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SHRM Foundation Research

     

Human resource management in multinational companies: Effects of national, organizational and professional culture on HR practices and organizational performance

Funded: November 2010     Completed: December 2012 

Yitzhak Fried, Ph.D., Whitman School of Management, Syracuse University
Hilla Peretz, Ph.D., Dept. of Industrial Engineering and Management, Ort Braude College, Israel
Shlomit Kaminka, Ph.D., Dept. of Behavioral Sciences, The College of Management Academic Studies, Israel

Executive Summary
The past few decades have been characterized by a growing trend toward globalization, resulting in an increasing number of global and multinational business endeavors.  Issues such as maintaining a balance between the “home-based” culture and “local” cultures, maintaining high quality performance standards across different locations and cultures, and maintaining productive collaboration between units in different locations, have become critical for business success in this global economy. The literature clearly suggests that an important mechanism that helps organization to be competitive is its human resource (HR) management practices. However, we know little about which human resource practices and which characteristics of these practices fit organizations in multinational companies. A key question is whether HR practices should be similar in all subsidiaries of a multinational corporation across the different contexts these subsidiaries operate in, or should these practices differ depending on the particular context of each subsidiary. 

In the present study we have attempted to address this issue. Following the contingency approach, we specifically examined whether, and to what degree, the effectiveness of multinational companies is contingent on cultural context. In the present study our aim was to explore: (a) the differential effect  of three cultural dimensions (national, organizational, and professional) on psychological, behavioral, and performance outcomes; (b) how the level of congruency among these three cultures (national, organizational, and professional) are related to the focal psychological, behavioral and organizational performance outcomes; (c) how national, organizational, and professional cultures are related to employees’ preferences for different human resource practices; (d) how national, organizational, and professional cultures are related to the actual characteristics of human resource practices implemented by organizations; and (e) how the level of congruency between employees’ preferences for HR practices and the actual implemented HR practices affect psychological, behavioral and organizational performance outcomes.

We examined these issues using new data that were collected from eight global multinational companies, in 19 different countries (USA, Israel, India, Ireland, Italy, France, the Netherlands, Germany, Spain, Switzerland, Romania, Serbia, Russia, Poland, Czech Republic, Australia, Uruguay, Mexico and Argentina), and across 59 subsidiaries (a total of 1631 employees and HR managers). In addition we conducted qualitative interviews with 11 HR managers.

KEY FINDINGS AND IMPLICATIONS FOR PRACTICE

The findings of our study support the effect of three cultural types on the outcome variables. The study also supported the notion that culture affects preferred and actual HR practices implemented by the organizations and that when there is a lack of fit between employees’ preference for HR practices and actual HR practices in the organization, the consequences on organizational outcome indicators are negative. In addition, the results indicated that lack of fit between the three cultures tend to have adverse effects on psychological, behavioral and performance indicators.

More specifically, the results indicate the following:
1. What is the relative effect of the three cultures (national, organizational, and professional) on psychological, behavioral, and performance outcomes?

a. All three types of culture (national, organizational, professional) affect psychological, behavioral and performance outcomes.
b. Organizational culture has the strongest effect among all three cultural types on psychological and behavioral outcomes, while national culture has the strongest effect on performance outcomes.

2. How does the fit/misfit among the three cultures (national, organizational, and professional) relate to the examined psychological, behavioral and organizational performance outcomes?

The three cultural types (national, organizational and professional) produce stronger effects on psychological, behavioral, and performance outcomes when they are studied in combination with one another.

For example:
a.    The effect of organizational culture on psychological and behavioral outcomes is stronger under certain dimensions of national and professional cultures.  To illustrate: organizational performance orientation has the strongest effect on psychological outcomes when national performance orientation is also high.  Similarly, organizational collectivism has the strongest effect on behavioral outcomes when national collectivism is also high.
b.    The smaller the distance between the three types of culture (national, organizational, and professional) the higher the psychological outcomes (with the power distance dimension having the strongest effect), and the higher the behavioral and performance outcomes. This pattern is the strongest regarding the collectivism dimension.

3. How are national, organizational, and professional cultures related to employees’ preferences for different human resource practices?

a. All three types of culture (national, organizational, professional) affect HR practices preferred by the employees.
b. National culture has the strongest effect among all three cultural types.
c. The effect of national culture on HR practices preferred by the employees is stronger under certain dimensions (e.g., performance orientation dimension) of organizational and professional culture.
d. The smaller the distance between national culture and organizational culture (most noticeably regarding the power distance dimension), the higher the effect on HR practices preferred by the employees.

4. How are national, organizational, and professional cultures related to the actual characteristics of human resource practices implemented by organizations?

a. Organizational and national culture both has an effect on most HR practices.
b. The most important culture (among the three) affecting actual HR practices implemented in organizations is organizational culture.
c. The effect of organizational culture on actual HR practices is stronger in certain dimensions (most noticeably, the future orientation dimension) of national and professional cultures.
d. Distance between all the dimensions of the three cultures (national, organizational and professional) affects the implementation of HR practices in organization.

5. How do employees react psychologically to a fit/misfit between their preferences for HR practices and the actual HR practices, regarding job satisfaction, organizational commitment, and satisfaction from HR practices?

a. Fit between employees’ preference for HR practices and actual HR practices in the organization (regarding performance appraisal, flexible work arrangements, compensation, recruitment, autonomy level, relocation and termination) enhance satisfaction with HR, job satisfaction, and commitment level of the employees.

6. How is the fit/misfit between the employees’ preferences for HR practices and the actual HR practices related to the organizational performance indicators of absenteeism, turnover, and organizational performance outcomes?

a. Fit between employees’ preference for HR practices and actual HR practices in the organization (regarding performance appraisal, flexible work arrangements, compensation, recruitment, autonomy level and relocation) reduces absenteeism and turnover rates and enhances organizational performance indicators.

The findings of the study can make important theoretical and practical contributions. Theoretically, the study provides support for the contingent approach (e.g., Delery and Doty, 1996, and Rousseau & Fried, 2001) which argues for a contingent impact of HRM practices on organizational outcomes. In order to fully understand the effect of HR activities on organizational outcomes, it is necessary to understand the context in which the organization exists.  As our study indicates, key contextual variables that can affect the impact of HR activities are national, organizational, and professional cultures.

Practically, two major conclusions have emerged:

• In the global economy multinational organizations should take into account the characteristics of the societal cultures in which their subsidiaries are located,    before deciding whether to implement a particular HR activity and selecting characteristics of this activity. Failure to do so is likely to result in adverse effects on performance-related indicators.

• Multinational organizations should fit the organizational culture of the subsidiaries to the local national culture in which they operate in order to enhance organizational performance. Moreover, professional culture should also be taken into account together with national and organizational cultures, as a basis for the decision to implement particular HR activities.  Interestingly, implementing a “one size fits all” human resource practices in all the subsidiaries across the corporation is likely to reduce psychological, behavioral and performance outcomes.

 
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