General Management (Summer 1994), 19(4):69–88.

EASTERN EUROPE

257

stood against successive attempts (in order to protect their fiefdoms) to introduce a law on bankruptcy, which was seen by one director interviewed as: Giving carte blanche to the governments economists who know nothing of industry, to close us all down on criteria of their choosing—what is the point of a market without production? [5] Behind the industrialists’ protests lurks the awareness that a significant percentage of production is actually value-subtracting—as much as 8 per cent, and that 35 per cent is likely to be unprofitable in the longer-term [6]. Currently, this problem is being masked by subsidies and credits which, in different forms, are estimated to account for 40 per cent of GDP [7]. Such a problem is further complicated by the extensive inter-enterprise debts by which enterprises, many of them now private companies, keep each other afloat. There is therefore no easy political answer to the credit question, which threatens to lead the country into hyper-inflation. If credits were withdrawn many of Russia’s most developed industries would collapse, leading to the disappearance of the professional and technical skills-base. This dilemma is especially true in the defence sector, hence the Yeltsin governments ‘U-turn’ in the Autumn of 1992, which led to increases in defence procurement (savagely cut earlier in that year) and an increased emphasis on government-backed armssales. Currently, in early 1994, this continues. CHANGES IN THE NATURE OF RUSSIAN BUSINESS Turbulence in the business environment itself has therefore inevitably meant consequent changes in the management of specific enterprises and in the nature of Russian management generally. Privatisation of smaller enterprises, particularly in the service sector, and to a lesser extent in agriculture have meant demands for small business skills on an unprecedented scale. In 1992, 33,400 small enterprises (with less than 200 employees) were sold, and by May 1993 over 1,500 enterprises with more than 200 employees went the same way [8], For political reasons (and lack of buyers) many of the smaller businesses have, however, been sold to their existing employees (‘works collectives’). Many of these are expected to fail, to be replaced later by ‘real’ owner-managers [9]. The core of the economy is still the large enterprises, constructed under a very different logic to that of the reform strategy. As a Soviet commentator of the mid-1980s put it: The maturity of this form of property—the state property—was characterized by a high level of production concentration and specialization. As of early 1984, there were 4,300 production and research-production amalgamations in this country whose output accounted for over half of the total sales volume [10]. Most of these have been privatised either ‘spontaneously through the curious semi-legal process of so-called nomenklatura privatisation, or through the legally compulsory process of conversion into a joint stock company (in practice both mean that directors become the virtual owners of the large enterprises). Although joint-stock status and privatisation mean rationalisation of both production and of the workforce, they seem unlikely in the medium-term to lead to the abandonment of two time-honoured traditions of Russian business. These are: 1 Monopoly status combined with a very high degree of vertical integration. Insecurity of supply and the legacy of control by diverse ministries under the Soviet system have bequeathed giant firms which make

258

HOW RUSSIAN MANAGERS LEARN

their own equipment and many of the goods required by their staff as well as producing their coreproduct range, which in the high-technology sector is itself likely to be highly diverse. 2 The ‘Russian doll’ structure of management, in which the retraining and reorientation of management is taking place vis-à-vis a background characterised both by rapid change and a striking degree of continuity. It is already clear that, whatever the changes in the ownership status and mode of operation, no overnight dismantling of the large state heavy industry enterprises will occur. The existing technocratic elite are likely to stay in control, with their ‘address-book capital’ of contacts, without which business survival in Russia would be difficult. Indeed, the power of this group has become, if anything, more visible since mid-1992, with the rise of political groupings representing industrial interests, notably the much-publicised Civic Union (Grazhdansky soyuz) in which Arkady Volsky’s entrepreneurs and managers’ association is the leading partner, and also the Industrial Union (promyshlenniy soyuz) which in August 1992 put forward an alternative industrial strategy favouring the large state enterprises. In the SME sector, and also in agriculture, there is however a need for trained entrepreneurs. Whilst it is undeniable that in these sectors a whole generation of ‘natural’ entrepreneurs has emerged since the late 1980s, most of these are in the commercial and retail sectors, and only very few involved in production or technical innovation. It may even be argued that this large and growing sector is more a natural development of the ‘shortage economy, bequeathed by the defunct Soviet system. Commodity-exchanges (of which there are more in Russia than in the rest of the world put together) and so-called co-operatives dealing in imported goods are often perceived by Russians as more the continuation of the shadow-economy under another name, than any substantial base for economic growth in the future. At the same time, it would be unwise to underestimate the strength of Russia’s private sector. At present, the Russian government has no effective system for measuring its output, in terms of production or turnover, whether for tax-collection or for any other purpose. Given the tendency for tacit transference of state assets into the private sector, it may well be that the precipitous falls in production that have appeared in Russian government statistics over the past few years only tell part of the story, and that the country’s economy may be substantially healthier than appears at first sight. A further note of caution is required at this juncture: until mid-1992, it was generally assumed, both in Russia and elsewhere, that the re-emergence of Russia as a market economy would be closely tied to Western aid and investment. The first setbacks for this view came with the growing political tension over the conditions recommended and imposed by the International Monetary Fund in the early months of Yeltsins radical reforms from January 1992 onwards. In particular, rapid liberalisation of energy prices, one of the IMF’s key recommendations, was perceived as politically catastrophic, and has been repeatedly postponed. It is no coincidence that the further the Russian government has moved from the original IMF plan, so the visibility of the industrial lobby at government level has increased, although President Yeltsin still appears undecided as to how far the reform plan should be compromised. Since the 1993 elections, he is even more cautious. `CAPITALISM IN ONE COUNTRY' When in mid-1991, the former Prime Minister of the Soviet regime, Valentin Pavlov, stated that the then Soviet Union could reform and reconstruct itself unaided, this was greeted with derision by reformers, radicals and many industrialists. However, as reforms have progressed and the investment and aid expected from the West has largely failed to materialise, there has been a shift in attitudes among many of the above

EASTERN EUROPE

259

players in the drama towards an outlook geared to self-reliance and a reappraisal of indigenous strengths and traditions. While still hungry for Western contacts and support, their expectations regarding these and confidence in the idea of ‘capitalism in one country’ have fallen (notwithstanding the complications arising from relations with other republics in the ‘rouble zone’ of the former Soviet Union). Although Russia’s need and demand for Western skills is undiminished, it seems increasingly likely that these skills will be deployed in a more specifically national form of capitalism than previously anticipated. Initially, after the Revolution of 1917, Western management, especially American methods, had been de rigueur, but nonetheless controversial [11]. Taylorism was extolled by Lenin as the answer to many production problems, although there was some resistance to its introduction. This possible trend towards a national model may mean that Russia’s relationship with the West, both economically and politically, will retain its traditional element of mutual distrust. Such self-distancing from the West may be manifested in different ways in different sectors. In state enterprise circles there is generally a far higher awareness of Western management practices, although these will be applied in an industrial structure shaped by the previous system. As one director of a state conglomerate commented: The West wants us to fragment what we have built up, so the economy will be made up of small firms. However, I don’t see this logic being applied by Toyota or General Motors. We are interested in applying Western practice, not Western theory [12]. One leading Russian business consultant also commented: There is a lot of talk about how we must break down the state enterprises and get rid of the enterprise directors, but this is politically-motivated and short-sighted. We need to compete internationally using what we already have, and the people who know how to manage it. What is the point of our going back to ‘stone-age’ forms of capitalism when we already have the industrial base on which to develop our own form of advanced capitalism? [13]. Amongst proponents of the small-firm sector there is also a growing sense that Russia may have its own logic of development. As one laissez-faire economist in the St. Petersburg Mayor’s Office commented, in a manner which recalled an earlier era: We are no longer as impressed as we were by Western business skills. Our new entrepreneurs are tougher and more ruthless than those in the West, and they are used to a much higher level of profit. Western firms will not be able to compete with us head-on in our domestic market and when we have built up the right technology in a few years’ time, then, I hope, we will teach Western firms a lesson they will never forget [14]. The resurgence (if such it is) of a specifically Russian style and practice in business, taking a different course from that suggested by Western ‘Know-How’ is a paradoxical development. It arises both from the greater than expected difficulty of the transition (particularly in terms of macroeconomic policy) and the greater than expected success in commercial development at the micro-economic level. One striking aspect of this paradox is the way in which, contrary to popular perceptions in the West, Russia has become a net exporter of hard currency capital, the funds invested in Western banks by Russian business people being reputedly far in excess of Western aid entering Russia.

260

HOW RUSSIAN MANAGERS LEARN

From the above, we can see that the context in which training takes place has altered substantially since mid-1991 and the questions of the relevance and application of Western skills and training have become more complex. Taking the backdrop we have described, we shall now review the antecedents of Russian management training, then review some attempts at transferring Western ‘Know-How’ and finally attempt some tentative conclusions. RUSSIAN MANAGEMENT EDUCATION TRADITIONS Management education in the Soviet period consisted of technical training for the many, combined with administrative training for the elite, inviting comparison not so much with the US but with France and Germany, the countries which had had the greatest influence on its institutions. As with the traditional German system, education for managers was primarily technical education (almost 90 per cent of Soviet managers were graduate engineers) with administrative qualification being attained at a later stage by a minority of technically trained managers. This administrative training was, however, inevitably geared to the functioning of a centrally planned economy. There was, in the past, no incentive to study matters such as pricing, asset management or concepts of focus and associated vendor-assessment [15]. Nonetheless, considerable progress did occur in the less commercial aspects of operations management from the 1950s onwards. Cybernetics and operational research were widely taught and applied, joined by job design and ergonomics in the 1960s. From the 1970s onwards, there was an increasing emphasis on decentralized management methods—particularly in relation to khozraschyot or responsibility accounting. The language of strategic planning and management by objectives became common currency amongst senior managers during this period. In high-technology industry and construction projects, matrix and cell production techniques were widely applied—indeed the Russian space-sector has claims to have applied matrix and project management from the outset, before its American counterpart did. Western textbooks on production and operations management have long been translated for a wide readership of senior managers and specialists, being succeeded in more recent years by a mass market in marketing and accounting. Whilst much of the home-generated management literature in the Soviet Union from the 1970s onwards was suspect, banal or insular, textbooks of an international standard were also being produced. Many of these reflected state-of-the-art approaches but were, right up until the late 1980s, camouflaged by routine ideological content and wording, without which they could not have been published. Outstanding examples of the genre are the works on project management of Professor Georgi Taukach [16] of the Kiev Institute of National Economy and the work on corporate governance and the management of high-technology innovation of Professor Sergei Valdaitsev [17] of Leningrad (now St. Petersburg) State University. These authors were among those who took advantage of the increased openness to Western methods and theories from 1985 onwards, to apply them to Soviet conditions. They also met a demand from large enterprises who were already engaging in restructuring, decentralisation and product diversification. The growing expertise in management did not reach further than senior managers, elite specialists and industrial economists. Junior managers in Russian industry are generally trained on the job, their education having been overwhelmingly technical. The psychological and sociological aspects of management development were generally under-developed as these encroached on Party-related subjects. Also, perhaps in contrast to the German tradition, technical education was frequently narrowly-based. Technical degrees and training were overwhelmingly the preserve of sectoral institutes, which were attached to specific industrial ministries. In this respect, Soviet technical managers enjoyed the division of labour between an increasingly vast range of specialist sectoral ministries which was one of the problems that dogged Soviet industry and trade in the post-war period. However, many of these institutes were of a high standard,

EASTERN EUROPE

261

Figure 1 The top ten Russian business schools in 1992

particularly in the aerospace field and built on the legacy of a network of specialist institutions founded before the Revolution. At the same time, the Russians had their grandes écoles, perhaps a natural expression of their attachment to steep hierarchies on the traditional French model. A number of these were established or expanded from the 1970s onwards, reflecting the increased concern with management education. One example was the Academy of National Economy in Moscow, which is prominent in the teaching of international business, founded in 1978. THE CURRENT STRUCTURE OF MANAGEMENT TRAINING IN RUSSIA The main indigenous institutions of management training in Russia may be grouped into the following categories: (a) Industrial sector-based training centres These were established under the Soviet regime and acted under the auspices of the then-existing sectoral ministries. They are sometimes still known by their old acronym of ‘ZPK’. (b) Business schools Business schools on the Western or quasi-Western model began to appear in the early perestroika period of the mid-1980s and became very widespread in industrial cities (see Figure 1). These business schools were usually established on the base of a pre-existing ZPK (see above) and thus closely linked to specific large state enterprises. (c) Small-scale commercial training organisations In more recent years, a broad sector of commercial organisations has emerged providing short-courses for groups of, typically, 15–20 managers on a temporary basis, usually on hired premises (hotels or other public buildings).

SECTORAL TRAINING CENTRES Not surprisingly, it is the ‘ZPK’ centres inherited from the old system which provide the most substantial, stable and arguably the most professional base for management education. At the same time, the training provided tends to be overly-dependent on past models and traditional approaches. What they have to their advantage is a generally high standard of physical infrastructure and technical facilities. They are, however, closely integrated into the traditional culture of Soviet industrial enterprises. They now play a key role in the continued existence of the technocratic elite.

262

HOW RUSSIAN MANAGERS LEARN

Their ‘official’ status provides the ZPKs with direct access to government licences and legal support. They have thus, in many cases, been able to acquire official recognition and re-birth as ‘Academies’ or ‘Business Centres’—examples of the latter being the university ‘business centres’ operating out of the former Polytechnic and Economic Institutes of Higher Education (VUZi). Thus, it is behind the rapid proliferation of ‘Western-style’ management training institutions in Moscow and St. Petersburg, one will find many familiar institutions of the former regime simply operating under new names. As far as the large ZPKs are concerned, however, a number of factors can be cited in their favour. First, their staff are likely to be well-versed in the problems and characteristics of the sectors which they serve, and this knowledge is likely to be reinforced by close ties with the ruling elites in the enterprises—a major advantage given the very hierarchical nature of former Soviet enterprises and the continued predominance of personal networks in the organisation of Russian business, politics and society. Courses in the ZPKs thus compensate for their traditionalism by their being informed with the realities of contemporary Russian business, rather than the over-reliance on Western textbooks that characterises some other providers of training. ZPKs make significant use of cases and games drawn from contemporary Russian practice. Second, the ZPKs are frequently at the centre of a network of management specialists from other institutions. In keeping with the current tendency of the Russian middle class to maintain up to three or four jobs simultaneously, there is considerable cross-fertilisation between ZPKs and other institutes. It is not uncommon for a management lecturer to be on the part-time staff of up to a dozen business schools and institutes. As a result, there is a highly competitive market in management training and an incentive for lecturers to up-date and extend their knowledge. The ZPKs are also more likely to form links with institutes abroad—most senior staff will have made a succession of study-visits to Western or Japanese institutes. Finally, institutes such as the ZPKs, by virtue of their continued integration into the state education system, can, like Western university-level Business Schools, attract a high calibre of students by their offer of longer courses (three years in most cases) leading to formal qualifications, usually a diploma in management. BUSINESS SCHOOLS Business schools per se, as distinct from state-owned ZPKs may be divided into three main types: 1 Those which are sector-based and/or operate out of a large state enterprise (not unlike the smaller ZPKs). 2 Cross-sectoral specialist institutes. In some ways analogous to Western consulting firms or private training centres, these will offer specialised training and advice in one of the following: (a) legal advice and up-dates (a service of major importance given that an average of 2–3 new laws or edicts are issued on a given day); (b) computer programming; and (c) accounting, operations planning and market research, the ground-rules of which have changed out of recognition in recent years. 3 Self-styled ‘multi-profile’ business schools which provide a wide range of management courses and whose staff and approach change according to customer demands.

EASTERN EUROPE

263

Business schools of all the above three types tend to be highly flexible in operation and therefore are usually much smaller than the established ZPKs in terms of the number of staff. Where they offer longer courses, these will typically last between one and three months. Such courses will usually be held in hotels or recreation centres. A striking example of the second category of business school is provided by one of the Moscow schools, which bears the title the ‘School of Survival’ (Shkola Prozhitiya). Founded in May 1992, it runs courses for managers in a hotel on the Black Sea coast. It specialises in ‘awareness’ courses drawing together all the most recent legal, organisational and economic changes affecting the conduct of business in current Russian conditions. The courses emphasise ‘first-hand’ tuition by practitioners. According to the director, Russian managers are less able than their Western counterparts to adopt the role of ‘student’ and therefore courses have to be highly practical in design, with a minimum of broad principles or theory. One may also draw attention to certain differences between Russian and Western business schools in terms of what participants hope to achieve through their attendance. First, given the expanding market for business education in Russia, the lecture-notes themselves have a value for participants who may use them as the basis of their own lectures in another school or enterprise. Second, more significantly, business courses will frequently involve the circulation to participants of official documents which are frequently hard to come by for those not tied into the networks of ZPKs and enterprise-based business schools. Third, in an economy characterised by geographical size and a paucity of business information, such schools provide many participants with one of their best opportunities for making contacts. The rate at which change is occurring means that courses have to meet a wide variety of miscellaneous needs. Participants will be seeking English tuition or at least how to find and use a Russian/English commercial dictionary. There is a widely-expressed demand for directories of foreign firms and details and documents on their organisation and legal status of different categories of Western firms, both as tentative models to follow and to use as a guide when dealing with potential foreign partners—Russian business people have been surprised by the difficulties involved in finding the right Western partner, and by the general lack of success of most of the joint ventures which have been established. There is a widespread demand for textbooks and documents on contract preparation, use of intermediaries (intermediary firms being one of the growth industries of 1991/2) and computing manuals and textbooks. In computing, a number of packages have been produced or adapted which are now well-known among Russian enterprises, namely ‘Interconsultant’, ‘Inopartner’ (for finding and dealing with foreign business partners), ‘Human Resource Management for Senior Managers’, ‘Interpravo’ (on business law), ‘The Entrepreneurs Entry into the External Market’ and ‘Factor-Analysis of Profits’. Business schools are closely tied to the translation and re-publishing of Western management packages and texts, a practice which was already advanced in state enterprises even before perestroika. There are some problems of quality control in this area as the old system breaks down. A major growth area is that of providing programmes and material for accountancy-games, geared to assessing current business position. The Russian weekly Business World estimates that no less than 600 Moscow firms are now using such programmes in internal training. Educational information and advertisements on how to acquire such information reaches the country’s estimated 2.5 million finance employees/managers in finance and accountancy-related jobs in a number of ways. Titles such as Delovoi Mir (Business World), Kommersant (a weekly aimed at brokers and dealers, and one of the most informative Russian newspapers), Finansovnaya Gezeta, Ekonomika i Zhizn (Economics and Life), Buchgaltersky Uchot (Accountancy) and Komputer Press appear weekly and are available at most news-stands in the larger cities.

264

HOW RUSSIAN MANAGERS LEARN

WESTERN INVOLVEMENT IN RUSSIAN MANAGEMENT TRAINING Western involvement in the training of Russian managers, like other attempts to transfer Western ‘knowhow’ to the former Union, faces a number of problems, some of which are more predictable than others. Choosing the focus for training effort The scale of the need for management training is beyond the resources of the aid agencies involved. This feature has a knock-on effect in terms of making other problems, which characterise management training elsewhere, more acute. If resources are finite and the needs are in theory infinite it places a greater onus on the designers of programmes to ensure that: • participants are those most in need of the training—participants may often be those Russians who are already acquainted with the principles of management in a market economy; • participants are those most able to apply the knowledge gained—key groups such as senior directors and first-line supervisors may well be out of range of ‘know-how’ transfer, despite their being a major influence on how firms are run; • programmes are not burdened with people who have non-training motives— the rumours that circulate concerning Russian training course participants whose main objective in coming to the West was shopping are exaggerated, but often have a basis in fact. Nepotism and bureaucratic exchanges of favours may also come into play. Russian expectations Although Western ‘know-how’ aid is small in relation to the task facing the Russians, the cynicism of the latter has grown as a result of what has sometimes appeared to them as an endless stream of Western consultants and representatives with no tangible result at the end. One St. Petersburg politician with responsibility for liaising with local defence industry stated: [18] You cannot imagine how tired our directors are of receiving Western visitors—they will now only do it as a special favour. They have serious problems, many of them are facing bankruptcy, and Western consultants’ advice at this stage, if not backed up by hard cash, is worse than useless. Such comments, which are becoming more widespread, reflect the unrealistic expectations some Russians had regarding Western investment. Some appeared to have a ‘romantic’ view of the Western entrepreneur, hordes of whom were believed to be queuing up to risk their money on the future of Russian industry, and reacted bitterly when it became clear that such a movement of capital would take many years to occur. This delay is not something that Western management educators can do much about, but it does affect the climate in which they must operate in Russia. What did annoy some Russian participants, particularly in the early period of such aid (1989/90) was the assumption that Russian managers and officials knew nothing of the world outside of the Soviet system. One head of department in a ZPK training centre commented: Our course-participants are practising managers and small business people and they pay to study here in their spare time. They don’t take kindly to lecturers from the West coming and telling them what a market is…and this has happened quite a few times [19].

EASTERN EUROPE

265

Sometimes, the opposite was the problem: If one more Western lecturer comes here and starts telling us to be careful with the market and not to trust market forces, I don’t know what I shall do. Yes, of course we know what the problems are, but we need to have had a market economy for a while before we can usefully worry about them. If this is aid, I think it would be better if we were just given a computer for the same money, then at least we could derive some benefit [20]. The aid-relationship is not always a happy one, particularly when the recipient country is a former superpower. One international development consultant commented: I told them (an international agency) that they should be careful in the approach they took to the Russian authorities, that these were educated people, that they were not going to like being told obvious, and irrelevant, things in a patronising way. Unfortunately, (they) didn’t understand what I was talking about. Of course the Russians will accept what is offered them, if they’re not paying for it, but in many cases it won’t be what they need [21]. A more lasting problem concerns not the level at which training or consultancy is pitched at, but its relevance, given the differences between Russian and Western business practices and business environments. Western business people, consultants and trainers alike are in danger of imposing their own cultural categories on a situation which looks familiar, but in fact differs from their preconceptions. Western visitors may, to take one example, assume that a relatively young Russian, fluent in English and representing an import/export firm in Moscow is a pro-market progressive. They may not realise that the Russians excellent English was the result of having been a student at the prestigious Moscow Institute of International Economic Relations, a byword for nepotism under the old regime —under Brezhnev the vast majority of the students were children of the highest nomenklatura whose parents had booked their places many years in advance. As for the import/export firm, in the case in question (and not a few others) this was merely a segment of a Soviet trade ministry which was now making a profit out of the businesses it used to run, using old-established networks and channels of information and goods. Other such firms have been set up by the old Party elite —it is no accident that the number of commercial firms advertising in Russia increased massively in the months leading up to the banning of the Communist Party, which was then found to have very little money. Thus, it is not easy for Western agencies to categorise the Russian officials and business people they come into contact with into simple categories of progressive versus conservative, old-guard versus new entrepreneurs, etc. Sometimes the old-fashioned Soviet-type managers may even be more reliable contacts or more open to what are (in theory) more open Western business practices, than some of the people who have emerged in the new commercial atmosphere. Their shortcoming is that they will tend to expect a clear answer from examples of Western practice, when in fact that practice is far more varied and contingent than they may realise. Their more fundamental problem is that it will be difficult to apply lessons from Western business, since it is proving difficult to move directly from the most-developed form of the old Soviet system to the most developed forms of capitalism, without going through the chaotic transitional stage (in which most of the Russian economy is now situated) and the associated fragmentation of institutions, enterprises and civic values. A further major problem confronting any attempt to assist Russian business through Western management education is the role of corruption in the Russian economy. This represents a major cultural difference to a

266

HOW RUSSIAN MANAGERS LEARN

degree that is difficult for a Westerner to comprehend. What is considered corruption in Britain for instance, despite the rewards involved, would scarcely be distinguished from standard practice in Russian state and commercial institutions. Italian corruption is clearly nearer the Russian model, but here Russians will point out that at least in Italy there were state agencies outside the system of corruption which were in the end able to shift the balance of power against it. In Russia, many doubt that there is now an official base from which such an initiative could be launched. A distinction here is often made by Russians between ‘red’ business— businesses set up by the nomenklatura on the basis of state resources syphoned off by the Party, ‘black’ business—largely criminal organisations built up by those who controlled the black market of the late Soviet era, and ‘white’ business —new firms (whether or not based on former state enterprises) which attempt to compete as in a ‘normal’ market economy: The Ministry of Security (as the KGB is now called) is said to compile records of firms in terms of these categories, amongst which ‘white’ business is the smallest and weakest category. Like many state and political institutions, the ex-KGB is itself divided between the representatives/allies of each category, which impedes any concerted action being taken. Here the legacy of the Soviet regime, under which bona fide business people were treated as criminals, does not help…People in the West should realise that events have moved on: the struggle in Russia is no longer between Soviet marxism and Western capitalism, it is between two models of capitalism—that of Western Europe and that of Colombia [22]. In theory, the dead hand of corruption should be mitigated by the mass privatisation launched last year in which citizens invest vouchers in firms. This change has however been complicated by the ownership rights (and therefore controlling shares) claimed by both management and workers (both fearful of being rationalised once the firm becomes accountable to external shareholders). However, privatisation, like other reforms, suffers from the paradox whereby what would operate effectively as an end result does not operate in the transition period, to the extent that this desired end result (a modern market economy) does not materialise. Not only has privatisation itself been marred by official corruption, the degree of corruption and market-fixing is such that it can deny markets to new or existing firms, and deflect the kind of foreign investment required to re-launch Russian industry [23]. RUSSIAN BUSINESS SCHOOLS AND WESTERN INITIATIVES Despite the infrastructure of indigenous training institutions outlined earlier, business schools on the Western model have largely been a recent import, although the model has been adopted by many of the local institutions, notably the sectoral ZPK institutes referred to earlier which have, since 1989, been changing their courses and approach in the direction of the Western model [24]. Two of the earliest and most significant Western initiatives were led by Italian institutions. In Leningrad (now St. Petersburg) a joint venture by Bocconi University Business School of Milan and Leningrad State University led to the establishment in the late 1980s of LIMI (Leningrad International Management Institute). The venture was supported by a number of leading Soviet financial institutions as well as Western investors. Its objectives have been to develop management skills in parallel with assisting trade and investment. Teaching is provided by a wide range of international specialists, in addition to Italians and Russians. Research on the Russian economy and trade is carried out alongside the Institutes programme of courses, seminars and MBA programme. The Institute, now re-named the International Management

EASTERN EUROPE

267

Institute of St. Petersburg (IMISP) has, since 1990, been developing, via the initiative of Dr. Ian Turner, a partnership with Henley Management College in the UK. The partnership has involved exchanges of MBA students and has recently received EC funding for the development of a new MBA programme for, and in, Russia [25]. A similar venture was launched in 1989 in Moscow by the Bologna-based ‘Nomisma Institute’ which led to the creation of ‘Mirbis’, the Moscow International Business School. Three types of courses are held—a 45-week Masters programme for younger managers, a 10-week top managers programme and a variety of in-house tailored programmes for specific organisations [26]. Pre-eminent in the knowledge-transfer process has been London Business School (LBS), due to initiatives led by Professor David Chambers over a number of years. LBS has developed degree and nondegree programmes for Eastern Europe, as well as executive courses, research and consultancy for both firms and government. In 1992, 80 members of the London MBA programme were seconded to organisations in Russia, Ukraine, Hungary and Poland [27]. LBS initially focuses on direct contact with enterprises and their senior managers —the resulting courses have since led to the establishment of an alumni club for the former Soviet Union. As local business schools have developed further, LBS has moved into providing inputs for courses held at a wide range of institutions as well as those sponsored by other Western agencies, such as the EBRD-sponsored School of Management and Privatization in St. Petersburg. Among the other UK business schools which have entered the Russian market are Manchester Business School, Sundridge Park and the former Polytechnics, now Universities, of Middlesex and Coventry. Middlesex’s programme has been geared towards the development of team management styles, having found that, contrary to national stereotypes, Russians tend to work as highly-competitive individuals [28]. Middlesex has also played a significant role in the ‘Chancellors Financial Sector Scheme’ launched via the British Council in 1992. The scheme was intended to fund 1000 Russian secondees to British financial institutions. Such is the growth of ‘self-help’ learning among Russian professionals on subjects related to the workings of market institutions that it appeared that the secondees were more likely to be an asset than a burden to the British firms involved [29]. Manchester’s programmes and exchanges have been among the largest, with funding from the EC, the British Council and Rank Xerox, among other sources. One of the more notable programmes was that for senior managers and owner managers from St. Petersburg, 120 of which attended custom-designed courses at MBS during 1992, an initiative funded by the British Foreign and Commonwealth Office ‘Know-How Fund’, in association with the St. Petersburg Mayor’s Office which supported the venture as part of its attempt to develop St. Petersburg as a ‘free economic zone’ [30]. The programme was significant in that it attempted to emphasise the role of SMEs rather than focusing on managers from big state or ex-state corporations, as earlier programmes have tended to do. Small-business initiatives have played a significant part in ‘Know-How Fund’ strategy for Russia. One notable venture has been the co-funding of a small-business centre in Moscow, which opened in September 1992. An Italian venture in 1990/91 also led to the establishment of a Small-Business Centre in Moscow. In St. Petersburg, an off-shoot of the UK Prince’s Trust is using British company finance to direct small business training towards socially-useful projects. The range of initiatives is now such that the strategy and objectives of assistance need regular reviewing. One example, where some confusion arose, was with the EBRD’s project of 1991/2 to found a new business school in St. Petersburg. The contractors for the programme, Central Europe Trust of London, interviewed 150 Russian candidates for the staff-training programme. Of these, 30 were chosen for an intensive training course to prepare them both individually and as a group to become the academic staff of the new business school. The training focused not only on content but on more flexible approaches to management training and development. With the course completed, a carefully-selected group of the 10 involved were recommended to be employed as the

268

HOW RUSSIAN MANAGERS LEARN

Figure 2 Examples of European and US involvement in Russian management training

lecturing team. At this point, the EBRD appears to have decided against the original scheme, and the successful participants were given jobs in an existing business school, in much the same way as the other 20 unsuccessful participants were also able to find jobs at other local business schools on the strength of their having completed the course. Thus, the original objective of building up a new and cohesive faculty was abandoned. The library of Western textbooks and Russia-based case material (still something in short supply on management training courses, given the rapid pace of economic change) was dispersed. In this brief survey, we have concentrated on British initiatives (see Figure 2). In addition to the Italian ventures referred to, there are now a vast number of management training initiatives led by Western European agencies, although the UK has now significantly narrowed the gap between its own involvement and that of the Germans and Italians. France, Switzerland and Sweden have also been amongst the more active. Despite a relatively late start, US institutions have expanded their involvement, with the NorthEastern University and the California State University at Hayward being among the more active (see Figure 2). For a review of their experience, as well as for the views of leading Russian management development practitioners, see the recent book by Sheila Puffer [31]. CONCLUSIONS The Russian management education sector is now as varied and rapid in its development as the Chinese [32]. Despite some of the problems of differing expectations and cultural assumptions referred to earlier, the results of Western ventures in management training have been largely successful—Russians have proved more knowledgeable, more enthusiastic and more capable of learning than might have been expected by some in the West before the programmes began. If differences remain, it is increasingly a difference of economic context and business culture rather than a difference in basic knowledge and approach. At the level of the individual course participant, management training, assisted by Western institutions, has achieved a significant amount and with less difficulty than expected. At the macro level, it is less clear how great the benefits of management training are in terms of smoothing the transition currently taking place in Russia. However, important as better acquaintance with Western management concepts and practices is for individual managers and enterprises, Russia’s problems are not primarily the result of lack of information, but about the power of interest groups, interacting together in the context of a highly unstable, turbulent environment. We are not talking simply of managers and workers who are afraid of change (although this is of course a factor) but about a blatantly open culture of competing and corrupt elites which has not only not disappeared with the collapse of the USSR, but has developed and intensified. This development, combined with the fact that the reform programme under way is without precedent, is occurring in all aspects of economic and political life simultaneously, with no reliable blueprint. Macro-economic policy threatens the survival of industry and vice versa, whilst corruption, both official and commercial squeezes out new entrants to the market. Despite the successes (even if relatively limited) of Western and local management institutions at the level of educating individual managers and entrepreneurs, the question of what they can contribute in terms of this larger picture in 1994 and beyond remains open.

EASTERN EUROPE

269

REFERENCES [1]

[2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31]

See Filtzer, D., ‘Economic reform and production relations in Soviet industr’, in (eds) Smith, C. and Thompson, P., Labour in Transition: the Labour Process in Eastern Europe and China, London: Routledge, 1992, pp. 110–148. Hill, M., ‘Management in the Soviet Union and the Commonwealth of Independent States’, Loughborough University Management Research Series, 1992, p. 7. Vlachoutsicos, C. and Lawrence, P., ‘What we don’t know about Soviet Management’, Harvard Business Review, Nov-Dec 1990, pp. 4–11. See Dyker, D., ‘A Soviet Specialist’s view of the Chinese reforms’, in (ed) White, G., The Chinese State in the Era of Economic Reform: The Road to Crisis, London: Macmillan, 1991, p. 116. Interview with a professor at St. Petersburg State University, October, 1992. ‘Russia’s value gap’, Economist, 24 October 1992. Boulton, L. and Balls, E., ‘Still not ready to take the credit for reform’, Financial Times, 11 May 1993. Balls, E., ‘Russians ready to play the capitalist game’, Financial Times, 6 May 1993. See also Financial Times, 28 April 1994. Andreyev, L., Head of City Property Dept, Moscow City Government, presentation at Adenauer Foundation conference on Economic Reform and Privatisation, Moscow, 20 March 1992. Gvishiani, J., ‘Management in the USSR: its Present and Future’, European Management Journal, Vol. 4, No. 1, 1986, pp. 26–37. Garnsey, E., ‘Capital accumulation and the division of labour in the Soviet Union’, Cambridge Journal of Economics, 1982, 6, pp. 15–31. Interview with General Director of Electron Corporation, St. Petersburg, November 1991. Interview with a professor at St. Petersburg State University, April 1992. Interview with official of State Property Agency (Goskomimuschestvo), St. Petersburg, August 1992. See Hill, M., ‘Future US—Soviet Business Relations: a Manufacturing Strategy perspective’, Centre for Foreign Policy Development (Brown University, Providence, Rhode Island, USA) Briefing Paper, No. 6. Taukach, G. and Dubonos, P. (eds), ‘Osnovi upravleniya sotsialisticheskim proizvodstva’ (The bases of management in socialist production), Kiev: Vyshaya Shkola, 1989. Valdaitsev, S. and Gorlanov, G., ‘Effektivnost’ uskoreniya nauchnotekhnich-eskogo progressa’ (Effectiveness in accelerated scientific and technological progress), Leningrad: Leningrad University Press, 1990. Interview with a member of St. Petersburg City Council praesidium, July 1992. Interview with a senior lecturer at LIPMO business school (ZPK of opto-mechanical sector), St. Petersburg, June 1991. Interview with official of State Property Agency (Goskomimuschestvo), St. Petersburg, August 1992. Discussion with an international development consultant, Moscow, April 1992. Interview with a lecturer from Roskadri (Russian Civil Service training), St. Petersburg, October 1992. Lloyd, J., ‘ZRussian Managers given warning’, Financial Times, 19 January 1993. See Lawrence, P.R. and Vlachoutsicos, C.A. (eds), Behind the Factory Walls. Decision Making in Soviet and US Enterprises, Boston: Harvard Business School Press, 1990. Henley Newslink, November 1992. Financial Times, 4 April 1989. ‘London Business School Activities in Eastern Europe and the CIS: An Overview’, May 1992. Middlesex Polytechnic Press Information, 14 April 1992. Norman, P., ‘Work Experience Western-style’, Financial Times, 14 May 1992. ‘Russian Managers Arrive at Manchester Business School’, News Release, 6 February 1992. See Puffer, S. (ed), The Russian Management Revolution: Preparing Managers for the Market Economy, London: M.E.Sharpe, 1992. Puffer, S., ‘Education for Management in a New Economy’, in A.Jones (ed), Education and Society in the New Russia, Armonk, New York: M.E.Sharpe. 1993.

270

[32]

HOW RUSSIAN MANAGERS LEARN

See Warner, M., How Chinese Managers Learn: Management and Industrial Training in China, London: Macmillan, 1992.

35 Labour relations in transition in Eastern Europe J.Thirkell, R.Scase and S.Vickerstaff

This article discusses the emerging models of labour relations in Bulgaria, the Czech and Slovak Republics, Hungary and Poland. It focuses on the institution of trade unions, tripartism, collective bargaining and participation and considers the degrees of similarity and difference between the countries. This article discusses transitions in labour relations in a number of selected countries in the former Eastern Europe; Bulgaria, the Czech and Slovak Republics, Hungary and Poland. Under previous political regimes, the common features of state ownership of enterprises, party political control and central planning shaped the labour relations models. With the transition to market economies and political pluralism, there are a number of contingent changes in labour relations which are occurring at the national and enterprise levels. On the basis of comparisons between the selected countries we discuss some of these changes. We begin with a consideration of the changing role of trade unionism, both in terms of how it has been an agent of economic and political change and how it has, in turn, responded to these. This leads us to consider the broader economic and political context of trade unionism and the extent to which various forms of tripartism are emerging in each of the countries. The discussion then focuses upon developments at the level of the enterprise and reviews trends in collective bargaining and worker participation. This is then followed by some observations of how labour relations at the enterprise level is conditioned by managerial strategies associated with privatisation and with the restructuring of enterprises and their mechanisms of organisational control. The paper concludes by identifying some common trends in each of the five countries. It also emphasises sources of diversity and argues that in the transition to various forms of market economy labour relations models in each of the countries will continue to be characterised by contrasting features linked to the prevailing political conditions and the fortunes of tripartism. THE CONTEXT OF CHANGE The general elements of the previous model of labour relations are well known. They conformed to the economic model of central planning, party political control and state ownership. In this approach trade unions operated within the parameters of planning and party control, grade rates were fixed nationally by ‘tariff scales’; although there were collective agreements there was no recognition of collective bargaining

Source: Industrial Relations Journal (June 1994), 25 (2):84–95.

272

EASTERN EUROPE

or of strikes. Trade union structure conformed to that of the branch (industry) ministries and operated on the principles of ‘democratic centralism’. The institutions for employee participation in management and in some countries ‘self management’ were, however, highly developed whether through the structures of enterprise councils at the level of the enterprise or at lower organisational levels such as the brigade as in Bulgaria and Czechoslovakia. There were significant variations in the nature of enterprise level employee participation between countries and these differences may be reflected in contemporary developments. Stark makes a parallel point with regard to the processes of privatisation; he argues that the key factors which limit or condition the direction of transformation are the patterns of political mobilisation prior to regime collapse and the paths of extrication from the stranglehold of the party [1]. Consideration of the emerging models of labour relations in Eastern Europe has to recognise that these models have been contingent upon three conditions. First, that political, academic and popular attention on the process of transition has centred on issues of democracy and marketisation; that is on the parallel processes of change in the political institutions and of changes in the management of the economy, they have only focused indirectly on labour relations systems. Second, that the economic and social context has been one of inflation, rising unemployment and reductions in the standard of living for many sections of national populations. For the post-socialist governments the central political issue has been, therefore, a process of seeking to create structures and mechanisms for the creation of market economies while at the same time maintaining a minimum level of social and political integration. Specifically this has meant governments choosing the pace and sequence of macro economic measures—the shock treatment of rapid change (the liberal market) or, a more gradual process (the social market). In such economic conditions trade unions often function as agencies of social integration through their negotiations with governments. At the same time attempts to establish political pluralism have meant the replacement of the old Party organisations by a plethora of political parties which are little more than ‘elite vehicles’ [2], in that popular membership is low by comparison with that of the communist parties which they have replaced. Consequently trade unions as organisations with mass memberships are in a position to perform a representational function for their rank-and-file members that is only partially undertaken by political parties. Third, privatisation has taken various forms including intermediate forms of state ownership and has progressed at different rates in different countries. However in each case the state remains directly or indirectly the main employer as well as the major agency for mechanisms of macro-economic policy. The privatisation process itself requires state-driven social engineering on an unprecedented scale, which an ideology of marketisation tends to obscure. Consequently emerging models of labour relations are highly contingent upon patterns of political mobilisation and upon the degree of political consensus. The institutionalisation of new models of labour relations in these unstable conditions is, therefore, uncertain and in some countries complicated by governments attempts to establish a new normative framework in advance of economic reform and privatisation. It is to developments in trade union organisation that we now turn. THE ROLE OF TRADE UNIONISM Generally, the first changes in existing models of labour relations occurred with the emergence of specific alternatives to the already established trade union organisations. This was the case with Solidarity in Poland in 1982 and the emergence of new trade unions in Hungary affiliated to the Democratic League in the autumn of 1988, facilitated by the law on associations and political pluralism. This was equally so in Bulgaria with the emergence of Podkrepa in November 1989. Laws on strikes and disputes were also an early feature of changes in the model of labour relations, as in Poland in 1982, Hungary in March in 1989, Bulgaria in March 1990 and Czechoslovakia in early 1991.

LABOUR RELATIONS IN TRANSITION IN EASTERN EUROPE

273

The principal feature of trade unionism in relation to the transitional models of labour relations may be described as follows. First, their significance as agents in strategy formulation at both the national and enterprise levels. This relates to shifts in the relationships and the balance of forces between political and industrial interests. Second, their key role in interest representation, especially at the national political level, in a period when many new political parties are emerging and multiplying. Trade unions are organisations with mass memberships and claim to represent the interests not only of employees but also of other large sections of the population such as pensioners and the increasing numbers of the unemployed. Przeworski argues that the role of trade unions in the process of economic reform is crucial because on the one hand they incorporate workers who are a potential source of wage pressure and hence of inflation and on the other, through their centralised organisational features they can persuade their members to wait for the reforms to bear fruit [3]. For these reasons he argues that it is functionally necessary for labour unions to be centralised and all encompassing. Third, there are changes in the internal organisation and functions of trade unions brought about by their formal separation from both party and state institutions. Solidarity in Poland as the prototype of the independent alternative to the established unionism was, in a sense, a social movement in that its goals were as much political as they were industrial. Since 1989 it has had to confront the dilemma of choosing between the specialised role of defending employees’ interests in questions of wages, working conditic’s and employment and the more general role of ‘umbrella’ for various post-Solidarity governments; that is, of taking joint responsibility for ruling the country [4]. In a similar fashion to Solidarity, the trade union alternatives established in Hungary and Bulgaria were also social movements in that they functioned at the national and industrial levels because of their opposition to the Party and its affiliated unions. However, it is important to recognise that in both Bulgaria and Hungary initial support for these newly created unions was mainly concentrated in the nonmanufacturing sectors of the economy. Hence they obtained their support among teachers, scientific workers and employees in areas of the health service. Underlying such patterns of support were the prerevolutionary state socialist wage policies which gave priority to heavy manual work in productive industry rather than to the professional, non-productive activities undertaken by employees in the service sectors [5]. The advent of Solidarity in Poland and of political pluralism in Bulgaria and Hungary, and the challenges from the alternative unions have brought about changes in the organisation, design and operation of the existing established union centres. This has led to three basic changes: their independence from the party; the end of democratic centralism as an organising principle; and the creation of confederal structures. This has taken place in Bulgaria, Hungary and in Czechoslovakia (where there was no important challenge from newly formed alternative unions). In both Bulgaria and Hungary the reformed centres have retained the largest membership. The duality between the political and the industrial functions of trade unionism relates to their operation at different levels of the economy—the national political level where basic decisions about macro-economic policy are made, and at the enterprise level where their members are employed. At the national level the political function has been mainly expressed through tripartite forums. However, in specific political conditions such as in Bulgaria in 1991–2, the national trade union confederations have operated as agencies of strategy formulation on major issues of economic policy including the pace and content of measures for economic reform. This national political role of trade unions has sometimes predominated over industry level concerns and this may help to explain the reduction of membership interest at the enterprise level. Linked to this there has often been an intermediating or controlling role such as that of Solidarity, for example in the Silesian mining dispute of 1992–3. Similarly in Bulgaria, the Confederation of Independent Trade Unions in Bulgaria (CITUB) has frequently been an agent of intermediation in important disputes that have arisen in

274

EASTERN EUROPE

particular industries or enterprises. Such a role inevitably creates contradictions and tensions in relation to rank-and-file members since trade unions appear to function both as agents of government and as representatives of worker interests. This poses the question for the trade unions of whether keeping governments in office is more important than representing rank-and-file demands and whether there could be a ‘backlash’ from members if redundancies increase and living standards fall. The experience from the CITUB in Bulgaria suggests that although workers in specific sectors or enterprises may be dissatisfied with their conditions, the leading role of the trade union confederation as the chief agency for representing member interests has, so far, maintained a large measure of support. This is mainly because key decisions on minimum wages and the setting of budgets for social security—unemployment benefits and prices for key items such as food —are taken through negotiations and agreements at the national level. Trade union density in socialist countries was extremely high; typically over 90%. This was mainly because the availability of enterprise social funds for housing, holidays, kindergartens, transport and other social welfare benefits were distributed through the trade unions. Increases in unemployment, privatisation programmes, especially of small service organisations, and the disappearance, except so far in the Czech and Slovak Republics, of Social Funds is likely to lead to a reduction in union membership. In Poland, membership of both Solidarity and OPZZ appears to be in significant decline. However, figures for the Czech and Slovak Republics suggest that this may not be inevitable, in addition, despite the declines in Bulgaria and Hungary membership of the confederations remains substantial [6]. TRIPARTISM National tripartite forums have been established in all of the five countries. A number of questions arise in relation to the development of tripartite processes. First, the timing and the context in which the relevant institutions were established. Second, the scope of issues covered by tripartite processes. Third, their legal standing and their degree of institutionalisation. The prototype of a national tripartite council was created in Hungary in October 1988 while the Socialist Workers Party was still in government. A key agent in this process was the Research Institute of Labour attached to the Ministry of Labour which contributed to the design of appropriate structures. The contexts for the establishment of tripartism were the processes of economic reform emerging at this time associated with increasing enterprise autonomy and some decentralisation of control over wages, which required the replacement of bureaucratic methods of wage determination by processes more appropriate to a market economy [7]. In Bulgaria, on the other hand, the National Commission created in February 1990 was the outcome of the political and economic crisis and industrial unrest that followed the political changes in November 1989. In January 1990 the reformed official trade unions (CITUB) demanded that the government should negotiate a General Agreement with them as a mechanism for securing political, economic and social consensus. Following the change of government in January 1990 a National Commission for the Reconciliation of Interests was established in order to negotiate this agreement. Thus, the CITUB was a leading agency in the creation of this structure and it also played a role in the formation of an organisation of state employers as the third party of tripartism. The establishment of the Council for Czechoslovakia in the autumn of 1990 at the federal level was requested by the trade union confederation with the ready acquiescence of the government. The Council negotiated the first general agreement for the year 1991. In Poland, however, the creation of tripartite institutions was avoided until September 1992 although discussions of the relevance of a ‘corporatist’ model had been common for several years. Hitherto, there had been informal and separate bipartite

LABOUR RELATIONS IN TRANSITION IN EASTERN EUROPE

275

discussions between successive governments and the two confederations, Soldarity and OPZZ. Kuron, as Minister of Labour, was a leading agent in the process of trying to negotiate the State Enterprise Pact. This development took place against increasing strike pressure, which was only halted pending the outcome of the Pact, and evidence of widespread popular alienation from the political process [8]. Whether the range of issues covered by tripartite discussions is broad or narrow largely reflects the balance of power between governments and trade unions and the broader social context at specific periods of time. The most common subject has been agreements on minimum and maximum wage increases, pensions, and the basis of wage indexation in relation to prices. This has been the case in Hungary since 1989, Bulgaria from 1990, and Czechoslovakia after 1991. This will also be a function of the Polish National Commission. However, the range of issues covered by tripartism has also broadened in these countries. In Hungary in 1991 and 1992 the NCRI played a significant role in securing agreement on the social security provisions for the budget and in reform of the principles of enterprise taxation. In Slovakia, towards the end of 1992, the main focus of discussions was the allocation of social expenditure from within the state budget, for example unemployment benefits, food and transport subsidies and the rules for the Enterprise Social Fund, rather than upon the content of a General Agreement for 1993. Issues of privatisation are of course, central to economic reforms. The great innovation of the Kuron Pact in Poland is the agreement for the involvement of trade unions in the process of privatisation and the distribution of shares to workers. In Hungary and Czechoslovakia privatisation has been a governmental process operating outside both tripartite forums and negotiations with trade unions. However, in Bulgaria during the period of the coalition government (December 1990–Ooctober 1991), privatisation was officially within the scope of the National Council although it was not acted upon. The institutional status of tripartite forums has varied. In Hungary the National Council was given formal legal status by the Employment Act of 1991 and the Labour Code of 1992 and it has its own secretariat. In Bulgaria, the election of the coalition government in December 1990 to introduce price liberalisation meant that the government was dependent on trade union support to maintain social peace. In these conditions the tripartite council operated as a standing body in which there was both consultation typical of the period of the socialist government and joint decision-making, with agreements binding on state organisations at lower levels. Of course, tripartism, by definition, requires organisations to represent the interests of employers in discussions. Except in Poland, where the Confederation of Polish Employers was established at the end of 1989, the development or creation of employers’ organisations has been closely related to the creation of tripartite institutions. Thus, in Hungary in 1988 the already existing Chamber of the Economy became a partner in the National Council. In Bulgaria, the initiative for facilitating the organisation of state employers in March 1990 came from the CITUB. Clearly, changes in the structure of property ownership brought about through privatisation are leading to a plurality of employers’ organisations in different economic sectors. The ease with which genuinely private employers can be incorporated into corporatist agreements is at this stage largely untested. COLLECTIVE BARGAINING In all five countries collective bargaining is a new feature of the transitional model and generally it is supported within a legal framework. The issues that arise relate to its coverage, to shifts in content from social welfare to wages and to the legal framework as privatisation proceeds. Contemporary discussions of collective bargaining by East Europeans tend to focus upon the negotiation of substantive collective agreements on terms and conditions at enterprise level. In the past collective agreements at this level did not

276

EASTERN EUROPE

deal with terms and conditions of employment. There are many other issues such as the numbers and selection of employees for redundancy which may be the subject of collective bargaining by the trade unions or of informal bargaining between individuals or work groups and line management. (The latter was the more predominant in the previous system) [9]. There is legal provision for collective agreements at enterprise level in all five countries although the significance of this varies in accordance with national conditions. However, understanding of the actual processes of negotiation at enterprise or higher levels is constrained by a lack of survey data. The Czechoslovak Federal Research Institute of Labour and Social Affairs conducted a survey of collective bargaining and participation in 90 enterprises in mid-1991 [10]. The survey showed that in 90% of the enterprises collective agreements had been negotiated and that of these, 86% were the result of trade union initiatives. In 1992 branch agreements were still used as a source of standards in the enterprises studied. In Bulgaria, the development of collective bargaining has been closely connected with initiatives from the National Tripartite Commission which issued Guidelines on Collective Bargaining in April 1990 and again in April 1991. In 1990 the coverage of workers by collective agreements was patchy and varied significantly between branches of industry. Survey data on collective agreements was compiled in November 1991 by the Confederation of Independent Trade Unions. The 1991 survey showed that by July 1991 only 37% of state enterprises had negotiated collective agreements. The main stimulus to collective agreements came from the Decree on Wages and Collective Bargaining of 5 July 1991. This decree, which was passed in the context of the national tripartite Agreement on Social Peace negotiated in June 1991, required collective agreements to be negotiated at enterprise level by September. This made enterprises the only level for collective agreements and thus removed the role of branches except for the social sectors of health and education. The decree was accompanied by abolition of the centralised control over enterprise wage funds based on the centrally determined wage rates for different grades of employee and the plan target for manpower. The national survey of 120 enterprises in November showed that 79% of enterprises had signed agreements and a further 14% had completed the preparatory work [11]. In Poland some branch agreements from the 1980s are still operative although their significance is doubtful. The development of wage bargaining in state enterprises has been tightly constrained by the high levels of taxation that have been levied on enterprises which allow wage increases. The creation of national machinery for wage negotiations in the state sector has been a major issue in the negotiations over the Kuron Pact. Private employers have been exempt from this taxation but since they are mainly non-unionised there is no collective bargaining [12]. It appears that the current developments in collective bargaining in all of the countries are primarily conditional upon the national mechanisms of economic management as applied to enterprises, for example the tax mechanism in Poland and the 1991 Decree in Bulgaria. It is also clear that many new small privatised companies are outside the emerging model of collective bargaining. PARTICIPATION AND CONSULTATION The socialist enterprise has been conceptualised as having three internal vertical structures [13]. The first was the structure of operational management; the second was the structure of the party and the trade union; and the third the structure of participation in management and/or ‘self-management’. The most usual institutions of the latter were a general assembly of employees (or of their representatives) and an elected council at the top of the enterprise. In the 1980s the general trend was to increase the scope and powers of this third structure and the empowerment of employees who were theoretically conceptualised as ‘coowners’. After the collapse of the old regimes there were two main questions to be considered at the

LABOUR RELATIONS IN TRANSITION IN EASTERN EUROPE

277

political level. First, whether such institutions of the third structure needed to be preserved, destroyed or replaced. Second, what should be the relationship between institutions of participation and those of collective bargaining. The comparison between the five countries of what has happened since the end of state socialism shows different patterns of development. The Polish Enterprise Council of 1981 has formally survived until the new provisions for the privatisation of state enterprises. An initial stage was to transform the legal status of the enterprise into a ‘state treasury company’ and for this consent of the enterprise council was required. Once however the transfer is completed the enterprise council is dissolved so that the legal and institutional basis of participation disappears. In Czechoslovakia the State Enterprise Act of 1988, which included provisions for an enterprise council elected from the general assembly, which also elected the director as a principal structure for participation, was repealed in May 1990. Its participative provisions were officially condemned as a ‘relic of socialism’. However Cziria and Munkova’s survey showed that the provision of information and the process of consultation continued to occur in the majority of enterprises but through trade union channels. The Labour Code does not however prohibit the establishment of Works Councils and it is of interest to note that in two case study enterprises managements set up Works Councils. In the first, the West German owners wished to set up the council as the sole structure for representation but the trade unions demanded recognition for collective bargaining; in the second Slovak enterprise it was the management strategy to set up a Works Council in parallel with the machinery for collective bargaining. In Bulgaria the powers of the enterprise council were modified by Decree 56 of 1988. The Labour Code was revised eventually at the end of 1992 after continuing negotiations between successive governments and the trade union confederations since 1990. This provided (in articles 6 and 7) for the general assembly of the workers and employees to elect representatives to decide questions of enterprise management but did not specify any structure or mechanisms for this. In Hungary Chapter 4 of the Labour Code of 1992 covering Employees Participative Rights replaced the previous Enterprise Councils with Works Councils. It sets out in detail the provisions for Works Councils which are required in every firm or establishment with more than 50 employees though the rights are mainly consultative. In both Bulgaria and Hungary the issue of the relationship between the institutions of participation and those of collective bargaining became disputed between the government and the trade union confederations. In the former, towards the end of 1991 the newly elected government of the Union of Democratic Forces proposed that the revised Labour Code should provide for a Works Council which would be the bargaining agent for the collective agreement rather than the trade union. In the initial drafts of the Hungarian Labour Code the government similarly sought to make the Works Council the bargaining agent but in Hungary, as in Bulgaria, the trade unions were successful in resisting the governments proposals. Thus the previous rights of employees to participate in management have been significantly eroded in the transitional models. In socialist theory employees were co-owners of the state property of their enterprises. Now, however, in all five countries there are varying forms of provision for employee share ownership so that they have possibilities for some financial participation as shareholders in their privatised enterprises. Research in Polish enterprises suggests that workers are willing to accept routes to privatisation which destroy work place mechanisms of participation because privatisation is presented as the economic salvation of enterprises and therefore of employment and accordingly strategies of survival predominate at company level. Solidarity as a national organisation is committed to the consolidation of single channel representation in which the trade union is the sole bargaining agent at enterprise level. Trade unions have been prepared to concede the dilution of mechanisms of employee participation in management because they have been concerned to secure and consolidate their position as the sole bargaining agent in collective bargaining.

278

EASTERN EUROPE

From the above discussion it is clear that the Hungarian case is exceptional in that works councils are legally constituted. However, the elections to Works Councils in May 1993 demonstrated that in many enterprises the trade unions were successful in securing the election of their own candidates on these bodies. ENTERPRISE MANAGEMENT AND LABOUR RELATIONS The previous sections have set out the general context of changes in labour relations. They have focused on legal and other normative changes made at the national level and the developments in the functions of trade unions as national institutions. These top down changes are a significant source of influence on labour relations at the level of the enterprise. However, changes at this level also derive whether directly or indirectly, from actions taken by enterprise managements. In this section the aim is to discuss how autonomous managerial actions at the base may supplement normative regulation to affect labour relations. It draws upon evidence from enterprise case studies. The case study evidence has been collected as part of the ongoing research project: ‘Labour Relations in Transition funded under the ESRC’s East-West Initiative. The context for enterprise management is shaped by three main factors. First, a central condition for a large number of enterprises in Eastern Europe has been the disintegration of the Soviet market which was traditionally a major outlet for production organised through Comecon. In these conditions business strategy, in the sense of seeking to maintain a share of existing markets or to find new ones, has become a major issue for the management of many enterprises. In particular instances the market crisis has been so acute that the future of the enterprise has been threatened and the central task of management has been to attempt to devise a survival strategy by whatever means possible. This can be through shorttime working or even by keeping workers on pay rolls but without wages. In production industries, the general picture is one of management trying, with varying degrees of success, to find new markets in the west or elsewhere. This process sometimes involves joint ventures, alternatively, it has included trying to maintain some part of the former Soviet markets often through complex barter deals. The second factor is that privatisation is the officially declared objective of all governments though differences in the methods and the rate of private ownership vary significantly both within and between countries. At enterprise level ownership change can present management with a threat, in the form of external financial control, or an opportunity to secure investment for improved technology and, in some cases, to secure a substantial bloc of shares. In situations where there is an opportunity for employees to obtain shares in their enterprises, privatisation may affect labour relations by changing the status of at least some employees. The prospect of ownership change, sometimes combined with the search for new markets has frequently led to a third form of change; that is the internal restructuring of enterprises, initiated by top management. This has often resulted in increases in the operational autonomy of enterprise-owned plants, workshops and departments. Although enterprise restructuring before privatisation is common it can also occur after privatisation; for example when the ownership of different parts of the enterprise is broken up. All these changes have implications for labour relations and may trigger or constrain managements articulation of labour relations strategy. This is illustrated by examples drawn from some case studies of different industrial organisations. An engineering enterprise in Slovakia was a prototype of organisational restructuring in that this began in 1989 before the political changes of that year. The goal of the general manager and the external consultants was to create an enterprise that was structurally similar to that of western models rather than those of socialist countries. In essence this was defined as the divisionalisation of the enterprise by decentralising authority and increasing the autonomy of each of the divisions. The initial state was completed by July 1990. This restructuring meant that divisional managers dealt directly with purchasers and suppliers, they

LABOUR RELATIONS IN TRANSITION IN EASTERN EUROPE

279

produced their own accounts, and the number of Headquarters staff was reduced. The principal resistance to change came from these staff who feared they would lose their jobs with decentralisation. This has been a common feature of enterprise restructuring in Eastern Europe where the traditionally large headquarters have been reduced and staff have been redeployed to lower levels as ‘parachutists’ [14]. However, the centre retained a large measure of control over investment and set targets for overall performance. Internal restructuring was followed by further restructuring directly related to ownership changes. The first stage of privatisation was the leasing of various service functions. Entrepreneurs had to contract to provide the service at a lower cost than the existing internal price but to take on the previous employees. The main changes in internal structure preceded the major privatisation of 1991. The specific and atypical outcome was that a firm comprising 24 members of top management acquired 40% of the shares with 39% being held by an investment trust. A third aspect of the ownership change has been the joint venture agreements related to particular sections of the business which management has negotiated with foreign firms. These have involved the transfer of western technology, capital and expertise. The top management of this company have achieved a radical restructuring of the organisation and a change of ownership which gives them a very large measure of control. This has had implications for the conduct of labour relations. Developments in labour relations have been derived from these changes in the organisational structure. In the previous regime the trade union president was in practice a member of the management team, now the trade union leadership is more separate and senior managers have resigned from the union to join a professional association. Although manager-worker negotiations take place at the enterprise level, negotiations and agreements at divisional level have become relatively more significant. Employee wage bonuses are now related to divisional and not to enterprise performance, thereby changing the nature of the internal labour market. Trade union representation and negotiations now take place at both the level of the enterprise and the divisions. Issues of employee identification with a particular unit or level of organisational structure can be significant in labour relations. Those interviewed during the case study claimed that the process of divisionalisation had fostered employee identification with the division as the relevant unit. Similar results were noted in a case study of a chemical plant as a consequence of divisionalisation. The workers in the different divisions had to accept that bonuses were dependent on their divisions success in selling its product. Top management at the engineering enterprise aimed to secure a smooth process of restructuring and to minimise social hardship. The trade union is seen as an agency which, while protecting the interest of its members, has facilitated the process of restructuring. Although interviewed employees expressed some criticism of the unions conduct this was not translated into a desire to take on the union job and there were difficulties in securing volunteers to fill union positions. In a Bulgarian engineering enterprise management were successful in retaining a significant share of its Russian market, while also achieving a significant level of penetration in the US. Internal restructuring into four units has taken place with the development of internal cost accounting as one of the objectives. It is unclear yet how far this has significantly influenced labour relations. In this enterprise the replacement of the General Director in 1992, who had held the post since 1973, was a major event associated with several episodes. The power struggle was related to district and internal management politics. The management’s priority is to improve access to western markets through joint ventures (to secure distribution facilities) and other linkages. Ownership change is not at present an issue and here developments in labour relations have come principally from external changes. For example, the annual negotiation of the collective agreement derived from the agreements at national level. In another Bulgarian engineering enterprise the market prospects are good with both the former Soviet Union countries and Western Europe. A central issue for management is to secure finance for

280

EASTERN EUROPE

modernisation. However, the enterprise is not on the list for early privatisation and management fear that rapid privatisation would put them in a weak position in relation to a western partner and it will be better to wait for some years, when it is hoped that the enterprise will be in a stronger competitive position. In 1992 the top management structure was reorganised drawing on the model developed by its west European partner which is seen as more appropriate for the formulation of corporate strategy. This has not, however, affected the process of operational management or labour relations. As at the other engineering enterprise the replacement of the Director has been a major event, involving politics both internally and externally. The main change in labour relations is the negotiation of the annual collective agreement. Thus, at both of these enterprises labour relations strategy has not figured significantly for management and any changes have derived mainly from external forces, that is from components of the emerging national model. The comparison between the cases illustrates the significance of major internal restructuring and privatisation for the development of managerial labour relations strategies. In both of the latter cases the deferment of privatisation has contributed to the absence of major internal restructuring with consequent changes in labour relations. CONCLUSIONS In conclusion we try to draw together the pattern of developments in the different areas we have considered: trade unions, tripartism, collective bargaining and participation. A general point that must be made is that emerging institutions are fragile, precarious and unstable. The absence, presence or threat of pressure from below has been a major condition for institutional development and change. The different routes from communist party domination, involving either capitulation, compromise or electoral competition, persist in affecting the emerging labour relations models in the countries studied; this is notwithstanding the common pattern of ideological influences from abroad and the encouragement of western models of social partnership and the social market model of corporatism. Not surprisingly, governments have viewed the development of new labour relations institutions as secondary to economic reform and privatisation. The role of trade unions in the immediate aftermath of the collapse of communist regimes seems to vary from country to country. Arguably they have been a driving force of social and political change in Poland and Bulgaria. In the Czech and Slovak Republics reform by contrast has been more consensual, whereas in Hungary governments have taken a more positive lead role. Despite these differences however, trade unions in all of the countries have been oriented towards the state as the agent of reform. Trade unions are compelled to act on the national political stage since their demands cannot be pursued at the enterprise level. In the past, trade union control of the social funds of enterprises provided the pay-off for individual membership. Now that social security and benefits are no longer primarily provided by enterprises, these issues have shifted to the national political stage. Trade unions in these countries claim to represent not only the employed, but also the unemployed and pensioners, in national negotiations over social fund and social security issues. This may help to explain the tendency for trade union membership levels to decline, since the pay-off for individual membership has changed. If the focus is national agreements the individual at enterprise level can free ride on tripartite agreements without needing to belong to a trade union. The salience of national tripartite negotiations has limited the development of trade union functions at branch and enterprise levels. If corporatist arrangements fail and are discredited, the legitimacy of trade unions can be compromised. Thus, trade unions can run the risk of becoming once again ‘transmission belts’, but this time for governments’ austerity measures. In all of the countries tripartism or corporatism has arisen as a government response to the real or perceived threat of political and industrial instability. Trade unions are a major basis for consensus building

LABOUR RELATIONS IN TRANSITION IN EASTERN EUROPE

281

and legitimation in a context where political parties are weak and fragmented. Governments have faced choices between alternative strategies of confirming and strengthening tripartite institutions or of seeking to avoid them [15]. The evidence shows that so far in Hungary and the Czech and Slovak republics there has been an incremental development of tripartism. The Kuron pact initiative in Poland was motivated by industrial unrest, but prior to that, the fact that solidarity was already enmeshed with government may have obviated the need for corporatism. In Bulgaria government tried to extricate itself from tripartism in 1992 but was only successful for a time. The crucial future issue for corporatism in these countries is whether tripartite agreements are substantively underwritten. Can the parties to political exchange deliver their side of the bargains? Experience from Western Europe would suggest that corporatism needs delivery mechanisms at lower levels, for example collective bargaining structures or works councils capable of relaying interest intermediation to enterprise level [16]. This suggests that the degree to which corporatist arrangements may be articulated from national to enterprise levels is of critical importance. In relation to this process of articulation there are a number of potential problems. Firstly, the weakness of employers’ associations questions whether trade unions or governments will be able to make agreements enforceable, as increasing proportions of employment are located in both private and small-scale organisations in which union membership is likely to be low or nonexistent. Secondly, can trade unions intermediate their members’ interests successfully without losing rank and file support, especially if economic restructuring programmes prevent governments from delivering social benefits? As discussed earlier collective bargaining or rather collective agreements have been provided for in the labour legislation of all the five countries. These developments represent a top down approach which raises the question of the likelihood of collective agreements being implemented at the level of the enterprise. There are several factors which may influence this. First, the evidence from Bulgaria shows that the major impetus for the development of collective agreements came from the outcome of national tripartite negotiations in 1991 which were drafted in a form which provided for explicit articulation from the national level down to the level of the enterprise. Similarly, the development of enterprise collective agreements in Czechoslovakia in 1990 and 91 was partly dependent on the content of the national General Agreement although this articulation was not backed by legal requirements. Second, at this time the enterprises were still state property so that the State at national level could instruct, if necessary, state managers at enterprise level to implement the agreements. As the process of privatisation proceeds the issue of collective bargaining at lower levels will become an issue of managerial strategy by employers who are no longer state employees. It is clear from the experience of Poland, the Czech and Slovak republics that in small firms in the retail, trading and other service sectors employers do not recognise trade unions and consequently there is no collective bargaining [17]. The prospects for collective bargaining as larger enterprises are privatised is less clear. Whether these employers will seek to withdraw from collective agreements will depend upon the contingent conditions such as, the strength of union organisation in the enterprise, the influence of the union externally and especially on the nature and coverage of national tripartite agreements. In relation to the latter much will depend on the development or decline of industrial conflict and on the perceptions of the prospect for social peace. Collective bargaining through trade unions has provided one channel of representation; employee or works councils can provide a second channel. However, as discussed above only Hungary has legal provisions for works councils and has thus, formalised dual channel representation. In Poland the processes of privatisation are leading to the elimination of the old Employee Councils, a process not mourned by Solidarity trade unions who want trade unions to be the sole channel or representative. An interesting test of

282

EASTERN EUROPE

the importance attached by employees as well as trade unions to such mechanisms took place in Hungary in May 1993, when the provisions of the Labour Code relating to the election of Works Councils members came into effect. At national and industry level unions were concerned to ensure that at enterprise level all employee places were filled. In practice, the evidence suggests that unions were generally able to secure the election of union members to the councils and the success of unions affiliated to MZOSC was generally much greater than that of the newer unions. Thus, although there are clear differences between Labour Codes in the different countries with regard to participation mechanisms, in practice trade unions remain the most significant channel for worker representation at enterprise level. Nevertheless, the preemptive nature of the new Labour Codes may serve to limit or constrain more organic developments in the future. Clearly, an important factor shaping the character of corporatism and of labour relations models is the changing role of the state which in turn, is shaped by conjunctures of different political forces. In all of the East European countries, political processes remain semi-structured as numerous competing political parties struggle to mobilise popular support. The absence of dominant parties of the kind found in Western countries results in weakened political legitimacy with the effect that the role of the state as an ideological integrative mechanism is underdeveloped. This strengthens the appeal of corporatism as a means of securing political consent. The degree of popular support for this remains uncertain. Even so, state institutions remain highly influential within the countries of Eastern Europe because of their functions in the provision of health, education, welfare as well as other economically productive services. As yet the nature of state institutions and how these are likely to emerge within ongoing programmes of privatisation remains uncertain but undoubtedly this will have outcomes for the character of tripartism and hence, the role of labour relations models. Without the emergence of political mobilisation, competing political parties and the construction of highly legitimised state institutions, social pacts incorporating the interests of both workers and corporate owners are likely to remain unstable. The fortune of the current wave of tripartism will certainly play a key role and the level and manner of articulation of bargains will help to structure the relationship between the different levels of labour relations: the national, the branch and the enterprise. Perhaps the most interesting question and the most difficult is the extent to which current developments, especially in the field of privatisation, may be foreclosing upon certain labour relations approaches or options for the future. The explanation of developments will probably come from the comparison of outcomes in one or more countries. This will facilitate the mapping of alternative scenarios, in which the counter-factual—what does not happen—will be as significant and interesting as what does. ACKNOWLEDGEMENTS The research for this article derives from the ESRC East-West Initiative Project ‘Labour Reactions in Transition: Restructuring and Privatisation’. This is based on collaboration with partner institutes in Bulgaria, Hungary, Slovakia, Poland and the Novosibirsk region of Russia. REFERENCES 1. 2. 3.

Stark, D., ‘Path Dependence and Privatisation Strategies in East Central Europe’ East European Politics and Societies, 1992, 6, 1, pp. 48–51. Kolankiewicz, G. ‘Between the Macro and the Micro—the Missing Middle: Connecting State and Society’, 1993, mimeo. Przeworski, A. Democracy and the Market. Cambridge University Press, 1991, p. 181.

LABOUR RELATIONS IN TRANSITION IN EASTERN EUROPE

4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17.

283

Morawski, W. Trade Unions in Poland: Dilemmas of Dependence, Independence and Relative Autonomy, unpublished paper, 1992. Petkov, K. and Thirkell, J.E. M., Labour Relations in Eastern Europe, Organisational Design and Dynamics, Routledge, 1991, pp. 212 and 217. Brewster, C., ‘Starting again: industrial relations in Czechoslovakia’ International Journal of Human Resource Management, 1992, 3, 3, pp. 561–66. Hethy, L. and Csuhaj, I.V. ‘Labour Relations in Hungary’ Institute of Labour Research, Budapest, 1990, pp. 31–2. Tyszkiewicz, M., ‘Jacek Kuron’s New Economic Policy’ Labour Focus on Eastern Europe, 1992, no. 43, pp. 31–33. Thirkell, J.E. M. and Tseneva, E. ‘Bulgarian Labour Relations in Transition: Tripartism and Collective Bargaining’ International Labour Review, 1992, 131, 3, p. 364. Cziria, L. and Munkova, M., ‘Kolektivne Pracovne Vztany v Podnikoch CSFR’ 1991, mimeo. Thirkell, J.E. M. and Tseneva, E. ‘Bulgarian Labour Relations in Transition: Tripartism and Collective Bargaining’ International Labour Review, 1992, 131, 3, p. 365. Kozek, W. ‘Industrial Relations in Privatised and Private Enterprises: Corporatism or Pluralism?’, forthcoming, Humanizacja Pracy, 1993. Petkov, K. and Thirkell, J.E.M., Labour Relations in Eastern Europe, Organisational Design and Dynamics, Routledge, 1991, p. 194. Burawoy, M. and Lukacs, J. The Radiant Past. Ideology and Reality in Hungary’s Road to Capitalism, University of Chicago Press, 1992, p. 157. Hethy, L., ‘Towards Social Peace or Explosion? Challenges for labour relations in Central and Eastern Europe’ Labour and Society, 1991, 16, 4, p. 355. See for example Crouch, C., ‘The Fate of Articulated Industrial Relations Systems: a Stock-taking after the “néolibéral” décade’ The Future of Labour Movements, (ed) Regini, M., Sage, 1992, pp. 170–172. Kozek, W. ‘Industrial Relations in Privatised and Private Enterprises: Corporatism or Pluralism?’ Humanizacja Pracy, 1993. Cziria, L. ‘Privatisation, Restructuring and Labour Relations in the Czech and Slovak Republics’ [in J.Thirkell, R.Scase and S.Vickerstaff (eds) Labour Relations and Political Change in Eastern Europe: A Comparative Perspective, 1995].

36 Human resource management in transitional economies: the case of Poland and the Czech Republic R.L.Tung and S.J.Havlovic

This is an exploratory study to examine human resource management (HRM) policies and practices in Poland and the Czech Republic in their transition to free market economies. A questionnaire survey was administered to 120 Czech and 43 Polish firms. These were supplemented by in-depth interviews with ten Czech and nine Polish companies. It was found that macro-environmental variables had a major impact on the development of HRM policies and practices in both countries. HR/personnel departments in Czech state-owned firms were less likely to be involved in training and development activities under the present system because of their former association with the ‘secret police’ under the communist system. Because of the Czech Republic’s historically closer linkage with Austria and Germany and its higher level of industrialization, many aspects of its HRM policies and practices tend to resemble that of the industrialized west. The egalitarian tradition in Poland continues to be reflected in a more equitable distribution of monetary and non-pecuniary benefits throughout the enterprise. Furthermore, the high rate of unemployment in Poland due to structural unemployment has led to a greater need for training and development of personnel across the board. Type of ownership did not appear to have a major impact on HRM policies and practices. This may be attributed to the recent history of privatization in these two countries. With the dismantling of communism in eastern Europe, former socialist countries have undergone and will continue to undergo rapid and radical changes to virtually all aspects of their societal economy with the specific objective of modernizing their countries to catch up with those of the industrialized west. While these countries have implemented policies to facilitate the transfer of technology from the west, including the liberalization of domestic and foreign trade, the efforts made by these countries to rapidly industrialize their economies have met with difficulties and setbacks. Many factors can affect the progress of these modernization efforts. It is our contention here that unless these countries devote greater attention to harnessing and developing the human resources in their enterprises, they will continue to experience frustrations and delays in their industrialization programs. After all, technology and capital are all managed by people (Tung, 1994). Without an adequate supply of highly skilled and educated labor, and in the absence of effective policies and practices to manage and develop these human resources, rapid and significant advances in the economic, industrial and technological sectors cannot take hold.

Source: International Journal of Human Resource Management (February 1996), 7(1):1–17.

EASTERN EUROPE

285

This paper will examine the human resource management (HRM) policies and practices in two former socialist countries which have met with greater success than many other east European nations in transforming to a market economy, namely Poland and the Czech Republic. While there is an emerging body of literature on Poland and the Czech Republic (Fogel, 1994; Brewster, 1992; Koubek and Brewster, 1994; Havlovic and Moore, 1994) most of these focus on developments in the macro economy, the practice of industrial relations, or select aspects of human resource management, such as the role of human resource managers. By and large, these studies assume that industrial relations and human resource management practices are fairly homogeneous in each country, regardless of type of ownership. This should not be so. Because of their smaller size and more recent history of operation, firms in the private sector and those with foreign equity participation are usually more receptive to the adoption of HRM principles and practices commonly found in the industrialized west. A CONCEPTUAL FRAMEWORK OF INTERNATIONAL HRM Saha (1993) has presented a model of international HRM which considers HRM practices as a dependent variable influenced by two sets of independent variables (national environment and culture; and organizational culture and characteristics). Building upon Saha’s model, this paper will present a conceptual framework which relates the external environment (political-economic and socio-cultural environments) to HRM policies and practices, and how these are moderated by organizational characteristics, such as type of ownership, i.e., whether the firm is state-or private-owned or whether it operates as a co-operative. See Figure 1. This paper attempts to empirically test this model utilizing data on HRM practices obtained from Poland and the Czech Republic through a questionnaire survey and in-depth interviews with firms in both countries. These findings will be discussed in the context of similarities and differences with the industrialized west. Political-economic environment Beginning in the 1990s, the Czech and Polish economies were changed dramatically from a planned economy to a free market system. These changes quickly resulted in a supply of goods which were more closely aligned to actual demand. Subsequently, many industries found redundancies in employment from products not being in demand and/or as a result of changes in patterns of foreign trade. For example, the demand for trams manufactured by a Czech firm fell from 1,000 per year in the late 1980s to a present level of 60 trams per year. In the past, the majority of these trams were sold to the Soviet Union. With the dissolution of the Soviet Union and the desire to earn hard currency through foreign trade, this Czech firm has to seek new overseas markets. This substantial reduction in number of trams manufactured per annum has led to downsizing and restructuring. The tram manufacturer presently has a payroll of 1,176, which is a 47 percent reduction since 1990. The other source of employment redundancy is from competitive pressures of the free market system and the need to make a profit. Most firms have realized that they were overstaffed during the communist era and now have reduced their payrolls to increase productivity. For example, a jointly-owned Italian and Polish farm manufacturer has restructured their firm to lower direct and indirect labor costs. The Polish farm equipment joint venture now employs 680 workers compared to 1,500 prior to restructuring in 1991. An even more dramatic example is a jointly-owned Czech and Belgium glass manufacturing firm which has eliminated non-essential departments and, through restructuring, downsized from 30,000 to 5,000

286

HRM IN TRANSITIONAL ECONOMIES

Figure 1 A conceptual framework of international HRM Source: Adapted from S.K. Sana, ‘Managing human resources: China vs. the West’, Canadian Journal of Administrative Sciences, Vol. 10(2), 1993:167–177.

employees. Workers released because of redundancy are entitled to a minimum of two months’ severance pay in the Czech Republic and three months’ severance pay in Poland (Havlovic and Tung, 1993). The Czech economy is clearly stronger than Poland’s. The inflation rate is approximately 15 to 20 percent in the Czech Republic compared to 40 to 50 percent in Poland. A Polish value-added tax (VAT) of 23 to 24 percent was introduced in July 1993, pushing prices even higher. The unemployment rate is under 3 percent in the Czech Republic, whereas the Polish rate is 15 to 20 percent. While external labor markets have emerged and are developing in both countries, the opportunities in the Czech Republic for alternative employment appear to be much greater. It is important to note, however, that job opportunities differ markedly between the established manufacturing sector and the new service sector. In existing manufacturing firms in the Czech Republic and Poland, job openings are limited because of the current downsizing due to a reduction in output described earlier and/or previous overstaffing. In new firms in the service sector, such as banks and insurance, there is extensive hiring as their operations are expanding rapidly. Some Czech firms indicated that there were retention problems as

EASTERN EUROPE

287

new foreign-owned firms from the west were recruiting and hiring employees with experience at higher salaries. In general, the Czech Republics economy is more robust than Poland’s. This is not surprising in light of the fact that the Czech economy had traditionally been more advanced. During the 1930s, for example, the Czech Republic was one of the fifteen most developed countries in the world, and its per capita GNP in 1948 was at the same level as Austria’s (Fogel and Etcheverry, 1994; Ferber, 1994). Unlike many other east European countries, the Czech Republic was already highly industrialized at the turn of the century. In 1910, for example, only 26–39.1 percent of the Czech population were employed in the agricultural sector (Leff, 1988). In comparison, in 1931, nearly 63.8 percent of Poles worked in the agricultural sector (Barnett, 1958). Under communism, heavy industry was emphasized at the expense of agriculture and the light industrial sector (Nelson, 1983). Socio-cultural environment Despite the fact that both Poland and the Czech Republic are Slavic nations, the Czechs have been closer, culturally, to west European nations. Between 623 and 624 A.D., Samo, a Prankish merchant (the Franks’ are a Germanic tribe) led the Czechs to liberation from serfdom by the Avars. Toward the end of the eighth century, the Slavs in Bohemia and Moravia (present-day Czech Republic) came under the influence of Emperor Charlemagne. In the fourteenth century, Bohemias King Charles IV (1346–1378) ascended to the throne of the Holy Roman Empire. After the disintegration of the Holy Roman Empire, Bohemia became part of the Austro-Hungarian Empire. Throughout the centuries, many Germans settled in Bohemia and Moravia, and the Czechs cultivated close ties with the Germans. In 1921, an estimated 33 and 20.9 percent of the populations in Bohemia and Moravia, respectively, were Germans (Leff, 1988). Despite the close ties, there was an undercurrent of resentment of the ‘Germanization’ of the Czech population, culminating in the Czechs declaration of independence from the Austro-Hungarian Empire in 1918 when the then German Chancellor, Bethmann Hollweg, declared that World War I was essentially a conflict between the Germans and the Slavs (Krofta, 1935). Despite animosities between the Czechs and the Germans, there are important parallels in the two nations’ industrial infrastructure development and in their people’s attitude toward work. While Poland, through its conversion to Christianity in the tenth century, is closely linked to the west European civilization, it represents more of a transition between east and west. Two distinguishing characteristics of the Polish people which have a significant influence on present-day HRM policies and practices are: one, a deep sense of belonging to a family group; and, two, a strong conviction that ‘each individual possesses equal dignity and equal rights’ (Barnett, 1958, p. 402). The strong family orientation is reinforced by Roman Catholicism, to which 95 percent of the population belongs. Throughout the centuries of wars and foreign domination, Roman Catholicism ‘represented the only important element of unity and cohesion’ in Poland (Barnett, 1958, p. 3). The Poles have been described as the most devout of European Catholics. The second trait, emphasis on equality, has deep historical roots. One of the greatest kings in ancient Poland, Kazimierz III (1333–1370), protected the peasantry from exploitation by the nobility by granting them the right to demand their personal freedom from their overlords. In addition, King Kazimierz offered protection to Jews that lived or sought refuge in Poland from persecution in their homelands. These rights were set forth in the Statute of Wislica, which is similar to the Magna Carta in England. This emphasis on egalitarianism is still exhibited in modern-day Poland. In a series of surveys of Polish social values among highschool students and their parents in the 1970s, ‘equality of life opportunities regardless

288

HRM IN TRANSITIONAL ECONOMIES

of social origin’ was identified as the most important attribute essential to a ‘good social system’ (Barnett, 1958, pp. 134–136). Organizational characteristic: type of ownership In both the Czech Republic and Poland there are state-owned firms, private joint-stock companies, private entrepreneurial ventures, co-ops, and state firms which are in a transitory phase to private ownership. Firms with foreign equity participation usually fall into the private sector. In early 1990, the private sector was virtually non-existent in the Czech Republic. Under 0.5 percent of non-agricultural output in the country was produced by the private sector and less than 3 percent of the total workforce was employed in the private sector (Fogel and Etcheverry, 1994). The first wave of privatizing state-owned firms in the Czech Republic occurred in May 1993, and the second wave took place in late 1993/early 1994. In comparison, the private sector was more extensive in Poland, particularly in the agricultural arena. In 1950, for example, only 5 percent of farmers were employed in collective or state farms (Barnett, 1958). Currently, many large firms are in a transitory phase of ownership where the state-owned firms become jointstock or limited liability companies controlled exclusively by the state Treasury. METHODOLOGY The data on HRM policies and practices reported here are based on in-depth interviews and questionnaire surveys conducted in both Poland and the Czech Republic. One-to two-hour-long interviews were conducted with the personnel director or managing director of ten firms in the Czech Republic and nine in Poland in the summer of 1993. Information on HRM activities and practices were collected along with information on the history of the firm, organizational culture, the privatization process, and changes in HRM and firm operations since the communist era. All the interviews with firms in the Czech Republic were taperecorded. In Poland, however, there was a general suspicion with regard to taping the interviews. Consequently, only two of the interviews were taped. The firms included in the Polish and Czech interviews came from a diversity of industries and services, including manufacturers of durable and non-durable goods. All the firms interviewed employed more than 50 people and represented a mixture of domestic (state and private) and foreign ownership. In addition to the interviews, in late summer and early fall 1993, a twelvepage questionnaire was sent to a randomly selected stratified sample of 500 manufacturing and service companies in the Czech Republic and 500 firms in comparable industries in Poland. The questionnaire sought information on the following: job analysis; human resource planning; recruitment, selection, training and development; performance appraisal; career development; occupational safety and health; workers’ compensation and unemployment benefits; labor relations; compensation and benefits; personnel/HR department functional responsibilities; significant HRM changes since 1990; desired HRM changes; and firm demographics. The questionnaires sent to Polish firms were in the Polish language, while those sent to Czech firms were in the Czech language. To ensure accuracy of translation, the back-translation technique was used for both questionnaires. In the Czech sample, 120 usable questionnaires were returned for a response rate of 24 percent. In the Polish sample, forty-three usable questionnaires were returned for a response rate of 8.6 percent. In December 1993, approximately twenty of the non-responding Polish firms were contacted in order to explore possible reasons for the low response rate. Some indicated that their firm chose not to participate

EASTERN EUROPE

289

because the information requested was confidential, while others stated that their board of directors had reviewed the questionnaire and decided not to participate. It appears that different countries have different perspectives of what constitutes confidentiality. Information sought in this study is routinely provided, without reservations, from firms in North America and west Europe. Given the exploratory nature of the study, an overall response rate of 16.3 percent (n=163) was considered acceptable. HYPOTHESIZED HRM POLICIES AND PRACTICES The hypotheses for this study were formulated from findings of structured interviews with Polish and Czech firms (Havlovic and Tung, 1993) and a review of the relevant literature. Given the limited research to date on Polish and Czech HRM policies and practices, as well as the exploratory nature of this study, the use of qualitative interviews at nineteen Polish and Czech firms was deemed appropriate for generating a priori hypotheses to be investigated with national research surveys in each country. Role of the HR/personnel department In both Poland and the Czech Republic, the formal HR function would be better characterized as a personnel department rather than an HR department. The personnel departments are primarily concerned with bureaucratic tracking of HR and maintaining personnel files. In general, the personnel departments are not involved in strategy, policy, or operational HR decision making. Furthermore, most of the personnel departments do not engage in HR forecasting. In the Czech Republic, it is common for the compensation function to be performed by the economic planning department and for personnel to be a separate department which reports directly to the firms director (equivalent to CEO in the west) (Havlovic and Tung, 1993). In-depth interviews revealed one important distinction between the two countries in their perception of the role of HR/personnel. Prior to the 1989 Velvet revolution’ in Czechoslovakia, personnel departments were an extension of the secret police. Their primary function was to maintain extensive records on the private and work lives of their employees. Consequently, many Czech employees are still suspicious and resentful toward the HR/personnel departments in their firms. There is no evidence of a similar experience in Poland, on the other hand. Thus, H1: Formal human resource/personnel departments will be utilized less in the Czech Republic than in Poland because of their association with spying activities on employees’ personal and professional lives during the post-World War II communist era. HR planning and staffing As noted earlier, the Czech Republic was highly industrialized and developed prior to the communist takeover. As such, the infrastructure in which organizations operate in the Czech Republic is more advanced than in Poland. Not only is the Czech Republic geographically closer to the west, i.e., Austria and Germany, the Czech economy also has traditionally been and remains today more advanced in terms of manufacturing technology than many of the other east European nations. This has contributed to more sophisticated HR planning and staffing activities. Furthermore, in light of the tighter labor market in the Czech Republic, stemming from the lower unemployment rate in the country, as a whole, and, in particular, in the capital city

290

HRM IN TRANSITIONAL ECONOMIES

of Prague, there is a greater need for more advanced HR planning and staffing methods in Czech firms as compared with those in Poland. Thus, H2: Human resource planning and staffing activities will be more developed and consistent with west European practices in the Czech Republic than in Poland. HR maintenance Both Poland and the Czech Republic have safety regulations requiring employers to provide safety training and safe work environments. However, the on-site interviews revealed a greater gap in pecuniary and nonpecuniary benefits in the two countries. The Czechs are more inclined to allow market forces to determine wage and benefit levels than are the Poles. This can be attributed to two factors: one, the more active labor markets in the Czech Republic; and, two, the strong emphasis the Poles place on egalitarianism, as discussed earlier. Thus, H3: Human resource maintenance activities will be more egalitarian in Poland than in the Czech Republic. HR development Training and development activities are important to rebuilding both the Polish and Czech economies. The interviews with Polish and Czech firms revealed that, in both countries, considerable attention is being paid to internal and external training activities that will help their organizations compete more effectively and thus survive in a market-driven system. The interview results suggested that, in both Poland and the Czech Republic, performance appraisal systems have only been considered recently. During the communist era the emphasis was on uniformity, and recognition of meritorious performance behaviors was discouraged. Therefore, until quite recently, development activities were seldom based on actual work performance or individual abilities. Even now, because of the strong Polish emphasis on egalitarianism, this principle is extended to the field of training and development opportunities, more so than in the Czech Republic. Furthermore, in light of the lesserdeveloped industrial infrastructure in Poland, there is a greater need for across-the-board skill upgrading. Thus, H4: Human resource development activities will be greater in Poland than in the Czech Republic. Influence of firm type on HR practices State-owned firms continue to exist in both Poland and the Czech Republic. While these firms will eventually be transferred to the private sector, in the transitional phase, they still tend to be strongly influenced by their past history of central planning. In contrast, new private ventures (including joint ventures with foreign partners) and privatized firms (formerly state owned) are moving quickly to implement and develop HR practices along the west European model. Besides state-owned and privatized firms, there are co-operatives (co-ops) in both Poland and the Czech Republic. In both countries, these co-ops are closer to the private-sector model in terms of their HR practices. This appears to be a function of two primary factors: one, even under communism, co-ops

EASTERN EUROPE

291

operated largely outside of the planned economic model. Two, in their present attempt to compete in global markets, such as textiles, they have to adopt more progressive, i.e. more west European, practices. Thus, H5: Human resource practices will be less developed in state-owned firms compared to private or coop organizations. Union control variable and interaction terms While trade unions have played an active role since 1980 in the movement of Poland to a free economy (i.e., Solidarity) these efforts have primarily been focused at the macro-political level (Havlovic and Moore, 1994). Nonetheless, multiple unions (Solidarity, communist, and independent) are common at the firm level in Poland and can influence HRM decisions. The labor movement is less developed in the Czech Republic and free trade unions only re-emerged in 1990. While local trade unions can be considered relatively weak in both countries, controlling for the impact of unionization on the firm is seen as important given that shared governance through collective bargaining and grievance procedures often involves HRM activities such as staffing, training, compensation and benefits. In addition to the main effects of the macro-environment (Czech Republic vs. Poland) and organizational characteristics (state-owned vs. private or co-op; union vs. non-union), Saha (1993) indicates that organizational characteristics can interact with the macro-environment (see Figure 1). Therefore, control variables for ‘Czech Republic×state owned’ and ‘Czech Republic×union’ are created to explore and control for these potential interactive effects. Method of analysis Given that the dependent HRM variables are restricted, logistical regression procedures are used to fully test our hypotheses. However, logistical regression does not yield R2 values or associated F-statistics, so the amount of variance explained in the limited dependent variables is undetermined. Unbiased coefficients and t-tests are provided, but these parameters are not standardized.1 ANALYSIS OF FINDINGS The sample consisted of 73 percent Czech and 27 percent Polish firms. These organizations were mostly private or co-ops (69 percent) with the balance being state owned (31 percent). The vast majority of the firms (weighted average of 89 percent) had union representation. This does not mean that 89 percent of the workers belonged to unions, just that there are union representatives at 92 percent of the Czech firms and 77 percent of the Polish firms. An examination of the correlations among the exogenous variables reflects the somewhat stronger union density in the Czech Republic ( ). A union presence was also associated with state ownership ( ). However, there was no statistically significant difference in this regard between state-owned firms in the Czech Republic and Poland. Hypothesis 1. There was mixed support for hypothesis 1 (see Table I). In line with our hypothesis, HR/ personnel departments were less involved in training and development activities in the Czech Republic than in Poland. In addition, as indicated in the ‘Czech×state’ interaction term in Table I, HR/ personnel departments in Czech state-owned firms were less likely to engage in recruiting, selection, as well as training and development activities compared to Polish state-owned firms and Czech private-sector firms.

292

HRM IN TRANSITIONAL ECONOMIES

This supports our assertion that many people still have a negative image of the HR/personnel department in state-owned enterprises given their former association with the ‘secret police’. However, contrary to our hypothesis, Czech HR/personnel departments, as compared to their Polish counterparts, were more involved in recruiting, payroll, labor relations and safety functions. This finding may be attributed to two factors. One, payroll, labor relations and safety functions are subject to labor legislations. As such, these activities have to be undertaken in all enterprises, and the HR/personnel department appears to be the most logical unit to perform such roles. Two, the tighter labor market in the Czech Republic requires that greater attention be devoted to such activities. No significant difference was found between the two countries in terms of HR/personnel department responsibilities for compensation and benefits, collective bargaining and security. Table I Logistical regression results for human resources/personnel department functions* Czech Republic State owned .76c

Union firm

Czech × state

Czech × union Constant

−1.60c

Recruitment −.63 .66 1.26 1.00a b Selection .50 −.13 .10 −2.50 1.30 1.24a b a c Training and −.88 −.48 1.37 −2.66 2.58 −.13 development Benefits −.36 .68c −.52 – – −.38 administration Compensation .16 .54 −.72 – – 1.22c administration Payroll 1.80a .72 −.37 −1.21 2.51c −.65a c Collective .48 −.47 1.10 – – −1.01c bargaining Labor relations 1.15a −.36 .18 – – .00 c b Occupational 1.11 −1.40 −.79 – – −1.02 safety and health Security .98 −.40 1.07 – – −3.27a * Only main effects are shown when the interaction terms were not significant. In the equations with interaction terms the independent variables are centered to eliminate multicollinearity between main effect and interaction terms, thus permitting meaningful interpretation of the coefficients and t-tests.

Hypothesis 2. The findings regarding HR planning and staffing were generally supported, with some exceptions (see Table II). Consistent with the hypothesis, forecasting of labor demand and involvement of department managers in HR planning were more developed in the Czech Republic. Furthermore, planning was more decentralized in the Czech Republic, while the boards of directors in Polish organizations were more involved in HR planning than in the Czech Republic. Thus, planning practices in the Czech Republic are closer to those of other west European countries. Recruiting methods utilized in Poland were quite different from those used most frequently in the Czech Republic. Employment agencies, newspapers and walk-ins were used more extensively in the Czech Republic. In this respect, Czech practices are more consistent with west European practices. Other mechanisms, such as labor organizations, educational institutions and employee referrals, were underutilized in the Czech Republic. Thus, Czech firms appeared to rely upon multiple sources, rather than the traditionally prescribed mechanisms, such as labor organizations and educational institutions, for human

EASTERN EUROPE

293

power supply. There was no significant difference between the two countries in the use of job postings. In both countries, state-owned firms tended to use fewer recruiting methods. In terms of selection practices, only medical examinations or tests, and reference checks were used more extensively in the Czech Republic. Both Poland and the Czech Republic relied heavily on interviews. Contrary to the hypothesis, Polish firms relied more upon job performance testing. Table II Logistical regression results for human resource planning and staffing activities Czech Republic State owned Union firm Czech × state Czech × union Constant HR planning Forecast demand Forecast supply Board of directors involved Company officers involved Department managers involved Immediate supervisor involved Recruiting methods Employment agencies Educational institutions Employee referrals Job postings Labor organizations Newspapers Walk-ins Selection methods Application blanks and résumés Interviews Medical exam or tests Job performance tests Reference checks Written tests

1.26a −.19 −.347a −.03 1.65a .47

−.74 −.29 −.44 −1.04a .01 −.10

1.22c −.09 −.82 .38 .44 −.23

– – – .36 – –

– − – 2.49c – –

−.03 −.40 1.26c .24 −2.10a −.75

3.00a −3.25a −1.70a −.68 −3.36a 2.87a 3.85a

−.04 −1.86a −.48 −.87b .45 −.80c .17

1.14c 2.93b 1.43b 1.82a −.08 −.18 1.43c

−.05 _ _ − _ − −

2.72b – _ − _ − −

.33 −1.99b .88 .43 .74 −2.56a −5.00a

−.20

−.35

.15

–

–

.12

−1.37 1.81b −2.62a .68c .08

−.68 −.17 −.72 −.04 .13

−6.31 .31 −.24 .29 −.11

– – – – −

– – – – −

10.14 −3.13a .58 .19 −1.51b

Hypothesis 3. There was general support for this hypothesis. In terms of occupational safety and health (see Table III), there were more opportunities for Polish workers to voice their opinions through labormanagement safety committees. In addition, Polish managers were more active in monitoring safety complaints and providing safety equipment. Czech private-sector firms were somewhat more likely to have labor—management safety committees than Czech state-owned firms. Across both management and non-management employees, the compensation and benefits offered were generally more inclusive in Poland than in the Czech Republic (see Table IV). There is clearly a larger role for private insurance (life and disability), private pensions and private healthcare in Poland than in the Czech Republic. Similarly, other benefits such as child daycare are more generous in Poland. Incentive pay played an important role in both countries with 82 percent of management and 86 percent of nonmanagement employees receiving

294

HRM IN TRANSITIONAL ECONOMIES

Table III Logistical regression results for occupational safety and health activities Czech Republic State owned Union firm Czech ×state Czech ×union Constant Labor-management safety committee Provide safety equipment Redesign job/ergonomics Information on hazardous substances Monitor safety complaints

−1.33a

–.06

.44

−1.64c

.25

−.39

−2.26a .44 .17

−.24 −.79b −.33

.54 .29 1.38b

– – –

– – –

2.19a .08 .19

−1.90a

−.07

.83

–

–

1.92b

this form of compensation. Merit pay was a significant part of managerial and non-managerial compensation in Poland. Hypothesis 4. A reasonable level of support was found for hypothesis 4 (see Table V). The Polish firms utilized a wider range of performance appraisal methods compared to the Czechs. Narrative essay, peer evaluation and ranking of employees were all used more frequently in Poland. Only management by objectives (MBO) was used more frequently by Czech firms to appraise worker performance. Conferences, role playing, programmed instruction and video presentations are a significant part of Polish worker development activities. The Czechs relied heavily on off-site lecture/presentation methods. Contrary to the hypothesis, Czech state-owned firms used orientation programs more frequently than Polish stateowned firms. Hypothesis 5. There was some support for this hypothesis. While the direction of the regression coefficients was generally consistent with the hypothesis many did not achieve statistical significance. There was strong evidence of the HR/ personnel departments being more developed along west European lines in the Czech private sector, while such was not the case for Poland. Consistent with hypothesis 5, the HR/personnel departments in Polish co-ops were generally more advanced than those in state-owned enterprises. Recruiting activities were less extensive among Czech and Polish state-owned firms. Contrary to the hypothesis, however, only one HR planning activity and none of the selection methods were significantly different between state-owned firms and private/co-operative firms. HR maintenance activities did not generally concur well with hypothesis 5. Consistent with the hypothesis, there was evidence that the private-sector firms were more advanced in terms of redesigning jobs and ergonomics. Management merit pay and profit sharing were also more common in the Polish and Czech private sectors. Contrary to this hypothesis, management private pensions and non-management private disability benefits were more common in state-owned firms. A cost-of-living allowance was also more common in state-owned firms. Table IV Logistical regression results for direct and indirect compensation activities Czech Republic State owned Union firm Czech × state Czech × union Constant Management Compensation Cost-of-living allowance Incentive pay Merit pay Profit sharing

.93 .27 −4.54a 1.16a

1.66a .46 −.59 −.63

−.49 −.51 .36 −.57

– – _ –

– – _ –

−2.70a 1.80b 3.64a 1.02

EASTERN EUROPE

295

Czech Republic State owned Union firm Czech × state Czech × union Constant Benefits Dental coverage Life insurance Private disability Prescription drugs Private Healthcare Private pension plan Non-management Compensation Cost-of-living allowance Incentive pay Merit pay Profit sharing Benefits Dental coverage Life insurance Private disability Prescription drugs Private healthcare Private pension plan Other management and nonmanagement benefits Child birth payment Child daycare Schooling allowance Funeral coverage

−4.55a −3.55a −3.96a −2.26a −5.68a −2.46a

.32 .40 .75 −.23 .59 1.12b

.03 −.97 −1.31 −1.12 −.30 −1.48b

– – _ _ _ _

_ – _ _ _ _

.44 1.74b .86 .46 1.76c .80

1.06c .13 −4.49a −.02

1.06b .03 −.37 −.04

.84 .42 .32 −1.15c

– – – –

– – – –

−3.49a 1.40b 3.57a 1.48b

−2.13a −4.11a −2.49a −.90c −6.93a −3.91a

.13 −.06 .89c −.57 1.74 .65

−.16 −.40 −1.35b −.20 −.49 −1.31

– – _ −1.20 – –

– – _ 2.73c – –

.70 1.45c .83 −1.42a 1.86c .85

−2.57a −1.04a −2.48a 2.37

.18 .45 .26 .39

.03 .08 −.30 .04

– – – –

– – – –

1.64b −.35 .14 −3.11a

This appears to be a vestige of communism whereby the state was expected to provide for an employee’s overall needs. This finding may also be attributed to the fact that, in order to compete, privatized firms cannot afford to provide the same level of inflationary protection to their employees. HR development activities varied somewhat between the state-owned and private/co-op firms. In terms of performance appraisal methods, none were used significantly more frequently outside of the state-owned firms. In terms of training activities (see Table V) apprenticeship, lecture/presentation and video presentations were utilized more frequently outside of state-owned firms. Czech Table V Logistical regression results for human resource development activities Czech Republic State owned Union firm Czech × state Czech × union Constant Performance appraisal Management by objectives Narrative essay

1.71b −1.74a

.02 −.18

.13 −.26

– –

– –

−3.06a −.82

296

HRM IN TRANSITIONAL ECONOMIES

Czech Republic State owned Union firm Czech × state Czech × union Constant Paired comparison Peer evaluation Ranking of employees Training Apprenticeship On-site methods Orientation Conference Lecture/presentation Programmed instruction Role playing Video presentation Off-site methods Conference Lecture/presentation Role playing Video presentation

.73 −1.21a −1.28a

.30 .62 .19

−.77 −1.13c .59

– – –

– – –

−.91 .01 .96

−1.91a

−.73c

1.08

–

–

.35

−.06 −2.04a 8.80 −1.63a −1.54a −3.93a

−.35 .23 −.84c .18 −.05 −1.55b

.23 .46 .37 −.10 .04 .55

1.60c – – – – –

−1.76 – – – – –

.33c −.77 −9.21 −1.38 .19 .40

−1.72a 2.67a −4.82a −4.62a

.03 −.83b .29 −1.19c

.75 −1.14 .18 .43

– − − –

– − − –

.25 −.90 .98 .45

state-owned organizations tended to utilize orientation programs more frequently than co-ops. Since orientation programs are primarily designed to engender uniformity among organizational participants, it is reasonable to find that state-owned organizations are more likely to pursue this objective. Because of the smaller size and greater flexibility of co-ops, conformity to the norm may not be desired. Union presence Except for recruiting practices, overall there was little difference detected between HR activities in union and non-union firms. In Czech union firms the HR/ personnel departments were more likely to be involved in training and development and payroll functions. Czech unionized firms also tended to have more involvement of company officers in HR planning activities. In both countries union firms exhibited a greater variety of recruiting activities compared to non-union firms. Employees in union firms received more information on hazardous substances.

DISCUSSION AND CONCLUSION The logistical regression results clearly show that most of the differences in HRM activities in Poland and the Czech Republic are a function of the macro-environment. (For means by country, see Appendix A.) Differences by organizational characteristics (type of ownership and union presence) were the exception. In addition, there were relatively few effects on HRM practices from the interaction of the macro-environment with organizational characteristics. There was mixed support for the notion of HR/personnel departments being underdeveloped in the Czech Republic. While HR/personnel departments in the Czech Republic were less involved in training and

EASTERN EUROPE

297

development activities than their counterparts in Poland, there was no statistically significant difference between the two countries in terms of their involvement in compensation and benefits, collective bargaining and security. This may be attributed, in part, to the rapidly evolving role of HR/personnel departments in the Czech private sector. In particular, the HR/personnel departments in the Czech private sector were generally not perceived as extensions of the ‘secret police’ since the private sector emerged essentially after the Velvet revolution’. Consequently, they are involved in staffing and training activities. Furthermore, our on-site interviews revealed that many firms in both Poland and the Czech Republic were actively restructuring their organizations along west European models and principles (Havlovic and Tung, 1993). Planning practices in the Czech Republic were more consistent with the west European model—there was more forecasting of HR demand, greater involvement of department managers in HR planning and greater decentralization of HR planning. In addition, firms in the Czech Republic relied upon more alternative sources of human power supply for staffing purposes, including newspapers, employment agencies, and walk-ins. There was less emphasis on the venues prescribed under socialism, i.e., labor organizations and educational institutions. Consistent with the egalitarian perspective of the Poles, occupational safety, compensation and benefit practices are more diverse. In addition, across management and non-management workers the Polish firms consistently provide more benefits. Merit pay is also more prevalent in Poland. In both countries, quarterly bonuses are common. For example, quarterly bonuses totaling 80 percent of a months wage is fairly common in the Czech Republic. In Poland, bonuses tend to be at a lower percentage of base pay. For example, the maximum at one firm was 20 percent. Several Polish manufacturers stated that they paid workers a monthly bonus of 20 to 25 percent. In the Czech Republic, supplemental thirteenth- and fourteenth-month salaries (paid at Christmas and prior to summer vacation) are common (Havlovic and Tung, 1993). Both governments are concerned with the rate of wage increases: in the Czech Republic, a wage cap of 7, 000 kopecs ($250) per month is currently in place for blue-collar workers. Wage restrictions are likely to diminish as state control of firms fades with the first and second waves of privatization. Many Czech firms indicated that their average blue-collar employees and managers earn approximately $215 and $535 per month, respectively. Tax penalties are used by the Polish government to prevent employees from receiving large pay increases or bonuses. The average salary for all workers in Poland is approximately $230 per month. In light of the fact that a Polish-made Peugeot costs over $15,000 and a three-bedroom flat is about twice that amount, it is easy to see that major purchases are beyond the reach of many households. This is compounded by the fact that the current interest rate on loans is 50 percent in Poland. Consistent with hypothesis 4, Polish firms devote greater attention to HR development activities. This is likely to be a reflection of a greater need for retraining in Poland. Many Polish firms are presently experiencing considerable downsizing and structural unemployment for those displaced. Polish firms frequently try to develop employees from within as the external labor market does not provide the necessary skills for competing in a free economy. This study has shown that macro-environmental variables have a major bearing on a firm’s HRM practices and policies. While both the Czech Republic and Poland have operated under the communist model for nearly four decades, their HRM policies and practices have already evolved down quite different paths in their transition to free market economies. Each country appears to have espoused a framework which is more consistent with their socio-cultural heritage and stage of economic development/transition to a free market economy. Because of its closer link with west Europe, its higher level of industrialization and more robust economy, the Czech Republic tends to exhibit characteristics which are more in line with those

298

HRM IN TRANSITIONAL ECONOMIES

of the industrialized west. Type of ownership and level of unionization did not appear to have a major impact on HRM policies and practices. This may be attributed, in part at least, to the recent emergence of the private sector. The current generation of managers is brought up under socialist principles and ideals. Consequently, it is not easy for them to switch overnight to a completely different mindset. As shown in the study, most HR/personnel departments do not engage in HR forecasting. In addition, in the Czech Republic, it is common for the compensation function to be performed by the economic planning department. This study highlighted the fact that for economies in transition, despite the respective government’s desire to privatize enterprises and liberalize trade as rapidly as possible, such efforts may not always produce immediate results. As noted earlier, this study suffers from one major limitation, namely a limited sample size. Hence the findings, while randomly drawn from each country’s manufacturing and service companies with fifty or more employees, may not be generalizable to the universal set of Czech and Polish firms. However, the encouraging findings from this exploratory study can pave the way for future research on HRM policies and practices in these and other east European countries. ACKNOWLEDGEMENTS The authors would like to acknowledge Jana Nagyova of the Prague University of Economics for her assistance with the research project. NOTE 1. In Tables I to V, only main effects are shown when the interaction terms are not significant. When the equations contain interaction terms, the independent vaiables are centered to eliminate multicollinearity between main and interactive terms thus permitting meaningful interpretation of the coefficients and associated t-tests.

REFERENCES Barnett, C.R. (1958). Poland: its People, its Society, its Culture. New Haven: HRAF Press. Brewster, C. (1992). ‘Starting again: industrial relations in Czechoslovakia’. International Journal of Human Resource Management, Vol. 3(3): 555–574. Ferber, M.A. (1994). ‘Czech women in transition’. Monthly Labor Review. U.S. Department of Labor. November: 32–36. Fogel, D.S. and S.Etcheverry. (1994). ‘Economic and social reforms in the Czech and Slovak republics’. In Fogel, D.S. (ed.). Managing in Emerging Market Economies. Boulder, Co.: Westview Press, pp. 34–65. Havlovic, S.J. and R.L.Tung (1993) ‘Human Resource Management in Socialist and Former Socialist Economies’. Paper presented at the 53rd annual meeting of the Academy of Management, Atlanta, 8–11 August. Havlovic, S.J. and W.Moore. (1994). ‘Workers’ councils, trade unions, and industrial democracy in Poland’. Paper presented at the Fourth European Regional Congress of the International Industrial Relations Association, Helsinki, Finland, August. Koubek, J. and C.Brewster. (1994). ‘Human resource management in turbulent times: HRM in the Czech Republic’. Working paper. Krofta, K. (1935). A Short History of Czechoslovakia. Translated by W. Beardmore. London: Williams & Norgate Ltd. Leff, C.S. (1988). National Conflict in Czechoslovakia: The Making and Remaking of a State, 1918–1987. Princeton, N.J.: Princeton University Press. Nelson, D. (ed.) (1983). Poland: A Country Study. U.S. Government.

EASTERN EUROPE

299

Sana, S.K. (1993). ‘Managing human resources: China vs. the West’. Canadian Journal of Administrative Sciences, Vol. 10(2): 162–177. Tung, R.L. (1994). ‘Human resource issues and technology transfer’. International Journal of Human Resource Management, Vol. 5(4): 803–821.

APPENDIX A: DEPENDENT VARIABLE MEANS BY COUNTRY

Human resources/personnel department functions Recruitment Selection Training and development Benefits administration Compensation administration Payroll Collective bargaining Labor relations Occupational safety and health Security Human resource planning Forecast demand Forecast supply Board of directors involved Company officers involved Department managers involved Immediate supervisor involved Recruiting methods Employment agencies Educational institutions Employee referrals Job postings Labor organizations Newspapers Walk-ins Selection methods Application blanks and résumés

Total sample

Poland

Czech Republic

.7222 .7654 .5062 .2840 .1667 .3889 .5309 .6914 .2284 .1667

.6279 .7209 .6512 .3488 .1628 .1860 .4419 .5116 .1163 .0698

.7563 .7815 .4538 .2605 .1681 .4622 .5630 .7563 .2689 .2017

1.0000 .3188 .1902 .5644 .4049 .3497

1.0000 .3571 .6047 .5349 .1628 .2791

1.0000 .3051 .0417 .5750 .4917 .3750

.6074 .1656 .6748 .5951 .2393 .3742 .4172

.1628 .4186 .8372 .6512 .6977 .0698 .0233

.7667 .0750 .6167 .5750 .0750 .4833 .5583

.4969

.5349

.4833

300

HRM IN TRANSITIONAL ECONOMIES

Interviews Medical exam or tests Job performance tests Reference checks Written tests Occupational safety and health activities Labor—management safety committee Provide safety equipment Redesign job/ergonomics Information on hazardous substances Monitor safety complaints Management compensation Cost-of-living allowance Incentive pay Merit pay Profit sharing

Total sample .9264 .1963 .1963 .7117 .1656

Poland .9767 .0698 .5116 .6047 .1628

Czech Republic .9083 .2417 .0833 .7500 .1667

.4000 .6810 .5828 .7975 .7301

.6190 .9302 .4884 .7674 .9070

.3220 .5917 .6167 .8083 .6667

.1411 .8221 .4847 .7423 (n=162)

.0930 .8372 .9767 .5581 (n=43)

.1583 .8167 .3083 .8083 (n=119)

Appendix A Continued Total sample Management benefits Dental coverage .1790 Life insurance .2638 Private disability .1472 Prescription drugs .1350 Private Healthcare .2393 Private pension plan .1852 Non-management compensation Cost-of-living allowance .1840 Incentive pay .8589 Merit pay .4908 Profit sharing .5828 Non-management benefits Dental coverage .2209 Life insurance .2331 Private disability .1902 Prescription drugs .2270 Private healthcare .2393 Private pension plan .1481 Other management and non-management benefits Child birth payment .4294 Child daycare .2945

Poland

Czech Republic

.6190 .7674 .5116 .3721 .8372 .5000

.0250 .0833 .0167 .0500 .0250 .0750

.0930 .8605 .9767 .6047

.2167 .8583 .3167 .5750

.6279 .7674 .5116 .3721 .8605 .5000

.0750 .0417 .0750 .1750 .0167 .0250

.8372 .4651

.2833 .2333

EASTERN EUROPE

Schooling allowance Funeral coverage Performance appraisal methods Management by objectives Narrative essay Paired comparison Peer evaluation Ranking of employees Apprenticeship training On-site training methods Orientation Conference Lecture/presentation Programmed instruction Role playing Video presentation Off-site training methods Conference Lecture/presentation Role playing Video presentation

Total sample .1902 .2654

Poland .5116 .0476

Czech Republic .0750 .3417

.1718 .1043 .2699 .1840 .2147 .4204

.0465 .2558 .1860 .3721 .3721 .7000

.2167 .0500 .3000 .1167 .1583 .3248

.5570 .1902 .3006 .0982 .3006 .1667

.5238 .4419 .0000 .2326 .5581 .5349

.5690 .1000 .4083 .0500 .2083 .0336

.3988 .4691 .2270 .1595 (n=162)

.6977 .1628 .7907 .5581 (n=43)

.2917 .5798 .0250 .0167 (n=119)

301