Global Integration of Performance Management within MNC s. A theoretical framework.

Transcription

1 Global Integration of Performance Management within MNC s. A theoretical framework. Nina Hellqvist University of Vaasa, Finland Department of Management and Organization P.O. Box 700, FIN Vaasa Voice: , Fax: nina.hellqvist@uwasa.fi

2 Abstract The aim of this theoretical paper is to explain about global Performance Management (PM) in MNC s and link it to a suitable theory, which can be socialization, agency or institutional theory. The approach is to focus on the tension between subsidiaries (host) and headquarter (HQ), how PM is implemented, integrated or imitated and how it has worked out. Will the transfer of performance be centralized or formalized? Is there a mismatch between literature and theories and empirical results of the real world? This article is not dealing with corporate performance compared against defined objectives but the process, development and design of performance management itself. Introduction The development of international human resource management (IHRM) is specific in the international context and demands understanding of issues that multinational enterprises face. Managing a foreign workforce is more difficult than managing a domestic one. In the global world that we live in with the WWW, improving education and frequent travelling many companies now compete in an international environment with a more diffuse line between countries borders. One of the most difficult challenges to international operations is the management of human resources (Briscoe & Schuler, 2004). Slowly a distinction is emerging between international and global HRM. Traditionally, international HRM has been about managing international workforce (like expatriates). Global is not only covering these but instead all the staff around the world. It is concerned with managing international HRM activities through the application of global rule sets to HRM processes. Most organizations are slowly making this transition from international to global HR. (Sparrow, Brewster & Harris, 2004). But still I decided to use the term Global Human Resource Management parallel with IHRM The aim of this paper is to; Built on review of literature on global integration of HRM - in particular of Performance Management (PM) and the global integration mechanism present evidence on global integration of PM design a) aims b) process and c) outcome In addition, analyze how PM system is utilized in integrating corporate values Empirical studies show that there is a trend towards globalization and HRM are swept away by global forces and changes are demanded from multinational companies in the 21st century. The task of this paper is to explain the concept of performance management and to link the analyses of PM to global integration of human resource management in order to contribute to the literature about PM that already exists. It is only recently that the subject of globally integrated PM has gotten publications and books on their own. The subject of global PM was triggered by this gap of how MNC s deal with it on a daily basis. In order for companies to succeed with such global integration, supporting global HR-systems such as PM-systems needs to be developed. Performance management is one HRM practice that is of most importance for the company and closely linked to the company s strategy and values and a way to control the subsidiary. But how much saying does the subsidiary have in the matter and how much is just ceremonial adoption? This leads to pressure between the headquarter (HQ) and the subsidiary relationship. The subsidiary perceives or reacts to a new practice, so the key question is still to which extent the PM design should be adapted to local conditions? Should it be standardized, implemented or integrated in the subsidiary? 2

3 Globalizations effect on MNC s Globalization can be seen as a strategic effort to treat the world, or part of it, as a single market (Sparrow, Brewster & Harris, 2004). In the world that we live it is of most importance for MNC s to have their human resource management adapted to a global environment in order to receive success in the increasing competitive business world. (Briscoe & Schuler, 2004) Finding the right staff is essential for success (Briscoe & Schuler, 2004) and to operate successfully, the company need to have sufficient information regarding the management and cultural aspects of doing so in another country. Now is also commonplace for managers to describe their organizations as global firms. Many large MNCs are no longer dependent on their original home base, but operate on a global market responding to pressures and demands of the global economy and draw on knowledge and expertise from across the globe. (Edward & Rees 2006) There has been an increase in globalization and of the world economy, and debates tend to be either too much or too little about globalization and defining the term. So how should we understand the term globalization? Different paradigms are used to explain and identify the differences between countries. Globalization can be understood as the impact and consequences that international markets and industries have on behaviors, attitudes and mindsets. It is seen from an economic perspective as a dynamic process between flows of goods, services, capital, people, ideas and technologies according to demand. Few MNC s sees the world as borderless, instead operating internationally is very diverse. (Sparrow, Brewster & Harris, 2004)But globalization has by no means brought an end to territorial geography and economies, governments and identities. Global and territorial coexist and interrelate in a complex way. In short can globalization be defied as an outcome of multifaceted dynamics of social relations. (Scholte, 2005) Competitive advantage comes from speed and adaptation, differentiation rather than imitation. There is increasing emphasis on global management. Social architecture becomes the frontier challenge for HRM. (Evans, Pucik & Barsoux, 2002) There is tension between forces of globalization and the characteristics of MNC that still bear the national effect. International HR issues only arise in, and need to be worried about in more global operations. The more basic level of internationalization the simpler need for HR functions. (Sparrow, Brewster & Harris, 2004) A more global perspective of HRM arise when the MNC operate worldwide Global HRM Of all the management domains, HR management is the most sensitive to local context. The study of IHRM or global human resource management is relatively new; it is also highly dynamic and constantly evolving. It involves the same activities and dimensions as domestic HRM but operates on a much larger scale. There is more external influence, higher level of risks and more insight into employees lives and family situation. There have been arguments that it differ from domestic one not only in degree but also in kind. (Stahl & Björkman, 2006) In general, IHRM practices is about understanding, researching, applying and revising all human resource activities in their internal and external contexts as part of the process of managing human resources in MNCs throughout the global environment for multiple stakeholders, including investors, customers, employees, partners, suppliers, environment and society (Briscoe & Schuler, 2004) IHRM is about how organizations manage their 3

4 people across national borders and how complex that can be (Sparrow, Brewster & Harris 2004). When comparing HRM policies and practices across geographical borders there is a distinguishing between comparative and international HRM. IHRM is concerned with the way that organizations that operate across national borders manage their employees, which is much more complicated than doing it in just one country. Given the dual requirements systematizing their management processes (global integration) and being aware of differences between countries (local responsiveness) it is not possible or even rational to manage people in exactly the same way in different circumstances. And also, the employees and the management team do not have the same perspective and expectations in the organization. To believe too much in cultural and national differences puts it in a danger of becoming a purely statistic analysis, not able to cope with changes over time. (Brewster, 2006) According to Brewster, Sparrow and Harris (2005) the international HRM is changing rapidly and significantly. They argue that five organizational drivers of international HRM are identified. They are efficiency orientation, global service provision, information exchange, core business processes and localization of decision-making. The role of the IHR is to organize and develop international operations and deal with global human resource problems such as global pension and health care systems, management recruiting and development throughout the global enterprise, compensation systems etc. The global and cultural aspects of international business boil down to finding ways for individuals with varying backgrounds and perspectives to work together; that is, finding ways to develop a corporate glue that will hold the organization effectively together. (Briscoe & Schuler, 2004) One of the HRM practices that can be used as a tool for this is the performance management process. THEORETICAL FRAMEWORK Performance Management The expression PM appeared in late 1980s as an extension of performance appraisal, a practice used to evaluate an individual employee s past performance. Today the appraisal is seen as a one of several elements of PM (Tahvanainen, 1998). Others are the communication of company strategy through individual objective setting, job design, feedback and monitoring, linking it to training and development planning and possibly compensation. (Vance & Paik, 2006) As Tahvanainen, 1998 points out strong goal setting and more traditional appraisal are key elements of performance management system that might also include training and development and performance related-pay. PM can be defined as performance on a job, which companies aim at managing and dealing with employee behavior or outcome in job function during a specific period of time (Tahvanainen, 1998). Performance can be defined by three key elements; goals, measures and assessment. Included is also feedback to employees at all levels and development of skills. (Cascio, 2006) The design of PM Performance is what one organization hires one to do, and to do well. Current theories suggest that performance domain is multifaceted. Performance evaluation system includes 4

5 developmental, result and behavioral measures. (Rosenzweig, 2006) Performance management enables the evaluation and development of the individual, a unit or a company. It reflects and evaluates the achievement of pre-determined clear goals and targets. (Dowling, Welch & Schuler, 1999) Few frameworks or models exist that describe the PM development process in a global context, so here is one model; GLOBAL CONTEXT 5. Measurement ORGANIZA- TIONAL CONTEXT Company/ subsidiary strategy, values and goals INDIVIDUAL CONTEXT Expectations from the company New skills 6. Evaluation & Feedback PM process 4. Training & Development 1. Job description & Job design 3. Goal setting and agreeing on goals 2. Appraisal Figure 1. Global PM Process Design Elements in the process: In going through the (effective) process, following elements should be looked at; GLOBAL CONTEXT which the company exist in. Priorities are different in guiding a global company. ORGANIZATIONAL CONTEXT includes company/ subsidiary strategy and goals. 5

6 INDIVIDUAL CONTEXT compared to the expectations from the company. Essential element in successful PM is to understand the conditions and situations in which employees work. Then going on to the individual PM process, which consists of; 1. Job description and job design should not be abstract but include specific tasks. It is based on the company s strategy in the first phase when a specific job is designed. But still it can change over time to meet a demanding, dynamic and flexible work environment. (Vance & Paik, 2006) Job description is based on the job analyses and design and is especially important when a new job is created. Job analyses involve the duties, tasks, reporting relationships and responsibilities. (Tahvanainen, 1998) 2. Performance appraisal emphasizes measurement but not necessarily between pre agreed performances goals, which makes it part of PM. Appraisals are an ongoing process and important aspect of everyday life. (Tahvanainen, 1998) When it comes to appraisals it is important that it is done by the right person with a good instrument, is objective and give constructive feedback.(latham, Almost, Mann & Moore, 2005) Even though appraisal is an important part of the evaluation process, the others should not be neglected. (Vance & Paik, 2006) Left out in this discussion is the reward system, while many companies don t wish to link salary and bonus discussions to the appraisal. Data used for determine pay and promotion should be discussed in another meeting. Others, like Tahvanainen, 1998 includes it in PM saying that performance is typically linked to pay. Without linking it to pay or other reinforcement it is often difficult to sustain. 3. Goals can also be set for the employees own personal development and can be set both by employee or superior. Goal setting can be particularly difficult when a physical product or time required to produce a product can not be measured. The goal needs to be for a crucial aspect of the job in a key area. It is also a way to control and monitor employee behavior. Therefore many employee set lower goals so that they can look good when achieving them rather than too high that they can not be met. According to the acronym SMART the goals should be Specific, Measurable, Agreed, Realistic and Time-related to improve performance. (Tahvanainen, 1998) 4. Training and development requirements can come from both parties, for examples to identify the need for language courses. (Vance & Paik, 2006) Development can be long or short term. (Tahvanainen, 1998) 5. Measurement is essential for a growth in the company, both for the individual and for the ability of the managers to learn better skills to improve performance and using the right tools. One can be the 360 feedback process, which include collection of data from peers, superior and self (multisource evaluation data) that lead to training and support and a report. After that the process starts all over again. (Shipper, Hoffman & Rotondo, 2007) 6. Evaluation and feedback of the outcomes are feedback to those planning the future of the business. Most organizations require a written document of evaluation with each one for legal reasons (evidence of equity), support and clarification and as a reminder for next time of mutually understood action. (Tahvanainen, 1998) Frequent feedback sharing specially in manager-subordinate coaching relationship and in a more informal context, can be very successful in leading to optimal employee performance. (Vance & Paik, 2006) 6

7 Global Performance Management Cascio (2006) have written about global performance management. There are two broad categories of performance factors; task performance and contextual performance. The task performance represents the core technical activity of the organization, for example software development. Contextual performance factors represent the performance components that support the organizational, social and psychological environment in which the technical core must function. At the most basic level, performance management refers to the evaluation and continuous improvement of individual or individual team performance. Naturally it is as important in the global environment, even though managing host-country nationals makes it challenging. International performance focuses on two things; host-country nationals of MNCs and expatriates. The last one will not be explained about here. There are surveys done about performance management, also in multinationals, from different countries. Results being that PM are used, at three-quarters for more than 70 % of their employees. More than half have a yearly review, about 40% more often than once a year. Soft-ware is used in 20 % and about a third plan to introduce it. Training for managers has doubled. Managers tend to balance on subjective and objective data in performance review. Ranking systems are used but few find them effective. The most effective performance systems are consistently used throughout the organization, integrated with other systems (ex. promotion, compensations, succession planning and promotions), involve senior managers and employees and are linked to organizational strategy. There are major differences in implementation on the international operations, even if the goals and purpose is quite the same as in the domestic. One thing that affects this is the degree of support and interaction with the parent. The goals comprise two domains: evaluation and development. The evaluation goals in the international environment include: providing feedback to employees at all levels so they will know where they stand developing valid bases for employment decisions involving pay, promotion, job assignment, retention and termination provide a mean to warn employees about unsatisfactory performance The developmental goal for global performance management systems include: helping employees at all levels to improve their performance and develop their professional skills diagnosing individual and organizational problems enhancing commitment to the organization through discussion of career opportunities, action plans and need for training and development using recognition to motivate continued or improved high performance (Cascio, 2006) Common things for the process seem to be three key elements according to Cascio, They are defining performance, facilitate performance and encourage performance. Going through them one by one; defining performance ensures that individual employee know what is expected of them. To do this well it needs to pay attention to goal, measurement and assessment. A goal can be for example a certain % of satisfied customers. They need to be specific and clarify precisely what is expected. An individual can be expected to improve the productivity with ten % using goal setting. Goals also need to be measurable and not too vague. The employee also needs to know how they will be measured. In an international environment that can be for example making customer contacts. The third requirement is assessment, where performance appraisal and feedback come into play. Regular assessment of progress toward goals focuses the attention and efforts of an employee and also helps 7

8 ensuring that there are no surprises. When talking about facilitating performance a big responsibility is to eliminate roadblocks, for example by providing adequate resources (also human resources) and equipment to get a job done on time and in a right way. If the tools are missing so that one can meet the challenging goals, they will just be frustrated. One aspect of performance facilitation is the selection of employees. Costs can be high if there are overstaffing, excessive labour costs and reduced productivity. Looking at each factor and leaving nothing to chance help, this also leads to better self-management without having to monitor all the time. Encouraging performance can be providing sufficient, clear, relevant and fair rewards or recognition, for example if something is done ahead of time or under budget. The reward can consist of money, benefits, free time, merchandise or special privileges. Loses of rewards or delays can lead to motivational lack and low performance. The issue of global performance management need an effective system to be able to evaluate in a local cultural environment. It is necessary to make some adjustment to problems with cultural adaptation and associated with the complexity of conducting international business. According to guidelines for adequate global PM it is important to consider the fairness of the evaluation to ensure that the MNC receives full value from its managers. There need also to be decided who conducts the appraisals. (Briscoe & Schuler, 2004) PM might be the most challenging HR process in the international context because of geographical spread and product and operation mode diversity. To manage performance in various locations requires some planning. Firstly, MNC s need to recognize the difference between overall strategic goals and subsidiary goals, to look at it in the right context and recognize various constrain that may affect goal attainment. They can be whole versus part (the good of the whole is more important than one subsidiary s short-term profitability), non comparable data (for example, quality checks can be different from one country to another) turbulence of the international environment (even long-term goals need to be flexible), separation by time and distance and variable levels of maturity (for example more time is might be needed to achieve results). (Dowling, Welch & Schuler, 1999). Changes in HQ/host relationship influence performance management Rozenzweig and Singh (1991) feel that degree of similarity to local practice is significantly influenced by method of founding, dependence of local inputs and the extent of communication with the parent. Performance management is subject to the tension between consistency versus adaptation to local environment in MNC and their subsidiaries (Lervik, 2005). The pay and reward system is also a part of human reward system, but it is still the case many times around the word that employees get rewarded for turning up and getting older. National culture influences the various pay formula and techniques. In China for example, the equality solution in a collectivist culture is that people belonging to ones in-group should be given bonuses and incentives regardless of the productivity. The pay can be less important than the range of benefits such as housing, food and childcare typically provided for employees. One reason is that tax is based on basic pay and not benefits. But with the new glorious rich a more free market challenge is the underlying value. (Harris, Brewster & Sparrow, 2003) The issues that have led to this use of international employees are increased needs that companies experience as they increase their level of international commerce and the 8

9 problems they face when dealing with these increased needs. This variety of employees presents new challenges for selection, preparation, motivation, compensation and management of the workforce. Critical concerns are also standards for performance, review ability and who does the reviews. (Briscoe & Schuler, 2004) Importance of linking PM to strategy Performance management as a strategic HRM process enables the MNC to continuously evaluate and improve individual subsidiary unit (Lindholm, 2000). To be able to evaluate performance it should be linked to a company s vision and strategy and possible growth. (Cascio, 2006) The purpose is to turn employees potential into desired results, with company goals and strategy in mind. PM is typically about goal setting and evaluation, often also training and development, and performance related pay. Effective PM is important as a competitive advantage. It is an area of HR that has the potential to make the most significant contribution to organizational effectiveness and growth. The differences in PM should be clear in terms of for example who sets the goals, if there is a linkage between performance and pay, the type of goal and who conduct the evaluation and organizational structure. At an individual level it will result in an action plan. Given a high position in a company is already a proof of ones s skills and abilities, still there is always room for development in each individual and the aim is that training issues should be taken up (Tahvanainen, 1998) The IHR department often also need to take into account the distance and multiculturalism which differ from domestic HRM. One aspect to consider is which practices should be designed at the headquarters, and how much should the company rely on subsidiaries and to what extent does HRM fit into and contributes to an international strategy? (Briscoe & Schuler, 2004) The theory behind HRM is that is fits, that there is an interaction between an organization and its environment. The payoff in terms of performance comes only if HRM is linked to a strategy that reflects the industry, the strategy linked to performance might of course also be negative. For many reasons HRM is difficult to prove or demonstrate empirically, the payoff lies more in the assumption that the strategy is valid. (Evans & co, 2002) The same is naturally also accurate when talking global. Value based PM The aim of MNC`s is to establish a shared set of values and beliefs across the units. (Björkman, Barner-Rasmussen & Li, 2004) This is closely linked to company culture and strategy. An alignment of common values, priorities and performance expectations throughout the MNC can also contribute to the development of a common global business culture that in turn can have a unifying influence on individual employee thought, behavior and performance. (Vance & Paik, 2006) Sparrow (2007) has looked at values-based HR strategies in the UK and found out that this can be a new context for PM. Organizations were giving more attention to the nature of effective managerial performance and had introduced competencies into the processes, in terms of external recruitment and internal career assessment processes. That means not just to measure outputs, for example the achievement of objectives, targets or standards but also inputs, such as the values that an employee brought to a job, or the behaviors or competencies they were capable of 9

10 demonstrating. By the late 1990s the context moved towards organizations giving more attention to the link between values and the execution of strategy and the need for a persons organization fit in values terms. This can be for example in customer service values or personal needs and desires of their employees and the factors that might, or might not, persuade them to commit strongly to the organization. Organizations began to understand this power of their PM system as a vehicle for engaging their workforce interviews with staff. Improving the quality of the PM in terms of the dialogue that it contained seemed an obvious mechanism for achieving this. The focus had shifted from the need for a PM design to provide sophisticated evaluation and appraisal skills, towards a broader agenda of improving performance, and then into a mechanism for enabling more open and honest communications about behaviors and outcomes, issues and problems surrounding the execution of strategy, and the need to engage and motivate employees in this. The relationship between MNC s and subsidiary Effective global organization structure is a key to dealing with challenges and pressure to compete in a new environment (Briscoe & Schuler, 2004). The subsidiary-headquarter (HQ) relations examine the subsidiary role, strategies and subsidiary control. These include the degree to which a subsidiary is embedded in the local environment, the strengths of the flow of resources such as capital, information and people between the parent and the subsidiary; the characteristics of the parent, cultural of home country and the degree of distance between the two cultures that meet. To try to harmonize core HR processes in this environment can be a challenge. (Sparrow, Brewster & Harris 2004) The geographic and cultural distance increase the cost of establishing control, and this question of control is an ongoing subject for MNCs. How do they make individual behavior to fit the goals of the MNC? (Hennart, 2005) Due to differences in rating, cultures, rules and laws it is difficult to compare performance of host-country subsidiaries in different countries. There is a need to see if this also applies to all cultures. Diverse cultural background may lead to distinctly different frames of reference, for example about ratings. Members of culture assume that their way of thinking is obviously correct, and therefore need not to ignore the differences for example about individualism and collectivism. In a collectivistic society, discussion a person s performance openly is against the norm of harmony and open unacceptable loss of face. In those cultures the communication need to be more indirect. In some cultures like India it is inappropriate and disrespectful to disagree with one s supervisor. Training for managers about how to conduct global performance management systems is essential; otherwise it is just waste of time and money to implement it. Once rating is trained, the next step is to provide feedback to rates. (Cascio, 2006) What happens after the company has decided on PM? According to Rosenweig & Singh (1991) PM is subject to the tension between the need for global integration, on one hand and local adoption on the other. Many elements of the institutional environment, such as culture and legal system are often specific to a nation. The struggle between host and HQ can be investigated using different theories. In this paper I will use institutional theory, agency theory and socialization theory to see how they positively influence the subsidiary in the case company when looking at global performance management. They describe transfer within the MNC, not a more general view of across borders communication. 10

11 Institutional theory Institutional theory has been used to explain organizations including HRM practices in foreign subsidiaries according to Rozenzweig & Singh (1991). They continue to say that foreign-owned subsidiaries can be conceptualized as being influenced both by institutional factors in the local environment and by international processes, including pressures from the MNC parent company. The tension between HQ and host is also mentioned in Lervik, 2005, in the perspective that the same images can be imitated or integrated and accepted into the subsidiary depending on the relationship between host and HQ. It is grounded in the premises that organisations are social as well as technical phenomena, and that the structures and processes are not shaped purely by technical rationality (Westney, 2005) Kostova (1999) notice that on many occasions a subsidiary manager is frustrated with HQ s request to implement yet another new program. That may lead to a decision, intentionally or not, to implement a particular practice while reporting otherwise to HQ. The transfers are not always smooth and successful in a MNC. If the subsidiary feel alienated from the parent organization, they might have problems with following the request. Institutional theory is explained in an article by Kostova & Roth (2002) and is in short summarized here. Using institutional theory is useful, where the institutional pressures comes from MNC (parent), subsidiary in the middle and the local environment (foreign to the MNC but local to the subsidiary, for example a legal or cultural aspect is usually specific only to one nation). There is an isomorphic pull from both, pressure from legitimacy action from both. It can be coercive, mimetic and normative. Central theme is that organizations sharing the same theme will employ similar practices and anyway become isomorphic with each other. This explains how an organization adopts an organizational practice in the subsidiary of a MNC, the affects it will have on institutional profile of the host and relational context in the MNC. (= Institutional duality ). Organizational practices can vary among nations. Hereby lays the tension for the need for global integration on one hand and local adaptation on the other and how the subsidiaries respond. Particularly important is that a subsidiary is not independent. It is affected by any transfer, which is also affected by the active agency of subsidiary management, it s discourse and discretion. Given the institutional duality, the practice might be viewed as inappropriate or ineffective for the host. Particular functions have evolved over time under the influence of the organization. But subsidiary is in practice mandated by the parent, and the subsidiary is obligated to comply. Ceremonial adoption is therefore used as an expression. (Meaning adoption only on paper and not in real life). A model of practice adoption focuses on institutional context and implementation on external and objective behaviors. And they separately examine the three pillars: coercive, mimetic and normative. Relation context can be inside, but foreign subsidiaries can also confront pressures within their MNC to conform to organization based structures and practices. The characteristics are dependence, trust and identity. According to Harris, Brewster and Sparrow (2003) the institutional perspective focuses on the manner in which societal bodies accord social legitimacy to organizations and thereby contribute to the achievement of organizational success criteria and survival. Institutional pressures from multiple stakeholders may be powerful influences on HR strategy. Global HRM tend to be closer to local practices, because they are often mandated by strong local conventions. That can be seen in for example practices of time off, benefits, gender, training, 11

12 executive bonus and participation. Björkman (2006) again means that most organizations and sub organisations are under pressure to adapt and be consistent with their institutional environment. Foreign owned (by MNC s) subsidiaries can be seen as being influenced both by institutional factors in the local environment and by international isomorphic processes, including pressures from the MNC parent company. When subsidiaries managers have been asked to estimate the extent to which the HRM practices resemble those of local firms and the MNC parent organization, in Chinese-Western joint ventures it was revealed that HRM practices were more similar to those of MNC than to local custom The institutional theory can be used in analyzing global PM, specially the institutional distance between home and recipient. But while I want to focus more on the relationship between HQ and host and not the surrounding institutions, other models to consider is agency and socialization theory. Agency theory Agency theory is how the subsidiary suit in to the headquarters strategy, how HQ control the behaviour of the host, ex financially by influencing the behaviour by tying it to compensation. According to Mudambi & Navarra (2004) and Roth & O Donnell (1996) the relation between headquarter and subsidiary can be characterized as a principal-agent relationship. The social relationship is seen as an interaction between a principal and an agent and in essence the principal delegate work to the agent. Within this perspective it is recognized that the subsidiary pursues its own interest and is not a mechanical instrument of headquarters will. Also, of importance, Mudambi & Navarra (2004) says is the fact that the local interest or goal of the subsidiary may not always be the same as those of the HQ or with the MNC as a whole. The agency theory view subsidiary managers as agents of the headquarter. Within this framework, agents (the subsidiaries) bargain with the principal (HQ) to maximize their share. Subsidiaries are initially set up by the parent MNC with certain goals and objectives. But subsidiaries evolve over time in responsibilities, and the evolution can occur in both directions. They can expand or its roles can be reduced or even eliminated. Many aspects have to do with control. Control over knowledge, R&D and so on. If the subsidiary has limited control over such information they also have little bargaining power in dealing with the headquarters. When there is a question of compensation strategy in global industries there can be an agency problem, meaning that the subsidiary s cultural distance from headquarter regarding commitment and centralization. How agency problem associate with foreign subsidiaries within the global industry is a critical influence in the determination of the compensation strategies necessary to produce desired organizational outcomes. (Roth & O Donnell, 1996) Although agency theory is useful in MNC research to explain foreign subsidiary compensation strategy, O Donell (2000) has acknowledged that foundation for studies of control in MNCs is limited in its s ability to explain fully the phenomenon of foreign subsidiary control. Instead she suggests a model based on the intra-firm interdependence as having much greater ability. The agency theory serves as a basis for a model that predicts the use of monitoring mechanisms and incentive compensation. These can however be insufficient for independent subunits, so it is argued that several social mechanisms be used also. Mudambi & Navarra (2004) mean that subsidiary managers can control significant amounts of the MNC knowledge asset and therefore have power in the company. In the MNC 12

13 context, monitoring can be defined as activities or mechanisms used by headquarters to obtain information about the behaviour and decisions of subsidiary management (O Donnell, 2000). Hennart (2005) deals with the question of how to make geographical and cultural distance makes it difficult to establish control, and also make it difficult for MNCs to establish the cooperation of the subsidiary. Over centralization (all decisions taken by HQ) can lead to paralysis and decentralization to chaos. Björkman, Barner-Rasmussen & Li (2004) outline that in the potential asymmetry between the goals of headquarters and those of the subsidiary, the latter may not act according to corporate interest. The MNC use several mechanisms to control and coordinate the foreign subsidiary. One is naturally a performance management evaluation system. Socialization Theory To study the literature of coordination mechanisms in MNC s, such as the relationship between degree of centralization and independence of parent to foreign subsidiary, one can also consider socialization theory. Corporate socialization mechanisms are positively related to transfer in foreign subunits when a practice is integrated, but not when just imitated. This depends on the degree of autonomy in decision-making in the foreign subunit. (Lervik, 2005) A transfer does not occur in a social vacuum but rather is contextually embedded; social, organizational and relational. Social context is being the distance between the parent company and the receiving unit between counties. Organizational distance is between the players in the company and relational in conceptions in terms of the perception of the members of activities based on past relationship. In other words trust, commitment and identity to parent. (Kostova, 1999).In the article from Björkman, Barner-Rasussen and Li (2004) they use both agency theory and socialisation theory to explain about managing knowledge transfer in a sample about 134 Finnish and Chinese MNC subsidiaries. They found that MNC s can influence inter unit knowledge transfer and flow by specifying the objectives of the subsidiary and by utilising corporate socialisation mechanism. But there was no support for the management compensation influencing or expatriation influencing. A crucial design problem for MNC top management is how to choose organisational mechanisms that enhance knowledge flows, especially within the MNC. There is still a lack of research on the mechanisms to ensure that the competence is transferred from subsidiaries to other units. As an example, a subsidiary can be reluctant to transfer information to another unit because of fear of loosing their own position, or they will not be compensated for their own efforts or costs. Therefore it is in the subsidiary s self-interest not to transfer knowledge to other units, even if it would benefit the MNC as a whole. Agency theory have been used extensively in MNC research recently, in view of the HQ-subsidiary relationships and compared to a principal-agent relationship The article uses as a hypothesis that several kinds of mechanism are used against opportunism of the subsidiary. Also it can be argued that self-serving behaviour on the part of managers can be mitigated by company socialisation. Knowledge flows are positively related to corporate socialisation mechanism and therefore also performance management. 13

14 IN PRACTICE Research agenda The increased interest of academics regarding the management of human resources in different parts of the world (due to globalization) shows the need for more research and publications to provide a reliable and comprehensive picture of HRM systems relevant to different parts on the world. (Budhwar, 2004) Possible research question can be that if there is a good PM system in the company, what does that mean for the company, profit, competitor advantages, and information benefits? Another researcher (Cascio, 2006) says that PM systems are tools that can have positive outcomes when done properly, by putting results together with rewards. Then the system is taken seriously and the company will spend more time on developing and training individuals. Global PM in a theoretical framework; Issues related to the implementation of PM systems. Possible focus on; IT (electronic HR) Power/politics The role of language (barriers, translation x 2) HOW Theoretical framework (theories) Agency Socialization Institutional Mechanism behind Level: WHY? Individual/team/ subsidiary/organizational WHAT PM description and design in MNCs Why? Theory vs Practice Effect on PM? OUTCOMES PM integration Standardizationadaptation dilemma Measures: Stages of implementation, integration or internationalization. Ceremonial adaptation Explanation: Parent vs. host pressure Impact of culture Longitudinal study, 3-4 years (retrospective) What have done? Quantitative study, 1 company, European Figure 2.Research design In the case study there will be explained the design of global performance management system and practices, including reasons behind the mechanism used, how they are globally integrated or implemented into the foreign subsidiary. 14

15 Conclusion It is widely agreed by management researchers that globally distributed networks of subsidiaries constitute an important source of competitive advantage for multinational corporations, MNC s (Björkman, Barner-Rasussen and Li, 2004) To make the IHR practices more proactive and globally strategic and a fully integrated global business partner and find developing talent on a global basis, PM is a suitable instrument and practice. Integration research so far has been limited, how organizations are integrating IHRM and global PM to work in progress. The paper focuses on exploring the different forms of design, implementation and outcomes of PM. It looks at individual evaluation, the employee performance management, neither team nor company focus. Company goal are the base for developing individual employees performance goals, and achievement of the company goal depends on how well the employees can achieve their performance goals. It is important to link PM to company level strategy. Even if performance management represent a tool for control in implementing company strategy, it should also consider local business conditions and be arranged in a way that fit and is responsive to those. External factors affecting local performance include economic circumstances, competition, demographic, supporting infrastructure, unions and national culture. (Vance & Paik, 2006) How this affects PM, subsidiary and MNC relationship is what have been discussed in this paper. Studying the process of performance management and it s effectiveness for host-country nationals is an important benefit. This approach is applied in international context. Little research has been done about how to transfer HR practices across border, and specifically the subject of PM even if it is of most importance to the companies since it is closely related to strategy. There is almost no published empirical research on the relative effectiveness of PM practices for MNC s. (Cascio, 2006) Transferring PM to another country means more things to consider for the MNC. The integration stage of PM begins after the recipient achieves satisfactory results with the transferred tool. There is a lack of theoretical framework about PM (Tahvanainen, 1998) so therefore my own attempt to design one and place it in a global context. The focus is how a PM process happens. Performance can be measured according to an individuals past performance and then linked to goal settings which in turn leads to training and development planning, and possible compensation. (The last issue is being a subject for debate). The payoff in terms of performance comes only if HRM is linked to a strategy that reflects the industry and the competition. Organizational culture also consists of a set of values, beliefs, priorities and assumptions of an organization that guide individual and collective behavior. The culture can be shaped naturally by the members in the organization but it can also be shaped and changed through systematic programs by the managers of an MNC. (Vance & Paik, 2006) Even if there is controversy about the question of HRM practices contribution for a company s performance, (Evans, Pucik, & Barsoux,, 2002) PM systems successfully integrated in the company can effectively affect the outcome. Effective performance management is beneficial both to the individual and the firm. It is also an important source of information on which other personnel-related activities such as training and development are based. But multinationals can not allow the subsidiaries to become autonomous in for example financial terms and place control on the managers. 15

16 What does the theories have to say about PM and relationships between HQ and subsidiary? One useful theoretical framework is the institutional theory, but another is the agency theory because agency theory is about social control mechanisms, from host point of view. According to Roth & O Donnell (1996), from an agency perspective, social relationships are interaction between a principal and an agent, which can easily be compared to a MNC and a subsidiary. The problem is when the goals are in incongruence or there is a difficulty in monitoring the performance. The degree of monitoring according to agency theory depends mostly of two things, the asymmetry of information between principal and agent and the agents (subsidiaries) role in decision making, in other words degree of independence. Notable is also that the relationship between agent and MNC can change over time. Difficulties in monitoring can occur when the subsidiary management have high level of specific information that the MNC don t have. Taking care of globalization requires a building up in the company. Here the MNC can use Performance Management, which find it s roots in the strategic management and adds value to the activities at different range of operations. Acknowledgement The author would like to thank TEKES (Finnish Funding Agency for Technology and Innovation) for financial support and the Evald and Hilda Nissin Säätiö for financial support for the travel and accommodation arrangements to the conference. 16

17 SOURCES Björkman, I. (2006) International human resource management research and institutional theory. In Stahl, G.K. & Björkman, I. (Ed) Handbook of Research in International Human Resource Management. Cheltenham: Edward Elgar Björkman, I. Barner-Rasussen, W & Li, L. (2004) Managing knowledge transfer in MNCs: the impact of headquarters control mechanisms. Journal of International Business Studies. 35: Briscoe, R.D & Schuler, R.S. (2004) International Human Resource Management. Second Edition. Policy and practice for the global enterprise. London and New York: Routledge. Brewster, C. (2006) Comparing HRM policies and practices across geographical borders. In Stahl, G.K. & Björkman, I. (Ed) Handbook of Research in International Human Resource Management. Cheltenham: Edward Elgar Brewster, C. Sparrow, P & Harris, H. (2005) Towards a new model of globalizing HRM. International Journal of Human Resource Management 16(6): Budhwar, P.S. (2004) Introduction: HRM in the Asia-Pacific context in Budhwar, P.S. (Ed) Managing Human Resources in Asia-Pacific. London: Routledge. Cascio, W.F. (2006) Global performance management system. In Stahl, G.K. & Björkman, I. (Ed) Handbook of Research in International Human Resource Management. Cheltenham: Edward Elgar Dowling, P.J., Welch D.E. & Schuler, R.S. (1999) International Human Resource Management: Managing people in a Multinational Context. 3 th ed. London: Thomson. Edwards, T & Rees, C. (2006) International Human Resource Management. Globalization, National Systems and Multinational Companies. Prentice Hall. Essex: Pearson Education Limited. Evans, P., Pucik,V. & Barsoux, J-L. (2002) The Global Challenge. Frameworks for International Human Resource Management. Boston: McGraaw-Hill Irwin. Harris, H. Brewster, C. & Sparrow, P. (2003) International Human Resource Management. London: CIPD House. Hennart, J-F. (2005) Control in Multinational Firms: The Role of Price and Hierarchy. In Ghosal, S. & Westney, D.E. (Ed) Organizational Theory and the multinational corporation. New York: Palgrave MacMillan. Kostova, T. (1999) Transnational transfer of strategic organizational practices: a contextual perspective. Academy of Management Review. 24 (2), Kostova, T. & Roth, K. (2002) Adaption of organizational practice by subsidiaries of multinational corporations: institutional and relational effects. Academy of Management Journal. 45(1),

18 Latham, G.P., Almost, J., Mann, S. & Moore, C. (2005) New Developments in Performance Management. Organizational Dynamics. 34(1), Lervik, J.E.B. (2005) Managing Matters. Transferring Organizational Practices within Multinational Companies. BI Series of Dissertations. Oslo: BI Norwegian School of Management. Lindholm, N. (2000) National Culture and Performance Management in MNC Subsidiaries. International Studies of Management & Organizations. 29(4), Mudambi, R. & Navarra, P Is knowledge power? Knowledge flows, subsidiary power, and rent seeking within MNCs. Journal of International Business Studies. 35, O Donnell, S.W. (2000) Managing foreign subsidiaries: agents of headquarters, or an interdependent network? Strategic Management Journal. 21 (5), Rosenzweig, P.M. (2006)The dual logic behind international human resource management: pressures for global integration and local responsiveness. In Stahl, G.K. & Björkman, I. (Ed) Handbook of Research in International Human Resource Management. Cheltenham: Edward Elgar Rosenweig, P.M. & Singh, J.V. (1991) Organizational Environments and the Multinational Enterprise. Academy of Management Review. 16 (2), Roth, K. & O Donnell, S. (1996) Foreign subsidiary compensation strategy: an agency theory perspective. 39 (3) Scholte, J.A. (2005) Globalisation a critical introduction. Second Edition. New York: Palgrave Macmillan. Shipper, F., Hoffman, R.C. & Rotondo, D.M. (2007) Does the 360 Feedback Process Create Actionable Knowledge Equally Across Cultures? Academy of Management Learning & Education. 6 (1), Sparrow, P. (2007) Performance Management Systems in the UK. In Varma, A., Budhwar, P.S. and De Nisi, A. (Ed.) Performance Management Systems Around the Globe. London: Routledge Sparrow, P., Brewster, C. & Harris, H. (2004) Globalizing Human Resource Management. London: Routledge. Stahl, G.K. & Björkman, I. (2006) Handbook of Research in International Human Resource Management. Cheltenham: Edward Elgar. Tahvanainen, M. (1998) Expatriate Performance Management. The Case of Nokia Telecommunications. HeSe: Helsinki School of Economics and Business Administration. A

19 Vance, C.M. & Paik, Y. (2006) Managing a global workforce. Challenges and Opportunities in International Human Resource Management. Armonk: M.E.Sharpe Westney, D.E. (2005) Institutional theory and the multinational corporation. In Ghosal, S. & Westney, D.E. (Ed) Organizational Theory and the multinational corporation. New York: Palgrave MacMillan. 19