Succeeding in redesign
Globalisation and technological advances have accelerated the pace of change, including that of organizations. Ashok Som proposes a model for organization redesign with attention to human resources at its center.
These days, about the only thing that doesn’t change is the ubiquity of change. Companies in particular are led to revise strategies which in turn fosters organisational change. Professor Ashok Som, ESSEC Business School (Paris), studies the dos and don’ts of organisational structuring in his recent book, Organization Redesign and Innovative HRM (Oxford University Press). Apart from submittting his theoretical model, Som presents five cases of companies, four of whom achieved high performance through an organisational redesign including innovation in the area of HRM. As befits an Indian professor working in France, the cases cover Indian and French companies: Bharuti Petroleum (petroleum products), Maruti (automobiles), Mahut (cement), Lafarge and Renault
According to Som, it is a changing environment that drives strategic change. A firm that functions in an unchanging environment does not need to engage in revision. A changing environment on the other hand forces change upon the firm. Among key environment changes that will force strategic change are transformations in the market structure, advances in technology, changes in government policy and novel competitive pressures. Som summarises the linkage between environment and strategic action as follows: 1) The higher the environmental turbulence, the greater the necessity to emplace redesign mechanisms and adopt innovative human resources management (HRM) practices; 2) the higher the environmental turbulence, the greater the necessity to align redesign mechanisms with innovative HRM practices to cement the changes.
Som’s view is that competitive strategies, by themselves, tend to fail if they are not accompanied by appropriate redesign mechanisms and innovative HRM practices. Good strategic ideas are no doubt necessary but they are not sufficient. He argues that executives should be focused on strategic capabilities and that strategic capabilities are not limited to strategic intuitions (however sound these may be). Strategic capabilities can be thought of as those strategic intuitions brought to fruition by what Som calls an infrastructure of redesign mechanisms and HRM practices. Strategic intuitions without that infrastructure are empty. In the context of a turbulent environment, low performance is attributable, per Som, to the absence of comprehensive and aligned redesign mechanisms and HRM practices. Managers in the pursuit of high performance are invited by Som to acknowledge the importance of redesign mechanisms and innovative HRM practices.
In Som’s model (see chart), there are three fundamental redesign mechanisms. The first is uncertainty reduction, which involves reducing the information gap. To reduce uncertainty, organisations will engage in market information collection, forecasting, formal and informal information gathering from stakeholders. The second is differentiation which can be thought of as a division of strategic labour. In differentiation, a large task is segmented and delegated to subunits. Decentralisation, hierarchy reduction, delegation and specialisation are all aspects of differentiation. The third redesign mechanism is integration which relates to the abilities of the company’s parts to communicate and collaborate effectively. Whereas differentiation breaks down strategic tasks to ensure high performance, integration ensures that the different achievements work in unison. Integration mechanisms include long-range planning, formation of committees and cross-functional teams, information and control systems. The tasks of differentiation and integration are complementary and can be thought of as the strategic equivalents of analysis or specialisation (differentiation) and synthesis or harmonisation (integration).
Som’s invites managers to think of the second dimension of his model not as a cost centre but as an investment. He places innovative HRM squarely within the strategic activity by defining it as follows: “Any introduction or change of HRM program, policy, practice or system designed to influence the employee, adapt the skills, behaviours and interactions of employees and have the potential to provide both the foundation for strategy formulation and the means of strategy implementation that is perceived to be new and creates current capabilities and competences.”
In his analysis, HRM has five fundamental dimensions: recruitment, promotion, redeployment, performance appraisal, compensation and rightsizing (see chart). A successful redesign will involve innovative practices in at least one, if not all, of these dimensions; similarly, failure to innovate in at least some of these dimensions will lead to redesign failure.
Som has four reminders for managers worldwide. They need to be aware of the correlation between innovative HRM practices and superior performance. Top management must be committed to such innovation and must communicate that commitment. A second implication is that managers should be looking at how other management teams oversee HRM innovation efforts. They might find inspiration for innovation in their own HRM practices. Thirdly, managers need to remember that strategic intent is the easy part, building the organisational capability to deliver on the intent is the more difficult part and also the one where most companies fall short. Be superior in innovative HRM practices and you will likely be superior period, Som suggests. Finally, competitive advantage through people processes is difficult to achieve and sustain, but once it is achieved it is not easy to duplicate. Superior people performance provides an advantage that is difficult to copy.
Som reminds managers of the linkage of HRM and what are called VRIN resources. VRIN resources are those that are valuable (V), that enable firms to conceive and implement strategies that are rare (R), imperfectly imitable (I) and non-substitutable (N). Intellectual resources fall within this desirable category and innovative HRM practices serve precisely to increase the company’s intellectual resources. In that sense, Som’s vision is to use innovative HRM practices for building intellectual capital that is “vrinny.”
While developed country organisations are further ahead in the creation of innovative HRM practices, the gap is closing fast. Emerging country organisations are becoming more agile. India is a good example of this. A study of 11 Indian firms he conducted in 2006 leads him to conclude that “Indian firms are relentlessly trying to reduce employee turnover through innovative HRM strategies”. HRM is also being globalised, as it were.
