February 20, 2009

Human Resource Management Lesson 7 exercise

Question 1: What implicit expectations do you and the employees you manage/work with have of your employer?

The mutual beliefs, perceptions, and informal obligations between an employer and an employee in an employment relationship form what is called the psychological contract. This has been defined by Herriot (1998;106) as “the beliefs of each of the parties to the employment relationship, the individual and the organisation, as to what their mutual obligations are”

These implicit expectations contained in the psychological contact can vary depending on the nature of the employment relationship. If the relationship is short-term and narrowly defined, there will be less implicit expectations than in a long-term contract which is in nature more open-ended and diffuse. The psychological contract is more important in the long-term relationships, therefore a breach on it could lead to demotivation issues.

Given that the psychological contract has many to do with motivation, In the picture below I have mapped against the Maslow Pyramid (Maslow, 1943) a number of different expectations that, in my opinion, the employees has in an employment relationship.

phycologicalcontract.jpg

Some expectations are difficult to situate in a particular pyramid level. For example, can be argued that “training” is really a “Self-Actualisation” activity or that “ensure fair treatment by managers” is in the “Belonging” level” and not in the “Self-Esteem” level. In any case, what is important here is to identify the expectations and the corresponding pyramid level affected in case the expectation is not fulfiled by the employer (psychological contract breach).

On the other side of the psychological contract we have the employee’s obligations to the organisation. Among others I can think on the following:

* Flexibility. For example, volunteer to perform activities that fall outside my job description

* Put additional effort (extra hours) if needed

* Adhere to the company policies and procedures

* Achieve excellence in performing the job

* Proactivity in developing new skills

* Honesty and Trust

Question 2: Analyse how and why these expectations might be different from the implicit expectations in another organization with which you are familiar.

The implicit expectations can vary between different industries or even different teams within the same company. Clearly, the expectations of a white-collar worker in the IT industry will differ from a blue-collar worker. While pay is important for everybody, this will probably be more important for a supermarket cashier than for a consultant, while the latter can have career development as one significant implicit expectation from the employment relationship.

The nature of the work itself can alter the expectations. For a worker in a construction industry, workplace safety could be a significant expectation being irrelevant for a database Administrator.

Question 3: How convincing do you find the idea of the psychological contract as a theoretical framework for understanding the employment relationship?

I think that the psychological contract it’s a representation on what happens in the workplace that highlights important but often neglected features. It’s a framework for addressing “soft” issues about managing performance and motivation, that focus on people.

I think that modern management has to pay attention to those “soft” HRM issues. In my opinion, the contribution that the employees make to the firms can no longer be extracted by fear or by some of the “old” levers that the managers had relied on, specially in some industries like IT. In a highly competitive environment like the one that we face, commitment is more important than ever.

Although the psychological contract does not give a detailed model or framework of employee relations, it offers important clues about how to maintain employee commitment. With the decline of trade unions as agents of workers voice, the focus is in the relation between the organisation and the employees as individuals.

The psychological contract framework, consisting on a set of mutual obligations, is very imprecise but provide some clues to the managers to address “day to day” issues in people management. Neglecting the existence of the psychological contract, can lead to a failure in fulfilling employee’s expectations that can damage the relationship, the motivation, the commitment and finally, the business results.

References

Herriot, P. "The Role of HRM funtion in building a new proposition for staff", Human Resource Management: The new agenda. London Financial Times/Pitman. 1998.

Maslow, A. "A theory of human motivation", Psychological Review, Vol 50, 1943. pp370-396


October 26, 2008

Human Resource Management Lesson 8 exercise

Question: With reference to your own experience, critically evaluate the idea that there is a business case for family friendly working practices.

Before answering the question, one might wonder if family friendly working practices are really important in my country (Spain). Some research has provided me with the following data:

* 60% of families with children have both parents working (INE, Instituto Nacional de Estadistica)

* Family responsibilities are being increasingly shared between working men and women.

* The high divorce rate its increasing the number of single parents with dependent children

* The aging population (Spain is one of the countries with the lowest birth rate in the world) means that working people are increasingly responsible for the care of elderly relatives

The previous lead to some issues in the workplace:

* About 65% of absences are related to family issues, caring for children, and dependent elderly, sick and disabled family members (INE, Instituto Nacional de Estadistica)

* The performance of employees who have difficulty balancing work and family may suffer as their concentration, motivation and productivity will be affected.

* Some employees may resign to meet family needs

* Single parents need flexible work practices to remain employed

* Non-custodial parents also need to balance work with family responsibilities.

These issues are more important as more skilled and experienced is the workforce and if there are difficulties in the labour market to find appropriate substitutes for the people leaving. In my case, I work with highly qualified human resources with a lot of experience and tacit knowledge about the customers and the industry, thus the costs (for example training costs) associated with the replacement of personnel leaving the company because of the impossibility to balance family and work are significant.

The short absences due to family issues (for example taking care of sick family members) are difficult to quantify, but will undoubtedly have an impact on the performance of the organization, mainly as an opportunity costs resulting from the time that the organisation is underperforming while the employee is away.

Finally, some people could just leave the company for another who offer better work-life balance characteristics. So, in this sense family friendly practices can also be used as a weapon, to debilitate competition attracting high skilled employees to our company.

Clearly, family friendly practices can alleviate some of the work-life balance issues. Some benefits for the employer would be:

* Increased ability to retain skilled employees

* Improved productivity and reduced staff turnover

* Increased return rate of female employees from maternity leave

* Reduced amount of people leaving due to family issues and therefore, reduced recruitment and training costs

* Reduced absenteeism, lateness and stress in the workplace

* Increased flexibility to meet varying work load demands

* Fulfilment of equal opportunity objectives and legal requirements

* Enhanced corporate image

* Employer a competitive edge when recruiting

On the other hand, the employees will perceive an increase in job security in knowing that the employer understands and supports workers with family responsibilities which will probably lead to improved motivation and job satisfaction.

Although these costs and benefits are difficult to quantify and in correspondence is impossible to tell if the case is advantageous for the employer in terms of improved business results, it looks like there is strong support for a positive business case for family friendly working practices.

Nonetheless, the convenience of the business case depends on a number of context characteristics. We have assumed a situation when the cost of replacement is considerable, thus easy substitutes can’t be found in the market. Perhaps this narrowly-defined situation is not common in the majority of the industry. If this is the case, employers on those industries could consider if there is really a business case for their company. However, this would lead us to the philosophical discussion about the purpose of the enterprise. If its maximizing benefits for the owners while providing benefits for the whole of society, family friendly practices should be in any case considered.

References

Helen Newell, Warwick Business School (2008) “Course Material – Human Resource Management”

INE (Instituto Nacional de Estadistica) Website. www.ine.es

Marchington, M. and Wilkinson, A. (2005), 'Human Resource Management at Work' (3rd edn), London: CIPD.


October 25, 2008

Human Resource Management Lesson 5 Exercise

1. To what extent do you think that the employment relationship is necessarily based on conflict between employers and employees who have competing interests?

For most employees, the rewards associated with their employment relationship will determine to a considerable extent the standard of living they can enjoy. On the other hand, for most employers the cost of labour is often a major influence on the profits and subsequently on the success of the organization.

The previous constitutes a conflict of interest between two parties. However, it is in neither party’s interest for the organisation to perform poorly because of the effect that this would have in profits (for the employer) and wages or job security for the employee (Marchinton and Wilkinson, 2005:266). Hence cooperation is also needed in the employment relationship.

The theory of “frames of reference” (Fox, 1966) approach the study of employment relationship through a different number of perspectives. These are the unitary and pluralist approach (there's also the radical approach that won't be considered in this discussion).

The unitary approach looks at the organisation as a machine or a living organism in which everybody plays their part and share a common goal. The leader makes the decisions and everyone else implements with no room for opposition.

On the other hand, the pluralist theory states that there are multiple interests groups in the organisation. The pluralist view puts more emphasis on the fact that an organisation is a collection of individuals and that common purpose is achieved through debate, negotiation and conflict.

In my opinion, there will inevitably be pluralism in the interests of different people within the organization, and therefore there will not be a unitary, common interest that can be expected to totally eliminate conflict. At the political level, while pluralist theory underlies democracy, unitary theory underlies, perhaps, communism. The underlaying comunism thinking states that, if the major conflict of interest between sellers and buyers of labour its eliminated, and organizations could be managed in the interests of all, this will lead to a return to a unitarist utopia.

Given the existence of plural interests between employers and employees in work organizations, the unitary approach tries to solve a conflict through coercion by the management while the pluralist uses compromise and collective bargaining to solve a conflict.

The pluralist view inevitable leads to conflict in the employment relationship. While some aspects of the relation can be written in the contract, some others, won’t be (and probably can’t be in long-term contracts) leading sooner or later to conflict. Therefore management will always have to initiate a negotiation process with the employee, to solve those bits in a process of mutual adaptation, that I see as something inherently positive for both parties. This is in line with the interactionist perspective that states that conflict is inevitable and some level of conflict can be optimal (Rosenfeld and Wilson, 1999). 

2. What factors influence the extent to which the employment relationship is harmonious or conflictual?

Many factors can influence the extent to which the employment relation can be harmonious or conflictual.

The nature of relationships between employers and employees can vary greatly and has influence on the foreseeable level of conflict. For example, a short-term exchanges of labour for limited rewards (e.g. an student contracted for the sales period on a shoe shop) will probably have less level of conflict than the long-term employment relationship taking a significant amount of time and energy from an employee, which will also have the expectation of a growing career within the organization.

The type of organization can also influence the level of conflict. We can reasonably expect more conflict in the employment relationship in private business than in voluntary bodies or public services.

The role played by unions can have many influence as well. If the unions just play the game of fighting every management decision, conflict will appear more frequently than if the unions choose an approach that is closer to the partnership model.

Economic and socio-political considerations will have considerable influence in conflict. For example, in a deteriorating or turbulent economic environment when tough decisions have to be taken by management, conflict will arise more likely than in a positive and stable economic environment. This applies also to the particular business situation that the firm can be facing, if the business is performing bad many sources of conflict will probably appear.

Many of the previous factors (and some others) influence the relative bargaining power of the parties, which can determine in a considerable extent the management style that is being used in the organization. There’s no doubt that the management style used in the firm, also excerpts considerable influence on the level of conflict in employment relationship.

References

Fox, A. (1996) Industrial Sociology and Industrial Relations. Royal Commission Research Paper No. 3. London, HSMO. 1966.

Marchington, M. and Wilkinson, A. (2005), 'Human Resource Management at Work' (3rd edn), London: CIPD.

Rosenfeld, R. H. and Wilson, D. C. (1999), 'Managing Organisations' (2nd edn), McGraw Hill.


October 24, 2008

Human Resource Management Lesson 4

Foreword

In this blog I will talk about different employee involvement mechanisms in place in Endesa and its effectiveness. This company is the main electricity producer and distributor in Spain, has significant presence in most Latin American countries such as Chile, Brazil, Colombia or Peru and employs more that 45.000 people worldwide. My knowledge from the company comes from the fact that I'm currently managing the outsourcing contract that IBM has in Endesa.

Question 1: What mechanisms and procedures have Endesa used for employee involvement and to give employees voice?

Endesa used to be a public company, accordingly the impact of power-centre/indirect methods of involvement policies such as collective bargaining has been historically high. However, in the last years the prominence of collective bargaining is declining in favour of high performance systems in which negotiation over a wide range of subjects, affecting workforce's conditions and wages, takes place between employees and line managers. At the same time, many others direct methods for employee involvement (EI) have been created.

Alongside collective bargaining, Endesa has joint consultation committees to discuss with staff on aspects not covered by collective bargaining. Regular meetings are being held and discussion ranges from the most trivial things to the more strategic.

However, during the last years significant shifts have occurred in the way that workforce is being managed, towards improving EI. Among others:

· Move from a culture in which people were paid to obey and "not to think" to a culture in which people are being paid (and rewarded) to think. Among other actions, this has led to the deployment of some tools to facilitate the flow of ideas (bottom - up).

· Quality Circles. People were required to participate on teams created to improve a particular process (this can be characterized as a task centred/direct method of EI). Hundreds of teams were created, they were given a problem and a limited amount of time (usually within the range of 2 to 3 months) to come up with a solution.

· Day-to-day management moved from controlling people to tracking information (Endesa thinks that if they create an environment in which people participate, control is less necessary).

On the other hand, during the last years, Endesa's been communicating a "new vision" which focuses on benefits for the society. Costly advertisement campaigns with mottos such as "a better future for the children of our children" have recently been seen in TV in an attempt to improve the company's image to the general public. However, big posters with this motto are also shown in the company headquarters, where they can only be seen by employees. I think that this is one form of EI, in the sense that Endesa's trying to communicate to their workforce that they are part of something bigger than themselves. One can expect people getting energized by this feeling thus improving EI as well.

Question 2: How effective were each of these voice mechanisms in a) giving employees an effective voice at work and b) adding value to the organisation? and Question 3: Account for any variation in effectiveness of different mechanisms

The feeling that unions do not really represent the interests of the majority of employees and the fact that their power has been diminishing over the years has made them very ineffective in giving employees voice at work.

Hence, in the last years, indirect means of communication, like joint consultation, have been progressively replaced by initiatives that directly involve the employees. A considerable percentage of the workforce population think that these initiatives promote higher performance in the organization and they prefer them over the traditional union representation.

However the change from indirect to direct methods of EI in Endesa has found many obstacles.

In my opinion, the main obstacle in increasing direct EI, lies in the attitude of the line managers. Many "old school" managers support EI by words but they not truly believe in employee empowerment. Some workers soon discovered how serious about EI their managers were and if they really walk the talk. In some cases, cynism appeared in the organization as apparently employees were given the power to decide, but the reality was that few things had really changed.

On the other hand, some managers didn't really know what EI really meant and they just come up with the creation of some teams to just analyse morale or to organize the next department's dinner event, but they did not really allow employees to take decisions on the way the things were being done or in the organization and scheduling of their own work.

However some EI mechanisms worked very well. Some quality teams did an excellent job and some of their recommendations were successfully implemented. They key here was that these teams focused on "day to day" issues rather than "strategic" issues. Is my reflection that on one hand, management must make an effort to communicate strategic direction to the employees and on the other hand, allow them to take decisions on "day to day" activities. Using this approach, these "quality teams" added great value to the organization.

However the question here is where are the boundaries of the decisions that lie in the employee's domain or the management's domain. And it's a difficult question.

On the other hand, the tools that were created to facilitate the flow of ideas obtained a great success. It took some time but once the employees learned that their voices were being heard, an exponential stream of ideas appeared. Some of these ideas were awarded a small prize (for example an iPod) and sometimes the author was nominated as "champion" for its implementation. 

Some direct EI mechanisms in place didn't work as expected either. For example, the web pages that were created in which employees can ask questions to executives were hardly used. Also the survey to measure the organization climate, perhaps is a powerful for HR, but is not clear if the surveys really ended in actions to improve climate.  Apparently, the only executive action in response to the survey was to tell the first line managers that they had to "do something" to improve the "numbers" in the next survey.

Some attempts of team working, in the sense of full self-managed teams, were undertaken but these didn’t work very well either and were dismantled after some time. The reason why these teamwork initiatives have failed is not clear but I think that in any case, they have helped in the creation of a new culture across the organization.

References

The Warwick MBA for IBM – Human Resource Management, Lesson 4

Mick Marchington and Adrian Wilkinson, Human Resources Management at Work.     People Management and Development, Third Edition, CIPD, 2007


October 05, 2008

Human Resource Management Lesosn 3 Exercise

Question 1. Reflecting on your experience as an employee and as a manager, to what extent do you think pay motivates or demotivates employees? Why?

One of the things that I have leaned from my experience as manager in IBM is that pay is not equally important in all situations or to all individuals. For example, if one employee is facing a complicated financial situation it's going to give a critical importance to pay while an employee with their 'basic necessities' covered will probably give more importance to other factors such as career opportunities. On the other hand, young employees usually give more importance to cash when the older ones are more interested in job security or retirement options. Many more situations and employee individual characteristics can affect the extent pay is important for employees.

But what do the employees say about pay and motivation?

When employees are asked for the main motivational factors at work, pay hardly ever appears in the first position. Instead, security, job interestingness, possibility of promotion and others show up as the principal motivators at work above pay. Some studies have corroborated this view. For example Jurgensen (1978)collected information from more than 50,000 applicants to the Minneapolis Gas Company over a 30-year period concluding that pay ranked fifth in importance to men, and seventh in importance to women. Towers Perrin (2003) surveyed more that 35000 US employees concluding that competitive base pay ranked sixth in retaining employees, but pay didn't even appeared in the top ten in terms of motivating employees.

However, during my time in IBM I have seen so many people leaving the company only because they were paying more in another firm (specially during the dot.com fever) that I wonder if people are really being frank when answering those surveys. Reflecting on this, I think that people do not put pay on the first positions in surveys because of the culture or social norms that view money as a less noble motivator factor in comparison with challenging or meaningful work. This suggests me that money is more important to people than people admit.

On the other hand, I have seen people accepting one promotion even when this implied losing money (at least in the short term) because some salary incentives didn't apply to the new position. Hence a lot of factors apart of money can influence people's behaviours and (probably) motivation.

In my experience I have also found that the motivational effect of money is nonlinear across different pay levels. For example giving a salary increase of 100€ to a person who earns 1000€ a month will be more motivating than giving the same increase to a person that makes 5000€ a month. This is in line with Hertzberg’s (1966) two-factor theory of motivation. In this regard I believe that salary is a hygiene factor in the sense that, when certain level is reached, the motivational effect will decrease, but on the other hand if this level is not reached, the pay will be more a demotivating factor. Other motivational factors will be of little use when the employee is below the hygienic salary level, however these will be needed to motivate people above it.

Finally, Equity theory (Adams, 1963) focuses on people’s perceptions of the fairness (or lack of fairness) of their work outcomes (pay, rewards...) in proportion to their work inputs (effort, skills...). If one employee perceives that their outcome/input is inferior than another worker's ratio, he will feel that is not getting the outcomes that he should and will try to rebalance the situation either by asking for a raise of by reducing their inputs (demotivation).

In my experience, the equity issues are one of the most important aspects to consider in reward management, as people judge the fairness of pay in relative terms, although this can vary among different cultures.

Question 2.Thinking about different pay system that you have experienced, which have been the most effective? Why?

In my opinion, the aspect of pay that will most directly motivate performance, is the extent to which pay is contingent on performance. If raises make no differentiation on the basis of performance, pay won't make much influence on motivation.

IBM has a complicated pay system that in general follows the rule to reward the best organizational performers. Among some others, existing reward methods comprise:

* Broadbanding (Armstrong and Brown, 2001)

* Performance Related Pay (PRP)

* Incentive plans

*Awards recognizing job well done

* Awards for achieving one particular objective

* Bonuses linked to organizational performance

* Employee share ownership

Not all the methods are available to all kinds of employees. For example, incentive plans are open only for employees with certain responsibilities and above some "band level".

Among them, the most influential one in people's motivation is in my opinion PRP. Under this scheme people's performance is evaluated using the following scale:

1=Outstanding

2+=Above Average Contributor

2=Average Contributor

3=Below average

4=Insatisfactory

The employee achievement is used to calculate the amount of the variable part of the salary that the employee will receive and also determines, in a considerable extent, the next salary increase. This method is a powerful motivator but only for the top performing employees and individuals with high needs for achievement. As the method include quotas for the number of 1's and 3's that one particular department have to achieve, many people fall into the middle ground where the pay incentive is very low.

PRP is awarded on the basis of individual performance appraisal by employee's manager against pre-agreed objectives aligned with organizational strategic objectives. This introduces the problem of the subjectivity of the assessment and also the issue coming from the fact that the appraisal process is viewed just under the PRP view but not under the view of the employee's development and recognition for well done work . Another significant issue is inconsistency, as quotas are deployed by department, hence managers with different "quality standards" will give inconsistent evaluations when comparing different departments.

Incentive plans could be an important motivational tool if they were used correctly, which apparently is not happening in IBM today. The objectives that a particular employee has to achieve (normally financial objectives such as gross profit or revenue) are being set in a highly bureaucratic way for the financial department, who doesn't know the intricacies of a particular project. Most of the time, the objective being set is either very easy or very difficult (most of the times impossible) to achieve. In the first case the motivational effect is very low, in the second it has a powerful demotivating effect (If you make the basket smaller than the ball, people won't even try playing). First line managers should have influence in the objective setting, in order to improve this process.

Awards in recognition for the job well done, if used correctly, have the ability to reinforce the desired individual behaviours and signal them for others.

On the other hand, bonuses linked to organizational performance and share ownership have little (if none) influence in performance as is very difficult to relate individual performance with organizational performance although it can maybe boost a "community" feeling.

Finally, awards for achieving a particular objective can be very useful to motivate people in order to achieve particular organizational objectives and as a way to signal strategic priorities, however employees can "get used" to it leading to demotivation in absence of these "one time" rewards.

References:

Adams, J. S. (1963). Toward an understanding of inequity. Journal of Abnormal Psychology, 67, 422–436.

Armstrong M (2002). Employee Reward, 3rd edition, London

Hertzberg, F. (1966). Work and the Nature of Man. Cleveland: World Publishing Co.

Jurgensen, C. E. (1978). Job preferences (What makes a job good or bad?). Journal of Applied Psychology, 63, 267–276.

Towers Perrin. (2003).Working today: Understanding what drives employee engagement. The 2003 Towers Perrin Report.


September 28, 2008

Human Resource Management Lesson 2 Exercise

The Role of HR department at the Iberia airline

This blog entry will analyse the role of the HR function at the Spanish airline Iberia. The information about HR comes from my own experience as Project Manager for this company, hence I have been able to gain some insight on their procedures and organisation structure.

The role that HR plays in the organisation will be analysed as well as the strengths and weaknesses of HR in the context of the organisation. 

The external context

The external context for Iberia is shaped by several aspects including economic factors such as the increasing prices of the petroleum which poses a significant cost challenge to all the airlines and the increased competition coming from low cost companies like Easy-jet or Ryanair.

Thus, one significant force driving HR decisions is the need of increase the productivity of the employees. For example Iberia's air stewardess fly an average of 850 hours a year compared with 900 of Lufthansa or 1000 hours in a low cost company (however this figure looks excellent in front of the 595 hours of Alitalia).

This productivity increase is one of the main objectives of the HR policies and also one of the main sources of conflict betweeen management and employees.

The internal context

Among other factors, the management style have greater influence on the type of HR decisions that can be taken in a company.

Some characteristics of the management style in Iberia are:

    • Few emphasis placed on developing relations with employees as Individuals
    • There's nothing like a flexible reward structure, pay is determined by the trade union collective agreement
    • The employee appraisal system in place is a very simple one
    • Employees have few to say regarding decision-making that concern them. No open discussions with employees for problem solving
    • There are no periodic surverys to test the employee's views or morale
    • Unions are recognised although the critical aspects of strategy rest with management 

    Trade unions have significant influence in Iberia partialy as a result of its past as a public company (Iberia finished its privatisation by 2001) and also because of the substantial bargaining power that the company employees have (specially the pilots). This bargaining power is exercised through powerfull trade unions.

    The Purcel's (1986) framework classify the approach to human resources by determining whether managers put emphasis on individualism or collectivism in managing the workforce.

    According with the previous characteristics, the predominant management style in Iberia would be "Constitutional". In this style, labour is viewed as a factor of production and employee subordination is assumed, although unions have been recognised and are accepted as inevitable.

    Management Style in handling employee relations

    However in Iberia it looks like there coexist different styles for different types of employees. While the previous is valid for the "flying" part of the workforce (pilots and air attendants) there are differences for the rest of the employees for which there is more emphasis on Individualism or the power exerted by the trade unions is much lower.

    The role of management in HR

    In Iberia there's few intervention on line managers in HR policy, the rules are written and deployed by the HR department itself. According to Storey's (1992) the HR department in Iberia act as "regulators" as they act mainly with a tactical view and are interventionary.

    Typology of HR functions

    In my opinion this role is played basically as a result of several external influences such as cost pressures which make the HR approach more tactical than strategical and internal influences like the management style of the company that gives few importance to the line managers as agents of the Human resource department. However, this can be the result of the particularities of this industry as it would be very difficult to line managers to deploy HR procedures or embrace a more individualistic style when the workforce is flying planes all over the world .

    Strenghts and Weaknesses

    In Iberia, in part due to the management style in place, the HR department devise a set of rules and then deploy them telling employees and manager what they shall do. A consultant process is inexistent and as a result, employees and managers see the process as another obstacle and end up avoiding doing what they have to do. What happens next is that HR moves into the role of a police enforcer, coercing employees and managers which gets everyone frustrated and distantiates HR from the rest of the company. Thus, the lack of a consultation process in place look like a major weakness of the HR role in the organisation.

    The low use that the organisation make of line managers as agents to deploy Human Resource policies is another significant weakness. It doesn't matter how good is the HR strategy if it is not well implemented at a local level and this is something very difficult to do without the help of the line managers.

    However, putting some responsibilities in the hands of the line managers may not be the perfect solution. Line manager normally have many "operational" responsibilities and tend to give less priority to the Human Resource aspect of the management (I can tell from my own experience as first line manager in IBM) especially if they have many employees reporting to them. The policy of "use the line managers to deploy HR policies" have to be implemented with care deciding which tasks makes sense to be implemented by line managers and by the Human Resource department.

    References

    Mick Marchington and Adrian Wilkinson (2005), Human Resouce Management at Work, Third Edition (2005), Chartered Institute of Personnel and Developement, 151 The broadway. London, SW19 1JQ, UK

    Purcel, J (1986)'Employee Relations Autonomy Within a Corporate Culture', Personeel Management, February

    Storey, J. (1992)'Developments in the Management of Human Resources' Oxford: Blackwell

    Helen Newell, study notes, The Warwick MBA for IBM, IB811Z, 2008, University of Warwick, Coventry CV4 7AL, UK


    May 31, 2008

    ENVC exercise 5

    Lesson 7 explores the concepts of Intellectual Property Rights and Competition Law. This blog will analyse the introduction of a new product from the anticompetitive practises perspective, describing what the business can and cannot do in this context and on the other hand assuming that the company have already taken all the necessary measures to assure that the R&D investment is protected by intellectual property rights.

    The aim of bringing a new product to the market is to seek a competitive advantage against the competition. However, this competitive advantage cannot be excessive to a point where it is detrimental to welfare (in example creating a monopoly). In other words, the business have to work towards defeating their competitors but have to be careful that the “intensity” of this practice doesn’t conflict with the existing competition law regulation. This is a clear concept but the frontier for what is legal and not is somehow vague.

    As breaching the competition law can be very costly including important fines, the company must be sure that the new product’s strategy doesn’t go against the law. Although in some cases the improved margins obtained by the anticompetitive practices can exceed the fines (10% of revenue) and someone might think that the risk is worth taking, there are other penalties that the company might incur, including deep scrutiny of all aspects of the firm’s strategies or even jail for the executives involved in the practice.

    In order to avoid these harmful consequences, we must take into consideration that in our context, the law prohibits

    • Agreements or practices that restrict free trading and competition
    • Abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position.  

    Therefore, we must assure that our strategy does not include any the following unlawful practices:

    Price gouging:

    The price must be defendable against the ex-ante profits (expected profits). Clearly we want to maximize our profits, accordingly we will want to charge as much as the consumers are willing to pay, specially if there are few alternatives in the market for our product, however we cannot do so if consumer welfare is going to be affected. On the other hand, if the demand is inelastic (a reduction in price is not going to stimulate additional consumption) we still can charge high prices.

    Predatory Pricing:

    The price cannot be as low as to be considered “predatory pricing” (selling the product at very low price) as this will motivate the authorities to intervene in order to avoid a monopolistic market as other firms that cannot sustain equal or lower prices without losing money, will go out of business, and the new entrants will found unfair entry barriers that will discourage them to enter the market.

    However, it is usually difficult to prove that a drop in prices is due to predatory pricing rather than normal competition, and predatory pricing claims are difficult to prove due to high legal hurdles designed to protect legitimate price competition.

    Tying:

    We must be sure that the “add on” to the existing product is not considered a tying practice. Here, the company has to be sure that we are not forcing the consumers to buy an undesired good (the base product) in order to purchase a good they actually want (the add on). If this is the case, the company must study a change in the product strategy to sell the add-on and the base product separately.

    Carteling:

    The law prohibits the cartels (an agreement among firms for example to fix prices). Moreover, in my opinion cartel-administered prices are not an interesting business practice (apart from the fact that it is illegal) for two reasons. First, the above normal prices will attract new entrants to the industry moving the prices back to the competitive levels. Second, the members of the cartel have great incentives to cheat lowering the prices to increase market share, at the expense of other cartel members. So it looks like that cartels are inherently unstable and difficult to maintain.

    Refusal to Deal:

    We cannot decide to supply only to certain buyers and on the other hand we have to be sure that different prices among firms does not contravene the law.

    Monopoly:

    Finally, we must be sure that the market share for the product is not as high as can be considered as a monopolistic practice. We have to avoid having so much control over a this product that will determine significantly the terms on which other individuals shall have access to. We have to be sure that economic competition exists in this particular industry and there are substitutes for our product, otherwise it can be considered a monopoly under the existing law.

    Sources:

    Iandiorio, Joseph, S. (2006), “Intellectual Property” in Burke, Andrew; “Modern Perspectives on Entrepreneurship”, Senate Hall.

    A, Burke, K. Mole (2008). The Warwick MBA for IBM: Entrepreneurship and New Venture Creation. Warwick.

    http://www.internationalcompetitionnetwork.org/


    May 25, 2008

    ENVC exercise 2

    In lesson 3 the Business Planning concept is introduced describing as long as the PORES analysis, this intends to asses the merit of a business idea and the ways to exploiting it.

    In this blog, we will analyse a case in which there is a committee evaluating strategic developments on the basis of business plans which at the same time it is concerned because it could be too risk averse.

    Here it is important to note that “strategic development” is a kind of transformational value proposition (Helmer 2005) which is under some degree of uncertainty due to its “uniqueness”.

    Uncertainty does not come from the lack of a probability function but from the inability to state it (Savage, 1972). The committee makes “subjective assessments” making use of the information available in the business plan but also using its own knowledge and experience hence revealing a subjective probability function.

    That explains why the entrepreneur and the committee can have different views about the inherent risk related to the strategic development, even when they are presented, in theory, with the same information (the business plan).

    So risk aversion can derive from the fact that when the business plan lacks explicit knowledge on particular areas, the committee makes use of its own knowledge and experience deriving on different views for the same subject.

    We’re proposing to the committee the use of the PORES analysis to evaluate the business opportunity and try to overcome the issue of lack of knowledge previously stated that can derive in an incorrect risk evaluation.

    This framework consists on several stages:

    1. Identify key assumptions and check its valid ness.

    In developing the market plan, the entrepreneur may have used some assumptions that have to be written down to be confronted against the committee’s knowledge and own assumptions.

    2. Establish if there is a market for the product or service.

    In particular assessing the size and characteristics of the buyers, the competition (including availability of substitutes) and the price the customers are willing to pay.

    3. Establish if the entrepreneur has the capability to satisfy the previous market

    This explores production, distribution, human resources, financial management..etc.

    4. The last step performs a deeper analysis on competition

    Among other things, this tries to anticipate the reaction and strategies than other competitors can follow to exploit the same profit opportunity, how the industry will evolve and opportunities for cooperation.

    Following the PORES analysis, helps in getting a better view on the feasibility of the new venture. This information is useful for the entrepreneur to reflect on several aspects that he maybe initially he didn’t consider, in this way, the committee can be sure that the entrepreneur has evaluated those aspects thus reducing the inherent risk for the new venture.

    On the other hand, the critical information affecting the profitability of the venture is made explicit thus it can be confronted by the committee’s own knowledge and experience, reducing the uncertainty and resulting in a better evaluation of the risk especially when evaluating industries where the committee is not familiar with.

    The committee could use PORES by demanding a business plan to have PORE analysis in it or just asking the submitter to answer the questions derived from PORES not included in the original business plan.

    Also, the committee could ask the entrepreneur to try to convert uncertainty to risk under several scenarios (in a kind of sensitivity analysis). In example:

    Question: how many potential buyers are?

    Probability of occurrence

    Number of buyers

    Impact on ROI

    20%

    > 100.000 

    90%

    50%

    > 10.000 & < 100.000

    30%

    30%

    < 10.000

    -10%

    Using stochastic methods, several answers can be combined to evaluate the potential outcomes around the expected return, which correlates to degree of risk.

    However, the inherent uncertainty of the new ventures can make this risk assesment difficult to undertake and sometimes innacurate or incorrect, but at least a method that makes use of a lot of common sense can be used to evaluate different proposals under the same framework.

    References

    A, Burke, K. Mole (2008). The Warwick MBA for IBM: Entrepreneurship and New Venture Creation. Warwick.

    H,W.Helmer (2005). A Lecture on Integrating the Treatment of Uncertainty in Strategy, Journal of Strategic Management Education

    Savage, L. (1972), The foundations of Statistics, New York, NY: Dover Publications, Inc.


    May 24, 2008

    Hello

    Hello,

    This is my first entry on the Entrepreneurship and New Venture Creation blog.

    Regards,

    Sergio


    October 27, 2007

    Ops Mngt Lesson 10 Exercise

    This blog will apply the analytical tool called Fishbone diagram, also known as Ishikawa diagram, to the Global Warming effect. As seen in the picture below, the average temperatures in the earth have been constantly raising in the last century.

    gwarn3.jpg

    It is known, that one of the main causes for the temperature rise in the earth, is the greenhouse effect. One cause is the concentration of the CO2 gas in the atmosphere, that has been constantly increaed since measures exist as shown in the picture below.

    CO2

    The CO2 concentration is not the only cause for the global warming effect and on the other hand, the resons behind the CO2 increase have to be explored. The following Ishikawa diagram can be usefull to determine the root main causes for the global warming effect.

    Global Warming Ishikawa diagram

    The Ishikawa diagram is a kind of cause-affect diagram which is useful to search for root causes of problems.

    Our diagram has five large bones which represents the main causes for the Global Warming effect. Off each of the large bones, there are smaller bones highlighting more specific aspects of every main cause. In example, for the Population main bone, we have the following specific aspects:

    • Methane produced by cattle raising
    • Green House production (apart from CO2)
    • Transportation (Cars, Flights... etc)
    • Power Demand for Heating, lights...etc

    A lot of poka-yokes (Slack et al, pg 469) can be developed to reduce the global warming effect, in example a message in the low efficiency light bulbs telling the buyer, that the use of more efficient bulbs helps to reduce the global warming.

    References:

    Wikipedia. http://en.wikipedia.org/wiki/Ishikawa_diagram

    Wikipedia. http://en.wikipedia.org/wiki/Global_warming

    Study Notes lesson 10

    Slack, N.; Chambers, S.; Johnston, R. and Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall


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