An exploration of the competitive advantage of employer of choice programs on international human resource management.

Lenaghan, Janet A. ; Eisner, Alan B.

ABSTRACT

The competition for knowledge workers has intensified as traditional recruitment markets expand beyond national borders. The infusion of technology in the recruitment process has broadened the reach of employers to locate talent. Multinational corporations find that competition for labor crosses industries and oceans. An MNC needs to market their employer brand in order to remain competitive in the war for talent. The organization that can attract and retain top talent will achieve and sustain competitive advantage. Many human resource professionals believe that the organizations that achieve Employer of Choice status will win the war for top talent. The costs associated with such a strategy are significant yet the outcome of such a position has not been studied. This article suggests, based on existing theory, empirically testable propositions to analyze the effectiveness of Employer of Choice strategy in the global market.

INTRODUCTION

Employer of Choice (EOC) programs are designed to aid an organization in outperforming its' competition in the recruitment and retention of top talent in order to secure an exceptional workforce. It is important to note that "top" in this definition does not refer to the place in the organization chart or structure, rather it is indicative of the best employee, the top performer for each position in the organization.

An Employer-of-Choice is basically a self-proclaimed achievement. Although in order to have credibility in the proclamation, it helps to be named to one of the popular press list of best companies to work for. According to Fortune Magazine's annual list of the best companies to work, companies on the list yield higher returns for shareholders (Shellenbarger, 1998). Sullivan (1998) states that the advantages of EOC status include: "ease in attracting quality talent; good public relations for the organization; improved workforce retention rates; favorable customer image; and ease in maintaining corporate culture and employee motivation because of the shared pride." Konrad and Deckop suggest that "HR can create value by developing systems to make the firm an employer of choice" (2001). In fact, Becker and Huselid posit that the combination of an Employer of choice strategy with high performing work systems, will, in most cases, result in increased financial performance (1999).

According to a report distributed by Watson Wyatt called measuring the competitive fitness of Global firms, world class global companies are lacking in human resource management competency. This study published annually since 1998 analyzed data from 326 leading global companies. It measures twelve management capabilities one of which was human resources. Human Resource Scores have consistently shown that HR functions were one of the weaker capabilities of global firms (Watson, 2002). Yet, clearly, the literature depicts the importance human resource management plays in maintaining an exceptional workforce. Porter (1985) asserts that effective human resource management policies and practices can supply a significant contribution to the firm's competitive advantage because they provide the mechanisms to recruit and retain top talent. The latter is significant as it is the reduction of turnover that has been posited as an important benefit enjoyed by EOCs.

BACKGROUND

The demand for "top" labor is outpacing the available supply, thus creating what Clarke refers to as a "critical labor and skill shortages in virtually all industries requiring specialized core competencies within the workforce" (Clarke, 2001). In fact, organizations have begun to recognize the importance of expanding recruitment areas to extend beyond domestic borders to meet its labor demand. This deficit seems to be contrary to the reported higher levels of unemployment being experienced in many countries, yet it is not the numbers of workers that is in deficit, rather, it is a lack of skills. As Mike Johnson characterizes, "... <w>e are experiencing a skill meltdown ..."(2002).

For the next decade at least, employers will continue to face a shortage of knowledge workers. It is not uncommon for many organizations to simultaneously reduce staff while hiring new highly skilled talent. The Bureau of Labor Statistics in the United States projects that during the 2000-2010 period, total employment is projected to increase by 15 percent (BLS, 2001a). In fact, many EOCs have incorporated recruitment and retention goals into their written strategic plan (Ahlrichs, 2000) in recognition of the significance of these key staffing activities. The skill shortage is so critical that it will be those organizations that can successfully position themselves as a 'magnet" for talent that will gain advantage (Johnson, 2002).

LABOR GLOBALIZATION

According to a study conducted by the Society of Human Resource Management, "Ford and IBM employ 54 percent and 51 percent of their workers outside the United States respectively while one-fifth to one-third of employees at AT&T, General Electric, PepsiCo and General Motors work outside US borders" (SHRM, 1999). Nestle has 97% of its workforce located outside of Switzerland and Philips has over 80% of its workforce outside of the Netherlands. Yet another illustration is Fonterra, one of New Zealand's largest companies, which has more of its people working and living outside New Zealand than in it. As a result, the competition for top talent is even fiercer as it is no longer restricted to geographically local competitors but now encompasses a global marketplace. To illuminate this notion of a global labor pool, one needs to consider it vis-a-vis trade theory. For instance, Keenichi Ohmae maintains that in order to be successful, good managers need to learn to lead in a borderless world. A leader can no longer afford to be nearsighted. Instead, in order to be successful they must possess the ability to see the world as borderless. Yet, Ohmae maintains that "the allure of global products is illusive" referring to the fact that while certain products may lend themselves to Levitt's notion of truly global standardize features, many require local responsiveness (Ohmae, 1989). This thinking seems to ring true with Labor, as well. Certainly technology has facilitated multinational "brain circulation" (Patel, 2002). Chinese engineers moonlighting on weekends in Korea and Indian software engineers accounting for up to 30 percent of the information technology workforce in the United States are just two examples of how "brain circulation" is evident in this global labor pool. Moreover, through "electronic immigration" organizations can employ people from virtually any country thus creating a truly global market of the best and the brightest workers.

The aging of the world population presents human resource managers with a significant barrier to meeting talent projections. For instance, Japan will need to import increasingly more talent as its population shrinks. Ireland, similar to China, will import talent in fields where they do not possess a comparative advantage. China has an abundance of cheap labor but needs MBAs to complete its industrialization process (Johnson, 2002). Similarly, the United States continues to import software engineers from India and China in substantial numbers to meet its labor demand. A highly competitive organization needs top talent to maintain the level of success (Kaye and Jordan-Evans, 2002). As markets open and borders blur, will talent management become easier because labor will begin to converge or will local culture continue to dominate the way workers think and work? Research has suggested that global organizations are starting to converge on recruitment practices but remain distinct in selection methodologies which are embedded in national culture (Huo, Huang, et al., 2002). As Hofstede posited, national culture can be differentiated based on its citizens' values and norms as captured in his five (originally he posited four) dimensions of culture. These dimensions differentiate the culture of countries which fall at different points along a continuum in each (Hofstede, 1993).

Organizations have had to respond to an increased demand by employees for "need satisfaction". Employers began offering new and more tailored benefits packages. On-site childcare centers, exercise rooms, and cafeteria style benefits packages surfaced as a benchmark for top benefit plans. Even concierge service and on-site dry cleaners have become a standard in many large organizations. In a recent poll reported in Risk Management, over one quarter of the respondents cited work-life balance as their "number one career dilemma in the new millennium" (Sullivan, 1999). Recent evidence further suggests that even employees with no direct benefit may place a positive value on work-life programs ..." (Drago et al 2001). Anderson and Pulich posit that employees want some recognition from management that family and personal time is important (2000).

WHERE IS THE ADVANTAGE?

Is the strategy to become an employer-of-choice truly yielding a competitive advantage for the global firm? Does EOC status energize that magnet to which Johnson referred (2002)? Is EOC status the key to successful talent management for MNCs? Is EOC status advantageous in all cultures?

The answers lie in the synthesis of several literatures: resource-based view of the firm, institutional theory, and human resource theory. To understand the extent of value placed on EOC status for a MNC, one clearly needs to recognize the impact of Hofstede's cultural dimensions. His model discusses how culture impacts work behavior and ultimately various business practices. Since the strategy for becoming an EOC is to create a competitive advantage through the recruitment and retention of top talent, the MNC must understand the extent that cultural differences influence employee perceptions and needs.

RESOURCE-BASED VIEW OF THE FIRM

Since human resources represent the knowledge, skills, abilities and competencies of the employees this mosaic of talent that becomes what Barney (1991) describes as a resource that is relatively rare and difficult to imitate, or as Petaraf (1993) classifies as a "superior productive factor that is in limited supply." Wright and McMahan (1992) support the resource perspective but stipulate the existence of four requirements: individual performance must matter; the employee skills must be rare; the combined human capital can not be readily duplicated and finally, human resources cannot be vulnerable to substitutions--technological or otherwise. As Hitt and Ireland (1986) and Barney (1991) suggest a firm's human resources can be used as predictors of firm performance. Organizations that possess a resource that others are not able to easily duplicate are known as benefiting from a sustained competitive advantage. Thus we argue that one of the underpinnings of Employer-of-Choice strategy lies in resource-based strategy. One can look at Southwest Airlines, repeatedly listed on Fortune magazine's list of the best companies to work for and realize that their business model is simple--Tom Peters characterized it "as one that any 3 year old can understand"(Myerson, 1997)--and yet others have failed to imitate it. O'Reilly and Pfeffer (2000) attribute that to the competitive advantage that Southwest has in its human resources.

"Extensive employer-of-choice initiatives can involve the art and reach of a $50 million advertising campaign" (Walsh, 2001). Even more staggering is the time associated with the achievement and then maintenance of such a status. In a recent interview, Cindy Boyle, Vice President for Human Resources at JP Morgan Chase indicated that it requires compiling at least 100 pages worth of information to apply for inclusion on one of the lists. Thus, considerable investment of time and resources are necessary to compete.

Positive reputations can be a source of competitive advantage. The EOC status is an attempt to enhance a member firm's reputation as one that values its employees. A very recent series of commercials promoting Continental Airlines demonstrates that one of their main marketing goals is to enhance the Airlines employment brand by communicating its achievement in being named to Fortune's list of Top Companies to work for. The advertising campaign furthers connects the fact that since their employees are happy, the customers are happy too. It seems Continental's strategic architecture highlights that EOC status is a core competence and as such will provide a sustained competitive advantage. If you view the organization as a "portfolio of skills" the rationale for Continental's strategy becomes intuitive (Prahalad & Hamel, 1990). Lawson and Hepp (2001) studied a "bundle" of integrated human resource management practices at Wells Fargo, called PACA--People As Competitive Advantage--and concluded that indeed human capital is a significant competitive resource and that these bundles make an independent direct impact on both employee and business performance.

HUMAN RESOURCES

Based on the above, it would seem that those organizations with EOC status should have a competitive advantage. Rayman and Bookman (1999) assert that 'while there has been movement in both research and public policy to connect work and team perspectives, the models are limited.' In fact, the human resource literature is mixed on the impact of human resource management and the organization's success. However, recent evidence suggests that investments in human resources are a potential source of competitive advantage (Huselid et al., 1997). Notwithstanding that assertion, Koch and McGrath posit that despite the many "normative connections made between human resource management practices and firm level performance, empirical studies are sparse" (1996). They studied 319 business units and determined that labor productivity is positively related to organizations that invest in thorough human resource planning via effective forecasting of labor supply and demand as well as highly valid selection methodologies (Koch and McGrath 1996). In other words, those organizations that are proactive and recognize the importance of securing labor will experience higher productivity. Huselid, Jackson and Schuler (1997) expressed that the "potential gains" for organizations lie in the effective utilization of strategic human resource management. It is widely believed that employees are motivated to contribute to the organization if they receive rewards that they believe exceed their inputs (March and Simon, 1958). The assumption is that Employers of Choice offer exceptional benefits and therefore since it has been shown that perceptions of organizational culture influence turnover (Sheridan, 1992) as well as employees' financial and psychological interests (Shaw et al, 1998), this is an effective human resource strategy to pursue.

INSTITUTIONAL THEORY

The issue is whether the stated advantages of becoming an employer-of-choice are reality-based or myths. Is the concept of EOC more a norm of rationality? Institutional theory is based on the notion that formal structure is ingrained in social reality. The social reality determines elements of the formal structure such that these elements are merely manifestations of powerful institutional rules which function as rationalized myths that are binding on organizations (Meyer and Rowan, 1977). Organizations structurally reflect or imitate socially constructed values. Perhaps this can explain the motivation of employers to enrich benefit offerings that are required for EOC lists. In other words, conceivably the "competitive advantage" that proponents of these benefit offerings espouse is merely isomorphism (Meyer and Rowan, 1977). In a study of government agencies, the results depicted a disregard for outcome assessments of these Work Life Programs. Once they were offered little was made to ascertain its impact on its effectiveness (Durst, 1999).

It certainly can be argued that if an employer does not offer certain benefits, that employer would forfeit recruitment effectiveness. The "top talent" would seek employment elsewhere. However, not all benefits can have the same added value to the employment relationship. In other words, the enhancement of benefits could be a result of mimetic isomorphism (DiMaggio and Powell, 1983). Employers may be simply responding in an effort to maintain legitimacy by offering benefits. If the organization just offers the benefits to increase its reputation as EOC, then the value to employees is questionable. For example, men and non-professionals cannot take advantage of work-life programs for fear of job ramifications (Konrad and Mangel, 2001). In a global company, "any form of compensation must be aligned with the cultural and economic norms of each operating location" (Krupp, 2002). Therefore, an organization that is deemed an EOC needs to meet that status in all locations it operates since the requirements may be very different.

PROPOSITIONS

Some extend Hofstede's dimensions to motivational issues for human resource managers, and found that while needs of employees are similar they differ in valence as a result of national culture (George and Jones, 1996). Management practices that are "congruent with the national culture have been found to enhance firm performance" (Newman & Nollen, 1996). Schuler and Rogovsky attribute the success of local responsive human resource policies because "congruent HR practices are consistent with existing behavioral expectations and routines that transcend the workplace" (1998, p.161) Some benefits which are generally expected in EOCs, may, in fact, not satisfy any needs in certain countries. Neil Krupp maintains that global organizations must align their rewards, benefits and all compensation to cultural and economic norms of each operating location. (Krupp, 2002) Thus, the question regarding EOC strategy yielding a competitive advantage is tied to the nation's dimensions of culture.

The Individualism dimension attempts to measure the extent to which the culture values individual or group needs. The EOC designation would have greater valence to the employee who is primarily concerned with satisfying his/her own individual needs.

Proposition 1: EOC status will be highly valued in individualistic cultures.

The Masculinity dimension attempts to measure the extent to which the culture values ambition and assertiveness over nurturing and caring. The EOC designation would have greater valence for the employee who believes that the organization has a responsibility for their wellbeing.

Proposition 2: The value of EOC status will be inversely related to highly masculine cultures.

The uncertainty avoidance dimension attempts to measure the extent to which the culture embraces change and ambiguous situations. The EOC designation would have greater valence for the employee that desire structure and commitments from the employer regarding their wellbeing.

Proposition 3: EOC status will be highly valued in high uncertainty avoidance cultures.

The power distance dimension attempts to measure the extent to which the culture embraces unequal distribution of power. Again, if one believes that there should be distinct power levels, than those MNCs would not even attempt to achieve EOC status since meeting employees needs is not a priority. As a result, employees in those nation's that have a higher acceptance of power distance would not place a great value on EOC status. As Hofstede posited, "all societies are unequal, but some are more unequal than others" (1997).

Proposition 4: EOC status will be highly valued in low-power distance cultures.

The long term orientation dimension attempts to measure the extent to which the culture values are oriented towards the future, like thrift (saving) and persistence. Again, the EOC status would have greater valence for the employee who believes that the organization will partner with them in protecting their future.

Proposition 5: EOC status will be highly valued in cultures that subscribe to a longterm orientation.

DISCUSSION

This area of research is ripe with opportunities to decipher the concept of employer-of-choice as a strategy for increasing competitive advantage in a global market. Global organizations are facing a deficit in the supply of top talent and most assuredly will need to develop strategies to overcome the challenge. Clearly, the notion of an EOC is one such strategy designed to address this organizational concern and many organizations have embraced it. However, it requires considerable resources, both in terms of financial investments and labor hours. In fact, "extensive employer-of-choice initiatives can involve the art and reach of a $50 million advertising campaign" (Walsh, 2001). But, its suggested benefits have not been empirically tested. It is imperative that these supposed competitive advantages be subjected to the rigor of academic research. Implications for MNCs are considerable as any mechanism to alter an organization's competitive advantage relies on significant allocation of resources. If done in ignorance or with untested assumptions, MNCs may find themselves to have embarked on a strategy that may ultimately lead them to negative results in terms of position and performance.

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Janet A. Lenaghan, Hofstra University Alan B. Eisner, Pace University