HR model for CEE (and others…)

Few days ago, I have been in an exclusive “breakfast” organised by E&Y and Pedersen & Partners that had some HR issues as core subject. Afterward I was puzzled about the inability of participants (senior HR manager of large groups and myself) to articulate a model explaining a common employee behaviour in Central and Eastern Europe. (Almost) no matter what is the HR policy (and in particular the compensation scheme), most employees (but not all) will leave rather quickly a company (2 years seems to be average time) and most are extremely highly cash focus (this goes in-par with a substancial level of emmigration).

So last night I had an hour to spare and came up with this model which I believe explain a lot and could be useful for HR manager acting in CEE countries. It is also a way to explain why many Western European companies encounter difficulties to deal with HR issues in the CEE region. And of course it is strongly linked to entrepreneurship!

This blog is although particularly long and is the abridged version (shorter and simpler, without any references) of a real paper.


The model

The model to be presented is founded on the underlying model of Knowledge Worker “principles” from P. Drucker (employee would do well to be self-employed / entrepreneur). This just examines the relationship between employee and company. This is not however only a “brain” view of a particular situation. It is already happening and people & companies are using similar models with various degree of success in CEE countries (such as Siemens).

The basis of the model considers that the employee and the company have 2 main HR strategies:
- Traditional Strategy (TS): It is the strategy of the long-term relationship with a personal career to be almost (if not all) to be done within the company. This is an exclusive relationship.
- Knowledge Worker Strategy (KWS): It is the strategy, which consist of project/need-based relationship. This is a non-exclusive relationship in which the employee can serve many companies (clients) and companies can use many suppliers (employees) to fill in a unique "position".


WARNING: This model does not cover all possible cases. As a model, it cannot and should not be applied without testing the “constraints” and “conditions” of its domain of validity.


The static view

Power Game means we are in a traditional HR relationship with both actors (company and employee) behave as they are “stuck” together and they have to deal with each other (there is no real use of an “exit” strategy). This is very much shown in the past work relations in Japan or France. The two extreme what the power game can be with relation going to “extra bitter” (multiple and hard strike, usage of police force, etc.) to “double sweet” (to extreme when some Japanese corporations were even buying the cemetery land for the worker…. at signature of work contract with the 20+ years old employee!)
This could be regarded as a classical monopoly / monopsony relationship.

Con Game (E) happens in the case the employee acts (conscientiously or not) on the P. Drucker’s KW model. He sees the employer as one of many sources of incomes. On the other hand the employer (the company) sees itself has the only source of income of the employee. In this case the employee is always on the hunt, taking more than one job at a time. Always ready to jump to the next boat, etc… Focus is on a commercial relationship (based on cash in most of case, like most suppliers are)
In the eye of the company, the behaviour of the employee looks like unfaithful because they expect a traditional conduct from the person. This is re-enforced in CEE countries where there is not yet a strong “reputation”-based network for manager selection for example. Highly instable staff behaviours are thus “unpunished” (in a market sense of the word).

Con Game (C) happens when employees expect the company to apply traditional HR (business) model where actually the company pursues a more outsourcing strategy (and temporary employment contract strategy, etc.). The company sees its “most” important asset (as usually stated) as an external asset (a vital supplier) more than an internal one (like team member). Some companies can have a very high degree of externalisation of the workforce.
In this case, employees look at the company as an “untrustworthy” multinational corporation.

Competitive Game means both end of the relationship apply and expect a “knowledge worker” behaviour, a client-supplier relationship. On the HR level, when established, the relationship is somewhat easier to manage (greatly because it becomes somewhat out-of-scope). Market pressures force parties to behave reasonably.
This could be regarded as a classical relationship in perfect market situation.


The Dynamic view

It is clear that “Globalisation” has put a strong pressure on company (and their business model) to move on from a purely traditional HR strategy toward what I called the Knowledge Worker Strategy ("outstaffing"). Employees have been suffering a lot in this case because of the erosion of their comfort zone (in particular in the EU-15). This is seen by the lower-left arrow.

On the other hand, the collapse of the communist system in the CEE countries has put employees into dire situations (no job, not paid job, etc.). The employee comfort zone has been abruptly removed during the transition economic process (upper-right arrow). People had to adapt (and adopt) to a more flexible approach toward employment. The KWS (Knowledge Worker Strategy) was a strong answer to this. Many companies however were not ready for this.

This shows why companies and employees are leaving their previous equilibrium (TS-TS) to reach another one (KWS-KWS).

Applying game theory to this, we could get couple (x,y) which can demonstrate this. Numbers are arbitrary because a real research has to be developed. The couple symbolises the “employment index” such as how easy to find incomes (not how high revenue can be), how is it to find workforce (not how cheap), how easy it is to manage the relationship, etc.

Conclusion

This model shows that it is vital for both parties to identify as soon as possible the strategy of the other party (Game Theory principle), otherwise the “unprepared” party will be in pursuit of the wrong goal using a wrong strategy.

Typically, the HR department might create/use smart HR tools and compensation schemes to typically see them fail time after time. The employee can also focus very hard on making a career in his/her company to realize (too late) this is dead end strategy.

On the other hand, in the competitive game, big advantages appear as the HR manager does not need to solve the always-hard issue of the alignment of ever-changing companies objectives (quarterly based) and ever-changing employee goals (life & professional) !

People and companies need to change their relationship approach and this means their business model (both parties). This will requires the implementation of new tools to manage the relationship between both “employees” and companies. New sets of practices will have to be used, which will be between the traditional supplier-client relationship tools (CRM, SCM, etc.) and traditional HR management tools (contractual tools, career plan, etc.)

This will re-define also the pro and cons of such link and new problem will be encountered. People involve in such new relationship will have to be dynamic to outweigh the newly discovered challenges. Entrepreneurial skills and strategies are certainly tools which can help in this case.

International HR in Eastern Baltic…

One of the main barriers when it comes to international business, the ability to “understand” (not only to communicate) the vis-à-vis is big one.

In Eastern Baltic, for the few survey I have conducted myself with international oriented ICT companies; the internationalisation process is often conducted by the entrepreneur himself (women entrepreneur in this sector are truly rare).

It is often based on the assumption that because they did succeed to import technologies and services, that they will also succeed to export those. However in the import internationalisation process, the “export” side of the relationship does the main effort. The import side does little in the process. Thus the learning curve is actually still very steep but often completely ignored by Eastern Baltic entrepreneurs.

In many ways the internationalisation process means to a certain extent the internationalisation of the team. This of course does not only mean the recruitment or contracting of foreigner but it does imply that the team has to get a higher grade of international experience. This higher grade can be obtained by recruiting local people with significant international experience (export-wise) for example.

It amazed me that entrepreneurs in the ICT sector in the 3 Baltic States (and suspect it is true the whole eastern Baltic region), that only one foreigner have successfully be employed for more than a year. This American person although experienced in the Baltic region as had a difficult relationship with the local entrepreneur at the end.

Adding this issue to other existing one, this shows that there is a long way to go for the innovative entrepreneur of the region to successfully go international.

Export oriented International Entrepreneurship issue…

As most entrepreneurs, one should try to develop (international) business which are different than others. As Chan Kim and Renée Mauborgne demonstrated, it is much better to compete by “creating” or going to a new market niche (innovative way) than to compete on over crowed market (albeit much larger).
This means than the (international) entrepreneur should think out of the box intuitively (as suggested by Kjell Nordstrom and Jonas Ridderstrale in “Funky business”) or methodologically by taking on steps using the schemes describe in (e.g. articles in HBR from C. Kim and R. Mauborgne).

The problem is for any (international) entrepreneur is that to get out of the box, it is important to know what is the box! The box here can be broadly defined as the society framework of the market one is trying to access (such as culture at large including business & legal culture).

One can argue that being outside the box is quite easy for an outsider like the international entrepreneur (shortly IE). However, the problem that international entrepreneurs encounter is that to define the box. Not only one should think “differently” but more importantly not to think too differently in order not to be off the mark.

When talking about the export oriented international entrepreneur from CEE countries, the key markets to explore (like for everyone else) are the US, W. Europe (ex-EU15) and Japan.

With the relatively little experience of export (not related to transit trade), this is not easy because of a lack of referential. After all CEE international entrepreneur are trying this for less than 15 years (compare to 100 years+ experience from some other nations).

Going global is expensive not matter how imaginative one is. However for the ever-bootstrapped IE (esp. from CEE) some ways can be used such as:
- Reading newspaper and magazine from the targeted market
- Researching targeted market using online tools (free or not)
- Getting to know the culture as much as possible (via internet, books, TV, etc.)
- Finding local partner or people who have been there to discuss the matter at hand (from virtual means such as LinkedIn or from traditional means such as business organisations and chambers of commerce)
- Using cheap tools (such as VoIP - Skype) to communicate frequently
- Contracting people with strong international experience
- Of course at the very least to “fly” there for a few days… (at least a few time)

These are not the panacea of travelling abroad frequently and living for weeks on the targets market (like Meg Whitman of eBay spending summer 2005 in hot and wet Shanghai for learning to Chinese market key openers) but they can help.

At the end of the day, export oriented activities are culturally constraints (this refers to the cultural distances). Any experienced IE would be telling you it is vital to break the cultural distance as fast as possible and as best as possible!