Designing Organizations for Global Control:
Applications of Knowledge Based Pay
Allen D. Engle
Associate Professor of Management
College of Business
Eastern Kentucky University
215 Combs Classroom Building
Richmond, KY 40475-3111
(606) 622-6549
(606) 622-2359 (FAX)
E-Mail: cboengle@acs.eku.edu
Human Resource Management
Division Track
HRM-02
Designing Organizations for Global Control:
Applications of Knowledge Based Pay
Abstract
This article reviews the limitations of traditional organizational designs as they contribute to controlling multinational corporations (MNC's). Knowledge based pay strategies are presented as a mechanism for enhancing the strategic control of MNCs. A general model of knowledge based pay is presented and then modified for multinational application. The paper concludes with strategic issues and concerns related to applying the model in a multinational context.
The Failure of Traditional Structures to
Control Multinational Corporations
The prescription of an optimal design to control an organization is a topic of some 70 years standing (Sheth & Eshghi, 1990). As corporate strategies move increasingly to multinational alternatives (MNC's), some organizational theorists have questioned the ability of traditional designs - i.e. function, product or even hybrid matrix designs - to effectively control activities and help implement the MNC's strategy (Bartlett & Ghoshal, 1990, 1992). Even contingency theories of design, predicting a performance-design "fit" with moderators in increasingly complex environments, have been called into question (Evans & Doz, 1993).
Some researchers argue that different combinations of products, market approaches and cultural distinctiveness make it difficult to create an organizational design in the traditional sense of the term that is sophisticated and flexible enough to meet the requirements of a multinational strategy (Davis, 1979). Rather, these authors present a radically different approach to the topic of design. Whether it is called a "transnational integrated network" (Bartlett & Ghoshal, 1992) or a "heterarchy" (Hedland & Rolander, 1990), what characterizes these approaches is their emphasis on internalized forms of control - Bartlett and Ghoshal's now-famous "mind matrix" (Bartlett & Ghoshal, 1990).
Within this framework traditional bureaucratic approaches to externalized control are replaced by socialized clan controls, emphasizing practical flexibility in decision making, consensus building, normative cooption and shared information (Barham & Oates, 1991). Only this internal structure is flexible and sophisticated enough to support a balance of the three crucial competencies of global product customization, functional efficiencies of expertise and scale as well as in-depth geographical/cultural sensitivity (Davis, 1979). This combination of global functions, "glocal" products and local cultural understanding drives the new control paradigm.
A number of activities have been forwarded to support this new approach to structure. Leadership, socialization, career development and assignment strategies as well as an organizational learning culture are all presented as means to transform external control into a shared, flexible vision of social control (Kets de Vries & Mead, 1993; Mendenhall & Oddou, 1985). Not unexpectedly, human resource issues loom large in this discussion.
Human resource practices can contribute to this new approach to multinational control in three ways. First, the processes of recruitment, selection, orientation and training may be designed to build and maintain participative norms and deemphasize bureaucratic, hierarchical traditions (Evans & Doz, 1993). Second, career development strategies can emphasize long term, global socialization by providing horizontal or lateral, "lattice" transfers as well as other forms of assignment (Barham & Oates, 1991). Third, knowledge based pay systems may be of particular use.
Knowledge Based Pay
A more participative, clan control paradigm does not deny the usefulness of reward systems to reinforce norms, evoke cultural values or otherwise focus attention on global strategies. In fact reward systems may be more significant control devices in nonbureaucratic organizations because of the unexpected messages they may be tailored to send (Lawler, 1992; Ouchi, 1981). Knowledge based pay systems (KBP) have long been associated with innovative, participative values as firms seek relief from the many disadvantages of bureaucratic, job-based pay (Walton, 1972).
Two advantages of KBP relate to our discussions. First, the KBP approach strengthens the perceived relationship between employee development and rewards. Second, this approach emphasizes the continuous, life long learning capability of employees and the efficiencies flowing from that flexibility (Lawler, Ledford & Chang, 1993).
Knowledge based pay compensates individuals for ". . . the range, depth and types of skills they possess" rather than the job they perform or any seniority in a position (Ledford, 1991, p. 199). The three dimensions of employee knowledge to be measured and applied to work are: depth of knowledge - knowing more about a specialized area of work; breadth of knowledge - learning how this particular area relates to other activities " . . . upstream, downstream or parallel to their original job in the . . . process"; and vertical knowledge - abilities associated with the managerial functions of planning, scheduling, organizing, coordinating and leading (Ledford, 1991, pp. 201-202). These three dimensions comprise the "skills space", usually represented by a three dimensional cube segmented along these dimensions into "skills blocks" (Ledford, 1991).
Applying KBP and the concept of a "skills space" to the three crucial global competencies (product customization, functional expertise and geographic-cultural sensitivity) presented by Davis, we may now map these competencies onto a "global skills space". The depth dimension translates to geographic-cultural knowledge; the breadth dimension translates to product knowledge and levels of product customization; and the vertical dimension translates to functional expertise in core technologies, services and markets. This global skills space now becomes a primary means to coopt or influence members to acquire and apply those experiences, skills and expertise so essential to social control. The advantages of KBP, namely flexibility, focus and innovation, are just those qualities required by MNC's (Davis, 1979; Ledford, 1991).
Strategic Issues For Applying Knowledge Based Pay
Several strategic issues must be decided when designing a corporate development-rewards system based upon KBP. Responses in these five areas will go far in determining how a specific firm can go about applying the proposed reward system.
First, which of several possible levels of analysis do you want to build knowledge upon?
At the organizational level, the planned focus of corporate competencies on key functional, production and cultural dimensions can be designed to lead or match strategic timetables. This dynamic form of human resource planning becomes more tightly coupled to those rapidly shifting strategic directions which characterized the MNC.
Second, how and when do we certify knowledge acquired and applied to the firm? This is a standard issue in KBP systems, but it is made more difficult by the sheer scale and complexity of the three global competencies. Who is qualified to evaluate these competencies? Do we use outside consultants or develop our own cadre of experts? How are we assured that these knowledge dimensions are not only acquired, but are actually applied to solve problems in our organization? What are the advantages and disadvantages of attempting to standardize these competencies as per ISO 9000 standards?
Third, how often do we re-evaluate knowledge? With rapidly changing technology, products, customer tastes and preferences how often should the organization review both their standards for competencies as well as individual, team and/or organizational certifications? This "obsolescence" issue must be dealt with by any "learning organization" - it is certain to be addressed when tied so explicitly to the rewards system.
Fourth, how does the proposed KBP system relate to the human resource practices discussed earlier? How will KBP interact with inevitable tradeoffs between recruiting and selecting the most globally-skilled employees versus in-house training and development strategies building a more customized form of knowledgeable workforce?
Finally, how can we design a KBP system which does not fall into the trap of increasing bureaucracy, formalization and fossilization? The pay system we design must be in harmony with the "mind matrix" culture. Otherwise KBP becomes yet another false lead in the search for a flexible complete and consistent for of control for multinational corporations.
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