MANAGEMENT DEVELOPMENT AND ORGANISATIONAL STRATEGY: THE MISSING LINK?

Linking strategy with HRM and management development leads to enhanced organizational performance. However it can be hypothesized, that organizations do not respond to such managerial wisdom equally when placed in different cultural settings. This papers tests and discusses the effect of country on the way managers perceive the fit between their employer organization’s strategy and its HRM and MD practices.

Keywords:  management development, organisational strategy, cultural differences

Introduction

It is widely held that the key to competitive advantage lies in the capacity within the organization for developing and maintaining core competences (Barney, 1991; Grant, 1991).  Strategies which recognise core competence as a key organizational resource that can be exploited to gain competitive advantage are prevalent in the recent literature (Barney, 1995; Prahalad and Hamel, 1990; Mitrani et al, 1992; Tobin, 1993; Thurbin, 1995; Hussey, 1988; 1996; Campbell and Sommers Luchs 1997).  However, the importance of core competence for competitive advantage was recognised even in the era of classical strategy as ‘distinctive competence’ (Andrews, 1965) and ‘firm capabilities’ (Ansoff, 1965).  Clearly, therefore, the development of core competence, including managerial competence, is a crucial part of organisational strategy (OS) irrespective of the particular approach to strategy adopted.

Hussey (1988) concluded that most training and MD is wrongly focused:

What is needed in most companies is a mental shift from the common idea that training should be for the improvement of the individual because this will benefit the firm, to the concept that training should be for the benefit of the firm and this will benefit the individual. (Hussey, 1988: 69).

If management training is to contribute to the attainment of corporate objectives, and is to be used as a competitive weapon, Hussey (1988: 84-5) argues that the initiative must come from the chief executive and training needs must be assessed against corporate requirements.  Moreover, formal training should relate to the corporate need first, with individual needs being ‘incidental’: ‘this implies that the annual training assessment of individuals, or the results of the residential assessment centre, have to be related to an understanding of the company aims, strategy, the business environment, and the desired company culture’ (Hussey, 1988: 190).

Nevertheless, it is clear that in many organizations, such a relationship does not exist and, given its pivotal importance, this can be seen to be the ‘missing link’ between development and performance.  This paper focuses tries to explain managerial perceptions in terms of strategy and HRM, as well as strategy and management development (MD), from a cross-cultural perspective. 

Integrating development with strategy

Many authorities share Hussey’s view that MD must be linked with OS.  Burgoyne (1988) proposed a model for integrating the development of the individual and the organization.  Kilcourse (1988) showed how this strategy of developing the individual and the organization in parallel was successfully adopted in one organisation.  Wild (1993) describes a Corporate Strategy model, designed ‘to integrate the MD activities of an organization with its strategy in order to provide a framework for the specification of priorities for MD for that organization’, whilst enhancing the organization’s ‘capability and competitiveness’.   Noting that firms have tended to conduct MD without any clear purpose, Michael (1993) argues that ‘executive training must be linked to organizational strategy, so that executives can manage the substantial change that is required of them’.  Robinson (1994: 368) similarly argues that organizational development (OD) and MD should be closely integrated, since OD is concerned with strategic level initiatives to improve OP, and uses the label ‘learning organization’ to capture this harmonisation of MD with OD strategies (373). 

The importance of linking MD with OS has been emphasised where it is used to support strategic change (Marsh, 1986; Pate and Nielson, 1987) and restructuring (Oram and Wellins, 1995), and where strategic MD is seen as the key to competitive advantage (Shröder, 1989; McClelland 1994).  However, despite the substantial expenditure on MD each year in the UK, ‘few companies have yet integrated it into their strategic planning process and it is poorly implemented’ (Miller, 1991).  There is some evidence that the situation has improved.  A survey by the Harbridge Consulting Group (1993) found that in the decade 1982-92, the proportion of UK business organizations in which MD was explicitly linked to corporate strategy increased from 33 per cent to 54 per cent.  Nevertheless, the Taylor Report (IoM, 1994: 47) noted the continued conflict between individualism and corporate goals.  The inherent tension is between the need for organizations to encourage empowerment and individual responsiveness while simultaneously promoting corporate cohesion and teamwork.  Managers will be required ‘to take responsibility for their own part in corporate success.’

 Moreover, while HRD involves both strategic and functional activities, the latter are often prevalent as a result of the marginalisation of HRM and its dislocation from OS (Stewart and McGoldrick, 1996: 10).  Pont (1995: 27) similarly argues that the HR function has traditionally had relatively little impact in terms of OS because it is largely preoccupied with operational matters.  Marchington and Wilkinson (1996: 374-5) note the difficulties in making clear links between HRM and business strategies and doubt the potential for HRM to have a structured role in strategic decision-making.  If the personnel and development function is represented at board level there is more likelihood that HRD will form an intrinsic part of OS, yet UK evidence suggests that only 30 per cent of companies employing over 1,000 workers have any HRM function represented at board level (Marchington and Wilkinson, 1996: 375).  There is a danger of HRD specialists having to take on the role of facilitating strategic decisions taken by senior management without consulting them.

Tyson (1995: 97-102) cites MD as one of three distinctive areas where personnel and development professionals can make a key contribution to OS (the other two are employee relations and OD).  Temporal (1990) similarly identifies the role for HR professionals in ensuring that MD is linked to future business needs.  Armstrong (1989: 195-7) argues that the greatest scope for HRM to have an impact on OS is through strategies which develop the culture and values of the business.  However, MD can only form an effective part of OS if the strategy is adequately communicated to all managers and resources are available to fund the necessary training and development (Pont, 1995: 13).

Hussey (1988: 88-9) suggests that training can be used as a tool for implementing corporate strategy in several ways:

¨         a very clear understanding can be gained, of both the broad strategy and what it means to the individual in his or her job;

¨         commitment can be built, as people discover the reason for the strategy and decide for themselves that there is sense behind it;

¨         the implication of implementation can be explored and converted into personal action plans;

¨         suitable training can be given so that the appropriate individuals are able to implement the strategy.

Hussey (1988: 91) provides examples of how MD workshops to develop individual managers differ from traditional training and offer greater potential for relating MD to business needs because:

¨         They are concerned with ‘live’ company problems, identified by a survey and agreed with the chief executive, instead of lectures and simulated case studies.

¨         They seek to influence the perception and attitudes of managers and are action-orientated.  Implementation of agreed solutions is reviewed during the workshops.

¨         The emphasis is on improving effectiveness of management teams, rather than individual managers.  There is greater understanding of the jobs of other managers, and improvement in communications horizontally and vertically.

¨         They enable managers to determine priorities for achievement of their job objectives, and they help integrate the efforts of the management team to achieve the business plan targets.

¨         The benefit of such an approach, it is claimed, is seen in the improved effectiveness of the management team in achieving the company’s business objectives.  Such an argument underlies the national standard for development, which is becoming the main initiative for linking HRD with OS.  

Country differences

However much it would seem to be of good management practice to link HRM with strategy, and in particular MD with OS (a view that is otherwise supported by the findings of Mabey and Gooderham, 2003), we may expect differences in the strength of that perceived link in different countries rather than a simple ‘rational’ link with performance.  As d’Iribarne (1989) and Hofstede (1980) have shown, perceptions of management practice, and management practices themselves, differ widely across countries.  Many authors also argue that there are numerous differences between countries in wide areas of HRM practices such as potential selection and development (Laurent, 1989), career management perceptions, (Derr and Laurent, 1986) and perceptions on hiring (Segalla, Sauquet and Turati, 2001) and terminations (Segalla, Jacobs-Belschak and Müller, 2001).  Thus we expect that cultural or at least country based differences can also have effects on perceptions managers hold with respect to the linkage between strategy, on one hand, and HRM and management development on the other hand.  We can thus formulate our first set of hypotheses.

Hypothesis 1a: the country has a significant impact on the perceived link between strategy and HRM

Hypothesis 1b: the country has a significant impact on the perceived link between strategy and management development

Taking this analysis further, we seek to explain why countries should differ on managerial perceptions of the strategy-HRM and the strategy-MD links.  Hofstede’s (1980) model provides measurements for cultural differences in relation to four dimensions: power distance, uncertainty avoidance, individualism, and masculinity.  In particular we can expect that countries that have been found to display a higher power distance will be countries where perceptions of links between strategy, on the one hand, HRM and MD on the other hand will be lower. In such countries, communications between managerial layers will supposedly be less frequent, more of a top-down style with fewer opportunities for line and functional managers to express themselves, let alone challenge top managers’ views, and therefore display less understanding of the overall coherence between strategy and both HRM and MD.  In our survey, according to Hofstede’s model, ‘high’ power distance countries are the three Latin countries: France, Romania and Spain. We include Romania a priori as a high power distance country, but acknowledge this is questionable, since Hofstede did not include Romania (see discussion below). ‘Low’ power distance countries include Anglo-Saxon, Nordic and Germanic cases: Denmark, Germany, Norway and the UK.  Thus we formulate two further hypotheses:

Hypothesis 2a: in Latin countries, the perceived link between strategy and HRM is lower than in Anglo-Saxon, Germanic and Nordic countries.

Hypothesis 2b: in Latin countries, the perceived link between strategy and MD is lower than in Anglo-Saxon, Germanic and Nordic countries.

Methodology

Telephone interviews were conducted with the HRD manager and a line manager in 100 domestically-owned organizations in each one of the seven following countries: Denmark, France, Germany, Norway, Spain, the United Kingdom and Romania, making a total of 1,400 interviews. This took place within a larger project (Manager Training Database) researching management training and development systems in Europe, funded by the Leonardo da Vinci Program of the European Commission.  Participating countries were selected to represent the five typologies of management training and development previously shown to operate in Europe (Bournois, 1992). They are also evenly distributed in terms of power distance; three of the seven countries being Latin countries where power distance is ‘high’, and four being Anglo-saxon, Germanic or Nordic countries that score ‘low’ in power distance : the UK, Germany, Denmark and Norway.

 

The sample

A stratified sampling frame was used in order to provide a reasonable representation of organizations by size and sector in each country. Using local databases, contact was made by the research team with the HRD manager or equivalent, targeting only host country owned companies within the private, for-profit sector.  Each HRD manager was interviewed and then asked to identify one line manager in their organization that would be prepared to participate in the study.  This procedure was followed until the quota was filled within each country.  In this way the research team aimed to collect matched data for 700 organizations, 100 in each country.  The achieved valid sample of 896 interviews represents a reasonably high response rate of 75 per cent.  The distribution across the total sample is as follows: manufacturing 34.3 per cent, transport and distribution 21.3 per cent and the services sector (including financial and insurance companies as well as legal, business and management consultancy firms) 44.3 per cent, a proportion approximately found in all countries but Germany.

The stratified sample comprised four size categories, each representing about 25 per cent of the sample: 20-99 employees (25 per cent); 100-249 (23.6 per cent); 250-499 (22 per cent); 500 or more (28.3 per cent).  Smaller firms were over-represented in Spain and Romania, while those with 250-499 employees were under-represented in the same countries.  In contrast, organizations employing more than 5,000 were over-represented in Germany.  In terms of turnover, 25 per cent of the 593 organizations that provided this information fell within each of the following four turnover bands: up to €M9.3; €M9.3-€M34; €M34-€M150; and over €M150.

The interview schedules were derived from those used in previous UK studies (Mabey and Thomson, 2000; Thomson et al, 1997; Winterton and Winterton, 1999).  However, every effort was made by the research team to ensure equivalence of all terms, definitions and meanings in each of the seven country contexts. To this end each country interview schedule was back translated and amended where necessary.  The interviews, which were arranged in advance, were conducted by telephone and in some cases face to face, and lasted 20-30 minutes for HRD managers and a little less for line managers.  Questions were asked about industrial and management structure, the organization’s HRM strategy and MD policy, preferred methods and practices for management and career development and mechanisms for evaluation.  Line managers were interviewed about their first-hand experience of training and development, their views on the policies and practices adopted by their employer together with an overall assessment of the effectiveness of the training provided for managers.

Measures: Dependent variables

The perceived link between strategy and HRM was measured by an index averaging responses (1-5 Likert scale) of both line managers and HR managers to the following items (Alpha = 0,74) :

¨    Those responsible for HR play an active role in formulating business strategy (strongly disagree = 1, strongly agree = 5)

¨    My organisation links HR management to business strategy (strongly disagree = 1, strongly agree = 5)

The perceived link between strategy and management development was measured by an index averaging responses (1-5 Likert scale) of both line managers and HR managers to the following item (Alpha = 0,48):

¨    My organisation’s management development policy reflects its business strategy (strongly disagree = 1, strongly agree = 5)

Measures: Independent variables

Country variable: the country variable is coded from 1000 to 7000 as follows: Denmark = 1000; France = 2000; Germany = 3000; Norway = 4000; Romania = 5000; Spain = 6000; United Kingdom = 7000.

Latin country dummy variable: Latin countries (France, Romania, Spain) were dummy coded 1; the other countries (Denmark, Germany, Norway, U.K.) were coded 0.

Analysis

In order to test these hypotheses, we used the analysis of variance protocol where the country variable is the independent variable and t-tests for independent samples where the Latin country dummy is the independent variable.

Results

Hypotheses 1a and 1b are accepted, based on the high degree of significance of our variance analysis statistics. In other words, there are significant differences between countries as regards perceptions of fit between strategy, HRM and MD. Thus the ‘cultural’ is an appealing one, seemingly relevant to explain differences in perceptions of fit between strategy on one hand, HRM and management development on the other hand.  The results of our analyses are shown in Table 1.

Table 1 ANOVA country / perceived links between strategy and HR, strategy and MD

		squares	df	mean	F	sig
Strategy and HR	Inter-group	85.74	6	14.29	23.76	0.001
Intra-group	417.32	694	0.60
Strategy and MD
Inter-group	129.08	6	21.51	32.99	0.001
Intra-group	452.59	694	0.65

As regards our interpretation of between country variance, shown in Table 2, the results appear more mixed: hypothesis 2a has to be rejected.  Contrary to our expectations, perceptions of strategy and HR link thus do not differ significantly between Latin and non- Latin countries.  In our sample, the perception of the strategy and HR link is even slightly higher (though, admittedly, not significantly) in the three Latin countries than in the other four. However, hypothesis 2b can be accepted: the link between strategy and management development is perceived to be higher in the UK, Germany and the two Nordic countries included in the survey (Denmark and Norway) than in the three Latin countries.

Table 2 T-test for means differences between Latin and non-Latin countries

	Latin dummy	N	mean	t	sig
strategy and HR
Non-Latin	401	3.36	-0.77	0.442
Latin	300	3.41
strategy and MD
Non-Latin	401	3.58	2.92	0.004
Latin	300	3.37

Though these results may seem to support some of our initial hypotheses, their mixed character questions the relevance of the distinction between Latin and non-Latin countries as a predictor of managerial perceptions of fit.  Further analyses into country differences were then conducted in order to explore the relevance of our explanation of perceptions of the strategy-HRM and the strategy-MD links through the lenses of Hofstede’s model.  They reveal a country pattern that is hardly consistent with ‘power distance’ explanations of managerial perceptions: two Latin countries, France and Romania, presumably countries with high power distance scores in Hofstede’s framework, stand at both extremes of the spectrum of the perceptions of fit under study, France scoring lowest and Romania highest, as shown in Table 3.

Table 3 Perceptions of strategy-HRM and strategy-MD links by country

	strategy and HRM	strategy and MD
Denmark
3.32	3.50
France
2.70	2.66
Germany
3.39	3.48
Norway
3.51	3.98
Romania
3.92	4.06
Spain
3.61	3.39
UK
3.22	3.34
Total
3.38	3.49

An ANOVA was conducted within both blocks of countries initially considered.  Results (see Table 4) are significant within the Latin block, even more than between Latin and non-Latin countries.  In other words, there are highly significant differences between Latin countries, in particular between France and the other two.  These findings suggest that the ‘power distance’ explanation of managers’ perceptions of the fit between strategy and both HRM and MD, has to be rejected or at least discussed further.

Table 4 ANOVA perceived links between strategy and HRM, strategy and MD within the Latin sub-sample

		squares	Df	mean	F	sig
strategy and HR	Inter-group	80.78	2	40.39	72.12	0.001
	Intra-group	166.31	297	0.56
strategy and MD	Inter-group	98.75	2	49.38	82.59	0.001
	Intra-group	177.56	297	0.60

Discussion

These results are at the same time compatible with ‘country’ explanations, but using the ‘power distance’ dimension coupled with the ‘Latin’ characteristic, appear irrelevant.  This requires comment.

Romania, being a Latin speaking country, was included in a ‘Latin’ sub-sample.  This, of course, may be questionable, since Romanian culture may display strong differences with the other Latin, more westernised, cultures.  In particular, it must be borne in mind that Hofstede’s work did not include Romania the sample of countries.  Therefore, classifying Romania as ‘Latin’ particularly so far as the ‘power distance’ dimension is concerned, can only be considered as a reasonable assumption based on work conducted in former Eastern Europe (Brewster and Hegewisch, 1994), an assumption that has to be specifically studied further using Hofstede’s methodology and instruments.  The same could be said of Spain, although here, data exist from Hofstede’s investigations, that provide stronger grounds for classifying Spain as ‘Latin’.

It can also be noted that, between France and Spain, Hofstede’s study ranked France ahead of Spain in terms of power distance.  So, only looking at those two countries, our results are compatible with Hofstede’s.  The discrepancy with the latter arises when we include the four ‘Northern European’ countries, typically considered countries with a smaller power distance than Spain, yet countries where perceptions of strategic fit are lower than in Spain.

Another issue concerns intervening variables that might account for the observed differences between countries as regards the perceptions of ‘strategy-HRM’ and ‘strategy-MD’ fits.  More specifically, these might in fact disguise differences that in reality are accounted for by to two other important variables: size and sector.  Smaller firms might, for instance, have fewer management layers, so access to top management is easier and more frequent, which might lead to higher perceptions of fit.  For instance, there is a higher proportion of smaller firms in the sample for Spain and Romania, than in France and Germany, which could account for the higher perceptions of fit in these two countries.  These rival explanations must however also be rejected: we conducted further tests (bivariate correlations and ANOVA) in order respectively to explore the effect of number of staff, turnover, and sector.  We also used multiple regressions using staff, turnover and sector as control variables.  All tests converge on the following statement: staff numbers, turnover figures and sector are either insignificant predictors, or predictors with an effect that in fact reinforces the ‘country’ explanation.  In particular, we found that perceptions of fit are positively correlated with turnover, where Spanish and especially Romanian firms in our sample have smaller turnovers on average than firms in other countries, and yet exhibit a higher score as regards the perceptions of fit under study.

Two other elements seem relevant to explain if not the ranking of each country, at least the extreme position of Romania as regards the ‘strategic fit’ perceptions of their managers: a ‘start-up economy’ effect on the one hand; a desirability effect on the other hand.

The ‘start-up economy’ argument can be formulated as follows: the Romanian firms covered by this study belong to the private, for-profit sector, which is very recent in the economy of this country.  The companies able to survive in this sector are, supposedly, unrepresentative of the Romanian economy taken as a whole, though they may be representative of what it will be in the future.  They may be companies with a short track record, but with clear strategic options in terms of both generic and substantive strategies, that have made them successful challengers of their Western competitors, able to survive and grow despite their lack of experience with market economies.

Another possible explanation is that, because Romania is in the process of requesting EU membership, respondents may have been tempted to bias their responses in order to make a favourable impression on the research team, especially if their respective organisations are to take advantage from EU membership.  This hypothesis has to be taken into account given the fact that the research project from which the above results are drawn is sponsored by the European Commission, an element made clear to all respondents.

Conclusion

This contribution investigated the link between an organisation’s nationality and the perceptions of strategy-HRM and strategy-MD fits among HRM and line managers in seven European countries. Though we could accept our first set of hypotheses, that ‘country matters’ in order to predict such perceptions, we had to reject the hypothesis that such perceptions are lower in countries with high power distance in Hofstede’s terms, i.e., Latin countries, than in non-Latin countries.  In actual fact, two Latin countries are found at both extremes of the spectrum: France (with the lowest levels of perceptions of fit) and Romania (with the highest).  Another Latin country included in this research, Spain, stands somewhere in the middle and displays results that are closer to non-Latin countries, than with either France or Romania.  We attempt to explain these results, particularly in order to account for Romania’s outstanding scores on the perception variables under study.  Further research should be undertaken in order to carefully study whether these observed differences are stable, are owed to ‘cultural’ traits, or to other intervening variables not included in this contribution, such as the organisation’s age, or the respondent’s level in the organisation.

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