Global Leadership at GE - Case Study Example

Student Name] [Instructor’s Name] [Class Name] International Organizational Behaviour Introduction American individualism as well as the manner in which American firms are managed by professionals has been studied by management gurus for years and while their management practices have been criticized, they have also been appreciated by many. American companies such as GE often come up in the list of most admired and respected companies in global terms and their CEOs become management experts and consultants once they have retired successfully. However, it is difficult to disagree with the statement that their management practices may be considered unique since the idea of exporting the American brand of management to other nations does not always meet with success. This has many implications for global leadership and cross cultural management as well as motivation which can be understood with examples and the opinions given by experts in the field. Global Leadership The fundamental reason for the increased importance of global leadership and cross cultural management is the growth in globalisation as well the open systems of business that appear to work without real boundaries. It might have been possible that a hundred years ago a company could take all inputs and produce all outputs for the country it was located in but today the situation is very different (Edwards & Kuruvilla, 2005). A company may have its central office and sales department located in London, the factory in China, the research centre in the US while the support centre could answer calls from India. This means that the people working for the company will have different locations and they are very likely to have different cultural schemas for management and performance. Even motivation may be understood differently depending on the cultural viewpoint adopted by the employees. However, leadership and the visions of the company given by the CEO can be set with good policies and effective human resource management practices (Hollinshead and Leat, 1995). In the simplest of terms, the need for effective global leadership which sets the tone for the management of an international company come from the desire of getting the maximum value from the human assets which a company can all on (Ozbilgin, 2005). These employees may be distributed across the world but since they work under a single company, their management practices may be similar regardless of the country where the company is operating. However, the similarity of management practices do not necessarily mean that they would be effective since the management style and cultural differences between the home office and offices located in other countries led managers to a position where culture clash became inevitable (Faulkner, D. 2002). Even the most well managed companies of the past often ignored cultural differences since they believed that the culture of the parent company as well as the home country would prevail over other locations (Kamoche, 1996). More recent evaluations of this belief have shown that cultural conflicts need active management control and even though they are considered a hindrance to business, they can be countered and even used to motivate individuals (Bartlett & Ghoshal, 1998). This is best seen in the case of GE which tried to export its American brand of management practices to Hungary and found that it was unable to do so. Exporting Culture As an international company, GE leads the world market in many different aspects of business. Few companies can command the same level of recognition and respect in international business as GE (Demos, 2006). They have received awards from management experts and have been continually used as an example of how an international company should be run (Fisher, 2006). However, they are not without their set of failures since their attempts to create the same management environment that they have in America were not successful when they wanted to enter into the central European market through Hungary. Fisher (2006) and Demos (2006) both see the management practices of GE in America as well as other countries of the world and say that these are the ideal American values that should be present in business. However, Welch (2005) reports that when GE took their system of employee differentiation and reward management to Hungary, they faced huge problems due to the cultural mismatch of the corporate environment in Hungary. The company’s operations in Hungary were completely out of sync with the external environment and GE was losing money since the cultural differences had created inefficiencies due to human resource related issues (Welch, 2005). In complete opposition to the American management systems of the company, the Hungarian operations had strong powers vested in local managers who were very resistant to change. American individualism supported the idea of change while the Hungarian idea of conformity and collective decision making slowed down the change and innovation process. Even when it came to motivating employees, the cultural systems of Hungary focused on the time the employee had spent with the company and the seniority of a manger rather than his/her performance. In contrast, the American arm of the company was a strict meritocracy and gave rewards based on what the employee brought to the company. In essence, GE lacked culturally aware local managers who could appreciate the position of the company regard to its policies for rewarding employees and this was causing problems for GE (Welch, 2005). While attempts were made to reconcile the management systems, the problems only mounted as the Hungarian managers did not want change while the American company needed a different management style. The solution found by GE to the problem was simple as Hungarian mangers who could not cope with the cultural change had to be slowly removed from service based on their performance. GE could not engage in massive layoffs since it feared negative press and union litigation. However the company understood that the problems in the Hungarian operations could only be fixed if culturally mismatched employees could be taken out and replaced with those who were a good cultural fit (Welch, 2005). This is because the local culture and the local systems for managing employees were simply incompatible with the American ideals used by GE. To find such individuals that could be culturally matched with the American exported culture, GE developed the HRM requirements which started with making Hungary the base of their European operations. This put Hungarian managers in direct competition with other European nations which were closer in culture to the American values GE wanted the Hungarian operations to have. All new employees recruited at GE in Hungary were screened for being good cultural matches for GE and the company preferred to hire those individuals who were accepting of change. Not only did the company earmark them for management positions, their performance and their output meant that they were able to quickly rise up in the ranks of the company (Welch, 2005). The American management system for GE worked with rewarding performing employees and with by threatening non-performing ones with termination. The theoretical model for this comes under the functionalist paradigm since the system works with the expectation that individuals are rational actors and will be motivated through rewards while they try to avoid the pain of being asked to leave the company (Burrell, 1979). Such a concept of creating motivation in employees through a merit based system is also strongly supported by Bach (2005) who suggests that merit and the level of individual performance should be taken as the primary factors for rewarding and promoting all employees in a company. Thus both for recruitment and internal promotions, GE in Hungary was reshaped as GE in America where there was no space for low performance. In fact, this is the same system which is used by GE across the world since the bottom 10% of employees in the company are removed every year (Welch, 2005). In time, the culture of GE in Hungary was replaced by the culture of GE in America but only when the people controlling the culture of the regional office had also been replaced. In essence, this only goes to show the validity of the statement in the question since American management practices such as GE’s policy of differentiation between employees is quite American to begin with. The policy could only be exported once the culture had been replaced by people who believed in it and supported it. As discussed by Kidger (1991), problems of a cultural nature can develop when managers based in one nation try to apply their national management culture to the organisational or management culture of the company’s offices located in others. For global leaders, awareness of local cultures, norms and traditions become essential if the company is to successful replicate itself from one location to another. This understanding can allow the company to come to terms with the new culture and find means to modify it to suit their own needs. Laurent (1986) reports that without carefully management and cultural awareness, a company may push its local culture on to the regional office located in a different country but the effect would be temporary. On a longer timescale, unless the culture of the company is managed through motivation and organisational change, the local culture would eventually win out. In fact, Edwards & Kuruvilla (2005) go as far as to say that strategic management decisions and human resource management policies should never be made in isolation since local managers in different countries may find it impossible to apply them to their co-workers. War of Cultures In some situations, the cultural clash may come to a point where the company managers at the local level may actively seek to go against corporate HR procedures or other HR related directions from the home office. Regional managers may actively generate problems during policy development or even obstruct the policy from being enforced in the branch office without giving a real reason other than culture clash. Such situations are more likely to occur in the case where local managers see that their personal influence is eroding or that cultural values are coming under threat from the culture of the home office (Edwards & Kuruvilla, 2005). Of course this may be considered a rather unexpected move from local managers since their position in the hierarchy of an international company may be quite low. However, their strength comes from their local position rather than the overall position in the company. Local managers may form the opinion that executives in the home office are depend on them for the smooth operation of the company and this gives them the stance with which they can hinder the operations of the local setup. The situation would undoubtedly be worse where there are strong communication barriers between local and home office managers (Edwards & Kuruvilla, 2005). Thus, international HR policies may be inapplicable without the right kind of support coming from local managers. At times, local managers can be the best tools that the home office has to control the culture of the local office and show the local employees that they do matter to the company. Local managers are the only ones who can act as intermediaries for foreign managers and local employees (Edwards & Kuruvilla, 2005). On the other hand, the resistance of local managers towards international policies can only create problems through cultural misunderstandings (Broad, 1994). Of course, the home office managers are not entirely free of all blame in situations where cultural conflict is evident. An American manager who wishes to force American management techniques may not be successful in an environment where the American culture is not appreciated. Such situations can cause the home office managers to take a more confrontational approach where they could be using their position as policy makers to improve and solidify their respective positions in the management structure of the organisation (Edwards & Kuruvilla, 2005). This is likely to create a hostile environment for all workers and HR policies that had the intention to bring about more unity could be used as tools to obtain more power within the firm (Edwards & Kuruvilla, 2005). This idea is also discussed by Martin and Beaumont (2001) who suggest that home office managers may simply wish to create new policies or replace existing policies just because they want to see a change in the manner in which the company works and not because the change would bring about real efficiencies. The Solutions As discussed by Welch (2005), it is dangerous to think that local employees can readily adapt to the foreign (especially American) culture of a company to give up their regional cultures or values. While it may happen in some situations, it is more likely that the culture in which the local employees have been raised could never be removed. These warnings make it easy to agree with the recommendations made by Laurent (1986) who recommends that the culture of a country should be understood by the managers of an international organisation before it starts doing business in that country. In fact, the cultural concerns should be made a part of the policies of the regional setup of the company. This can be the critical factor for the success of the company when it seeks to move into foreign lands. Simply put, the central objective for the international company in terms of cross cultural management is to have the right policy along with keeping good communications between all concerned parties. Poor communications and issues in getting to an agreement on management policies may lead to problems of cultural management. A sharing of cultures needs to be there which leads to an understanding of why some policies that seem strange to local employees are required for the company. It must be explained that the policies are not against any particular group within the company but are actually for the smooth running of the business (Kamoche, 1996). Of course there may have to be some bargaining done on the policy itself but that is a part of the negotiations between cultures that managers have to engage in. Of course another solution to the problem would be to have multiple policies which depend on the location of the business and thus different management policies could be made for different regions to eliminate the chance of a cultural conflict. Localised policies would also take away a lot of the burden from the home office managers and would also allow local managers to handle management issues as they relate to the national culture (Bartlett and Ghoshal, 1998). Additionally, local management policies would also be more likely to be in line with legal and regulatory orders of the regional government. Conclusions When it comes to exporting culture, the better idea might be to not try it at all and instead focus on what can be gained from the local culture. Based on the local culture, a company can slowly modify management policies, hire the right sort of individuals and make sure that there is a movement towards improved cultural matching between the local offices and the home office. In conclusion, the issue of exporting the American or any other culture for that matter to another country comes from the very nature of culture itself since it is difficult to impose. Instead of focusing on the differences, managers should try to seek out similarities and should appreciate the fact that cultural differences can be used to make the firm more competitive. With the coming of globalisation, the future may not have any cultural differences when it comes to the business world but as of yet, we live in a world where culture matters and thus managers should do all they can to use culture to the advantage of the company. Word Count: 2,625 Works Cited Bach, S. 2005, Managing Human Resources: Personnel Management in Transition, Wiley. Bartlett, C. & Ghoshal, S. 1998. Managing Across Borders: The Transnational Solution to Managing Across Borders, 2nd ed. Hutchinson, London. 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