Nigel Bassett-Jones - Strategic Human Resource Management - A Systems Approach-Routledge (2023)

STRATEGIC HUMAN RESOURCE
MANAGEMENT
This innovative text applies a systems theory perspective to strategic human

resource management, drawing particularly on the Viable System Model and
soft systems methodology.
Readers are introduced to different ways of thinking about systems and
shown how systems can interact, triggering changes in the competitive envi-
ronment – and how HR systems can either facilitate or inhibit adaptation to
these changes. Peppered with international examples throughout, this book
considers key HR topics such as recruitment, reward, employment relations,
culture, diversity and leadership, all through a systems lens. It shows how an
understanding of system dynamics can help managers to recognise complex-
ity, accept the inevitability of short-term systemic conflicts and anticipate the
likely consequences.
This text will be suitable for upper-level undergraduate, postgraduate and
MBA students of strategic HRM, HRM and strategic management. It will
also be thought-provoking for HR professionals looking to embrace a strate-
gic role in their organizations.
Nigel Bassett-Jones is a currently a senior lecturer at Oxford Brookes Uni-

versity, Oxford, England following retirement as the Head of Department
of Organisational and Management Studies. His research interests lie at the
intersection of human resource management, innovation, and systems the-
ory. He is the author of several book chapters and various journal articles
and conference contributions. He has worked as a consultant specialising in
organisation and management development serving both public and private
sector organisations and has taught on MA, MBA and MSc programmes in
various institutions in the UK and contributed as a visiting lecturer on MBA
programmes in Finland, France and South Africa.
STRATEGIC
HUMAN RESOURCE
MANAGEMENT
A Systems Approach
Nigel Bassett-Jones
Cover image: © Getty Images
First edition published 2023
by Routledge
4 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
and by Routledge
605 Third Avenue, New York, NY 10158
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2023 Nigel Bassett-Jones
The right of Nigel Bassett-Jones to be identified as author of this
work has been asserted in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or
reproduced or utilised in any form or by any electronic, mechanical,
or other means, now known or hereafter invented, including
photocopying and recording, or in any information storage or
retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks
or registered trademarks, and are used only for identification and
explanation without intent to infringe.
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
ISBN: 978-1-138-64135-8 (hbk)

ISBN: 978-1-138-64136-5 (pbk)
ISBN: 978-1-315-63055-7 (ebk)
DOI: 10.4324/9781315630557
Typeset in Bembo
by KnowledgeWorks Global Ltd.
CONTENTS
List of Figures vii

List of Tables ix
Prefacex
PART 1
SHRM From a Systems Perspective1
1 Strategic HRM and the Systems Perspective 3
2 What Is a System and What Is the Value of a Systems Approach? 18
3 The Organisation as a System39
4 A Critical Evaluation of the Systems Perspective, When

Applied to SHRM 61
5 Organisational Orientations to the Labour Market and

Their Implications 75
6 SHRM and the Management of Innovation 86
7 SHRM and the Management of Change99
8 Labour Markets, HR Planning and Recruitment and Selection125

vi Contents
9 Pay and Reward Practises and Their Implications for

Corporate Cultures145
10 Human Resource Development From a Systems Perspective161
11 Industrial and Employee Relations Seen Through

a Systems Lens182
12 Delivering Solutions to Complex Organisational

Problems Using Soft Systems Modelling211
PART 2
The Future of SHRM From a Systems Perspective239
13 The New Saeculum and Its Implications for

Strategic Human Resource Management?241
14 A Systems Dynamic Perspective of the Post-Covid-19 World264
15 Epilogue278
Glossary of Systems Theory Terminology 283

Index286
FIGURES
1.1 The inside looking out and the outside looking in perspectives
(Adapted from Teece et al., 1997) pp 509-5154
2.1 An organisation operating within its own immediate ecosystem20
2.2 The information input and outputs generated by the
HR function at the time (T1) of the board meeting32
2.3 The new strategy at time T2 is present using the
symbols of amplification, attenuation and transduction36
3.1 The Viable System Model48
3.2 A Viable System Model in the M form or divisionalised company49
4.1 Contagion in the US national competitive environment68
4.2 Contagion of national economies71
5.1 Key stages in the radical transformation of TQM systems 77
5.2 HRM Archetypes (Bamberger and Meshoulam, 2000)81
5.3 The f lexible firm82
6.1 The strategy performance nexus88
6.2 Intellectual capital from which distinctive competence and
capability are generated89
6.3 A national innovation eco-system90
6.4 Patterns of innovation in industry lifecycles91
6.5 An organisational life cycle from birth to demise92
6.6 Change of HR policy and practice over an industry life cycle94
7.1 A typology of psychological contracts (adapted from
Rousseau and Wade-Benzoni, 1994) 104
8.1 A free market vocational education and training system 135
8.2 A social market vocational education and training system136
8.3 A state corporatist vocational education and training system137
viii Figures
9.1 An Indian multinational corporation at the highest level

of recursion with regional subsidiaries in the US, Europe
and China 153
9.2 Tata Motors and the Jaguar Land Rover Division159
11.1 HRM policies and practices and human capital performance183
11.2 Employee voice within the HR Frame188
11.3 Employee voice within the Pluralist Frame190
11.4 The decline of public capital, 1970–2016194
11.5 The impact of the neoliberal dynamic195
12.1 How paradigms evolve, Colonel Boyd’s essence of winning
and losing (adapted from Boyd, John R., 1995, The essence
of winning and losing; a five-slide set by Boyd)218
12.2 The Facebook business model229
12.3 A rich picture of systemic interactions233
13.1 Parolini’s industrial development schema 246
13.2 A PEST analysis of the impact of five key technologies
and two critical variables 249
13.3 Mintzberg’s organisational configurations251
13.4 Autonomy and privacy implication for different types
of HR employment approach255
13.5 The full impact of a VUCA world256
14.1 Three innovation paradigms272
Exhibits
3.1 A VSM of Lehman Bros depicting the upward f low
of information53
3.2 A VSM of Lehman Bros depicting the downward f low of
information54
3.3 Answer A VSM of Lehman Bros depicting the upward
f low of information55
3.4 Answer A VSM of Lehman Bros depicting the downward
f low of information57
TABLES
4.1 A list of companies showing the time it has taken them to

grow from unicorn status to exceed a 1 billion dollar
capitalisation.72
7.1 Chronology of the merger.112
9.1 Clusters of TATA businesses.156
12.1 Some of the biggest cyber hacks in US history.224
13.1 The five Kondratieff waves.243
13.2 The five technological themes and their impact on human
activity systems.250
PREFACE
The writing of this book commenced prior to the spread of the Covid-19
global pandemic. Indeed, nine chapters had been completed when in early
January 2020, there were reports of a mysterious illness in Wuhan, China. I
stopped writing pending further news. I had been conscious for several years
that there were two major threats facing the world. The first was climate
change, and the second was the risk of a global pandemic. I considered the
two threats to be related. Climate change is causing the human and the natural
world to collide as species that historically have sought to distance themselves
from the human world are being forced into ever greater proximity. There had
already been outbreaks of SARS in China in 2002, followed in 2012 by an
outbreak of MERS in Saudi Arabia that had subsequently spread to 27 coun-
tries. In addition, Central Africa had succumbed to another outbreak of Ebola
in 2017 and Zika had hit Latin America. I wondered whether the news reports
coming out of China presaged something more serious.
On February 6, the New York Times reported that a Chinese doctor had
been arrested for trying to raise the alarm about a mysterious virus. Thereafter,
developments picked up pace with persistent reports on the BBC that the
World Health Organisation (WHO) was resisting pressure to declare a pan-
demic. On February 29, the Centres for Disease Control and Prevention
reported the first death in the US. On March 12, the WHO finally made
the global pandemic declaration. On March 24, the New York Times reported
the first deaths in Italy. Thereafter, the virus spread dramatically across Europe
and the East Coast of the US. National body count statistics began to be
reported daily. By this time, it had become clear to me that the world was
changing fast. It would never be the same again. The pandemic was both an
agent of change and symptomatic of other forms of deep-rooted change that
will ultimately lead to a new Epoch.
Preface xi
Epochal change, as the phrase implies, is an unusual and infrequent phe-

nomenon. It transforms our lives in ways that we cannot fully comprehend
other than through historical hindsight. The transition from horsepower to
steam power, for example, opened a new epoch. It made it possible to move
people and products in large numbers over long distances very quickly and at
a low cost. For the first time labourers could travel to the seaside. The annual
holiday was born. The package holiday industry grew along with department
stores. Urban living developed greater appeal. Armies could be mobilised and
moved great distances. Without railways, it is unlikely the First World War
would have been fought; moreover, Hitler would not have become Chancellor
of Germany. International trade morphed into a global trading system initiat-
ing a dynamic we now know as globalisation.
I realised that I had to revise my plan for the book in a bid to address what
was fast becoming a new emergent reality. Firefighters refer to an acceler-
ant as a substance or mixture that speeds the development and spread of fire.
Covid-19 is an accelerant of large-scale social, economic and political change.
The book, therefore, is now divided into two parts; the first examines the
evolution of HRM from a systems perspective. The second looks forward, and
using a systems lens, seeks to explore the emergent properties of what I have
called the hypertec revolution in recognition of the fact that there are multiple
emergent technologies advancing at a blistering pace. As they advance, they
are, along with climate change and demographic trends, going to transform
our world and the way we live once again.
In the 1920s, a Russian Economist named Nicolai Kondratieff developed a
thesis that came to be known as long cycle theory. In the second part of this
book, the implications of the long cycle will be explored in the context of a
post-Covid-19 world.
The book operates at two levels. A macro level that in the later chapters
strives to peer into the future, postulating that strategic human resource man-
agement (SHRM) as we have come to know it may morph into a different
form of conceptual entity. At the micro level, the book is grounded in four
propositions. The first is that Covid-19 is the harbinger of the end of one long
cycle and the beginning of another. Even as I write, dynamics are taking hold
that presage the onset of another Industrial Revolution.
The second proposition is that managing people is a complex and challeng-
ing process. Systems and the way they interact, determine the nature of the
world in which we live and both the competitive and operating environments
within which managers’ function. Systems also impose constraints on the way
in which managers can operate. Systemic interactions emerging from the nat-
ural world are shaping and reshaping our natural environment. These changes
are increasingly affecting both our economic and business environments. As
the economic environment changes, so does the competitive environment.
Organisations must adapt. This means adjusting structures and operating sys-
tems. Systemic changes sweep through industries. They shape organisational
xii Preface
cultures and the nature of cultural alignment with an organisation’s corporate

and business strategy. Good alignment of HR strategy with business strategy
has been shown to contribute to competitive success, poor alignment results in
loss of competitive advantage. Globalisation and technology have generated a
dramatic increase in the level of complexity industries and organisations face.
The third proposition, therefore, is that existing approaches to the study of
HRM are too narrow. Contextual theory, which is the broadest of the four
perspectives on HRM, fails to capture the essence of complexity and chaos
that characterise the nature of the competitive environment of the twenty-first
century.
Systems theory is now an established managerial discipline. It has already
achieved traction in other disciplinary domains. These include Strategy,
Operations, Finance and Marketing. There is, however, limited evidence of a
robust systems approach to HRM although the contextual perspective opened
a new pattern of discourse, on its own, it is insufficient to provide managers
with the insights they will need to cope with the relentless advance of innova-
tion and the complexity that innovation creates.
The fourth proposition is that our understanding of organisation is under-
going a radical transformation. Henry Mintzberg identified five patterns of
organisational structure. Atkinson wrote about the flexible firm and Charles
Handy introduced the shamrock organisation. All three authors have been the
subject of much criticism. As we investigate the future, we are going to have
to recognise the existence of the “disembodied organisation.” Until recently,
the phenomenon only existed in murky criminal underworld organisations,
such as the Cosa Nostra. There is no physical presence, no real estate signi-
fying a corporate head office and no recognisable brand. The organisation is
characterised by purposeful activity, held together by flows of information
leading to decisions that entrain consequences. The channels through which
the information flows connect disembodied systems.
My original work plan had been to draw together the first three proposi-
tions. Covid-19, however, derailed the original agenda. I came to realise that
systems thinking was no longer simply going to be an additional perspective
to add to the HR and line manager’s toolkit for understanding organisations,
it was about to become a vital cornerstone that would underpin our under-
standing of organisations and how they will operate in the future. It is for this
reason that the first part of the book focuses on what systems are and how they
impact HR processes and practises. The second part draws upon our under-
standing of the past with the aim of recognising patterns that shine a light on
what awaits us in the future, both as managers and HR professionals, as we
continue our journey to a very different place.
The fourth Industrial Revolution is going to transform societies and the
ways in which they function in profound ways. Like the weavers of pre-
industrial times, we are ill-prepared for the developments that are sweeping us
Preface xiii
into a new epoch that we cannot fully comprehend. The second part of the
book, therefore, seeks to draw upon systems thinking to illuminate some of
the many issues that are likely to confront us going forward in the process
of managing people and organisations in a world of transformational change
driven by hyper-technology. The book explores how systems interact, induc-
ing changes in the competitive environment. It explains how and why these
changes occur and explains how HR systems have historically either facili-
tated or inhibited organisational adaptation to environmental change, along
with some thoughts on new emergent patterns of people management that
will have transformative implications for both line managers and HR profes-
sionals. In short, the importance of systems thinking has, in my view, taken
on a new urgency.
As a teacher of HRM professionals and MBAs over many years, one of
the things I have observed is the former’s tendency to want to focus on their
area of specialism. This rather myopic approach stands in stark contrast to that
generally adopted by MBAs and practising executives from other disciplines.
They tend to be more pragmatic and eclectic in the pursuit of knowledge. At
the same time, they can often be rather dismissive of the importance and the
relevance of having a strategic grasp of HRM. This book targets both these
groups along with practising managers with two specific aims, the first is to
encourage HR professionals to think more broadly so that they are equipped
to embrace a strategic role that adds value in the boardroom. For MBAs and
managers in general, the aim is to help them to recognise the significance of
HR policies and practises in shaping culture and business performance. It has
become a cliché to say that the only constant in the contemporary world is
change. Culture can both support and resist change. The book seeks to high-
light a paradox that is founded upon four observations:
1 Senior Managers collectively determine HR strategy, policies, and
practises.
2 HR policies and practises both shape culture and entrain cultural
consequences.
3 Culture both shapes and constrains strategic choices.
4 If Senior Managers are not literate in respect of strategic HRM, they will
forge the bars to a cultural cage in which they subsequently imprison
themselves.
Strategic initiatives engender both short-term environmental feedback loops
and long-term industry and organisational growth and decline dynamics.
Managers and HR professionals need to recognise and understand these
dynamics and their implications. To do this, their understanding of what
is going on will increasingly require a systems perspective to be adequately
prepared to formulate the change agendas that will be needed to enable the
organisations that they lead to adapt and prosper.
xiv Preface
The book’s structure

Part I
Chapter 1 Strategic HRM and the systems perspective
Chapter 1 sets the systems perspective in the broader context of the four streams
of HR strategy literature, the universalist, contingency, configurational and con-
textual perspectives. It argues that whilst the systems perspective rejects univer-
salism, it embraces and accommodates key aspects of the other three traditions.
The chapter makes a case for understanding why a systems perspective
delivers real practical value for both managers and HR professionals.
Chapter 2 What is a system and what is the value of a

systems approach?
This early chapter explains what a system is and does. It defines a system’s
attributes and explains why management is a stochastic discipline. To do this,
the role of positive and negative feedback loops is explained. A simple example
from within the domain of HRM is deployed. Ashby’s Law of requisite variety
is briefly introduced along with other important cybernetic concepts such as
recursion and the role of amplifiers, transducers and attenuators.
Chapter 3 The organisation as a system

The chapter begins by addressing Chandler’s dictum that “where strategy goes
structure follows” and the debate that ensued in which opponents argued that
structure, to a large extent, constrains strategy. This sets the stage for a critical
evaluation of traditional models of organisational structure. The central issue
the chapter addresses is the question of whether the configurational approach
to HRM is adequate. It concludes that it is not because configurational HRM
tends to pursue a reductionist approach that focuses on components rather than
dynamics. The viable system approach offers a credible and useful alternative.
To demonstrate the point, the build-up to the 2008 financial crisis is evaluated.
The chapter culminates in a case study of the factors that led to the collapse
of Lehman Brothers.
Chapter 4 A critical evaluation of the systems perspective,

when applied to SHRM
The aim of this chapter will be to deliver a critique of the systems approach
within the contingency tradition. To do this, it will explore the dynamics of
the financial crises and the role that HR systems played in creating and sus-
taining the policies and practises that proved so damaging and costly in terms
of both financial and human consequences.
Preface xv
The core theme of the argument is that whilst the cybernetic and soft
systems perspectives can deliver insight and understanding of complex and
dynamic interactions, they cannot deliver predictive accuracy because of the
nature of complex systems. In consequence, whilst they are an indispensable
management tool when used well, they are not a silver bullet.
Chapter 5 Organisational orientations to the labour market

and their implications
The chapter opens with a critical evaluation of different organisational
labour market orientations, using Bamberger and Meshoulam’s (2000) stra-
tegic archetypes. It is the precursor to five further chapters that examine HR
Planning, Recruitment, and Selection, Pay and Reward, Employee Relations
and Training and Development. The aim is to show the inherent complexity
of the modern pre-Covid organisation and why it needed to retain flexibility
and adaptability through the application of different HR policies and practises
to distinct categories of employee.
An argument is presented that managements’ face a paradox. On the one
hand, they determine the nature of HRM policies and practises. On the
other hand, they can become imprisoned by those policies. As individuals,
the best they can hope to achieve is a positive organisational climate.
Examples of strategic failures arising from cultural resistance are explored,
along with the impact that HR policies have on the psychological contract and
the nature of employee relations. The case study explores two examples of large-
scale mergers and the factors leading to success in one case and failure in another.
Chapter 6 SHRM and the management of innovation

Innovation impacts all organisations. Those that initiate innovation benefit from
learning curve advantages. Those that follow must respond to a world that is
changing around them. To survive, they too must innovate. Often, this demands
changes in structures, reporting relationships, performance management and
reward practises. A period of change and uncertainty ensues. The chapter exam-
ines how different innovation strategies impact HRM. A degree of misalignment
between competitive strategy and HR strategy at such times is inevitable because
it takes time and thought to determine what changes need to be made to realign
HR policies and ensure that HR subsystems are consistent and supportive.
Chapter 7 SHRM and the management of change

Innovation is only one catalyst of change. Mergers, acquisitions, new alliances
and new leadership represent other forces that drive organisational change.
Employees can perceive change as either an opportunity or a threat. Often, it
xvi Preface
is the latter because established networks and ways of working are threatened
inducing stress and anxiety.
Culture normally evolves gradually. Disruptive change, however, is expe-
rienced as a shock. It induces shifts in patterns of expectation that result in
changes in the psychological contract. Leadership is critical. The chapter pre-
sents two case examples of organisations confronting dramatic change and
how leadership and systemic feedback loops resulted in failure in one case and
success in the other.
Chapter 8 Labour markets, HR planning and Recruitment

and Selection
The chapter begins by comparing the US and British free market with the
Rhine Feld system and the Japanese state capitalist approach to labour market
management. The aim is to sketch out differences in core values that emanate
from the distinct roles that technology and software, on the one hand, and
cultural predispositions on the other, result in alternative approaches to labour
market management and the implications these have for corporate HR plan-
ning. A critical evaluation of the systemic implications of each national and
corporate labour market orientation follows using Beer’s Viable System Model
to explain how corporate recruitment and selection practises evolved.
The case study addresses the strategies of head-hunting companies com-
peting in China.
Chapter 9 Pay and reward policies and practises and their

implications for corporate cultures
This chapter presents an argument that organisations operating within the same
national cultural context can adopt different approaches to pay and reward and
achieve comparable competitive success. Examples will be provided of prac-
tises in the UK, US and Germany. It postulates that pay and reward practice is
strongly influenced by contingent variables such as whether a company adopts
a unitarist or pluralist perspective and that the structure of the labour force is
determined by the dominant practises and beliefs embedded in the industry.
The case study explores the global growth of a major corporation in an
emerging economy and contrasts its strategy with those adopted by corpora-
tions globalising from developed economies.
Chapter 10 Human resource development from a systems

perspective
An organisation’s orientation to the labour market determines the nature and
form of its HRD system. Bamberger and Meshoulam’s typology of HR strat-
egy discussed in Chapter 4 highlighted the fact that organisations with an
Preface xvii
external orientation to the labour market tend to perceive training and devel-
opment as a cost rather than as an investment. This results in an instrumental
approach to training and development. Organisations that commit to develop-
ing an internal labour market, in contrast, regard expenditure on training and
development as an investment and a valuable tool for retention of scarce skill.
The chapter explores the distinction between training and development. It
considers ways in which needs analysis can be conducted and the importance
of ratio analysis as a means of interpreting feedback from the external environ-
ment and its value in improving HR capabilities. Thereafter, organisational
development and the contribution that coaching can make is considered.
The chapter is supported by a case study that extends the earlier case exam-
ple of CEMEX.
Chapter 11 Industrial and employee relations seen through

a systems lens
The chapter opens with a brief discussion of the differences between industrial
and employee relations. Discussion of the impact of technology and tech-
nological innovation on industrial and employee relations follows. Japanese,
German, US and British approaches to industrial and employee relations are
discussed using the system’s lens at different levels of recursion.
Two case studies are presented. The first examines the employment rela-
tionship in an emerging economy, whilst the second looks at employee rela-
tions in developed economies.
Chapter 12 Delivering solutions to complex organisational

problems using soft systems modelling
This chapter will build on Chapters 5–9. The main theme of the chapter is
coevolution. It seeks to knit together the cybernetics and soft systems per-
spectives. In doing so, the inevitability of interpersonal and systemic conflict
is highlighted. This is achieved by examining the interplay between indus-
try and organisational development themes. Industries evolve and companies
co-evolve in industry contexts. Some organisations seek to grow organically,
others by acquisition. Each approach presents different challenges and risks.
HR plays a pivotal role in both. The soft systems perspective emphasises the
nature of the transformation being sought and introduces students to conflict-
ing Weltanschauung (world views) of the different stakeholders. These views
tend to guide both actions and decisions. These generate complex feedback
loops that are difficult for the managing coalition to read or predict, largely
because different managers can espouse the official line whilst emitting behav-
iours that are either consciously or unconsciously at variance with espoused
strategy.
xviii Preface
A case study looks at the future challenges Facebook, now renamed Meta,
is likely to face.
Part II
Chapter 13 The new saeculum and its implications for
strategic human resource management
Toffler published his book Future Shock in the 1970s. His thesis was that people
would be disoriented by the rate of change in subsequent decades. The thrust
of the chapter is that the rate of change observed in the fifty years since the
book was published will be nothing compared with the rate of change of the
coming decades.
The chapter opens with a discussion of long cycle theory and the evolution
of technological revolutions. It then explores the six technologies that will
shape the future and the way in which they will shape and create new organ-
isational forms. The implications for Strategic HRM are then evaluated. A
case study of TAAS and digital manufacturing in a VUCA world caps off the
chapter.
Chapter 14 A systems dynamic perspective of the

post-Covid-19 world
The chapter introduces the notion of dissipative structures and how they will
challenge dominant managerial paradigms. This shift will call forth a need
for corporate entrepreneurship, value-based HRM, human centred design
and presents new challenges for training, management and organisational
development.
Chapter 15 Epilogue
The chapter evaluates the socio-economic implications of the emergent
techno chasm for human activity systems and their relationship with the nat-
ural world.
Summations
Each chapter concludes with a summation. Each summation has two objec-
tives. Firstly, to enable readers to resume reading and to move on to the
next chapter after a break of several days or more and hit the ground run-
ning. Secondly, the summations are intended to support easy revision. They
are, therefore, in some cases longer and more detailed than might normally
be the case.
Preface xix
Case studies
Some chapters contain case studies. These are intended to illustrate and high-
light key points that emerged in the foregoing chapter. The companies were
deliberately chosen to represent an international and cultural diaspora.
The book constitutes a critical perspective of both SHRM and Systems
theory. Sadly, the modern world is a complex place and whilst I have done my
best to make the text easy to follow, students who are new to the discipline
will find some aspects challenging. My hope is that perseverance will bring
reward in the form of new insights and understanding.
PART 1
SHRM From a Systems

Perspective
1
STRATEGIC HRM AND THE
SYSTEMS PERSPECTIVE
This introductory chapter adopts a critical approach to the accepted conven-

tional perspectives adopted by both human resource management (HRM)
and strategic human resource management (SHRM). It seeks to trace the
development of SHRM and to examine the links and parallels with the strat-
egy discourse. It argues that professional socialisation of both academics and
practitioners results in disciplinary myopia that a broader understanding of
systems, organisation and industry dynamics can mitigate. The prospect of a
richer, more holistic appreciation of these dynamics that is founded on a com-
mon language, when shared by professionals with different disciplinary back-
grounds, will result in a shared conceptualisation of issues and the potential to
deliver more informed and, thus, better decision-making.
Books addressing HRM and SHRM often either begin with an examina-
tion of alternative HRM paradigms or deal with the issue of alternative HR
paradigms at some point in the text (Bratton and Gold, 2012; McKenna and
Beech, 2008; Kramer and Syed, 2012). This is clearly an important area for
discussion because it provides the reader with an overview of the four major
sources of discourse in the field and the assumptions that underpin them. Such
treatments provide the reader with a valuable overview of the subject and the
different patterns of discourse that have emerged.
The evolution of the discipline over the last three decades mirrors the evo-
lution in business practises as approaches to business strategy have developed.
It is to the evolution of the strategy discourse that we turn first, with a view
to outlining the backcloth against which the different discourses in HRM
emerged.
Two parallel streams of thought were emerging within the literatures on
strategy. Teece et al. (1997) captured their essence. They asserted that there
DOI: 10.4324/9781315630557-2
4 SHRM From a Systems Perspective
FIGURE 1.1 he inside looking out and the outside looking in perspectives
T
(Adapted from Teece et al., 1997) pp 509-515
Source: Author
were two primary perspectives on strategy, “the inside looking out” and the
“outside looking in” views (Figure 1.1). The former focused on the external
opportunities and threats posed by the environment whilst the latter addressed
an organisation’s internal strengths and weaknesses. They also suggested ana-
lysts could adopt either a macro or micro perspective. They posited that the
strategic conflict perspective was the oldest approach to strategy.
Following the end of the Second World War, many business leaders, influ-
enced by their wartime experiences, viewed the marketplace as a contested
field in which corporations fought for market share and dominance through
a series of battles. Executives reconnoitred the marketplace from their com-
pany’s position and either tried to assess how a dominant competitor could
be dislodged through marketing spend and good tactics or, if the company
was already in a position of dominance, how its supremacy could be sus-
tained. Articles such as Ries and Trout’s “Marketing is War” personified this
viewpoint. The second pattern of discourse then began to emerge around the
nature of competitive strategy. Japan’s extraordinary advances in quality man-
agement and its challenge to Western corporate hegemony was the catalyst.
Advocates of the competitive strategy approach sought to understand industry
dynamics with a view to determining where the greatest opportunity for invest-
ment, growth and profits lay. Michael Porter, at the behest of President Reagan,
was tasked with investigating why some companies and some industries were
extraordinarily profitable whilst others were not? Porter’s ideas on competitive
positioning and competitive advantage were seminal contributions to the debate.
Unfortunately, one of the key assumptions of this viewpoint is that organisations
have choices and can choose in which industries to locate and build their opera-
tions. This, of course, is an ideal economic assumption that is open to challenge.
Strategic HRM and the Systems Perspective 5
Many organisations with vast amounts of sunk capital in production lines

and specialist technologies do not have the luxury of being able to relocate
to another industry. Instead, they must compete, exploiting their inter-
nal resources to maximum effect. This gave rise to the “outside looking in”
resource-based approach to strategy. The emergent dominance of whole
industries by the Japanese prompted a search for the sources of Japanese com-
petitive advantage. Deming’s (1986) teaching on the value of statistical process
control, team working and problem-solving when combined with techniques
like Ishikawa and quality function deployment was clearly a vital ingredient;
however, a seminal contribution by Prahalad and Hamel (1993) entitled “The
Core Competence of the Corporation” revealed new and profound insights
into the factors underpinning Japanese success. It involved a combination of
long-term thinking, a capacity to envision where new technologies were likely
to converge in the future, a clear sense of mission in being the first to achieve
that convergence and an ability to recognise and husband not only an organi-
sation’s internal resources to maximum effect but those of an entire Keiretsu.
The dynamic capabilities perspective focused at a micro level on an organ-
isation’s internal strengths and weaknesses with a view to maximising the
former and reducing the latter. Whilst the work of Prahalad and Hammel had
given new emphasis to the value of an organisation’s internal resources and
the importance of aligning internal strengths with external opportunities, it
did something more. It drew greater attention to the human resource base of
a business and the need to harness it in such a way as to create dynamic capa-
bility (combining skills with other resources to create a distinctive source of
competitive advantage). Understanding the nature and source of this phenom-
enon became a new focus for research. Suddenly people and how they were
managed and developed was thrust centre stage, raising both the perceived
value and the status of both HRM and SHRM.
The universalist approach to HRM

Much of the early debate about HRM focused on whether there was a real
difference between personnel management and HRM (Guest, 1987). The term
HRM was an American concept. It first emerged in the 1950s. The first use of
the term human resource is attributed to Drucker (1954). It was further devel-
oped by Bakke in 1958, cited in Marciano (1995), who argued that the manage-
ment of the human resource was part of the general management function and
subsumed all personnel management and industrial relations activity. Over the
next 20–25 years, the term was frequently seen as synonymous with personnel
management and was used interchangeably. In the 1980s, the term attracted
more attention following a series of contributions from various sources. One
of the most prominent and widely recognised of which was a model of HRM
proffered by Beer et al. (1984). The emergence of a distinctive model catalysed
a debate. Was HRM really a new concept or was it personnel management

given a fancy name? Contributions from various academics including Legge
(1989,1995); Keenoy (1990); Storey (1993); Guest (1987); and Hope-Hailey
et al. (1997) argued that it was new and different, whilst others like Torrington
(1989); and Armstrong (2000) asserted the opposite. The debate was largely
an Anglo-American preoccupation. Eventually, a consensus emerged around
the idea that personnel management was an operational activity. HRM, in
contrast, was perceived to be a more proactive and strategic activity, although
downstream from competitive strategy. Research focused on whether a link
between HRM practice and organisational performance could be made. The
hope was that by isolating examples of superior performance, best practice
principles could be established and a blueprint for organisational success could
be developed. This early search for a silver bullet came to be known as the
universalist approach to HRM. It achieved limited success. Using positivist sta-
tistical methods and deductive logic, Huselid (1995) succeeded in establishing
links by comparing the presence of 13 HR practises in 900 organisations. He
was able to show that those organisations in which the practises were present
achieved higher sales, profits and market value along with a reduction in staff
turnover. The underlying premise was that there was a straight-line relation-
ship between HR practice and organisational performance. Other studies fol-
lowed such as Bird and Beechler (1995) and Yeung and Berman (1997). What
was difficult to prove, however, was that it was the HR practises that delivered
the results. Critics argued that it was perhaps the superior performance that
enabled the successful companies to develop the practises. The assumptions also
became vulnerable to challenge when intervening variables were scrutinised. A
consensus developed that despite reasonable levels of correlation between HR
practice and organisational performance, the linkage was more complex and
tenuous than the linear models suggested. Universalism is widely recognised as
the first step along a research continuum. When little is known about a newly
discovered or observed phenomenon, research focuses on explanation and upon
establishing whether the theory underpinning the observed phenomenon has
traction. As research output increases, so variations and different manifestations
and permutations of the phenomenon emerge and the assumptions underpin-
ning best practice principles are challenged as the researchers’ understanding of
the complexity of the phenomenon develops. Contingent variables are identi-
fied that erode the predictive value of any universalist prescription providing
the impetus for a move to contingency theory.
The contingency perspective

Early HR contingency research was informed by behavioural theory. Later
studies drew upon the resource-based and dynamic capability perspectives.
Alcázar et al. (2005) argue that the contingency perspective on HRM
recognises and addresses three generic categories of variables: strategic,

organisational and environmental. Research that focuses on strategic var-
iables emphasises the importance of fit or alignment between business and
HR strategy. It is often referred to as the “best fit approach,” see Stavrou
et al. (2010). This organisational approach looks at the impact of variables
such as organisational size, the nature of the technologies being deployed
and the way in which the organisation is structured. Again, the question
of “best fit” arises when organisational variables are the focus. Research
effort in this area revisited Chandler’s dictum that “where strategy goes
structure follows” (Chandler, 1990). Arguments around emergent strategy
had challenged this orthodoxy and raised the possibility that the nature
of the human resources base of a business can limit the range of strategic
options available to management (Mintzberg and Waters, 1985). This leads
to the proposition that, in some cases, established structures supported by
strong cultures result in structure strongly influencing, if not dictating,
strategic choice.
Throughout the 1980s and 1990s, the rate of globalisation intensified. Japan
offshored much of its automotive manufacturing capacity to new plants in
the USA in the early 1980s and Europe in the late 80s and early 90s. The
European Community (EC) experienced several bouts of enlargement during
the same period. Greece, Portugal and Spain joined the Community in the
late 1980s. In 1990, the Soviet Union collapsed. East Germany was unified
with West Germany and became part of the EC. Following the Maastricht
Treaty in 1993, the EC transformed itself into the European Union. Austria,
Finland and Sweden acceded two years later. This was followed in the late 90s
by the Czech Republic, Slovakia, Poland and Hungary in Eastern Europe,
along with the Baltic states of Estonia, Latvia and Lithuania, in the north
and Slovenia in the south. In 2001, China was admitted to the World Trade
Organisation (WTO). China opened its doors to the West. Each of these
developments resulted in dramatic increases in foreign direct investment as
corporations across the world either sought to offshore operations or establish
bridgeheads into new markets. In short, the intensification of globalisation
opened immense possibilities for corporate expansion. Such expansion, how-
ever, presented the many emergent multinational and global businesses with
new challenges and dilemmas.
Linguistic and cultural differences, different frameworks for the conduct of
industrial and employee relations and different legal jurisdictions for taxation,
governance and intellectual property management, all added to the complex-
ity for decision-makers in board rooms across the world.
Scholars began to explore the advantages and limitations of different
approaches to international expansion, heralding a further move towards a
convergence of HRM and strategy. HRM began to transform into SHRM in
response to these developments.
The configurational perspective

Influenced by the systems school of management, the configurational perspec-
tive of HRM perceives the HRM function as a system operating within the
larger organisational system. The HR system itself is perceived to be composed
of several subsystems that require coordination to achieve strategic alignment.
Such alignment needs to be vertical with strategy and horizontal across the
different HR subsystems. These subsystems include HR planning, recruit-
ment and selection, performance management, pay and reward, employee
development, employee relations, and health and safety.
Globalisation was resulting in a rapid multiplication of the number of pos-
sible configurations an organisation could adopt on its growth and diversi-
fication journey. Scholars began to classify different approaches to SHRM
as ethnocentric, region-centric, polycentric and so forth (see Perlmutter and
Heenan, 1974). Decisions on configuration were seen to be influenced by a
range of variables including culture, environmental context, competitive posi-
tioning and strategic aspiration.
The contextual perspective

The contextual approach can be regarded as a major elaboration of the con-
tingency view. It places the context in which both the HR function and the
organisation itself is operating. It sees context as central to any understanding
of the role and contribution SHRM makes not just to organisational perfor-
mance but also to organisational behaviour. A central proposition is that an
organisation may not only respond to environmental dynamics, in some cases,
it can also shape those dynamics. In other words, the contextual perspective
embraces the idea of rule makers who shape the environment and the com-
petitive context and rule takers, who are forced to respond to competitive
moves initiated by the rule makers. Apple and Microsoft, for example, domi-
nate desktop computing. They each set the rules that prescribe the boundaries
within which both manufacturers and software designers must operate.
Rulemaking and rule taking do not just apply to the marketplace. Functional
status and position within an organisational pecking order also shape the
nature of relationships and the patterns of discourse within an organisation,
providing the groundwork that helps shape culture and the nature of organ-
isational politics. In some contexts, the HR function will be a handmaiden,
whilst in others, it may be viewed as a strategic partner with a pivotal role
(Brewster 1999; Ulrich and Brockbank 2001).
Each of the four perspectives reflects a different methodological approach.
Researchers embracing a universalist view adopt a positivist methodology that
draws extensively on statistical methods to deliver evidence of a correlation
between HR policy and organisational performance. Contingency theorists also
rely upon statistical methods; however, unlike the universalists who search for
correlations between practice and performance, contingency researchers probe
more deeply by looking at the extent to which a dependent variable is influenced

by contingent variables and measuring how these impact on the relationship
between the dependent variable and the independent variable. Thus, statistical
methods like cluster and factor analysis become the tools of choice.
Configurational approaches like the universalist and contingency perspec-
tives adopt an “outside looking in” point of view. Contextual theorists, in
contrast, embrace a more circumspect, holistic and inductive approach by
recognising that both the “outside looking in” and the “inside looking out”
perspectives add value and that by adopting a single perspective, it is possible
to overlook variables that can have a profound impact on both the evolution of
organisations and of the environments of which they are a part.
Contextual theory has been profoundly influenced by the systems tradition
of management thought. The central premise underpinning this position is that
both the organisation as a system and the HRM function as a subsystem are
shaped by the larger environment. However, as has already been suggested,
they also help shape the larger environment of which they are a part. Notions
of co-evolution and the impact that central and local government policies and
trades unions have in shaping product and labour market dynamics are all fac-
tors that play a role both in shaping an organisation’s approach to SHRM and
the way in which SHRM decisions made in organisations shape and change the
nature of the larger environment. Offshoring is a case in point. Organisations
make individual decisions to offshore in a bid to drive down costs and increase
profitability. As costs are reduced, other companies are forced to embrace the
policy to remain competitive. In a few short years, entire industries are relo-
cated, transforming the nature of the competitive environment in both the off-
shoring countries and the host economies. In consequence, contextual theory
adopts a more eclectic approach when it comes to research methods. It recog-
nises the interactive nature of environmental and organisational complexity.
Mixed methods involving both quantitative and qualitative approaches are fre-
quently deployed. By embracing a dualist perspective, researchers seek to reveal,
on the one hand, how environmental dynamics stimulate organisational change
and why specific SHR policies and practises are embraced. On the other hand,
they investigate how these policies and practises affect individuals and groups
leading to changes in organisational culture and the impact that ensuing changes
in organisational performance have on the players in the external environment.
Clearly, all four perspectives add value by enriching our understanding of
SHRM; however, there is clearly an imbalance. Three perspectives are pre-
dominantly outside looking in, whilst only one looks both ways. This goes
some way to explaining the phenomenon to which I alluded in the preface,
namely that HRM practitioners are more preoccupied with drilling down
within their field than with examining the implications of external threats
and opportunities. Other managerial disciplines often view the world from
the opposite perspective. It is my contention that these predispositions are
not simply a function of professional responsibilities, they are also a result of
professional socialisation that is being driven by the different research tra-

ditions identified by Teece et al. (1997) and the different methodological
approaches described by Alcázar et al. (2005).
Earlier, I also referred to the fact that HRM and SHRM were originally
Anglo-American constructs that have succeeded to varying degrees in pen-
etrating professional discourse in other cultural contexts around the world.
This process of professional colonisation masks many significant cultural dif-
ferences that create a perception of a professional homogeneity in contexts
where the reality is one of professional and cultural heterogeneity. One of the
consequences of this clash of perspectives is a pattern of misunderstanding on
the part of the different professional actors in organisational life. Line man-
agers frequently resent the imposition of rules by an HR department that is
far removed from the nitty-gritty business of dealing with challenging oper-
ational issues. In some contexts, the policies that are formulated, whilst com-
patible with the culture of the parent company located somewhere else in the
world, are utterly alien to those tasked with local implementation in a foreign
subsidiary. At the board level, a collective refrain on the part of senior line
managers can frequently be heard proclaiming that HR does not understand
the broader strategic issues or challenges. In other contexts, the HR profes-
sionals complain of feeling marginalised and that the HR voice is not being
heard. In multinational contexts, such differences of perspective can become
very stark. Because HRM is an Anglo-American construct, and the discourse
historically has tended to be dominated by Anglo-American academia, there
are deeply embedded assumptions and values that are both short term and
highly individualistic in their orientation. HR professionals operating in other
parts of the world, who are not subordinated by Anglo-American corporate
control, are quietly developing different takes on the role and contribution of
HRM to organisational life. Thus, a central contention of this book is that
the SHRM discourse needs to be extended to enable both senior functional
managers and HR professionals to recognise and embrace alternative perspec-
tives and sources of critical thought that will enrich their ability to understand
different economic, social and cultural contexts and the challenges that this
poses for SHR policies and practises. Closely allied to this contention is the
proposition that ideas and concepts, tools and techniques originally developed
within the broader systems tradition of management thought have an impor-
tant role to play in opening this neglected but necessary agenda.
Why do functional managers need a deeper

understanding of SHRM?
Managers with functional responsibilities for areas other than SHRM natu-
rally define themselves as accountants, production managers, marketers and
so forth. The truth is, however, that they all manage people within their
functional area. In consequence, whether they like it or not, they are human
resource managers. As they progress in their careers and achieve board-level
responsibilities, they play a crucial role in overseeing HR policies. They
contribute to debates on changes in strategy. They must often reconsider
the suitability of current reward practises, or the relevance of current employee
training and development policies. In some contexts, the importance of these
issues, given a change in strategy, may not be recognised and, therefore,
are not either discussed or evaluated. Decisions that are ill-informed, result
either in policy inertia or are inappropriate to the unfolding context and result
in unforeseen consequences. These might include higher staff turnover, lower
morale, skill dilution, increased absenteeism, loss of good-will and flexibility,
resistance to change and distrust of management and other employee groups
to name a few. Suddenly, managers’ lives become more stressful and compli-
cated in ways they had not imagined at the time that they need the support of
their people. Their SHRM illiteracy has created a scenario in which they have
inadvertently imprisoned themselves in a context in which the realisation of
their strategic goal is being compromised, perhaps irreparably.
Why do HR professionals need a deeper understanding of

environmental dynamics and its impact upon strategy?
HR professionals face two challenges. They must ensure HR policies and
practises align with business strategy and they must achieve horizontal align-
ment between the different strands of HR activity. This is easier said than
done. A change of strategy will often throw HR policies into misalignment
in the private sector. In the public sector, a change in government policy can
have similarly far-reaching effects. Organisations co-evolve in a context. That
context changes over time. A good historical example of HR misalignment
that afflicted an entire industry revolves around the arrival of Japanese auto
manufacturers in Europe and the US referred to earlier. Japanese cars were
cheaper and were perceived by many customers as being of superior quality
because of their reliability. European and American managers recognised the
threat and launched various initiatives to address the problem. These included
managerial injunctions to improve quality. These were supported by training
and development initiatives that exposed the workforce to Japanese know-
how. Despite these efforts, in many cases, quality failed to improve. In the UK
and the US, indigenous manufacturers continued to cede market share to the
Japanese.
Why, despite knowing the source of the problem and the importance of
addressing it, were the British and Americans unable to adjust their organ-
isational performance? The answer lies in the pay and reward systems. The
British and American managers were wedded to piece rate approaches to pay
and reward. They lacked knowledge of systems and the impact of feedback
loops on human behaviours. Their reward policies sent out a powerful and
unambiguous signal to the workforce, don’t worry about the quality, just make sure
you hit your targets. Today there is not a single major British-owned car man-
ufacturer, although there is a thriving foreign-owned automotive industry
in the UK. In the US, the failure to adapt to the transverse engine and more
compact designs combined with lower quality resulted in a substantial loss
of market share. The onset of a deep recession in 2008 resulted in America’s
most iconic manufacturer, General Motors, seeking bankruptcy protection in
2009. Japanese recruitment, reward and development practises were all well
aligned and mutually reinforcing whilst those of the competition were not.
The British and American managers had imprisoned themselves in a cultural
paradigm of their own making. They were unable to see the bigger picture
and break free of their historic practises.
The implications of organisational climate

and culture for SHRM
The literature draws an important distinction between organisational climate
and organisational culture. There is a consensus that these concepts are com-
plex. Within the domain of organisational studies, the former has a longer
heritage dating back to the 1930s when Lewin created experimental organi-
sational climates (Lewin et al., 1939). The latter has its roots in anthropology,
with its ethnographic tradition and qualitative approaches to research.
Denison (1995) has argued that in the early 1990s, there was a shift of
approach within organisational studies. Researchers such as Calori and Sarnin
(1991); O’Reilly & Chatman et al. 1991; Denison and Mishra (1995); Gordon
and Ditomaso (1992); Hofstede et al. (1990); and Jermier et al. (1991) embraced
quantitative methods to investigate culture founded on surveys. Denison noted
that this was a departure from accepted practice. He feared that it was leading
to confusion between the two concepts. He argued that historically, climate
studies drew heavily on climate metaphors such as wind-chill that required
precise measurement of wind speed and temperature and, therefore, depended
heavily on quantitative data. They also required data on perceptions of the
actors in organisations. Thus, some climate researchers focused on either the
perceptual measurement of individual attributes or the measurement of organ-
isational attributes, or they combined the two. More recently, however, a con-
sensus has emerged that climate is grounded in deeper organisational values
rooted in culture and that culture is associated with the evolution of social
systems (Mirvis and Sales, 1990; Pettigrew, 1979; Schein, 1990). Climate, in
contrast, is more tangible, observable and susceptible to measurement.
Why is the discussion of the distinction between the two concepts impor-
tant? The answer, in the context of this book, is that whilst culture is shaped
and moulded by several variables, one of the most important is the nature of
the HR systems that are put in place by top managers. Pay and reward sys-
tems communicate what is valued, appraisal systems reinforce those values.
Not only are values communicated by these systems, but they also represent
powerful mechanisms of socialisation. Employees join organisations and from
their first day, they begin to absorb the messages communicated through HR
systems. Cultural values clearly influence climate; however, unlike the culture
that line managers are unable to influence, climate is susceptible to managerial
influence. A management style can influence the climate of a department and
a collective style of management at the top can influence climate more widely.
Employees look to managers for leadership and direction. Managers interpret
policies, and managerial practises can vary from one area of an organisation
to another because of different interpretations of the same rules. It is for this
reason that distributed leadership as a concept has gained traction. Managers
become the face of the organisation. If a manager is abrasive, inconsistent or
uncaring, then even the best HR policies will not necessarily be perceived
positively. In this sense, managers may be likened to uncaring sales assistants
or a duty receptionist in a hotel responding to customer complaints. These
figures are perceived by customers as manifestations of the organisation, and
they form opinions of the organisation accordingly. Think about how your
respond to poor customer service!
A skilful manager, whilst perhaps feeling trapped and frustrated by poor
HR policies, can nevertheless mitigate some of the effects, at least in the short
term, because a degree of respect and trust exists between the manager and
the staff. In some circumstances, therefore, it is the skill of the manager that
enables a bad employer to retain staff. A poor manager, in contrast, can cre-
ate and sustain a negative climate in a limited area of an otherwise healthy
organisation, creating demotivated staff with a propensity to leave at the first
opportunity.
Summation
This initial chapter has traced the evolution of both the strategy and HRM
discourses. It has argued that HRM and SHRM are managerial constructs
that evolved from the “outside looking in” perspectives on strategy. This
viewpoint developed in response to the resource-based view of the firm and,
more recently, the dynamic capabilities perspective on strategy. The latter
challenged the long-established view proffered by Chandler that strategy
determines structure. Proponents of the dynamic capabilities view were able
to show that strategic choice could be constrained by the human and social
capital base of a business, thereby highlighting both the importance and the
value of HRM.
The strengths and limitations of the four domains of HR discourse
were discussed, universalism, contingency theory, conf iguration theory
and contextual theory. The latter expanded the purview of the configura-
tional approach. In this view, the HR system is not only seen as part of a larger
organisational system but also as part of several larger systems such as an indus-
try, a regional trading bloc or a global supply chain to which the organisation
must respond.
The chapter advanced an argument in five strands. The first is that three of
the four HR discourses are grounded in an “outside looking in perspective.”
Given that the task of HRM is to husband the human capital base of an organ-
isation, this is hardly surprising. Unfortunately, however, it does tend to result
in promoting a somewhat introverted culture of HR professionalism that can
contribute to a disconnect between HR professionals and managers operating
in other disciplinary fields.
A second strand of the argument is that a disconnect can have consequences.
Line managers can come to see HR professionals as removed from day-to-day
people management and yet in a position to impose rules that, from an opera-
tional perspective, are either unhelpful or indeed dysfunctional. Similarly, HR
professionals may come to perceive senior line managers as being dismissive
of their voice.
The third strand of the argument is that over the last three decades, there
has been a convergence between business and HR strategy. This convergence
was captured elegantly by Teece et al. (1997). Their four lenses on strategy
ensure that HRM considerations are a key element of any strengths and weak-
nesses analysis put forward within a SWOT framework. Managers can come
to regard HRM as a support function that relieves them of the responsibility
of having to understand HR issues. This is not and cannot be the case. Line
managers are all HR managers because they manage people. They can either
choose to be effective in that role or to be illiterate. If they succeed in making
their journey to the top, it is they who will formulate HR policies and shape
their practice. If they are illiterate, they will unleash unintended consequences
that will make both their lives and those they manage both more difficult and
more frustrating, particularly in times of change. HR professionals, in con-
trast, must provide advice and contribute to policy debates. If they are to be
credible, they need a grasp of the bigger picture, a holistic picture that goes
well beyond the traditional contextual perspective and they need the tools to
undertake the necessary analysis.
The fourth strand of the argument is that there is an important distinction to
be drawn between organisational culture and organisational climate. HR sys-
tems play a vital role in shaping culture and reinforcing cultural norms. Senior
managers who are HR illiterate make decisions in respect of HR policy. In
so doing, they can engender unforeseen cultural consequences that serve to
derail their strategy agenda. A brief review of organisational acquisitions and
mergers is testimony to this reality. History is littered with acquisition stories
that speak of failure in terms of the agenda that justified the takeover initiative.
Whilst acquiring companies will commit substantial resources to financial

due diligence and the search for marketing and product complementarities and
synergies, the same does not always apply to HR due diligence.
The final strand in favour of a holistic systems approach is that HRM is an
American construct that has been widely embraced as a managerial ideology.
In the same way that managerialism is a language that can serve to foreground
and advance managerial agendas and suppress or marginalise the voices of
other stakeholders, so the language of HRM is predicated on individualist and
unitarist assumptions that may not travel well. A holistic systems perspective
can help to surface issues that might otherwise remain obscured, opening dia-
logue and mitigating needless organisational angst.
The objective of this book, therefore, is to enable line managers and HR
managers to bridge the gap in understanding by providing a broader systems
perspective through which to view HR policies and practice along with some
necessary tools of analysis drawn from the systems tradition of management
thought.
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2
WHAT IS A SYSTEM AND WHAT
IS THE VALUE OF A SYSTEMS
APPROACH?
Overview
This early chapter sets out to define what a system is and what it does and to
introduce some of the basic concepts of systems theory and cybernetics. After
defining a system, a short summation of the history of systems thinking is
presented. Ashby’s Law of requisite variety is then introduced with a view
to explaining why the systems perspective has value for HR practitioners.
The attributes of systems are then explored with a view to demonstrating
why management is a stochastic discipline. To do this, the nature and role
of positive and negative feedback loops is discussed along with the notion of
recursion. Simple examples from within the domain of HRM are deployed to
illustrate system processes.
What is a system?
A system is quite simply a construct of the mind. When we use the term sys-
tem, be it the HR system in a company, the financial system of an economy
or the judicial system, we are seeking to create a boundary that differentiates
what sits within the conceptual framework we are defining and what sits out-
side it. As Laszlo and Krippner (1998) have suggested,
It is methodologically important to set apart a theoretical system from an empir-

ical system. The former is a complex of concepts, suppositions, and propositions
having both logical integration and empirical reference, while the latter is a set of
phenomena in the observable world that is amenable to description and analysis
by means of a theoretical system.
DOI: 10.4324/9781315630557-3
What Is a System and What Is the Value of a Systems Approach? 19
In the early days of systems thinking, two types of systems were distinguished,
natural systems and synthetic or artificial systems. The former are open sys-
tems. They are characterised by an ability to interact with the external envi-
ronment and to adapt to environmental change. Artificial systems are closed.
They lack adaptive capacity and are typically human artefacts.
A natural or open system absorbs inputs from the external environment and
discharges outputs back into its external environment. If we look at the judi-
cial system, for example, we see that it is composed of various elements rang-
ing from institutions such as the police, the prison services, advocacy services
and the judiciary. The institutions require infrastructures such as police sta-
tions, courtrooms and prisons. They also require personnel such as policemen,
judges, advocates, prison governors and prison officers. The system absorbs
resources in the form of funding typically from the state, generated through
taxation. This goes to pay the salaries and the wages of personnel deployed
within the system and to pay for the vital infrastructure such as vehicles, com-
puters and other resources needed to maintain the buildings. The system exists
to dispense justice. We see justice as a vital requirement for the maintenance of
the rule of law upon which modern democratic societies depend. Each of the
institutions within the system in focus, constitutes subsystems. They absorb
inputs in the form of the funding raised from taxes and they employ personnel.
They each deliver outputs such as police officers charged with enforcing the
law, judges and advocates charged with dispensing justice and prison officers
acting as the custodians of miscreants.
When we look at an organisation, we are observing a human activity sys-
tem. It is composed of multiple agents that interact purposefully with one
another. As such, they are goal-seeking networks that also interact with a
larger external environment composed of other human activity systems with
whom they co-evolve. Figure 2.1 depicts an organisation operating within
its own immediate ecosystem, which sits within a larger industry context.
The interactions both within and between systems are typically non-linear.
Feedback loops result in the acquisition of information that enables organ-
isations to learn. It results in adaptive behaviours. These form the basis for
both single- and double-loop learning. The former arises when, for example,
information presented in a report is acted on. The latter occurs when the
assumptions in the report are challenged resulting in a decision that may be at
variance with that which was expected based upon patterns of previous expe-
rience. Overtime patterns of accrued experience result in schemas and mental
models upon which managers come to rely. These mental model enable deci-
sions to be made quickly because they are grounded in organisationally agreed
schemas and heuristics.
Organisations are composed of various subsystems such as the accounting
system, the HR system, the production system, and the distribution system.
If we take any one of these systems, we can break them down into elements
FIGURE 2.1 An organisation operating within its own immediate ecosystem
or subsystems. In the case of HR for example, recruitment and training, pay

and reward, employee relations and so forth. Again, each absorbs inputs and
delivers some form of output that either adds value or constitutes waste. A
factory, therefore, absorbs a lot of inputs and delivers two major outputs, prod-
ucts, and pollution in various forms. In short, when we use the term system,
we are imposing an arbitrary boundary line that enables us to evaluate what
sits within the boundary or system in focus, the specific inputs the system is
drawing from the larger environment and the outputs that it is generating.
Why do information flows within organisations take

on the characteristics of non-linear feedback loops?
Information flows within an organisation are of two types, formal and infor-
mal. Various metaphors have been used to try and explain the nature of infor-
mation flows in organisations. Some writers suggest that there is a formal
organisation within which sits a shadow organisation. The former reflects
channels through which the organisation’s designers intended information
to flow. The shadow organisation consists of the personal networks through
which information flows discreetly and non-linearly. The metaphor of an
iceberg is often used to represent these two elements of organisational life.
The formal organisation can be observed because it sits above the waterline.
Information flows in this area are often linear and move in accordance with
commonly agreed schemas. When we look at an organogram (organisation
chart), we can see the formal reporting relationships. The shadow organisa-
tion, however, sits below the waterline and is unobservable. Information flows
in this area are not governed by organisational rules and reporting structures,
instead they are energised by friendships, emotions and politics. These more
random patterns are often referred to as grapevines. During my years in con-
sulting, I was often privy to highly confidential information and sworn to
secrecy, only to find that what the CEO had shared with me in the utmost
confidence was already known by miscellaneous employees who discreetly
shared the same insights with me. How did they know? Well, it could have
been a PA sharing the information with another PA who then shared it dis-
creetly with another friend. It could have been an overheard conversation
between two members of the Board, or it could have been read discreetly by
an employee standing by an in-basket or glancing at a computer screen whilst
talking to a PA who was suddenly distracted by a phone call.
A brief history of systems thinking

To understand the history of systems thinking, we must turn our atten-
tion to the history of ideas and to the age of Enlightenment. The Western
Enlightenment challenged the received wisdom of the feudal age. Authority
under feudalism was premised on the geocentric belief that God created the
universe. The world was the centre of that universe. Both the planets and
the sun revolved around the earth. God ordained that man was to dominate the
earth and that Kings were the anointed representatives of God on earth. They
were supported and legitimated by the Church. This view of the world was
challenged by Copernicus who observed that the earth and planets revolved
around the sun. This heretical view, therefore, undermined the legitimacy
of the Divine Right of Kings and with it, the precepts that underpinned the
feudal world. The Enlightenment was given impetus by Newton’s Principia
Mathematica (Mathematical Principles of Natural Philosophy). This seminal
work had a seismic impact. It posited that the universe operated in accordance
with certain predictable and observable principles and that Copernicus had
been correct. The universe and the laws by which it was governed, therefore,
provided an ordered environment that could come to be understood through
observation, measurement and the application of the scientific method.
In the nineteenth and early twentieth centuries, the ideas propounded dur-
ing the Enlightenment began to be challenged. Darwin’s theory asserted that
evolution was a happenstance phenomenon. This notion of random chance
gained momentum and scientists from various emergent disciplines including
biology, sociology, and psychology began to recognise a phenomenon best
described as chaos. Evolutionary biology was driven by chance, human and

social development was influenced by chance factors such as the environment
and climate and that personality development was not genetically determined
as was previously thought, but rather was driven by the interaction between
nature and nurture. Three names from the field of biology stand out, they
were Alfred North Whitehead, Paul A. Weiss, and Ludwig von Bertalanffy.
Laszlo and Krippner (1998) suggest that these three recognised the potential
to develop a general science of organised complexity. Von Bertalanffy offered
the most coherent and developed line of observation when he presented his
initial idea of a “General System Theory” in a seminar at the University of
Chicago in 1937. Von Bertalanaffy continued to refine his ideas and in 1954,
whilst working with two other scientists who had reached similar conclusions,
Kenneth Boulding, a social scientist and Anatol Rapoport, a mathematician,
they developed a transdisciplinary approach. This collaboration was eventu-
ally to result in the publication of von Bertalanffy’s General System Theory in
1968. The theory advanced five propositions:
(1) There is a general tendency toward integration in the various sciences, natural
and social. (2) Such integration seems to be centred in a general theory of systems.
(3) Such theory may be an important means for aiming at exact theory in the
nonphysical fields of science. (4) Developing unifying principles running “verti-
cally” through the universe of the individual sciences, brings us nearer the goal of
the unity of science. (5) This can lead to a much-needed integration in scientific
education.
Von Bertalanaffy, 1968, p. 38
This insight had profound implications. It challenged the received wisdom

of previous generations who had embraced reductionism. Scientists in vari-
ous disciplines had already begun to realise the limitations of the approach.
Disaggregating an object of study into its constituent parts and then studying
the effects of a stimulus and the nature of the response on one of the constit-
uent parts illuminated our understanding of how the constituent part func-
tioned but it shed limited light upon the wider impact the stimulus might have
on other elements within the larger entity and the overall impact it might have
on the entity itself. The problem was further compounded by the realisation
that an entity responded to many different stimuli acting upon it at the same
time. Not only that, but the stimuli also often interacted amongst themselves,
thereby producing different environmental conditions that confronted the
entity with immense complexity.
A natural open system, it was realised, needed to develop an enormous
repertoire of responses that could meet the variety of stimuli with which it
was being presented at any moment in time. Von Bertalanlaffy had crystal-
lised this concern and opened the door to a more holistic understanding. This
realisation was eventually codified into Ashby’s Law or the Law of Requisite
Variety, after the psychologist Ross Ashby (Ashby, 1956). Briefly, Ashby’s Law
asserts that:
For a system to remain viable it must be endowed with sufficient internal variety
to meet and respond to the variety presented by the external environment.
If we take as an example, a committed tennis player who sustains a lasting

injury to the arm used for holding the racket, over time the player will learn
to use the other arm proficiently. In making this adaptation, the musculature
of the uninjured arm will change, however, studying the changes to the mus-
culature offers little insight into the changes in the synapses in the brain that
results in psychomotor adaptation or indeed, the psychological adjustments
the player may need to make to continue to play to a high standard. In con-
sequence, the focus of scientific method and endeavour began to shift from
reduction to components to reduction to dynamics.
The outbreak of the Second World War provided further momentum for
transdisciplinary thinking and cooperation.
In 1940, a new National Defence Research Committee was established in
the United States. One of its divisions was tasked with improving the accuracy
of artillery that needed to track targets and predict their future positions with
accuracy to enable a projectile to destroy it. Submarine warfare posed another
challenge. In the UK, the Royal Navy needed to be able to predict subma-
rine positions after a wolf pack attacked a convoy. Communication, coordi-
nation, and control were recognised to be the keys to success. Contracts were
awarded to universities, one of which went to MIT. There, a mathematician
by the name of Norbert Weiner took up the challenge, publishing an influen-
tial paper entitled “Interpolation, Extrapolation, and Smoothing of Stationary
Time Series.” Its purpose was to use the smoothing of time series to predict
the future position of targets. Whilst the study had no immediate impact on
the war effort, it prompted Weiner to collaborate with Arturo Rosenblueth,
a physician and Walter Cannon, a neurologist. Their collaboration resulted
in recognition of the role of a human operator as a key element in feedback.
By locating both humans and machines within systems of control, Weiner
became a major influence on the new emergent discipline of cybernetics. He
reinforced his standing with the publication of his book Cybernetics in 1948.
During the 1940s, the Macy Foundation sponsored several multidisciplinary
conferences. The first was organised in 1942 and drew together top scientists
and researchers from the full spectrum of academic endeavour. Delegates from
a diverse range of disciplines such as Margaret Mead and Gregory Bateson –
Anthropology, Warren McCulloch – Neurophysiology, Norbert Wiener –
Mathematics, Julian Bigelow – Computer Science, Howard Liddel and Arturo
Rosenblueth – Physiology were in attendance. These figures, all of whom were
leaders in their field, began to exchange their ideas. The common theme upon
which they all shared an interest was control. Initially, their interchanges were
at the level of analogy, this gave way to metaphor. Following the war, the Macy
Foundation sponsored a further nine conferences that attracted other leading
academics including Claude Shannon – Information theory, Ross Ashby later
to become perhaps the best-known name in Cybernetics and William Grey-
Walter, pioneer of robotics. This enlarged group moved the discussions from
analogy to common mathematical formulations that could be recognised and
applied to both natural science contexts and social or human activity systems.
The ability to articulate and test through mathematics, phenomena in both the
natural and social sciences provided new and profound insights and certainties
that analogy and metaphor alone could not deliver. The collective efforts of the
delegates attending these conferences ensured that the old paradigm of reduc-
tion to objects was eclipsed by a new paradigm of reduction to dynamics. This
pushed cybernetics and systems thinking to the fore.
The systems approach – An alternative paradigm

As we saw in the introduction to this chapter, an open system is composed of
several subsystems. The subsystems on their own are not viable but collectively,
they create a unity that is adaptive to environmental change. This endows the
collective entity with synergy that renders it greater than the sum of its parts.
The holistic system possesses emergent properties. It is these properties that
give the system its adaptive capacity. If we return to the example of the injured
tennis player, we see that psychological adjustments were required along with
psychomotor changes delivered through changes in the synapses in the cere-
bral cortex. The repeated usage of the uninjured arm resulted in changes in its
musculature. The emergent properties ultimately enabled the player to resume
competitive tennis. If we are to understand how the player achieved a recovery,
we must recognise that the transformation was a product of various adjustments
within multiple subsystems and that a high degree of co-dependency between
the various subsystems was inherent in the recovery. The changes in the cortex
would not have occurred if the psychological determination was absent. The
musculature would not have developed, if it were not for both the psychological
determination and the changes in the cortex and so forth. The system relies on
the subsystems to act as an ensemble, not as individual independent units. It
follows, therefore, that a holistic approach, that is focused upon the dynamics of
interchange between the system and its external environment on the one hand
and the interaction between the various subsystems on the other, offers the only
means by which the complex nature of the various interactions can come to be
understood. This does not mean that the study of the different subsystems and
their constituent elements should be abandoned. Instead, the two approaches
should be seen as complementary. Reductionism to objects delivers specialist
knowledge and insight about the behaviour of a subsystem under specific condi-
tions whilst the holistic systems perspective provides a rich picture of the nature
of the complexity within which subsystems operate and the pattern of the envi-
ronmental dynamics that are impacting the system. Von Bertanalaffy’s general
systems perspective was accompanied by developments in other fields, notably,
information theory and cybernetics.
Hard and soft systems

In his book Cybernetics 1948, Norbert Wierner defined the term as,
The science of control and communication in animals, men, and machines. It

extracts, from whatever context, that which is concerned with information process-
ing and control.
Weiner, 1948
This was a momentous insight. To some, it appeared to be an absurdity. Placing

animals, men and machines in the same category appeared prima facie to be an
oxymoron. Those who rejected the proposition, as Stafford Beer was later to
explain, failed to fully understand the notion of control and communication.
When we use the term control, it tends to conjure up simplistic interpretations
of its meaning. When we talk of control in a physical context, we perceive a
device of some kind that acts as a switch or regulator that diverts or turns off a
stimulus such as an electrical current or a fuel supply. In a social context, we see
the state’s capacity to deploy the use of force as a mechanism for sustaining social
control through the deployment of policemen with batons or soldiers with guns.
When cyberneticians use the term control, its meaning is more subtle.
Clearly, studies of machines and mechanical processes involve the study
of both communication and feedback. Robots need information, they need
to be able to receive inputs from the external environment, interpret their
significance and then determine an appropriate response. To do this, they
need receptors, a controller or regulator and a range of options from which
the regulator can select an appropriate response. Computers operate within
similar constraints. Studies that focus on these dynamics are typically referred
to as hard system approaches. Studies involving human behaviour, whether
it be the individual, group or society at large, are described as soft. Each
approach deploys different methodologies. As Weiner was to point out, many
systems are hybrid involving interactions between both electro-mechanical
and human systems. Over the later decades of the twentieth century, systems
theory was to evolve in several directions. These included:
• general evolution theory

• systems design
• evolutionary systems design

• total systems intervention
• critical systems thinking
These different perspectives will be explored in later chapters. For the moment,
we will focus on the basic binary divide between hard and soft systems. To do
this, we turn to the insights of Peter Checkland, the founding father of soft
systems methodology. Checkland and Scholes (1999) suggest that the distinc-
tion between hard systems and soft systems lies in the fact that hard systems
are observable in nature. Hard systems are “out there.” Seasons, for example,
are created by the orbiting cycle of the earth around the sun and the cant
of the earth as it orbits. This is now an observable phenomenon (thanks to
the International Space Station.) Soft systems in contrast are not “out there.”
They are created because of the purposeful interaction between individuals
and groups. There are mechanisms of social control that keep social systems
in equilibrium in much the same way as there are mechanisms of control that
keep natural systems in equilibrium. Both types of systems can be extremely
complex, however, natural or physical systems can be observed, whereas the
dynamics of complex social systems are inferred. Both types of systems have a
regulator. The regulator typically seeks equilibrium between the system and its
environment. Physical exertion, for example, results in an increase in the heart
rate, heavier breathing to deliver more oxygen to the blood and various other
physiological adjustments. Eventually, the body’s resources become depleted,
exhaustion ensues, and exertion declines or stops. Gradually the heart rate and
the breathing return to normal and the system demands hydration and nour-
ishment from the environment, to top up its depleted reserves. In this case,
the regulator is the brain. It responds to different patterns of feedback. Positive
feedback such as alarm or fear amplifies and enlarges, stimulating the flight or
fight response, whilst negative feedback dampens or suppresses and contains
the fight or flight impulse. Negative feedback kicks in when the immediate
threat is no longer apparent. This phenomenon of circular causation is neatly
explained by Heylighen and Joslyn, in their discussion of first- and second-
order cybernetics:
In classical, Newtonian science, causes are followed by effects, in a simple, linear

sequence. Cybernetics, on the other hand, is interested in processes where an effect
feeds back into its very cause. Such circularity has always been difficult to han-
dle in science, leading to deep conceptual problems such as the logical paradoxes
of self-reference. Cybernetics discovered that circularity, if modelled adequately,
can help us to understand fundamental phenomena, such as self-organisation,
goal-directedness, identity, and life, in a way that had escaped Newtonian science.
For example, von Neumann’s analysis of reproduction as the circular process of
self-construction, anticipated the discovery of the genetic code. Moreover, circular
processes are in fact ubiquitous in complex, networked systems such as organisms,

ecologies, economies, and other social structures.
Heylighen and Joslyn, 2001, p. 8
Cybernetics in turn stimulated the development of various new academic dis-

ciplines including computer science, computer modelling, information the-
ory, control theory, automata theory, artificial intelligence, neural networks,
cognitive science, simulation science and artificial life. As systems think-
ing evolved, Stacey and Mowles (2016) argue that three different pathways
emerged. General Systems Theory which asserts that open systems have per-
meable boundaries that enable them to interact with other systems operating
in a larger external environment. The consequence of the interaction is that
the system will seek to achieve some form of equilibrium with its environment
through a process of self-regulation. As we have seen, the approach was pio-
neered by Boulding (1956) and Von Bertalanaffy (1968).
The second pathway was Cybernetic Systems Theory. Its roots lie in oper-
ations research and engineering and is predicated on the idea of a system as
self-regulating and, therefore, capable of making adjustments that enable it to
restore balance with its environment. The approach was pioneered by Ashby
(1945, 1952, 1956), Beer (1979, 1981) and Weiner (1948).
The engineering influence persisted with the emergence of a third path-
way, the Systems Dynamics perspective. This is an approach that seeks to
deploy mathematical modelling to explain how a system can change states
over time. The important insight and distinction of this approach is that it
challenges the supposition that open systems are inherently self-regulating and
seek homeostasis with their environment. Such systems are, as Stacey puts
it, not self-regulating but self-influencing to become either self-sustaining or
self-destructive. The leading thinkers in the field were Forrester (1958, 1961,
1969), Goodwin (1951), Phillips (1950) and Tustin (1953). This perspective
will be considered in Part 2 of this book.
Ashby’s Law and the role of positive

and negative feedback loops
Ashby’s Law states that for a system to be able to adapt to environmental change,
it must possess the necessary requisite variety (speed and repertoire of possible
responses) to meet the complexity generated by the interaction of the different
variables in the external environment and the pattern of their impact on the
system in focus. The regulator seeks a new equilibrium through constant adjust-
ment arising from the interaction of positive and negative feedback loops.
Positive feedback amplifies changes; this stimulates in a move away from

the equilibrium state and results in the system becoming more unstable.
Negative feedback dampens changes; this helps to restore a system to

an equilibrium state rendering it more stable.
Perhaps one of the easiest ways of understanding this phenomenon is to con-

sider the outbreak of epidemic diseases. The outbreak of Spanish flu in 1919,
for example, like COVID-19 became a global pandemic. The rate of contagion
took the form of a positive feedback loop that grew at an exponential rate. Sadly,
medical knowledge as to how to treat the disease was inadequate. Before the
epidemic achieved a plateau and began to decline and disappear, the disease
claimed the lives of over fifty million people across the world. The story of the
COVID-19 outbreak in 2020 could potentially have achieved similar propor-
tions were it not for the efforts of the international community and the World
Health Organisation. These efforts culminated in the production of vaccines
and helped create negative feedback loops. In 1919, the world had to wait for the
emergence of a natural negative feedback to ultimately halt the spread.
The effect of positive and negative feedback loops can be observed in all
spheres of human activity as well as in nature. Economic cycles are a result of the
interaction between positive and negative feedback. The exponential growth
of social media that serves to destabilise entire industries, is a result of positive
feedback loops as indeed, was the Western world’s economic crash of 2008.
Why management, like medicine, is stochastic discipline

It is the interaction of positive and negative feedback loops that ensures that
management, like medicine, is a stochastic discipline. Stochastic is the term
applied to those disciplines in which there is a possibility of a random variable
rendering a prediction founded on scientific method potentially unreliable.
Before a new drug can receive official sanction, it is subjected to clinical
trials. During these trials, the impact of the drug on the symptoms is closely
monitored as is the pattern of side effects on the patient. All drugs have side
effects. The purpose of the trial, therefore, is firstly to establish that the med-
ication has the desired effect on the diagnosed condition and secondly, to
confirm that the therapeutic benefits arising from the treatment of the con-
dition outweigh the impact of any detrimental side effect arising from the
therapy. Clinical trials are extensive. Despite the rigour, it is not unusual for
there to be unpredicted or undetected adverse side effects in a small minority
of patients that outweigh the benefits of the therapy. In other words, there is
always the possibility of an unintended consequence arising from any diagno-
sis and treatment. A hundred percent certainty of success of any therapy can
never be guaranteed in medicine because of the diversity and complexity of
the genetic make-up of each person. The history of medicine is littered with
tragic examples. The most often cited is Thalidomide, however, more recent
examples include the contested AstraZeneca and Moderna Covid-19 vaccines
which were linked to blood clots. Another example is the use of statins. These
have been systematically dispensed as a means of controlling cholesterol. The
latest research, however, is pointing to a link with diabetes.
Management is similarly stochastic. Like doctors, when managers are con-
fronted by perturbation of a system, they strive to reach a diagnosis and having
done so, seek to deliver an appropriate treatment that will restore balance. For
example, in the case of an unexpected surge in staff turnover, they evaluate a
variety of possibilities. Is the economy improving to the point where opportu-
nities elsewhere are more attractive? Are current rewards becoming misaligned
with the labour market? Are competitors headhunting talent? Has there been
a breach in the psychological contract? Are opportunities for promotion too
constrained? Are opportunities for development better elsewhere? These are
just some of the issues an HR manager might explore. A knee-jerk reaction
might involve raising wages. This may not have the desired effect. Indeed, it
might entrain toxic consequences as wage differentials within the organisation
are seen to have been violated, provoking industrial strife and even more staff
turnover. In other words, both organisation and industry systems are influ-
enced by multiple variables, some of which can be obscure. Decisions made on
limited information by a regulator, whether it be a panel assessing the outcome
of a clinical trial, a physician treating a patient or a manager dealing with a
challenging situation, unintended consequences can result. These may play out
either in the short term, or in some circumstances, may take years to become
manifest. It is for these reasons that to function effectively, a control system
requires the requisite variety to enable the system to generate the appropriate
positive or negative feedback loops required to deliver the emergent properties
necessary to respond to the changes in the environment.
An environment is defined as,
The set of all objects a change in whose attributes affects the system as well as those
objects whose attributes are changed by the behaviour of the system.
Hall and Fagen, 1956
Ackoff (1981, p. 23) elaborated that the environment of any social system con-
tains three levels of purpose: the purpose for which the system exists, the
purpose of its parts, and the purpose of the system of which it is a part, the
supersystem. This helpful explanation captures neatly, another important con-
cept within the field of systems and cybernetics, namely recursion.
Recursion as a systemic characteristic

Earlier, it was established that although the founding fathers of systems think-
ing and of cybernetics were drawn from a wide variety of different disciplines,
they were able to build a consensus that system principles governing the natural
world were replicated in social systems. Working together, they had established
that these principles could be expressed mathematically and applied in both
the natural and social worlds. A system draws inputs from its environment, the
larger meta-system of which it is a part. Both the system in focus and the larger
meta-system possesses similar characteristics. The metaphor that is often used to
describe the recurrence of these characteristics is the Russian Doll. When the doll
is opened, another smaller doll with identical features and characteristics is found
within. When the second doll is opened, a third is found with identical charac-
teristics and so on. In biology, for example, cellular structures possess recurrent
characteristics. So do social structures. This phenomenon is referred to as recur-
sion. Any open system possesses some form of regulator. The regulator receives
both positive and negative feedback, both from the system that it regulates and
directly from the environment. By reading and interpreting these signals, the
regulator adjusts the inputs and the outputs of the system, thereby enabling it
to restore homeostasis (balance) with its environment. Clearly, the dynamics of
the external environment can be very complex. There may be multiple inter-
actions of different variables. This can produce enormous complexity or vari-
ety. The nature of this variety has the potential to overwhelm the regulator. If
it is to cope with the complexity, it requires mediators that can prioritise that
which is important. In other words, the regulator requires important signals to
be amplified whilst playing down others. In addition to biology and psychology,
early systems theory drew heavily on communication and information theory.
Communication theory suggests that when a sender sends information across a
boundary, it must often be reformulated or reconstituted in such a way that the
receiver can comprehend the message. This process is referred to as transduction.
To explain the phenomena and demonstrate the stochastic nature of management
as a discipline, imagine HR officers in an HR planning department.
Telstar Enterprises is an international telecommunications company. The
HR team has been tasked with assessing the availability of key skills the com-
pany needs three years from now. To do this, the HR officers must assess
the current skills base to determine the characteristics of the present human
resource stock. They must then consider the age profile of the relevant cate-
gories of staff to determine age-related leavers. They will then consider his-
toric patterns of staff turnover. This will give them a sense of what the staff
numbers would look like three years out because of natural wastage without
recruitment. They would need to assess how long it takes to train a person to
the level required. They would then turn their attention to the external labour
market and the economic cycle. Is there a source of supply of skilled labour? Is
that source likely to increase or decrease its output? Where is the economy in
terms of the economic cycle? Is expansion or contraction anticipated and what
would the implications for supply be if there was an unexpected improve-
ment or deterioration in economic activity? Is the demand for the category of
labour likely to reflect the pattern of the economic cycle or is there a perverse
relationship between demand for the skills base under review and buoyancy in
the economy? Eventually, having gathered all the data, the team will formulate
a report. It is likely to offer projections based upon different assumptions along
with recommendations. The report is passed to the Director of HR who will
make a presentation to the Board. In this context, when the HR team produced
their report, they acted as an attenuator (a simplifier of complexity). When the
report arrives in the boardroom, the process of transduction is partially complete.
The information has crossed a boundary threshold. The transduction process is
complete when the HR Director presents the report, and the board has interro-
gated the information provided and come to a view. The training takes two years,
the current skills base is 35, the future skill requirement is anticipated to be at least
55 given the company’s planned expansion. Five people are entitled to retire over
the next two years and turnover has been running at 3% per annum. Without
recruitment, the company could potentially be 21 people short of requirements.
The board decides to recruit and train 10 people with immediate effect and recruit
a further 11 from the open market. Six will be immediate replacements for leavers
and a further five will be recruited 12 months from now.
Unfortunately, there were two unexpected developments. A competitor
pursuing a similar expansion moved into the area nine months after Telstar
made its decisions. The competitor has recruited aggressively, sucking up all
available talent. In addition, the local economy has been a disproportionate
beneficiary of national economic growth. Neither of these eventualities had
been considered at the board meeting where the initial decision on recruitment
strategy was made. A positive feedback loop has been entrained. Local wage
rates are rising. The competitor is paying more and there is a real danger that
it will poach well-trained and long-served personnel as well as recent joiners.
The company’s strategy is in crisis. The HR planning team recommends that
the Board improves the reward package for the target group dramatically. It
is seen as the only way in which the key skills can be retained. The team also
advises that potential retirees are offered various enhancements to stay with
immediate effect. The Board also decides to lease a housing block so that it can
attract and train people from outside the locality. In reaching these decisions,
the Board is seeking to dampen the positive feedback loop generated by the
buoyant local economy and the predations of its direct competitor.
Amplifiers, attenuators and transducers

System amplifiers
As the above case example illustrates, the complexity of the external environ-
ment is unpredictable and potentially very threatening. This means that an
organisation must increase its variety and complexity to enable it to achieve
a balance with environmental complexity. The mechanism that facilitates this
process is known as an amplifier. In cybernetics, any device that increases the
number of states the receiving entity needs if it is to continue to be regulated and

not out of control, can be said to be an amplifier.
Amplifiers are depicted using the symbol.
Attenuators
To be in harmony with its environment, a regulator must be able to cope with
external complexity by reducing it to levels with which it can cope. Attenuators
are processes that enable a regulator to reduce complexity to m anageable pro-
portions. It is depicted diagrammatically as W.
Transducers
Whenever information is carried across a boundary, on a channel capable of dis-
tinguishing a given variety, it undergoes transduction. The message is encoded
so that the recipient can comprehend it. (It is in the receiver’s language.) The
variety of the transducer must be at least equivalent to the variety of the chan-
nel. The transducer is depicted diagrammatically as
Using these symbols, it is possible to model the process of decision-making
in Telstar. Figure 2.2 shows the information input and outputs generated by
the HR function at the time (T1) of the board meeting.
FIGURE 2.2 he information input and outputs generated by the HR function at

T
the time (T1) of the board meeting
HR planning is a critical function in today’s competitive environment.

Prahalad and Hamel (1990) demonstrated how Japanese companies were
achieving competitive advantage by searching for potential points of conver-
gence between different technologies as much as 15 years in the future and
then investing in the necessary human resources to realise that convergence
ahead of the competition. To do this, they needed to evaluate the trajec-
tory of nascent technologies and examine how once convergence had been
achieved, the new emergent technology could be leveraged. In 1994, Hamel
and Prahalad published Competing for the Future. In it, they argued that business
success was “not about being number 1, it was about getting to the future
first.” Success was dependent upon effective human resource planning, talent
and reward management.
The final concept to command our attention is the notion of entropy.
Entropy is a term used to describe a form of chaos. It is based on the Second
Law of Thermodynamics. The first law states that in a closed system energy
cannot be created or destroyed, it remains constant. The Second Law of
Thermodynamics considers the quality of energy. When energy is transformed
or transferred, more of it is wasted and there is a natural tendency to degener-
ation into a more disordered state, i.e., Entropy, such that the ensuing trans-
formation is irreversible.
In open systems, energy can escape. In the case of an industrial dispute,
for example, employee energy is redirected in different ways that devi-
ate from the norm. Many disputes arise because of organisational growth.
The growth as Greiner (1972) has shown, creates organisational crises.
Management seeks to refine structures and control systems. Typically, the
changes create tensions that can culminate in a dispute. The more pro-
tracted the dispute, the greater the entropic impact on organisational cul-
ture. If prior to the dispute, the organisational system was in a steady-state
and harmonious relations prevailed, the dispute changes the nature of
the relationship. In short, it results in a cultural shift. Once the shift has
occurred, a new and different relationship emerged. The process of irre-
versibility is often ascribed by analogy to the impossibility of unscrambling
a scrambled egg.
So, what is the value of the systems approach?

A student of HRM or a practitioner is entitled to observe that the forego-
ing might be interesting but question its value from an HR perspective.
After all, the configurational perspective of HRM draws upon the system’s
tradition.
Systems thinking is a way of thinking about social, economic, organ-
isational and political issues, how they interact and the consequences for
organisations, groups and individuals. It provides opportunities to formulate

different scenarios of the future and to evaluate the implications of how
events and future challenges may unfold. For example, at the time of going
to press, there is a good deal of talk about two new and related disruptive
technologies, electric cars and the driverless car. The automotive industry
is dependent upon large networks of suppliers. To what extent are these
suppliers aware of the impact these developments are likely to have on their
business? Here are a couple of plausible scenarios that look at the automo-
tive sector as a system.
The volume of cars required in the future is likely to drop. Why? Because
car ownership will become less attractive. Electric cars will displace petrol and
diesel because battery technology is advancing very fast along with a capacity
to store off-peak power generated by renewable energy. This will allow taxi
fleets to charge overnight when demand for power is low. These taxi fleets
will be summoned during the day. They will drive to pick up passengers as
required. Passengers will be driven to their destinations. The routes will be
planned to promote car shares and reduce costs. The cars will then return to
a depot for recharging or be directed to pick up other passengers. The cost of
owning and maintaining a car as opposed to hiring one when required, will
become both uneconomic and unnecessary for most townspeople. Car hire
costs will decline. Car ownership by city dwellers has already begun to fall in
the US, the UK and many countries in Europe. The number of 17–30-year-
olds in the UK who hold a driving licence has dropped by almost a third in
the last decade. Similar patterns can be observed in other developed nations.
Electric cars also require less maintenance and fewer spare parts. What are the
implications? The automotive sector will undergo consolidation. A few man-
ufacturers will emerge as winners. Laggards will fail. What will happen to
component suppliers? Again, there will be consolidation, and many will fail.
What are the implications for the large oil companies, car parking firms and
garages undertaking maintenance and repair of private vehicles and for insur-
ance companies? Overall, the future does not look rosy for such organisations.
The ability to model these different dynamics enables companies to prepare
for different eventualities and to adjust their investment in technology, people
and know-how accordingly.
Drawing upon the work of Rittel and Webber (1973), Camilus (2008)
highlighted that much of strategy making involves a recognition of the nature
and challenges posed by “wicked problems.” A problem may be defined as
wicked if it is difficult or impossible to resolve because of conflicting evidence
or contradictory data that is accompanied by shifting requirements. Camilus
asserts that “wickedness isn’t a degree of difficulty. Wicked issues are different
because traditional processes can’t resolve them.” Wicked problems arise in
social contexts in which there are multiple stakeholders with different pri-
orities and values. The roots of the problem are simultaneously complex and
entwined. Answers to such problems can never be right or wrong; they can
only make a situation better or worse. The nature of the problem is typically
unique and there is no means of trialling or testing whether a solution will
work. This is the nature of strategy formulation. HR decisions are integral
to strategy implementation. Poor HR decisions can, therefore, be part of a
larger wicked problem as well as provide a source for the creation of wicked
problems. Good timely HR decisions, in contrast, can help to smooth the path
to the future. Looking to the future, the nature of wicked problems is going
to multiply to the point where our conventional models and understanding of
HR and SHRM may prove wholly inadequate.
Camilus suggests that “wicked strategy issues don’t occur according to a
timetable. Companies must constantly scan the environment for weak signals
rather than conduct periodic analyses of the business landscape.” He goes on,
“It’s increasingly difficult to identify the boundaries of the arena’s companies
should watch. Changes in one industry or segment often affect companies
in others.” Models of systemic recursion, therefore, can help illuminate and
inform decision-making. Analysis that is grounded in a systems perspective
delivers a deeper and more penetrating understanding of a given situation and
the nature of the complexity that lies embedded within. This reduces the risk
of unleashing unintended consequences that can derail well-conceived strate-
gies as later chapters will show.
Telstar case exercise

You are an HR partner. You have just attended a meeting with the HR
Director of Telstar. She has outlined the board’s strategic response to the
emergent threat to its strategy as follows:
A competitor pursuing a similar strategy of expansion moved into the area
nine months after Telstar agreed its HR plan. The competitor has recruited
aggressively, sucking up all available talent. In addition, the local economy has
been a disproportionate beneficiary of national economic growth. Neither of
these eventualities had been considered at the board meeting where the initial
decision on recruitment strategy was made. A positive feedback loop has been
engendered. Local wage rates are rising. Several key workers from within the
target group have left to join the competitor. In leaver interviews, they have
cited better pay and lower transport costs as factors in their decision to leave.
The company’s strategy is in crisis. The HR planning team recommends that
the Board improves the reward package for the target group dramatically. It
is seen as the only way in which the key skills can be retained. The team also
advises that potential retirees are offered various enhancements to stay with
immediate effect and that an aggressive recruitment strategy be employed.
The Board also decides to lease a newly built small housing block so that it can
recruit and train people from outside the locality.
FIGURE 2.3 he new strategy at time T2 is present using the symbols of amplifi-
T
cation, attenuation and transduction
In making these decisions, the Board is seeking to entrain a negative feed-

back loop that will dampen the positive feedback generated because of the
buoyant local economy and the predations of its direct competitor.
Using the concepts and symbols of amplification, attenuation and transduc-
tion, the new strategy at time T2 is shown in Figure 2.3.
Summation
This chapter explored what a system is and what it does. It established that any
system is a construct of the mind that delineates a boundary. What sits within
the boundary defines the system in focus. Any system sits within a larger
system that exists outside the boundary. A natural system has the capacity to
adapt to changes in its environment. It imports resources from the supra sys-
tem of which it is a part and exports outputs of two types, the first defines the
purpose of the system and the second is the waste and by-product the system
produces in pursuit of its purpose.
The chapter went on to trace the development of the systems approach. Two
key points emerged. The first was the discovery made by the early pioneers
that physical systems and social systems have similar behavioural characteris-
tics and that these characteristics can be expressed mathematically. This facil-
itated a break with the reductionist paradigm that had dominated scientific
thinking throughout the nineteenth and early twentieth centuries. Rather
than reduction to objects, the new approach proposed reduction to the study
of systems interaction and their consequences.
Having developed an understanding of how systems thinking evolved, con-
sideration was given to several key concepts. Environmental turbulence produces
enormous complexity. Variables interact both with the system and with one
another. If the system is to cope with this complexity, it must possess a suffi-
cient variety of responses to meet the complexity that confronts it (Ashby’s Law).
Systems possess recursive attributes. Thus, a system is simultaneously part of a
larger system whilst containing within it either other systems or subsystems. The
lowest systemic unit is that which can be self-sustaining. Our bodies are self-
sustaining, but our vital organs are subsystems. To generate emergent properties,
a system relies upon its capacity to read signals coming from the external envi-
ronment and transmits its own signals back to the external environment. When a
signal crosses a boundary, it undergoes transduction. This is the process of encod-
ing the message in such a way that the recipient on the other side of the boundary
can decode and respond to the signal. The process of facilitating the encoding and
decoding is referred to as attenuation. Sometimes a signal is very weak. If it is to
cross the boundary, it may require amplification. This can involve duplicating the
same message and sending it through multiple channels. A presentation followed
up by an email summarising the key points, a notice on a notice board and a team
briefing all communicating the same message is an example of amplification.
We also considered entropy. The tendency for systems to become chaotic
because of changes in regulatory patterns.
Having defined what a system is and what it does, and considered some of
the key concepts, and the nature of wicked problems, in the next chapter we
will draw upon managerial cybernetics and consider an organisation as a sys-
tem and the position of the HR function as a subsystem within it.
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3
THE ORGANISATION
AS A SYSTEM
Overview
This chapter considers the organisation as a system. It draws upon the tradi-
tion of managerial cybernetics. It begins with an exploration of Chandler’s
famous dictum, “Where strategy goes structure follows” (Chandler, 1990).
A critical evaluation of traditional models of organisational structure and,
in particular, the work of Burns and Stalker, Mintzberg, and Morgan fol-
lows. This provides the foundation for the introduction of Stafford Beer’s
cybernetics perspective founded on his Viable System Model. The constit-
uent elements of the model are presented, and the case is made to show
how and why the model offers insights that traditional models lack. A
distinction is made between HRM as a managerial perspective and HRM
as a managerial function. It is argued that good people managers can never
achieve optimum performance through their people in a context in which
the HR systems are poorly aligned or are inappropriate. Finally, the role
and position of the HR subsystem within the Viable System Model (VSM)
is explored along with the cultural factors that influence its status. The
chapter concludes with a case study that examines the corporate failure of
Lehman Brothers and invites readers to apply their knowledge of systems
to a real-life corporate context. The case study provides a foundation for a
second case study presented in Chapter 4 that examines the failure of the
Western financial system in 2008. The objective behind these case studies
is to help readers understand the nature of recursion.
DOI: 10.4324/9781315630557-4
Does structure follow strategy?

In his book Strategy and Structure, Alfred Chandler examined the emergence
of what he defined as the M Form organisation. He observed that several of
the great American Enterprises of the twentieth century had each embraced
the multidivisional form as a structural innovation that enabled each organ-
isation to cope with both product and environmental complexity. Citing du
Pont, General Motors, Jersey Standard, and Sears as the leading structural
innovators, he argued that each had independently developed a new organ-
isational structure in response to the unique environmental challenges each
organisation faced and that the approach was the basis for a newly emergent
organisational paradigm. He went on to show that organisational structure
is typically a managerial response to a particular strategy and that managers
seek to create structures that are aligned with their strategic objectives. As a
result of growth and the proliferation of different products, the four organisa-
tions each of which operated in a different industry had abandoned a mono-
lithic functional organisational form in favour of semi-autonomous divisional
units. Whilst in 1950, approximately 20% of Fortune 500 companies had
embraced the new paradigm, by 1970, this had increased to 80%. In conse-
quence, Chandler’s observation that where strategy goes, structure follows
was widely accepted. In the early 80s, however, Chandler’s dictum began
to be challenged first by Waterman et al. (1980) and subsequently by other
writers including Pascale (1990) and Hamel (2000). In essence, these writers
observed that whilst strategy and structure were inextricably intertwined,
it was by no means a given that structure would follow strategy. As always,
the picture was more complicated. First, Waterman and Peters asserted that
once established, a structure would influence the choice of markets an organ-
isation might choose to enter. Pascale went further, arguing that Chandler’s
observation presupposed that strategic planning was predicated upon rational
sequential thinking when in fact it was strongly influenced by what a com-
pany did well and whether the company was functionally or divisionally
structured. Hamel (2000) building on his earlier work with Prahalad, posited
his critique on the observation that times had changed. New technologies
and advances in communication were demanding new ways of managing and
new organisational forms. An organisation’s skills base acted as a constraint
on strategic choices. Structure and capability, therefore, were key determi-
nants of strategy.
The configurational perspective

Interest in how organisations are configured goes back a long way. The clas-
sical school of thinkers writing in the early part of the twentieth century was
concerned with issues associated with job design, efficiency, and structure.
The Organisation as a System 41
Early contributors to the discourse included Taylor (1914), Gilbreth and Kent
(1911) and Fayol (1916), who, amongst other things, addressed the issues of the
span of control in functional structures.
Later, human relations theorists such as Mayo (1945) and (Roethlisberger
and Dickson, 2003) entered the fray. They argued that over time as organi-
sations grew, structures were required to change to accommodate the needs
of the workforce. The 1950s and 1960s saw the emergence of contingency
theorists. Structures were found to be influenced by three major contingent
variables, size, the nature of the technology deployed and the operating envi-
ronment in which the organisation functioned. These variables were found
to determine the degree of vertical differentiation and integration that was
required to support efficient operations. The former relates to the number of
levels in a reporting structure, the latter to the mechanisms through which
coordination is achieved. Small organisations, in general, do not require high
degrees of differentiation. Relationships tend to be informal. Growth results
in increased complexity as product lines proliferate. With it comes a need to
establish integrating mechanisms that facilitate coordination.
Burns and Stalker (1961) made a major contribution when they observed
that organisations adopt either an organic or mechanistic approach to struc-
turing operations. Mechanistic structures adhere to principles of functional
specialisation. They are bureaucratic. Limits of authority are clearly defined
within a hierarchy. Information is perceived to flow upwards and downwards
within a framework of command and control. Duties and responsibilities are
specified in detail with the result that one individual can easily be replaced
by another whose experience and expertise conforms to the job specification.
Thus, mechanistic organisations are designed to achieve continuity, consist-
ency and standardisation of output. Organic structures adopt a more flexi-
ble approach to job remits. Responsibilities are loosely defined. Hierarchy is
eschewed in favour of flexibility. Team working is the norm. Information flows
in all directions enabling the organisation to innovate and adapt more quickly
to changes in the operating environment. Burns and Stalker developed these
insights by studying and comparing English and Scottish firms. The English
firms had been founded to develop new technologies. The Scottish firms had
their roots in traditional heavy industry. After the Second World War, the
British Government sought to persuade the Scottish firms to transition into new
high-tech industries. A number did, but they did not abandon their functional
structures with the result that whilst their English counterparts prospered, the
Scottish firms failed to achieve profit. Later, Woodward et al. (1965) estab-
lished that the structural characteristics of a firm were determined by the com-
plexity of the production process. This view was confirmed by Perrow (1967)
and Lawrence and Lorsch (1967), all of whom observed the same phenomena.
Perrow was able to show that technologies that could be routinized resulted in
organisations embracing more bureaucratic structures, whereas technologies
that were ill-defined, that lacked a common understanding of how a process

worked or where the pace of technological advance was rapid, firms embraced
flexible structures.
Further important contributions to configurational approaches were made
by Mintzberg and Handy. Mintzberg et al. (1995) argued that organisational
structures fell into five archetypal configurations and that each configura-
tion would, to a greater or lesser extent, be composed of five key elements
depending upon their size. Small organisations would have the least clearly
defined structure because the owner might well assume multiple functions. As
an organisation grows; however, its functional elements become more clearly
defined. The line structure typically consists of an operating core through
which productive outputs are delivered by direct labour. It is managed and
supervised by a middle line of managers who in turn report to the top man-
agers operating at the strategic apex of the business. There, strategy and the
future direction of the business are determined. The operating structure is
supported by a techno-structure that provides a range of specialist technical
support of various kinds, computer systems, for example, and a support struc-
ture that provides services of a supportive nature such as HR and Finance.
Apart from the small firm with its ill-defined functional elements, Mintzberg
identified four other archetypal organisational forms, the machine bureaucracy
characterised by its monolithic structure often associated with government
departments. In contrast, the professional bureaucracy envelopes two machine
bureaucratic structures woven into a single organisation. Hospitals and uni-
versities are typical professional bureaucracies. The professional hierarchy
contains technical specialists. In the case of hospitals, these would typically be
the medical practitioners and the nurses. In universities, the specialists would
be the academic staff. The second bureaucratic structure is the administration.
The professional structure receives support from the technocracy. In hospitals,
these would be the many technical functions such as radiology, physiother-
apy and laboratory support. It is immediately evident that unless processes of
transduction between the professional arm and the administrative arms are
of a high standard, inefficiencies are likely to ensue. Mintzberg describes the
fourth organisational form as the divisionalised structure. It is a reworking of
Chandler’s M form and embraces the concept of recursion. It is depicted as an
organisational Russian doll. The operating core of which contains exact struc-
tural replicas of the parent organisation, each of which is complete with its
own techno and support structures. The fifth archetype is the adhocracy. The
structure is somewhat amorphous and difficult to define because, unlike the
other archetypes, adhocracies are constantly reorganising themselves to meet
new challenges. The boundaries between the elements, therefore, are often
ill-defined. Members of the technostructure may well be drawn into project
teams to help solve client problems whilst simultaneously dealing with inter-
nal issues and challenges. Large consulting companies are typically project
driven. Such organisations need fluidity, flexibility and adaptability to sustain

the necessary client centeredness to ensure organisational survival. As a result,
activities are typically project based and teams are constantly being created and
then disbanded as new clients and new client problems emerge.
In a later book Mintzberg and Quinn (1992), the framework was revised
to accommodate a sixth archetype, namely the political organisation. A sixth
element, ideology or culture was also added to the structure. The value of
Mintzberg’s contribution not only lies in heightening our awareness of
organisational structure but also the links between structure and culture and
the nature of organisational politics. He achieved this by highlighting the
impulses to which different elements of an organisation respond most strongly.
The technocracy, for example, will push for standardisation of work processes,
whilst the operating core seeks standardisation of output. The middle line
wants greater autonomy whilst the drive of those at the top is to centralise
to keep control. These organisational tensions are always present and arising
from them are the challenges of coordination. Again, Mintzberg identified six
types. He described them as “the glue that holds the organisation together.”
He asserted that as organisations grow, coordination by mutual adjustment
gives way to direct supervision and eventually to four different types of stand-
ardisations. These insights enable us to comprehend the complex nature of
organisational dynamics. It is these dynamics that give rise to the stochastic
nature of the management challenge in general and the management of the
human resource, as we shall go on to observe in later chapters. Later writers
such as Handy and Atkinson focused on core periphery models of organisa-
tional structure and the nature of coevolution. Handy (1995) introduced the
idea of the shamrock and federal organisation that placed huge importance
on the critical role played by core workers and the importance of getting HR
strategies right, especially for this group. Atkinson (1984) refined the model
further, whilst later contributors such as Huygens et al. (2001) took the the-
ory of structuring organisations beyond the level of the firm by arguing that
organisations do not evolve on their own, they coevolve with others operating
in the same environments. (See Chapter 12 for more on coevolution.)
Is the configurational approach to strategic

HRM adequate?
This is an important question. It is the main driver behind the impulse to write
this book. Critics like Schuller and Jackson (2007, p. 105) rightly argue that
whilst the configurational approach strives to be holistic. It can only achieve
this by reducing complex organisational issues to a series of simple typologies
or archetypes. Citing the work of Miles and Snow (1978) and Delery and Doty
(1996) as examples, they argue that casting organisational strategy into stereo-
types with the aim of seeking correlations between the nature of the business
strategy on the one hand and HR processes and practises on the other “they
stop short of analytical manageability.” This is a powerful indictment and one
that cannot be easily dismissed.
Unfortunately, there is another reality. All academic research is predicated
on assumptions. These assumptions are subject to testing regardless of whether
a positivist or an interpretivist paradigm is employed. Thus, we find ourselves
caught in the same dilemma that confronted the early reductionists. As we saw in
Chapter 2, they had achieved important insights into how a particular organ or
subsystem functioned but were unable to understand the full complexity of the
organ or the subsystem’s contribution to the functioning of the holistic system.
A useful example of the disconnect between a subsystem and the holistic
system can be found in the literature covering the run up to the financial crisis
of 2008. Organisations across the financial services sector, ranging from com-
mercial banks, investment banks, mortgage providers, pension fund managers,
insurers and ratings agencies, had embraced a paradigm of reward and perfor-
mance management that was designed to incentivise the individual. So suc-
cessful was this paradigm that it prompted leading bankers to claim that their
organisations were “minting money.” Unfortunately, we can, with hindsight,
see that the various permutations of incentivisation contributed in no small
measure to the subversion of these organisations’ moral and ethical compasses
with disastrous consequences for their various stakeholders. The banks and
mortgage houses lent money to people who they pejoratively referred to as
“Ninjas” (people with no income, no job and no assets). Conventional bank-
ing wisdom would have rated them as too high risk for lending. Thanks to the
innovators in Bank of America, debt which had previously been defined as a
liability on balance sheets was reclassified as an asset because the debt provided
an income stream and, therefore, could be sold on. The incentive schemes to
achieve loan targets meant that banks and mortgage house personnel were
incentivised to lure in those with poor credit ratings with special terms that
deferred the payment of the principle making the house ownership affordable
in the short term. Many of these personnel, along with their managers, under-
stood in the long term, the debtors would be forced to default. The incentive
system assured them that the more they sold, the better they were doing their
jobs. Indeed, many financial services firms had employed consultants to refine
and improve their performance management systems. Managers comforted
themselves with the belief that any defaults would result in a repossession and
resale on the open market. Given that house prices had been steadily rising for
more than two decades, repossession would enable the debt to be recovered at
a price greater than the original loan. The profits that were being made, there-
fore, attested to the sublime quality of their reward and performance manage-
ment systems. Complex financial instruments known as credit default swaps
(CDS) were created. These vehicles contained “salami slices” of the high-risk
“Ninja” debt mixed in with similar slices of credit worthy debt. The ratings
agencies were enticed into awarding these instruments their coveted AAA rat-
ings. Again, incentivisation ensured that the CDSs that were being rated were
not examined too closely. The attractive income streams the instruments gen-
erated ensured that Insurance and Pension Fund Managers who were incenti-
vised to deliver the highest possible yield on their investments, were similarly
enticed not to ask too many searching questions of the ratings agencies.
The aggregate effect of the many thousands of individual decisions to make
loans to individuals with both good and bad credit ratings and to bundle them
together and sell them on as triple A rating (top quality) debt unleashed three
dynamics. Firstly, it pushed the price of property up to an unsustainable level
because of the artificially inflated demand. Secondly, it prompted a boom in
construction activity. Thirdly, it ensured that whilst those with poor credit
ratings benefitted from a period when their full liability was deferred, the hon-
eymoon period ended almost simultaneously for thousands of debtors. Many
homes were repossessed and put on the market, all at the same time producing
a glut of housing provision. This precipitated a house price collapse. Suddenly,
banks and other lenders were forced to revalue the asset base behind the debt.
The revaluation of the mortgage portfolios ensured that what had previously
been valued as assets now represented enormous volumes of toxic debt. Banks
suddenly found that they had to recall loans to shore up their balance sheets.
Companies that were trading profitably found that their lines of credit were
being cut, forcing many out of business. Employees in the wider economy
were laid off. Unemployment rose, consumer demand collapsed and the great-
est financial crises since the 1929 Wall Street crash ensued. In Chapter 4, the
dynamics of the 2008/9 financial crash will be modelled at different levels of
recursion.
The problem that SHRM faces is that it is more comfortable focusing on
reduction to components as prescribed by Schuller and Jackson than it is on
reduction to dynamics. As we have seen, it is not possible to judge whether a
reward or a performance management system, for example, is fit for purpose
without regard for the systemic dynamics that emanate both from within and
from outside the boundaries of the organisation. There is also the question of
horizontal alignment between different HR strategies. As we saw in Chapter 2,
it was the misalignment of recruitment, training and reward strategies that
ensured that car workers in the West would focus on output at the expense of
quality with disastrous consequences. As Deming (1986) argued, “what gets
measured gets managed.” However, as he also wryly observed, “success is predi-
cated on measuring the right things.” Short-term pragmatic measures are a poor
substitute for an in-depth understanding of industry and organisational dynam-
ics. Great managers working in organisations with misaligned HR systems can
never realise their potential or deliver the results of which they are capable.
Thus, we return to a second observation made in Chapter 2, namely, that
as HR or business strategists, we have a choice, we can engage in reduction
to components, or we can engage in reduction to dynamics. The former

may offer the possibility of accurate prediction within a narrowly prescribed
context. Assurances that the system is working effectively can, in fact, be a
chimaera as in the examples above. In short, we need both. Rather than dis-
missing the value of the contingency perspective as HR specialists are inclined
to do, we should extend the boundaries and embrace a broader approach to
systems thinking than currently pertains.
History is a graveyard for organisational hubris. In the next section, we
begin to explore the systems perspective in more depth. To do this, we will
begin with an examination of Stafford Beer’s VSM (Beer, 1989). Rather than
studying structures and mechanisms of coordination and control, we explore
these phenomena through the lens of information flow and system dynam-
ics. Morgan (1998) argued that when we study organisations, our approach is
invariably informed by an unspoken, often unarticulated metaphor. It operates
at a subliminal level and shapes our perceptions and expectations. He identi-
fied eight such metaphors. These included the organisation as a machine, a
brain, an organism, a culture, a political system, a system of domination, and a
system of change and flux. Historically, by far the most powerful and influen-
tial has been the organisation as a machine. Mintzberg’s machine and profes-
sional bureaucracies and the divisionalised form are largely predicated on this
metaphor. Nevertheless, the importance of systems thinking comes through
clearly in five of the metaphors and points to the pervasive and often unap-
preciated significance of systems thinking on our understanding of organisa-
tions. Stafford Beer is often described as the father of managerial cybernetics.
A simple recitation of the titles of his books gives an immediate insight into
the pervasiveness of his influence. The Brain of the Firm 1972, Designing
Freedom 1974, Platform for Change 1975, The Heart of the Enterprise 1979,
Diagnosing the System 1985. One of his important and lasting contributions
has been the VSM. It is a generic framework of great plasticity. It can be
applied to almost any organisational context. At its core, there are two central
propositions. The first is drawn from Gestalt and posits that “the whole is
always greater than the sum of the parts” and results in synergy. The second
is that if an organisation is to survive, then it must be capable of adaptation.
A viable system, therefore, must possess adaptive capacity. The basic generic
structure that sustains adaptability is founded on five subsystems. System 5 is
analogous to the Brain of the firm. High level decisions relating to long-term
strategy and policy are determined within this context. At System 4, intelli-
gence is gathered, collated, and interpreted to be fed into System 5 to inform
long-term decision-making. Day-to-day management is located at System 3.
System 1 provides the context for day-to-day operations. It is the operating
core within which direct labour is located. It is the value adding hub of the
organisation through which all direct labours costs are incurred. The other
systems incur indirect labour costs.
Interposed between Systems 1 and 3 is System 2. Its function is to prevent

wild oscillations arising between System 1 and the other subsystems on the
one hand and perturbations created because of changes in the external envi-
ronment. One of the elegant features of the model is the way in which indi-
viduals and groups can be located within several subsystems simultaneously.
The machine metaphor leads us to embrace a model of vertical differentiation.
Middle managers are graded differently to senior managers. Job evaluation and
many reward systems depend upon clear demarcation. The reality, however,
is, as we know, more complex. The directors of a business, for example, will
operate within three subsystems. They will often make important day-to-day
decisions operating at System 3. They also take the information provided by
colleagues and collate and interpret it to build the organisation’s intelligence at
System 4. They will also attend Board meetings where key decisions of strategy
and policy are determined. In doing so, they are also operating at System 5.
The Directors of Finance, HRM and Marketing can also operate as part of
System Two because the Departments that they lead are located at System 2.
System 2 exists to initiate negative feedback that has a dampening effect that
counters positive feedback coming either from the internal or the external
environment and sometimes both. Market intelligence might be pointing to a
decline in demand owing to changing demographics, a search for a new mar-
ket is, therefore, initiated. In the case of HR, the stock of human capital must
be maintained at an appropriate level. This involves recruiting and retaining
competent people, training and developing them to enable them to cope with
change and, if sales and marketing efforts fail, to lay people off. This must
be done with a minimum of damage to those that remain, failure to do so
will result in the destruction of the social capital arising from the breakup of
long-established interpersonal relationships. The finance/audit functions are
also located at System 2. Its role is to ensure that financial systems of control
are exercised to the best effect.
Internal turbulence can be created because of tensions between manage-
ment and employees. In an extreme form, this might develop into a full-
blown industrial dispute. The recruitment problems experienced by Telstar in
Chapter 2 arose because of turbulence in the external environment. Increased
staff turnover and an absence of prospective recruits following the arrival of
the new competitor for skilled labour. It resulted in a report being prepared
at System 4. The HR Director then presented the report to the Board at
System 5. Changes in the recruitment and reward strategies decided at the
Board meeting ensued.
The VSM is presented in Figure 3.1.
One of the key features that distinguishes the VSM from other models of
organisational structure is that it focuses on flows of information rather than
reporting relationships. It is the flow of information and its amplification,
transduction and attenuation that is important. The quality of the information
FIGURE 3.1 The Viable System Model
and the capacity of the channels through which the information flows deter-
mine the adaptive capacity of the whole system. Information gives rise to
decisions. Decisions themselves then become information upon which oth-
ers act. Insufficient variety to respond to signals flowing into any one of the
subsystems has the potential to impair organisational performance and in the
worst case, compromise the viability of the whole system. The collapses of
Long-Term Capital Management, Bear Stearns and the failures of Merrill
Lynch and Wachovia in the 2008 financial crises all resulted from impaired
flows of information within and between subsystems. The model recognises
that information is generated by groups of people. Decisions, however, are
usually made by individuals. A decision once made within one subsystem
becomes information. When it passes from one subsystem to another, it must
be encoded and transmitted. The receiving subsystem must decode the signal
before it can respond. Effective decoding is a function of several variables,
primarily the quality of the amplification and attenuation capacity available to
the sender and the requisite variety of the receiver.
The second important attribute of the VSM is the way in which it embraces
the notion of recursion. As explained in Chapter 2, systems replicate themselves in
terms of their functionality. This gives them the characteristics of the Russian doll.
Set out below in Figure 3.2 is a viable system in the M form or divisional-
ised company.
FIGURE 3.2 A Viable System Model in the M form or divisionalised company
The figure shows a multinational parent company represented as a viable

system at the highest level of recursion. Located at recursion level 2 is a country-
based divisional headquarters and at the lowest level of recursion there are
two companies operating as System Ones within the national division. Each
has its own top management and intelligence functions that make decisions
that determine the success of operations at System One.
Returning to the example of the banking failures of 2008, when exam-
ined through a systems lens, the importance of top managers recognising and
embracing their role as strategic HR managers becomes obvious. Proposals
for upgrading or changing reward systems may well have emanated from HR
departments. However, the decision to review the reward and performance
management system would have emanated from the Board. The Board would
also have approved the implementation of any recommended revision to the
reward system proposed by HR. A combination of poor moral judgement,
avarice, short-term thinking, and HR illiteracy all contributed to the prob-

lems individual banks faced as well as the banking system. Thus, we return
to my earlier observation that all managers are HR managers. Whether or
not they are effective, is determined by the quality of the HR systems within
which they operate. These systems are founded on the decisions made by the
top managers. If they are SHRM illiterate, then they condemn their subordi-
nates to lives of frustration and sub-optimal performance.
Summation
This chapter opened with a review of the literature relating to organisational
design and the links between strategy and structure. Drawing upon the work of
Chandler and of later contributors to the debate, we observed that whilst strategy
can determine structure, it is structure and culture that often constrains strategic
choices. It was argued that the SHRM literatures tend to put a higher priority
on contingency and contextual perspectives whilst, to some extent downplaying
the value of the configurational approach. As Schuller and Jackson put it,
Limiting the rich complexity of organisations to a few possible configurations con-

strains the range of possible combinations and interaction effects and understates
both the creative and adaptive potential of a complex system.
Schuller and Jackson, 2007, p. 105
This observation is valid. It is also unfortunate because it plays to pragmatic

short-term views of SHRM. It is due at least in part to a failure to embrace more
fulsome theory and models that emanate from systems and cybernetic thinking.
Stafford Beer’s VSM was introduced as an example of a holistic framework that
can be applied to almost any organisational context. Unlike other theoretical
frameworks that address organisational structure and focus more on coordina-
tion and control, accountability, and reporting relationships, the VSM empha-
sises the importance of flows of information between different organisational
subsystems and their requisite variety. Where requisite variety is lacking, infor-
mation and decision-making become impaired. This results in a reduction in
adaptive capacity that, in the worst cases, can result in organisational failure. In
short, this chapter calls for a re-evaluation of the configurational perspective and
its expansion to embrace a broader systems view. Whilst contingency and con-
textual approaches tend to emphasise reduction to components, configurational
and systems theory affords an opportunity to engage in reduction to dynamics.
Whilst both perspectives are needed, it is the configurational approach and a
broader systems perspective that enables those tasked with strategic decision-
making to rethink beyond the short term, recognise the importance of strategic
alignment both vertically and horizontally and understand the pivotal role that
SHRM thinking must play in empowering managers to realise their potential,
thereby ensuring organisational survival and competitive success.
Case study 1 Lehman Brothers
Exercise
Lehman Brothers was the fourth largest investment bank in the US prior to
seeking bankruptcy protection on September 15, 2008. It was the largest sin-
gle filing in history, surpassing previous giants such as Enron and WorldCom
by a significant margin. The demise of this 171-year-old institution shook the
global financial system to its core. Its collapse presaged the onset of the worst
global financial crises since the great depression. The cause of the bank’s fail-
ure can be attributed to several factors, foremost amongst them being the
collapse of mortgage-backed securities. This meant that the bank was unable
to retain the confidence of its lenders and clients, resulting in a loss of liquidity
rendering it incapable of meeting its current obligations. Attempts at rescue
through a buy-out were rebutted by the Chairman and CEO Richard Fuld. He
was convinced the company could weather the storm. When the option of
buy-out was declined, Timothy Geithner, Secretary to the US Treasury, took
the view that if the company were to fail, the consequent fall-out would not
destabilise the financial system and that a bail-out would reward irresponsible
risk taking. A government bail-out, therefore, was not forthcoming.
Subsequent official investigations by Anton Valukas and others into the
collapse revealed that whilst the bank’s exposure to mortgage-backed securi-
ties had been the catalyst of the failure, the causes were deeper rooted. They
included poor governance, technical failures and executive misfeasance.
Poor governance
The company had a single Board structure consisting of ten directors, eight
of whom were independent. Richard Fuld held two positions CEO and
Chairman of the Board. The directors had diverse professional experience;
however, they lacked experience in the banking and financial world. They
included a former CEO of Sotheby’s, a former Chairman of IBM, a theat-
rical producer, the CEO of American Red Cross, Chairman of GlaxoSmith-
Kline, a former Chairman of Haliburton and the Principal of JDM Financial.
The Board had five sub-committees including Audit, Compensation and
Benefits, Nomination and Governance, Finance and Risk and an Executive
Committee. The average age of the Board was 68.4 years. Some seven
years more than the average for US companies. A House of Representatives
Committee commenting on the composition of the Board observed that
nine were retired, four were over 75 years of age, one was a theatre pro-
ducer another a navy admiral, only two had any direct experience of the
financial services industry.
In its 2008 Annual Report, the company had claimed that it had a cul-
ture of risk management at every level of the business. The Finance and
Risk Committee, which was composed of the CEO, the Chief Risk Officer
(CRO), and the Executive Committee, was supposed to meet weekly to
review the company’s risk position. In practice, it had only met twice in
the two previous financial years. This resulted in risk assessment in practice
being devolved to the CEO and the CRO. The Valukas report revealed that
the company had since 2001 evolved a new strategy that, in its view, had
vague prospects and had resulted in it plunging into higher risk business
whilst cutting the financial remuneration of staff. It compensated for the
cuts in pay with allocations of shares in the business. Between 2001 and
2008, this employee equity stake had grown from 10% to 30%.
Technical failures
The company deployed the value at risk (VAR) methodology to evaluate
risk. VAR as a risk management tool has two important limitations. It is
supposed to provide a 99% confidence limit. The senior managers of the
bank believed that the remaining 1% was not significant. VAR is calcu-
lated daily. Daily price movements can be significant and can result in an
under perception of actual risk on a given day. A second limitation of the
approach is that it relies on an assessment of volatility. When markets are
quiet, volatility is low, but when the markets become turbulent volatility
shoots up magnifying the risk. The company had leveraged its asset base
in pursuit of ever greater profit. Misfeasance is the act of engaging in an
action or duty but failing to perform the duty correctly.
The problem was further compounded by the fact that the Chairman and
CEO had signed off a serie s of financial statements that were designed to
deceive investors and the public into thinking the company was less vulner-
able than it was. In consequence, it had breached its own risk and risk con-
centration limits resulting in a series of bad investment decisions that left it
highly leveraged and exposed following the loss of confidence prompted by
the collapse of Bear Stearns only weeks earlier. As the Valukas report was to
make clear, Lehman had reverse engineered its net leverage ratio for public
consumption commenting that at best, Mr Fuld had been grossly negligent.
Investigators also established that the Company’s Auditors, Ernst and
Young, were aware of the company’s exposure to high-risk investments,
the extent of its leverage and the consequent potential for a crisis of liquid-
ity, yet did nothing to alert either the Board or the shareholders of the risk.
Sadly, the Lehman story was repeated many times in the ensuing
months, not just in the US but in the UK and across Europe, prompting
Warren Buffett to wryly observe that:
“You never know who’s swimming naked until the tide goes out.”
Exercise 1
You are asked to superimpose the VSM model onto Lehman Brothers dur-
ing the lead up to its collapse. You will note the arrows denoting flows of
information between the different subsystems. You are asked to consider the
information flows between each of the subsystems and to critically evaluate
the extent to which each flow possessed adequate amplification, attenuation
and transduction capacity. Exhibit 3.1 traces Information flowing upwards,
and Exhibit 3.2 shows information flowing downwards. Use the commentary
column to make your observations and then insert a tick or a cross in each of
the three columns to the right. A tick would denote adequate capacity and a
cross inadequate capacity. You will find an analysis presented as Exhibits 3.3
and 3.4 on the pages following the chapter references. Compare your analysis
with Exhibits 3.3 and 3.4.
EXHIBIT 3.1 A VSM of Lehman Bros depicting the upward flow of information
(Continued)
EXHIBIT 3.1 A VSM of Lehman Bros depicting the upward flow of information
(Continued)
Commentary Amplification Attenuation Transduction
Information
flow between
Systems 1 and 2
Information
flow between
Systems 2 and 3
Information
flow between
Systems 3 and 4
Information
flow between
Systems 4 and 5
EXHIBIT 3.2 A VSM of Lehman Bros depicting the downward flow of

information
Downward flow of information
(Continued)
EXHIBIT 3.2 A VSM of Lehman Bros depicting the downward flow of

information (Continued)
Commentary Amplification Attenuation Transduction
Information
flow between
Systems 1 and 2
Information
flow between
Systems 2 and 3
Information
flow between
Systems 3 and 4
Information
flow between
Systems 4 and 5
EXHIBIT 3.3 A nswer A VSM of Lehman Bros depicting the upward flow of
information
An examination of the upward flow of information
(Continued)
Amplifi- Atten- Transd-

Commentary cation uation uction
Information The upward flow of information ✓ ✓ ✓

flow between System 1 and 2 meets the
between requirements set by management
Systems
1 and 2
Information System 2 seeks to dampen ✓ ✕ ✓
flow destabilising oscillations in the
between whole system. It is the system that
Systems accommodates the risk management
2 and 3 function along with HR, and
Finance. It is also the system from
which risk management reports
emanate. The reports are founded
on the VAR management tool.
VAR should have been one of a
suite of tools for assessing risk.
Unfortunately, it was the only tool
in operation. System 2, therefore,
lacked requisite variety and the
attenuation between System 2 and 3
was therefore inadequate.
Information The upward flow of information ✕ ✕ ✕
flow from risk control to the
between management functions at System 3
Systems 3 and the intelligence function at
and 4 System 4 was wholly inadequate.
System 4 is where the VAR reports
would be analysed by the CEO and
the Chief Risk Officer. Their
assessment was that the company
was not over exposed when the
markets became volatile. The
situation was compounded by the
fact that the risk management
committee were not meeting
regularly, leaving the assumptions of
the assessment of risk in the hands of
two people whose assessments went
unchallenged. The entire risk
management approach was too
narrow. Other risk management
tools should have been employed so
that a richer picture of the overall
risk situation could be made. In
short, the risk management
approach lacked requisite variety.
(Continued)

Information Only two members of the Board ✕ ✕ ✕
flow namely the CEO and CRO
between operated at Systems 4 and 5. System
Systems 4 5 was occupied by individuals with
and 5 unimpeachable credentials from the
point of view of presenting a good
image to the outside world.
Unfortunately, only two had any
experience of financial services and
none had expertise in risk
management. Thus, when the CEO
and CRO presented their reports
and assessments, the Board lacked
the competence to challenge the
assumptions upon which the reports
were based.
EXHIBIT 3.4 A nswer A VSM of Lehman Bros depicting the downward flow
of information
An examination of the downward flow of information is also instructive
(Continued)
EXHIBIT 3.4 A nswer A VSM of Lehman Bros depicting the downward flow of

Information The Board at System 5 were endorsing the ✓ ✓ ✓

flow information they were receiving. The message
between being transmitted was that all was well.
Systems 5 Amplification, attenuation and transduction
and 4 were all working in the sense that the message
downward the Board wanted other systems to
receive was being received and understood.
Information Again, the managers of day-to-day functions at ✓ ✓ ✓
flow System 3 were receiving downward messages
between both from the Board and the CEO and CRO
Systems 4 that all was well and that they were doing a
and 3 good job. This was not only being
communicated personally, the reward system
was reinforcing the message very effectively.
Information The generation of VAR reports by System 2 ✓ ✓ ✓
flow conformed to requirements. The message
between System 3 was receiving was that it was
Systems 3 meeting expectations and was being
and 4 and rewarded accordingly.
System 2
Information Both Systems 3 and 2 would be communicating
flow that employees in System 1 were effective and
between doing a good job. This is the message that
Systems 3 management would have wanted to
and 2 and communicate, although unbeknown to them,
System 1 the reality was quite different. The reward and
performance management systems would be
acting as powerful amplifiers reinforcing good
news messages in employee pay cheques only
weeks before the company collapsed! With
employees owning 30% of the business, they
took a significant hit like the employees of
Enron. It is events such as these that provide
one good reason why trade unions can be
cynical about employee ownership, preferring
instead to see employee reward take the form
of higher wages. In all circa 26,000 employees
not only lost their jobs but they also received
no redundancy pay and lost whatever
investment they had made in the company
through a pay as you earn share scheme.
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and practice (Vol. 3), London, Oxford University Press.
4
A CRITICAL EVALUATION OF THE
SYSTEMS PERSPECTIVE, WHEN
APPLIED TO SHRM
Overview
It was Kurt Lewin who said, “there is nothing so practical as a good theory.”
For a theory to be a theory, no matter how good, it must in principle be capa-
ble of being proven false. In other words, a theory that in principle cannot be
proven to be false is not a theory, it is a faith or an ideology.
Systems theory, like any other theory, has several limitations. Foremost
amongst them is its predictive value. Theory normally passes through three
stages of development. Initially, both natural and social scientists developed
a theory to explain a phenomenon. In the social science context, the initial
explanatory approach manifests universalist characteristics. It is a one size fits
all explanation. Examples include trait theories of leadership and entrepreneur-
ship. Eventually, it becomes apparent that the theory is inadequate. Contingent
variables are identified that enable the theory to explain how the phenomenon
behaves under different conditions, thereby delivering more effective predictive
value. As these contingent variables multiply the theories become particularist.
They offer predictive value under very specific conditions.
The major limitation of systems theory is that it is very challenging to
deliver specific predictions because of the nature of chaos. Thus, at the very
moment when systems are about to be seriously disrupted, systems theory can
be found wanting. Put another way, whilst systems theory can highlight the
likelihood of a serious disruption it cannot predict with great accuracy when
that disruption will occur.
This chapter will seek to address the following objectives. To explain the
nature of chaos and why it is imperative that managers understand the phe-
nomenon. Recognise why there is a natural impulse for managers to herd when
DOI: 10.4324/9781315630557-5
it comes to certain forms of decision-making, reward and performance man-

agement being important cases in point. Explore the nature of denial and how
the combination of the impulse to herd, when combined with denial, entrains
positive feedback loops that result in chaos. To do this, the dynamics that led
up to the financial crash of 2008 and what has followed will be explored along
with the role of strategic human resource management (SHRM) in facilitating
the onset of the crisis.
The discussion that follows is necessarily detailed. It may appear to drift
away from the central theme of SHRM. This apparent indulgence is designed
to highlight and explain how subtle and apparently unrelated developments
taking place in individual board rooms in one country soon come to be
embraced by companies in many parts of the world, driven by distant systemic
dynamics that engulf entire industries as if released from a Pandora’s Box. The
consequence is chaos. It results in layoffs, redundancies, and company failures
that, in some cases, can lead to the collapse of entire industries.
In Chapter 3, consideration was given to the circumstances that gave rise to
the collapse of Lehman Brothers. A single entity in a much larger ecosystem.
Even though it was the largest corporate bankruptcy in history, it was still a
micro level event. In this chapter, we will explore the issues at the macro level
viewing the whole financial system. We will use the Viable System Model
to explain the systemic failures that gave rise to the 2008 crisis and its con-
sequences. The chapter will culminate in an assessment of the role that HR
policies and practises played in creating chaos. To do this, the work of (Mees,
2012; Rajan, 2005) will be explored.
Chaos and the first limitation of the systems approach

Chaos in daily parlance is thought of as confusion and disorganisation. In
the context of systems theory, the term has a specific meaning that captures a
paradox that (Stacey, 1993) described as “a pattern within disorder or regular
irregularity.” The term is used to describe behaviours and events within a sys-
tem that give the appearance of being random. They are non-linear feedback
loops that are inherently unpredictable and, therefore, difficult to manage.
They are triggered because of the system’s sensitivity to small incremental
changes in the conditions within the system and within the larger system of
which it is a part. These stimulate emergent properties. These properties can-
not be precisely predicted because of their randomness. It is for this reason that
at the very moment when predictive capability is most needed, systems theory
in isolation is unable to deliver a prediction with accuracy.
As we have seen, organisations are systems that operate within a larger
system that we might refer to either as an industry or the competitive envi-
ronment. The larger system is composed of many subsystems (organisations)
each of which is striving to attain and sustain stasis (see Figure 2.1). Each of
A Critical Evaluation of the Systems Perspective 63
the subsystems expends energy that entrains feedback loops that interact with
other feedback loops. In this sense, an organisation is a bounded entity oper-
ating in a sea of turbulence that makes it impossible to forecast with precision
what the future might hold. There are, however, recognisable patterns within
the chaos. The challenge, therefore, is to be sufficiently alert to recognise the
patterns and to use pattern recognition to inform our judgements, our strate-
gies, and our decisions.
Was the financial crash of 2008 a true black swan event?

The financial crash of 2008/9 was largely unexpected. Some have argued that
it was a “black swan” event of enormous proportions that took most econo-
mists and analysts by surprise. It was in many ways as dramatic as the crash of
1928. An event that pushed the US into the great depression and unleashed
dynamics that gave rise to the emergence of the great dictators in Europe lead-
ing ultimately to the Second World War.
Between 2008 and 2010, the bottom suddenly fell out of the US housing
market. Liquidity dried up. First, the banks and then the stock markets across
the US and then Europe crashed causing immense collateral damage from
which much of the developed world has yet to recover. Indeed, there are some
who argue that it has triggered incipient dynamics that are incremental but
also ongoing and will ensure fundamental shifts in global economic power in
the decades to come. (A proposition that will be considered in the final chapter
of this book.) One manifestation of these dynamics could, for example, arise
if the US dollar ceases to be the world’s reserve currency.
Prior to the crash of 2008, however, there were many financial insiders
who were very aware that an immense bubble had developed, especially in the
US housing market. They were prepared to bet against house prices continu-
ing to rise. There was also a small group of elite economists in various coun-
tries who were perceptive enough to recognise the nature of the patterns that
were unfolding along with the consequences. Nouriel Roubini, for example,
predicted a house price crash that would trigger a recession in the US as early
as 2006. In the same year, the British economist Ann Pettifer published a paper
entitled “The Coming First World Debt Crisis,” in which she predicted that there
would be a debt crisis that would:
Hurt millions of ordinary borrowers, and will inflict prolonged dislocation and
economic, social and personal pain on those largely ignorant of the causes of the
crisis, and innocent of responsibility for it.
Arguably, a paper written by Raghuram Rajan in 2005, whilst he was an eco-

nomic counsellor at the IMF, was the most prescient (Rajan, 2005). The paper
was entitled “Has Financial Development Made the World Riskier?” Rajan
advanced a powerful thesis that technology had combined with deregulation

to deliver an emergent context that was radically different to that which had
prevailed in the aftermath of the Second World War. A time when banking
regulations constrained the capacity of banks in the US to take on excessive
risk. During the 1950s and 1960s, he argued, banks had dominated the finan-
cial system and bank managers were, by and large, paid high fixed salaries. He
went on to suggest that,
If bank management displayed incompetence or knavery, depositors would get

jittery and possibly run. The threat of this extreme penalty, coupled with the lim-
ited upside from salaries that were not buoyed by stock or options compensation,
combined to make bankers extremely conservative.
The deregulation in financial services unleashes

new co-evolutionary dynamics
In 1980, the US Congress passed the Depository Institutions Deregulation and
Monetary Control Act. It enhanced the control over monetary policy exer-
cised by the US Federal Reserve and enabled financial institutions to accept
deposits from out of state. This was a very significant development overturn-
ing a tightly regulated market that favoured in-state banks and financial insti-
tutions that had prevailed since the McFadden Act of 1927. This was followed
by the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994.
The act permitted Banks to acquire banks in other states in the US. It also
permitted the establishment of national banks provided that minimum capi-
talisation requirements were met. Mulloy and Lasker (1995). Finally, in 1999
large elements of the Glass-Steagall Act that had separated investment from
commercial banking following the Wall Street crash of 1929 were repealed by
the Gramm-Leach-Bliley Act.
In the UK, similar steps to deregulate financial markets were also in play.
1986 was the year of the “Big Bang,” as it was widely described. The London
Stock Exchange broke with its tradition of face-to-face trading. The move to
electronic trading was accompanied by the abolition of minimum fixed com-
missions on trades, foreign firms could take over British brokerages, London’s
market was opened to international banks and the Securities and Investment
Board later renamed the Financial Services Authority supplanted the Bank of
England’s regulatory role. A new financial centre known as Canary Wharf
was also opened to accommodate new arrivals. These wide-ranging changes
resulted in London’s ascendancy as a major financial centre to rival New York.
It also helped set the scene for the next financial crash. Whilst the rest of the
world was slower to embrace change, deregulation, nevertheless, spread and
with its diffusion came the emergence of a new highly competitive culture.
Customer relationships grounded in trust built up over many years, along with
values such as “my word is my bond,” were replaced by cutthroat competition on

price and rate. Profits and salaries escalated on an unprecedented scale in both
London and New York because of what Rajan described as disintermediation.
Long-term relationships founded upon trust impose constraints on both
behaviour and options. What Rajan was alluding to by disintermediation was
the substitution of relationship-based transactions by an arms-length approach.
Whilst the former served to constrain the expansion of the market, the arms-
length approach liberated market potential allowing it to expand enormously.
The herding instinct and its consequences

Reward systems across the sector were dramatically revamped, especially
in the US and the UK. New metrics were devised to determine both the
nature and the magnitude of reward. Base salaries for Bank managers were
slashed and new performance-related bonus systems were devised for both
bankers and investment managers. These included returns on investment and
assets under management. Managerial performance was also compared. These
incentives and drivers placed a lower premium on prudence whilst emphasis-
ing the upside of taking a calculated risk. Comparison of relative managerial
performance certainly helped to deliver superior results. Unfortunately, it also
produced what Rajan described as two perverse outcomes. Firstly, because
risk and reward tend to correlate, there was an incentive for managers to look
for opportunities that yield high returns. The corollary being that disastrous
consequences might ensue in the event of something going wrong. When the
risk of disaster is perceived to be small and the reward for success is seen to
be high, then there is an incentive to conceal the risk to the funds of prospec-
tive investors in anticipation of significant gains. The second pattern of per-
verse behaviour applies to managers in general. It is the instinct to herd. In the
time when the mainframe computer reigned supreme, purchasing managers
used to say, “you will never get fired for buying IBM.” By herding, invest-
ment managers were able to avoid the risk of underperforming their peers and
HR managers were able to recommend significant adjustments to reward and
performance management systems without fear of being criticised by their
boardroom colleagues.
What Rajan recognised was that when risk-taking was incentivised and
the impulse to herd was strong, then there was a potential to entrain a positive
feedback loop. It was the equivalent of passengers on a river boat all moving to
one side of the vessel at the same time.
Advances in technology within financial services delivered many benefits.
Foremost amongst them was the creation of huge quantities of hard data. Why
would loan managers need to spend time visiting clients and understanding
business operations when there was an abundance of accessible hard data on the
business in question and the markets in which it operated? The data could be
used in a host of different ways to create valuable accounting ratios that would
inform decision-making whilst also saving time and reducing costs. One crit-
ical side-effect was to make financial decision-making ever more remote and
arms-length. In doing so, loan books expanded. In a paper published in 2002,
Peterson and Rajan used a proxy indicator in the form of a ratio of the size
of bank loans to bank employees in the US. They concluded that the rise in
lending to employees was a product of increased efficiency.
New emergent properties and their implications

Technological advance, when combined with deregulation, resulted in new
emergent properties in the form of unparalleled market growth and profitabil-
ity. Rajan also noted that there had been an emergent pattern of capital flow
across markets that had increased seven-fold over the previous three decades.
The removal of regulatory barriers served to accelerate these flows dramat-
ically. This resulted in increasing levels of integration, coevolution and co-
dependency between markets. The implications were, in his view, profound.
Markets were no longer dependent on local liquidity. Liquidity had become
global, stimulating growth worldwide. The growth gave rise to what Rajan
described as re-intermediation.
As the changes stimulated by deregulation began to bite, so the diversity
of financial instruments multiplied along with the institutional actors oper-
ating in the marketplace. The growth in complexity required intermediaries
to facilitate services that enabled financial and investment managers to nav-
igate their way through the mounting complexity. Data availability resulted
in transparency. Transparency, in turn, ensured profitability was competed
away. New less transparent organisations began to emerge in numbers in the
form of hedge funds, venture capitalists and sovereign wealth funds, all eagerly
pursuing greater profits than were available to more conservatively managed
organisations such as mutual funds, investments trusts and pensions funds.
Rajan went on to argue that Banks play a distinct and important part in an
economy because they provide two vital roles. The first is payment services,
these are grounded in demand deposits. The second is extending credit to cus-
tomers in the form of illiquid loans. Because of their fragile capital structures,
they can only provide such a service if they have access to a pool of liquidity.
Such a pool is made available through the interbank loan network. A pattern
of self-imposed discipline is created when banks advance credit because bank
managers know that any mismanagement of funds will invoke a swift and
robust withdrawal of lines of credit on the part of the wider interbank loan
pool. Such a development would lead to the inevitable failure of the bank in
question. Rajan argued that the role of banks in a modern industrial economy
is to warehouse the types of risk that only banks can bear. It follows, therefore,
that if banks can offload some of the risks that they bear to other financial
institutions, they have every incentive to do so. It enables them to take on

more complicated risks for which there are greater rewards.
The term “vanilla” is used to describe the most basic of financial instru-
ments grounded in fixed rate borrowing. Typically, these take the form of
bonds, options, futures and swaps. They are the opposite of exotic instruments
that incorporate complex repayment arrangements and conditions whereby
the investor receives a certain payoff. The range of financial needs always
exceeds the range of products that the financial services sector can offer.
In the febrile, deregulated post-2000 environment in which markets were
coevolving, profits, salaries and bonuses were growing at an unprecedented
rate. Rajan concluded that, without a doubt, the world was becoming a riskier
place. He gave a particular warning about reward packages when he stressed
that Insurance companies and pension funds were beginning to deal in deriv-
atives. These took the form of selling guarantees against companies defaulting.
This enabled the investment managers to collect premiums against a low risk
of default. In short, these businesses were moving into disaster insurance. Such
strategies produce high alphas (high returns for low risks). This provides an
inducement to load up on such instruments. When only one or two compa-
nies become exposed, the danger to the larger system is small; however, when
managers herd, the risk is amplified many times over. To illustrate his point,
Rajan alluded to the mutual fund crisis of 1994. It was a time when a signifi-
cant number of US mutual funds made fixed interest loans against bond issu-
ances on very tight margins. They were caught out when the Federal Reserve
made a series of small interest rate increases. Very few managers anticipated
this possibility, and therefore, the entire industry was wrong-footed. A serious
cash flow crisis ensued for the institutions involved.
A hike in US interest rates in 2008 triggered a similar scenario. The
financial services sector was locked into a bubble of monstrous proportions.
Employees across the entire financial services sector had been incentivised
to take on more risk because of ill-considered short-term HR reward prac-
tises. No institution was immune. Failures of transduction and attenuation
between the Credit Rating Agencies and the banks and between the major US
Banks and the Federal Reserve Board compounded the problem, as shown in
Figure 4.1. First, Freddie Mac and Fannie May, two US government backed
mortgage institutions, had to be given emergency loans by the Federal
Reserve. Then Lehman Brothers and Bear Stearns collapsed creating trem-
ors that affected not just the US but the entire Western international finan-
cial system. International confidence evaporated. Interbank lending froze. In
Europe, interest rates rose. Greece found it could not meet its international
debt obligations. Tightening credit across Europe now kicked off crises in
Iceland, Ireland, the UK and Spain. Even Germany, a country renowned for
its financial prudence was impacted. Whilst German bankers were the epit-
ome of good practice in their lending at home, they too were seduced by the
FIGURE 4.1 Contagion in the US national competitive environment
easy profits property speculation was delivering in other parts of Europe and
the US. They found their loan books significantly compromised by bad debt.
Eventually, an international meeting of finance ministers resulted in a
synchronised initiative to create the necessary liquidity to prevent the inter-
national financial system from seizing up. A major recession and rise in unem-
ployment across the European and American economies that lasted more than
a decade was the result.
The second limitation of a systems approach

In the introduction to this chapter, it was argued that one of the key attrib-
utes of a good theory is its predictive value. Unfortunately, a flip into chaos is
inherently unpredictable. As previously argued, this diminishes the perceived
value of systems theory. The problem is further compounded by the fact that
any system is arbitrarily defined by the imposition of a boundary between itself
and the larger environment of which it is a part. Popular received wisdom
concerning the financial crash of 2008 is that it was triggered by irresponsible
lending on the part of US banks and Mutual Funds lulled into a false sense of
security that house prices would only rise, facilitated by cheap money arising
from lax control on the part of Central Banks. This is only part of the story.
The second limitation of the systems approach is that because a system is only
a construct of the mind, it is easy to exclude or fail to register the significance
of players operating close to the boundaries of a meta system because they are
operating at higher levels of recursion. Rajan’s highly perceptive critique of
the financial system in the run up to 2008 was largely US centric. What none
of that small group of elite economists who predicted the crash recognised,
was the critical role the admission of China to the World Trade Organisation
(WTO) in 2001 was playing in facilitating events.
China’s role in the 2008 financial crisis

There is a long history of boom and bust in the property market both in
the US, the UK and to some degree in parts of Europe. On average, these
cycles last between 16 and 20 years (Anderson, 2008). This cyclical pattern
has pertained for over 200 years. During that time, there have been two major
crashes that have placed the global financial system in serious jeopardy, 1929
and 2008.
So why was 2008 so severe? According to Mees (2012), China’s accession
to the WTO was a game changer. The surge in Chinese wealth creation was
unprecedented. According to Mees, the new dynamic began in 2000 follow-
ing the bursting of the dot com bubble. In a bid to head off inflation, the US
Federal Reserve cut interest rates from 6.5% to 1.5% in late 2000.
Flush with the infusion of funds from China, the Federal Reserve reduced
the rate again to 1% in June 2003. Americans were buying Chinese imports on
a very large scale. Indeed, many Americans keen to take advantage of the low
cost of credit elected to re-mortgage their homes. Two-thirds of new mort-
gage applications were for refinance. Mees asserts that in 2005 home equity
extraction in that year alone amounted to 4% of US GDP, $750 billion.
Whilst the Americans were spending, the Chinese were saving. In 2000,
the Chinese savings rate was already high at 38% of GDP. By 2006, it had
leaped to 54%. Chinese prudence combined with an underdeveloped financial
services sector resulted in a pattern of herding amongst Chinese investors.
Much of these savings were invested in US Government bonds on the premise
that US Treasury bonds were virtually risk free. The wall of money coming
from China swept westward. Interest rates world-wide became depressed. The
booming Chinese economy boosted other economies in SE Asia resulting in
an emerging market boom. The Federal Reserve finally began to recognise
the potential danger of inflation and started to raise interest rates in 2004.
Mania another term for a positive feedback loop

It was on the back of the Chinese stimulus and the protracted period of low inter-
est rates that the excesses on Wall Street began to build. Mees argues that it was
Chinese prudence rather than Wall Street’s profligacy that was the real underly-
ing dynamic that gave the boom in property prices such impetus. The key point
to note is that once a positive feedback loop is entrained, it triggers reinforcing
dynamics. What began as a property play quickly spread to other financial mar-
kets? In the years 2003–2007, the US stock market rose by nearly 68%. fuelled
by the easy availability of credit. It was not just the mortgage companies that
were doing well, both the deregulated commercial and the investment arms
of the banks prospered along with insurers, investment companies, investment
trusts and unit trusts. The redesign of the reward and performance management
systems resulted in herding across the sector in the Anglo-American world.
It began after deregulation and was continuously refined by company boards,
often guided by consultants and their HR departments,
Securitisation is the process of creating financial instruments that are
designed to yield a steady rate of return. This is achieved by bundling together
different forms of debt obligation, as described in Chapter 3. These were then
sold on to unsuspecting insurance companies, pension funds and other institu-
tions eager to make quick reliable returns.
In Europe, the dynamics were different. Governments within the European
Community had come together to create the European Monetary System.
It was grounded in a single currency, the Euro. The creation of the Euro
prompted a convergence of interest rates on Italian, Spanish, Portuguese,
Irish and Greek government bonds. This eliminated exchange rate risk and
prompted the northern European banking system to buy bonds denominated
in Euros. Whereas before the creation of the European Monetary System,
interest rates in the weaker EU economies exceeded 10%. By 2005, they had
fallen to 3%. The low interest rates resulted in brisk private and government
borrowing across Southern Europe. A boom in property prices ensued, with
house prices rising by 10–20% per year between 2003 and 2008. House owners
felt richer and began spending more. The Greek Government took advantage
of the low interest rates to engage in excessive borrowing. Labour costs began
to spiral. Between 2000 and 2008, wages in southern Europe and Ireland rose
by over 40%, whilst in Greece, they rose by nearly 80%. Confidence in Greek
Government bonds began to evaporate precipitating the bond crisis. Investors
were coming to realise that not all government debt, even though denomi-
nated in euros, was equal. Northern European banks foreclosed on the debts
of southern neighbours, and southern Europeans sought to shift their funds
to the north. Interest rates in the south shot up precipitating a deep recession
in the southern periphery and in Ireland, whilst interest rates in Northern
Europe declined to the point where in some cases, they became negative.
The consequences of the crash for SHRM

The impact of the financial crash of 2008 is immeasurable in social terms and is
ongoing. The immediate effect was to cause unemployment to rise dramatically
in all Western countries. Youth unemployment was especially problematic in
Southern Europe, where it exceeded over 40%. Companies that were profitable
but reliant on lines of credit saw that credit withdrawn. Faced with a serious
liquidity crisis, many were forced into liquidation. Payrolls were cut dramati-
cally. Employees who had previously looked forward to promising careers found
their lives blighted. Recruitment activity gave way to redundancy and, in larger,
more responsible organisations to outplacement. Companies that survived reval-
uated their human asset bases. With training and development budgets cut, new
lower cost technology-based solutions were sought. Investment in new technol-
ogy that would cut labour costs proceeded at pace.
The dynamics within the Western financial system are depicted in
Figure 4.2 along with the shadowy presence of China at the periphery of the
system (Mees, 2012).
FIGURE 4.2 Contagion of national economies
The third limitation of the systems approach

To date, cybernetics theory has largely been predicated upon the idea that
organisations are constantly seeking homeostasis in a turbulent world. We are,
however, moving into a world of quantum computing. This new technology
is the harbinger of a new paradigm. It is grounded in a paradox that challenges
the logic of traditional computing that relies upon binary code, a state that can
be defined as either a 1 or a 0. The central proposition underpinning quan-
tum computing is that the two states of 1 and 0 can coexist simultaneously. It
is a useful metaphor that alerts us to the nature of continuous change. What
Stacey defined as flipping from one state to another and another, precipitating
chaos within a system.
Set out in Table 4.1 is a list of companies showing the time it has taken
them to grow from unicorn status to exceed a 1 billion dollar capitalisation.
A distinctive feature of these companies is the relatively low numbers of
people employed and the staggeringly high revenue per employee. These
companies are creating a significant number of millionaires in the countries
where they are based. Their speed of growth and impact on the trading
systems and industries in which they operate is both rapacious and highly
disruptive (Kim,2015). In many cases, their sudden emergence has crushed
the revenues of their competitors whilst also exacerbating an unprecedented
income and wealth divide. Eric Fry, a financial services specialist, has defined
the phenomenon as an emerging “Techno-chasm.” (See Chapters 9 and 13 for
TABLE 4.1 A list of companies showing the time it has taken them to grow from
unicorn status to exceed a 1 billion dollar capitalisation.
Time taken to achieve

Revenue per employee $1 billion dollar
Company Nature of business activity 2019 capitalisation in years
Square Mobile payment $1.56 million 2.93

Zynga Online gaming service $2.01 million 2.88
provider
Lazada Online shopping $1.7 million 2.75
Instart Online grocery $1.6 million (2017) 2.58
shopping
Webvan Web-based delivery – 2.56
service now
bankrupt
Pinterest Social media $0.5 million 2.46
Kuaida Chinese taxi-hailing 2.43
app
Twitter Social media $4.69 million 2.32
Yello Mobile Comprised 71 start-ups, $145,000 2.28
spread across mobile
commerce, marketing
and advertising
CALIENT Technology used in 2.02
Technologies cloud networks and
data centres
Xiaomi Chinese smartphone 1.71
maker
Akamai Content delivery 1.58
Technologies network
Groupon Social commerce 1.46
Slack Business $240,985 1.25
communication app
Source: Compiled from reports from Business Insider.

further discussion of this phenomenon.) All these companies have achieved a

capitalisation of over a billion dollars in less than three years. Many of their
directors and employees have, because of access to share options, become
multimillionaires.
The fourth limitation of systems thinking

The fourth limitation of systems thinking and cybernetics is its engineering
heritage. Goodwin (1951), Philips (1950) and Tustin (1953) were all engineers
whose mental models of their world were informed by their discipline. They
turned their engineering insights to the domain of economics. In viewing
organisations that they defined in terms of systems and subsystems; they were
predisposed to assume the role of objective scientific investigators applying
the principles of natural law theories to a human relations context. Whilst
students of the physical sciences can adopt an objective and detached view
of the phenomenon under investigation. This is not the case, however, in
the social sciences, where the researcher or management practitioner is an
additional variable in the context whose behaviour can influence and impact
other agents within the system. In short, cybernetics ignores messy and
sometimes fuzzy and fluid variables within the system arising from the inter-
play of power and politics. It was as a response to these concerns that writers
like Ackoff and Ackoff (1981), Checkland and Scholes (1990) and Churchman
(1968, 1979) developed the soft systems approach that is discussed later in
part 2 of this book.
Summation
This chapter has sought to highlight four important limitations of cyber-
netic theory. The first is that apparently random events can give rise to non-
linear feedback loops or what Stacey described as regular irregularities that are
inherently unpredictable but that, nevertheless, give rise to emergent prop-
erties. We can describe these properties as chaos because their randomness is
difficult to predict. There are, however, patterns that only experienced and
highly perceptive managers can recognise. Whilst a pattern may be recog-
nised, and the consequences predicted, the timing of the consequential events
cannot be anticipated with accuracy.
The second limitation is that because a system is an abstract conception it
is difficult to recognise influences emanating from higher levels of recursion
such as China’s savings rate and its impact first on the US and subsequently
much of the rest of the Western economy. The second critical point the chapter
emphasised is that not only do systems replicate themselves at different levels
of recursion, but so does human behaviour. The pattern of managerial herding
as a means of self-protection from accountability and criticism is, therefore, a
major systemic dynamic at all levels of recursion. The third limitation is that
the world is transitioning into a context in which the rate of growth of some
companies is unparalleled as is the amount of revenue and profit per employee
they can generate. Their sudden emergence triggers a transformation of the
competitive environment. This results in periodic bouts of chaos during which
organisations flip from positions of strength and dominance to insignificance
or failure in little more than the flash of an accounting period. To address this
complexity, managers need to understand the complexity and the nature of
organisational dynamics. This theme will be developed in part 2 of this book
along with a fourth limitation which is that cybernetic theory is insensitive to
individual agency. The effects of power and politics in organisational life, there-
fore, are easily underestimated. Before examining this fourth limitation, the
many operational challenges of human resource management will be explored
from a cybernetics perspective. The goal is to provide the foundations necessary
to recognise emergent dynamics and appreciate things to come.
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5
ORGANISATIONAL
ORIENTATIONS TO THE
LABOUR MARKET AND
THEIR IMPLICATIONS
Chapter 1 began with a review of the process of disciplinary transition from

personnel management to human resource management (HRM) and from
HRM to strategic human resource management (SHRM). The associ-
ated evolution of different disciplinary perspectives and their approaches to
research was also considered. A central proposition of the chapter was that HR
researchers had become preoccupied with understanding the function and its
role and contribution to organisational performance. The complex nature of
the interaction between an organisation and its environment was considered
in chapters two and three. It was argued that the configurational perspective
was deemed too complex to render it compatible with the resources available
to researchers. In consequence, the contextual and contingency perspectives
came to dominate much of the discourse. This chapter begins with a deeper
exploration of the transition of the discourse from HRM to SHRM and the
development of different SHRM orientations to the labour market. Its pur-
pose is to foreground some of the key themes that lie behind the evolution of
the configurational discourse and the managerial paradox of SHRM. On the
one hand, managers determine the nature of HRM policies and practises. On
the other hand, they become constrained by their policy choices. As individu-
als, the best they can hope to achieve is a positive organisational climate. This
chapter makes the argument that HR policies and practises combined with
the management style of the top leadership, to a large degree, determine the
nature of organisational culture. Organisational culture imposes constraints
upon strategic choice. Managers who do not understand how HRM policies
shape culture will find that they are imprisoned by that culture. If the culture
is not well aligned with their strategy, then managerial life becomes very
hard indeed. Causes of strategic failure arising from cultural resistance will be
DOI: 10.4324/9781315630557-6
explored, along with the impact that HR policies have on the psychological
contract and the nature of employee relations. Examples will be provided
drawn from different national contexts.
Beyond the contingency and contextual perspectives

Chapter 1 sought to demonstrate that the transition from HRM to SHRM was
closely associated with the evolution of the strategy discourse. Industrial age
organisations were focused on mass production. This involved the delivery and
disposition of large volumes of products. Not surprisingly, both managers and
theorists were preoccupied with markets, the competitive environment
and market positioning. This demanded an inside looking out perspective.
The industrial age paradigm had moved to embrace HRM in response to the
recognition that quality was pivotal to the creation of competitive advantage.
Quality management systems relied upon educated, statistically literate peo-
ple. The transformation began in Japan in the 1960s under the influence of
W.E. Deming, who emphasised the importance of both the individual and
the group. To overcome quality problems, employees were trained to solve
problems in teams using various techniques such as Pareto analysis, Ishikawa
analysis (fish boning) and statistical process control. Hired hands working on
an assembly line became hired brains applying various forms of theoretical
and statistical knowledge. Unlike the US and Europe, which relied upon the
26-letter Western alphabet, Japan’s industrial aspirations were being frustrated
by the Kanji (Chinese symbolic characters). With 3,600 Kanji characters,
quality failures in Japan were choking production systems with paperwork.
If errors could be eliminated, so could the paperwork. Japanese companies,
therefore, had a powerful incentive to eliminate paperwork. To do this, their
goal had to be zero defects. Once defects were eliminated, it became possible
to settle with suppliers based on a firm’s output. Not only could paperwork
be minimised or eliminated, so could inventory. This enabled Japanese com-
panies to move to just-in time production. Improvements in ICT facilitated
integrated supply chain communication and made to order mass production.
Henry Ford’s push system of mass production under which producers deter-
mined the characteristics of the product, “you could have any colour so long
as it was black” gave way to a pull system that enabled a customer to place
personalised orders to a specification of their choosing and have it fulfilled in
a batch, composed of other customised orders pulled through the system in a
highly orchestrated sequence. Figure 5.1 illustrates the pattern of development.
Improvements in ICT not only revolutionised production systems. It accel-
erated the growth of multinational enterprises in a diverse range of industries
including electronics, robotics, genetics, new materials and biotechnology.
Whilst external opportunity and threat remained important, it was the internal
strengths and weaknesses of the organisation that imposed constraints on stra-
tegic choice. The focus, therefore, shifted to the resource-based view (RBV) of
Organisational Orientations to the Labour Market 77
FIGURE 5.1 Key stages in the radical transformation of TQM systems
the firm (Barney, 1986, 1991, 1995; Baird and Meshoulam, 1988; Delery, 1998;
Lado and Wilson, 1994; Oliver, 1997; Snell et al., 2001; Wright et al., 2001).
This perspective was predicated on the proposition that competitive advantage
was rooted in organisational resources. These resources included the knowledge
embedded in people, the capital investment at their disposal, the routines and
procedures that they created and followed and the networks within which they
functioned. It was the complex interplay of all these variables that provided a
source of distinctive competitive advantage. Owing to their complexity and the
unique ways in which the different variables interacted, it was impossible for
competitors to replicate. Researchers pursued a reductionist approach to under-
standing the interplay. Thus, complexity resulted in a focus on contingent var-
iables and associated contexts. However, the studies did not set out to capture
the true complexity of the dynamics (Menguc and Auh, 2006; Winter, 2003;
Wright and Snell, 1998; Zollo and Winter, 2002).
The transition from HRM to SHRM

It was the recognition of the importance of inimitability that triggered the
transition from HRM to SHRM. The new ICT possibilities, however, did
something else. They made information available and accessible on an unprec-
edented scale. Indeed, scale-ability was a key feature of the new knowledge
economy. As Parolini (1999) observed, the new wave of ICT development
constituted a second industrial revolution. The first had focused on the pro-
duction of instrumental or capital goods such as forges and smelting works
that would be used to produce first iron and then steel that could be trans-
formed into steam engines, bridges, and railway lines. Entrepreneurs like
Josiah Wedgewood were then able to shift to the mass production of consumer
goods, safe in the knowledge that products could be transported to market via
railways. The creation of the railways stimulated the growth of new towns and
cities to which populations displaced from the land relocated, providing ready
markets. The later industrial revolution was marked by a change in energy
with a shift from coal and steam to electricity, oil and petrol. This resulted
in new context development activity with the building of highways, airports,
and the rapid expansion of seaports as international trade expanded. Service
industries sprang up to support the growing social and industrial infrastruc-
ture. New forms of intangible products began to emerge such as financial
services, insurance, travel and healthcare. Intermediation flourished as afflu-
ence increased. People began to need a host of different services such as after
sales support, insurance services, financial advice, etc. As the service sector
expanded and technology advanced, so different occupational groups that had
previously prospered, disappeared or to use Parolini’s expression “demateri-
alised.” A similar phenomenon became manifest with the arrival of the first
information revolution. Mainframe computers resulted first in the creation of
data processing centres and then in their dematerialisation, as first minicom-
puters and then desktop computing became the norm. Support activities grew
in importance as more and more data services proliferated generating new
intangible resources about customers, markets and consumer behaviour.
A data processing centre

These took the form of highly specialised knowledge that could be con-
verted into the intellectual property of various kinds including patents, cop-
yright, trademarks, design rights, database rights and so forth. Companies
could move from start-ups to multi-million-dollar, multinational enterprises
in less than a decade.
Whole industries that had previously been perceived as stable and secure
suddenly became vulnerable. Many disappeared. Industry boundaries
became increasingly blurred. The Swiss watch industry collapsed almost
overnight. Banks that had previously regarded supermarkets as customers
now found them to be competitors. To compete, Banks had to embrace
a new business model. Branch banking gave way to a retail model hawk-
ing a range of financial services and products. Mainframe computer man-
ufacturers found their markets had imploded following the development of
micro-computers. The armies of data input personnel dematerialised. Film
gave way to digital technology; film processing laboratories experienced
the same fate. At its height in the 1980s, Kodak, for example, employed
145,000 people world-wide and had an annual turnover of $12 billion. In
2012, the company filed for Chapter 11 and dematerialised. The brand
was later resurrected. The music industry went into convulsion along with
publishing. Insurance brokers and travel agencies “dematerialised.” A rev-
olution in e-ticketing combined with deregulation in many parts of the
world resulted in national airlines coming under extreme pressure from new
low-cost interlopers. A new games industry, along with the emergence of
social media, began to challenge television for supremacy in living rooms
across the world. Newspaper circulation declined dramatically as advertising
migrated to the internet and to competitors like Google and Facebook. New
medical technologies extended life expectancy putting pressure on pension
providers already wracked with problems arising from the financial crash of
2008. In short, market power was no longer the silver bullet that guaran-
teed organisational longevity. Established markets once seen as secure could
disappear almost overnight. No company was immune. The key constraint
on success in this new world was an organisation’s capacity to harness and
leverage the latent creativity and innovation embedded in the human capital
base of the business. A good SHRM system came to be seen as a strategic
asset. As Becker and Gerhart argued,
a properly developed HR system is an “invisible asset” that creates value when it

is so embedded in the operational systems of an organisation that it enhances the
firm’s capabilities.
Becker and Gerhart, 1996
It no longer mattered whether the business was focused on cost leadership or

a differentiation advantage, innovation in product, system and process, either
individually or in combination, now provided the foundations for success.

Organisational configuration and orientation to the labour market became a
critical consideration in terms of how inimitability could be created?
The challenges of organisational configuration

Organisations aspire to dominate their markets in a bid to achieve security
and longevity. To do so, many pursue a strategy of growth through acquisi-
tion. In the early part of the twentieth-century companies like Ford sought to
secure their future through vertical integration. This enabled them to inter-
nalise revenue streams that would otherwise accrue to suppliers in the form
of profits. Later, organisations engaged in horizontal integration whereby they
assimilated direct competitors. The elimination of competition allowed them to
build monopolistic positions and dominate industries. In the third quarter of the
twentieth century, the conglomerate form began to emerge. Companies operat-
ing in a range of different markets tried to hedge their bets. The quality revolu-
tion, however, put an end to that. Focus became the order of the day. Corporate
agility was the new requirement. The conglomerate came to be perceived as too
complex and unwieldy. The impact of the third wave (Hope and Hope, 1997)
was a period of very rapid technological advance in the latter part of the twenti-
eth century and the first decade of the twenty-first century. It prompted differ-
ent forms of diversification with a focus on agility. Companies still engaged in
horizontal diversification to the extent that antitrust regulators would permit;
however, they also sought out companies with cultures at variance with their
own to capitalise on the target’s perceived creativity or to acquire access to new
technologies or IP portfolios that complemented or extended their own. Many
acquisitions were perceived as failures. Differences of culture came to be viewed
as a primary cause of problems. Cultural differences were frequently blamed for
the high failure rate in both domestic and cross-border deals (Buono et al., 1985;
Buono et al.,1989; Cartwright and Cooper, 1992, 1993; Chatterjee et al., 1992;
Datta, 1991; David and Singh, 1994; Morosini, 1998; Morosini and Singh, 1994;
Nahavandi and Malekzadeh, 1988).
Why do firms evolve different cultures and what are

the implications for mergers and acquisitions?
Clearly, this is a complex question. Culture is paradoxical. Like personality
in the individual, culture is an enduring trait that, once established, becomes
resistant to change on the one hand whilst, on the other, it is constantly evolv-
ing and adapting. Culture is embedded and reinforced by HR systems. It was
obvious to HR scholars that not all employees were of equal strategic value. In
1995, Atkinson sketched out his model of the flexible firm. The model drew
attention to the existence of an inner core of highly prized employees and an
outer core of valued workers with important operating knowledge and a periph-
ery that included part-time employees, short-term contract workers, job shares,
placements and interns. Lepak and Snell (1999) drew upon the RBV of the
firm, human capital theory and transaction cost economics to develop a theory
of human resource architecture. Their thinking was refined and developed the
following year by Bamberger and Meshoulam (2000). The latter argued that
organisations choose either to develop an internal labour market or to rely pri-
marily upon the external labour market. They also asserted that organisations
face a choice in how they choose to manage a workforce. They can set objectives
and encourage and support employees in their pursuit of organisational goals or
opt for tight supervision and control. They described the former as an outcome
orientation to the organisation of work and the latter as a process orientation.
This produced four strategic archetypes. Their model is illustrated in Figure 5.2.
FIGURE 5.2 HRM Archetypes (Bamberger and Meshoulam, 2000)
Employees with high skills involved in knowledge creation or its manage-

ment enjoy good conditions of employment. They are paid well and receive
regular opportunities for personal development in return for high commit-
ment. Free agents are also paid well for their skills, often receiving premium
rates designed to offset their lack of employment security. They are typically
brought in to address complex short-term problems for which their skill set
is especially suited. Those who are treated paternalistically receive reasonable
pay and reward because they possess a lot of tacit knowledge of the way in
which the organisation functions. Whilst they are not difficult to replace,
their departure causes disruption and inconvenience. They can look forward
to some progression and updating of their skills when required. Secondary
labour is typically not highly valued. Educational attainment is, on average,
low, and conditions of employment are typically the least favourable in terms
of reward, security, and progression.
Bamberger and Meshoulam defined an archetype as the dominant orien-
tation under which most employees work. Atkinson’s model, see Figure 5.3
when superimposed upon a dominant archetype provides an illuminating
insight into the complex nature of HR architecture.
FIGURE 5.3 The flexible firm
Culture has been defined as “the way we do things around here” (Schein,
1990, 2011; Van Maanen, 1979). Clearly, the way things are done is determined
by the extent to which managers either direct and supervise or facilitate and
support their people. Similarly, employee motivation and engagement will be
influenced by the nature of the work that is required to be done and the condi-
tions under which tasks are undertaken. Security, prospects for promotion and
personal development all play a part in shaping the employment relationship
between employers and employees and between different employee groups. In
short, HR policies and practises are critical in determining how organisational
culture evolves over time.
A second powerful influence is the leadership style of the top executives.

Collins and Porras (2005) asserted that the personality of the founder can be
etched into the culture of the organisation resulting in an enduring influence
that can extend well beyond his or her lifetime. They argued that truly vision-
ary companies are endowed with a cultural legacy that enables them to recreate
themselves when environmental conditions demand change. Visionary leaders
impose their values upon their organisations. This is achieved both through their
personalities and their values. The latter become infused in the culture and the
HR systems that they create. This is a key point. It is not the HR function that
creates HR systems, it is top management. The HR function will exert influ-
ence, but ultimately, it is top management that determines how an organisation
is structured, how people are rewarded, what they are rewarded for and whether
talent is developed from within. If senior executives lack the understanding
to create HR systems that are fit for purpose, both organisational culture and
performance will be compromised. Stressed middle and junior managers and
unhappy under-productive employees are the results. Unfortunately, creating
HR systems that are fit for purpose is very challenging. Indeed, it will be argued
that there are times of transition when it is difficult, if not impossible, to get it
right. Moreover, these periods of change and instability are increasing in fre-
quency. Why? The answer is system dynamics in both industries and the organ-
isations. It is the interaction between the two that creates the context.
Summation
In the early part of this chapter, the impact of the third wave was explained.
It rendered all organisations vulnerable to rapid technological innovation, not
only in terms of products but also in terms of processes and practises. Despite
this, even today, when teaching senior managers, I am often surprised how
few can articulate their organisation’s innovation strategy. Most have a clear
appreciation of the business strategy but frequently find it difficult to see the
links between business and innovation strategy. Ironically, every organisation
has an innovation strategy or approach, regardless of whether it functions in
the private, the public or the third sector. Given this gap in understanding, it
is initially not possible for them to recognise the relationships between inno-
vation, culture, and SHRM. It is to this issue that we turn next.
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6
SHRM AND THE MANAGEMENT
OF INNOVATION
Overview
It has been argued that HR policies and practises shape culture. An organisa-
tion’s culture can either drive or constrain the success of organisational strat-
egy. This chapter will argue that it is innovation that shapes organisational
approaches to the management of people and that innovation results in shifts
in strategy that demand changes in HR policies and practises. Innovation can
also determine how organisational structure evolves Miles and Snow (1978),
Teece (1996). This chapter will explore these relationships and will focus on
one innovation, the blockchain and its implications for the future.
Freeman (2013) identified six innovation strategies, offensive, defensive,
fast follower, dependent, opportunist and traditional.
Offensive innovators seek to be the first to market with a new product
concept. Success delivers the first mover and learning curve advantages.
Success usually depends on high expenditure on R&D. Defensive innovators
are of two types. The first are failed offensive innovators who are forced to
adopt a defensive posture because of the success of a competitor and the need
to recoup expenditure on R&D. The second are companies that are forced
into a defensive response resulting from an offensive innovator stealing mar-
ket share.
Fast followers seek to minimise R&D spend by building competence
in rapid reverse engineering. In other words, they seek to learn from the
sometimes-costly mistakes made by offensive players. Their objective is
to minimise any learning curve advantage accruing to the first to market
innovator.
DOI: 10.4324/9781315630557-7
SHRM and the Management of Innovation 87
Dependent innovators are typically companies that are backed down the
supply chain. When the company controlling or heading the supply chain
seeks an improvement in a product or service it requires as an input, it will
specify its new requirement and often incentivise the supply chain by prom-
ising that future orders will accrue to the supplier that delivers the best solu-
tion to the problem. Most public service organisations are represented in
this category. Government policy changes and with the changes in policy,
new demands are made on the service that requires providers of the service
to adapt and innovate. Governments often seek to test the efficacy of a new
policy conception. This requires injections of funds into pilot projects that
are expected to blaze a new trail. Fast followers then learn from the leaders
whilst the laggards trail behind. Amongst service providers, there is always
a small number that is adept at bidding to secure pilot work. These are the
public service equivalents of offensive innovators. They accrue significant
budgets to pilot projects and benefit from learning curve advantage when the
project is rolled out on a large scale. The remainder are defensive innovators.
They introduce changes to structure, systems and processes in response to
government fiat or simply to survive. This is a key reason why change can
be so difficult in public service contexts. There is a lack of any sense of own-
ership other than in those agencies that undertook the pilot work for which
they gained reward.
Opportunist innovators are, as the name suggests, companies that are adept
at recognising an opportunity that matches their skill set and exploiting it.
Traditionalists make a virtue out of emphasising the traditional and exclusive
qualities of their product or service. As such, they rarely innovate in respect
of their offer. They are, however, very adept at innovating in their marketing.
They excel at customer relationship management. Morgan Cars, for example,
the only remaining British-owned motor car manufacturer, was still build-
ing its cars on blocks until the year 2000. It introduced its first assembly line
almost 90 years after Henry Ford, a characteristic that Morgan shared with
Rolls Royce. Traditionalist innovators can be found in food preparation and
in-service provision as well as manufacturing.
It is easy to see how innovation strategy couples with different forms of
business strategy to create various permutations. Fast followers, for example,
often adopt a cost leadership or cost focus strategy that enables them to erode
the advantage of the offensive innovator. Defensive innovators seek to focus,
adopting either a broad or narrow differentiation strategy. Offensive inno-
vators may well strive for market dominance through broad differentiation
or broad cost leadership. These alternative strategies influence decisions in
respect of organisational structure, leadership style and HR policies in respect
to recruitment, reward, employee development and diversity management.
Different pools of intellectual and social capital result. In combination, these
determine the quality of the human capital base of the organisation. Outputs
in terms of organisational performance vary according to the nature of the
inputs. Figure 6.1 illustrates these relationships.
FIGURE 6.1 The strategy performance nexus
Skill in diversity management becomes an important consideration in com-

panies that are seeking an innovation advantage. Diversity can be a source of
tension and conflict that can result in the erosion of social capital. Advocates of
social identity theory like Ely and Thomas (2001), Ibarra (1993), Kanter (1997)
and Tajfel (1982) have rightly argued that diversity can impact cohesiveness
and solidarity, reduce communication and generate in-groups and out-groups.
This results in discord, distrust, poor quality and a lack of customer focus
and market orientation. Effective diversity management, in contrast, can be
a critical source of creativity and innovation when managed well (Bassett-
Jones, 2005; Cox and Blake, 1991; Iles and Hayers, 1997; Richard and Shelor,
2002). Creativity and innovation emanate from conflict and creative tension
that results in original insight and understanding. The interplay of different
perceptions of what a problem might be and its causation under good manage-
ment practises results in the generation of a richer understanding of the issues
underpinning a problem and the generation of a wider range of options in
delivering a solution. Disruptive innovation, as later chapters will show, will
become a critical source of competitive advantage as we advance further into
the twenty-first century. HR systems shape both human and social capital.
Trust is the vital mediating variable. Successful diversity management that sus-
tains creative tension whilst promoting trust results in the creation of intellec-
tual capital from which distinctive competence and capability are generated.
These relationships are illustrated in Figure 6.2.
FIGURE 6.2 I ntellectual capital from which distinctive competence and capability
are generated
National innovation systems

In recent decades as systems theory has matured, governments have embraced
the concept of a national innovation system with a view to actively accelerat-
ing technological advance and coevolution by bridging the gap between basic
and applied science.
National governments elicit tax revenues from households and companies.
A proportion of this revenue is divided into three tranches. A proportion of
this revenue is then passed to the basic science system in the form of grants to
specialist government agencies and funding bodies. A smaller quantum is also
funnelled into the applied science base. The flows of funds are highlighted in
Figure 6.3.
FIGURE 6.3 A national innovation eco-system
The basic science base consists largely of universities, not for profit organ-
isations and specialist government agencies with responsibility for domains
such as health, defence and space. These agencies receive funding from the
government to undertake research either directly or by partnering with uni-
versities and awarding contracts. The funding bodies and not for profit organ-
isations provide funds for leading edge science, where there is little prospect
of any immediate pay off.
Eventually, basic science is converted into applied science through govern-
ment sponsored knowledge transfer initiatives that result in the commerciali-
sation of new technologies and products. Universities also contribute directly
to the applied science base by contracting with private companies to help
refine existing technologies and discover new applications that can open new
markets that contribute to economic growth. Universities can also spin out
new companies and provide the talent that gives rise to the birth of new com-
panies and new industries.
In short, governments have sought to develop an innovation supra system at the
highest level of recursion in the national economy. By sponsoring the creation of
science parks, localised subsystems of innovation can be stimulated, by encourag-
ing spill over effect. Employees with advanced technical skills forge their careers
in these nurseries. In doing so, they facilitate the process of knowledge transfer and
network building when they move from one organisation to another.
Industry and company lifecycles and their consequences

Industries, organisations, products and services all have life cycles. Some last
for hundreds of years, examples include coal and cement. Others are short
lived and transitory. Female fashion and popular music are cases in point. The
industry cycle is typically depicted as consisting of six stages: introduction,
take off, growth, maturity, consolidation and decline. See Figure 6.4.
FIGURE 6.4 Patterns of innovation in industry lifecycles
During phases 1–2, companies seek to deliver radical innovations that ena-
ble them to create the industry standard. During the period 2–3, new entrants
rush in to capitalise on the industry standard and reverse engineer the market
leader’s advantage. During phases 3–4, companies seek to maximise market
share as quickly as possible and diversify to build up portfolios of products.
Eventually, they pursue a strategy of growth through acquisition, building
portfolios of companies, each of which may be at a different stage in the cycle
of growth. The Boston Consulting Group (BCG) developed its BCG Matrix
as a means of classifying different products within a portfolio. It classified both
products and companies into four categories, question marks, rising stars, cash
cows and dogs. This pattern of systemic development has complex recursive
features. Mature industries typically recognise when further rapid growth in

the market is unlikely. At this point, companies seek to acquire competitors to
remove competition and increase market share. Weaker companies are either
acquired or they are forced to niche to survive. At the end of the mature phase,
a company must either deliver a radical innovation that resets the clock back to
zero for the whole industry or risk going into terminal decline in the face of
a radical innovation imposed by a competitor or an interloper on the margins
of the industry. The key point to recognise, therefore, when considering the
life cycle is that like marketing strategy, HR strategy must change to accom-
modate each newly emergent scenario. These transitions pose immense chal-
lenges because of the nature of the complexity involved and the challenge of
achieving internal alignment between the different HR subsystems.
The HR challenges of strategic alignment

caused by organic growth
There is a long history of theorising about organisational growth. Greiner
(1998) argued that as organisations grow, they pass through a series of transi-
tions that constitute crises. Figure 6.5 shows the company growth curve and
the typical changes in HR strategy and focus.
FIGURE 6.5 An organisational life cycle from birth to demise

If the crises are managed well, an organisation will pass into a new phase
of development. Researchers quickly embraced these insights. Perhaps unsur-
prisingly, there has been a lack of consensus as to the number of stages through
which organisations pass. Smith et al. (1985) proposed a three-stage model.
Baird and Meshoulam (1988) postulated five stages of development, whilst
Galbraith (1982), Greiner (1998), Miller and Friesen (1984), Scott and Bruce
(1987) and Flamholtz and Hua (2002) made a case for seven. At the extreme,
Adizes (1979) offered a ten-stage model. What all the theories and models have
in common is a shared perception that growth organisations experience major
transitions, each of which results in a need to reconfigure both structures and
systems.
Structural and systemic changes trigger changes in culture during which
both managers and employees encounter dissonance and discomfort. In
Structural Inertia Theory, Hannan and Freeman (1984) teach us that each
change results in the selection and refinement of processes and practises that
become deeply ingrained. It is for this reason that long-lived organisations
coming to the end of the maturity phase find it so difficult to adapt even when
they know that their future depends upon it. The case of Kodak’s inability to
adapt, even though it was the first to market innovator with the digital camera
and clearly recognised the threat digital technology posed to its established
business, exemplifies the problem.
How and why do HR policies and practises

become misaligned?
Many HR researchers have argued that a company must achieve a vertical
alignment between its business strategy and its HR strategy. It is also nec-
essary to ensure horizontal alignment between each of the HR subsystems
(Delery, 1998; Delery and Doty, 1996; Green et al., 2006; Juul Andersen and
Minbaeva, 2013; Naznin and Hussain, 2016; Way and Johnson, 2005). The
recruitment, reward, performance management and training and develop-
ment systems must all be aligned with one another. A start-up company in
what has yet to become a sunrise industry operates in an environment of
creative anarchy. A good example that illustrates the point is the emergence
of Microsoft as a start-up business. It came to dominate much of the personal
computer industry. Prior to IBM’s request that Microsoft should provide it
with a disc operating system (DOS), no single company was large enough to
impose an industry standard. IBM had recognised belatedly that the PC, not
the mainframe or mini-computer markets in which it was dominant, was the
future. As a late entrant, it rushed to enter the market and asked Microsoft to
design its DOS. Prior to IBM’s entry, there were a host of start-up ventures
all vying for supremacy. Apricot, Acorn, Sinclair, etc., each had their own
operating systems. IBM’s entry signalled that DOS would be the industry
standard. Sadly, for IBM, however, it failed to ensure it had full ownership
and control of the intellectual property it had commissioned. Microsoft seized
the opportunity to sell DOS to a myriad of fast followers. The era of creative
anarchy was over. It was not long after that, IBM lost its dominant position
because of the intense competition generated by fast followers. The demand
for creative “whiz kids” with unique takes on the future of micro computing
had ended. Standardisation was the new norm. Recruitment policies had to
change to accommodate the new reality, so did reward and, of course, training
and development.
Figure 6.6 illustrates the pattern of transitions and their impact on HR
policy, processes, and practice.
FIGURE 6.6 Change of HR policy and practice over an industry life cycle
What the figure above helps to highlight is that in any industry, there will
be companies competing to be the broad cost leader, and there will also be
companies competing to differentiate themselves, especially when the period
of rapid industry growth ends and companies begin to compete on quality.
Quality is relative perceived value in the eye of the customer. A cost leader,
therefore, seeks to drive cost down through standardisation and consistency
of high-volume production. Innovations in product and process, when they
occur, are typically initiated by management. This emphasis will be reflected
in its approach to the design of its recruitment, pay and reward systems.
Recruits with a high tolerance for repetition and standardisation are likely
to be sought. Pay reward is likely to be industry competitive but determined
by the market. A premium-end differentiator, in contrast, recruits personnel
with higher educational attainment, invests more in training and emphasises
continuous incremental innovation in product and process and the importance
of listening to customers both internally and externally. Such a company will
incorporate this emphasis into its pay, reward, performance management and
personal development systems. It will do this by paying above market rates,
investing in training and development and incentivising innovation.
Creating and destroying value

At a higher level of recursion, the two companies referred to above may be
acquired at the maturation phase of the industry life cycle. The new parent
company could own a large portfolio of businesses that are at various stages
in different but related industry life cycles. Typically, HR policy and practice
would be best devolved to each of the business units. This ensures that the
SBU retains important features of its culture that can then evolve as the busi-
ness grows. Unfortunately, this does not always happen. In the worst case,
HQ might be more concerned with retaining control and forging a corporate
culture than letting individual SBUs maintain their own. When this hap-
pens, the parent company often succeeds in destroying value, especially if the
acquired business is endowed with expert knowledge the acquirer wants to
retain. Managers and employees experience high stress. Staff turnover rises,
valuable technical and tacit knowledge is lost because the parent has lost sight
of the law of requisite variety. As we have seen, this principle demands that
responsibility for decision-making should always be devolved to the low-
est level competent to address the issue. The presumption is that those that
are closest to the customer, or the problem, are usually best equipped to
make decisions to address the problem or respond to customer’s needs. This
applies not only to the final customer but also to the internal value chain.
Acquisitions and mergers are usually generated because of environmental
change and a desire to internalise transaction costs. In the future, there is one
innovation that will render acquisition decisions a lot more challenging and
that is the blockchain.
Blockchain a disruptive innovation with the potential to

deliver dramatic social and economic consequences
The implications of blockchain technology as an engine that will create and
destroy value must not be underestimated. Its implications as a disruptive
technology are huge. It is already having a profound impact on banking and
finance. We are already witnessing the “defi phenomenon” (decentralised
finance) that is disrupting financial services across the world; however, its dis-
ruptive potential extends much further and is likely to have an impact com-
mensurate with Arkwright’s spinning jenny that triggered the Luddite revolts
in England in 1840s.
The term blockchain is derived from the idea that a transaction can be
recorded and time stamped. Exchanges are recorded in blocks and the blocks
create chains of data that represent an immutable record of each transaction.
The record solves the problem of potential double counting. The internet
affords the opportunity for individuals to exchange and copy digital records
and images. The problem is that it renders the possibility of an individual being
able to enter more than one transaction using the same units of currency. To
prevent this, the world has needed trusted intermediaries who could verify
that they held the necessary funds to support the transaction. The seller could
then release the asset, whereupon the intermediary would pass on the funds
in exchange for a fee. Immutability in the case of a blockchain is achieved
through the creation of a globally distributed network of computers, each of
which records and verifies each transaction. Currently, there are two formats
that deliver verification, proof of work and proof of stake. The former is older
and provides verification by requiring miners to solve a cryptographic puzzle
(work). Success requires energy and computer time, for which the successful
miner receives a reward in the form of bitcoin ether or some other proof of
work coin. The problem with this model is that it is extremely energy inten-
sive, somewhat slow, and therefore, presents a challenge when it comes to scal-
ing, not to mention the environment. Bitcoin was the founding model of the
proof of work approach followed by Etherium. The latter, however, is moving
to a proof of stake approach.
More recently, proof of stake has been developed along with other con-
sensus algorithms because they can accelerate the pace of verification, thereby
enhancing scaling whilst also significantly reducing the demand for energy.
Proof of stake is predicated on the belief that the key stakeholders, (those with
the largest stake) have a vested interest in preserving the integrity and the
value of their stake and the algorithm is designed to achieve this.
Blockchain technology delivers multiple benefits, apart from eliminating
the significant costs associated with disintermediation. (Think of the costs of
travelling abroad on holiday and exchanging currency.) Proponents argue that
it heralds the end of Web I and the birth of Web II because it delivers distrib-
uted power. This ensures that no one party can prevail and advance its wishes
and interests at the expense of other stakeholders. This is achieved because
there is no single point of control. It also offers security. Each transaction
record has a public key and a private key. The public key renders the trans-
action public, but the identity of the holder of the private key is anonymous.
This simultaneously delivers privacy and overcome many of the challenges
of cyber fraud, ransomware, identity theft, phishing, hacking and malware
distribution by making it either impossible or a lot more challenging to estab-

lish the identity of a target.
The implications arising from the development of blockchain will revo-
lutionise banking, supply chain management, international trade, the travel
industry, healthcare, the automotive sector, defence, manufacturing, leisure
and tourism, agriculture and farming, real estate and many other domains of
economic activity. It will also undermine the status and influence of several
professions. The consequences will be immensely far reaching and painful
and, once again, herald the arrival of new waves of organisational change.
This is the focus of the next chapter. I shall return to this theme again and
consider it in more depth in Chapters 12 and 13.
Summation
Culture both drives and constrains strategy. This chapter identified different
approaches to innovation strategy. It identified six types of approaches. It was
argued that both industries and organisations, like people, have lifecycles. HR
strategy must adapt to each phase of the life cycle. Misalignment with business
strategy and between different HR subsystems is an inevitable consequence of
innovation and change.
As people age, they must make physical and psychological adjustments. In
the case of organisations cultural adjustment is called for. New HR policies
must drive the change. Transition is painful. The longer it takes for realign-
ment to occur, the more protracted the pain will be, and the more likely that
failure will ensue. To what extent are HR departments geared up to anticipate
and plan for the impact of blockchain technology and the arrival of smart con-
tracts? This is an important question.
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7
SHRM AND THE MANAGEMENT
OF CHANGE
Overview
The consequence of change is increased tensions between managers and
between managers and employees. Staff turnover increases. There is a loss of
tacit knowledge. This may result in declining performance and a loss of impe-
tus, especially if senior managerial resolve is perceived to falter. Even organi-
sations with excellent HR functions and systems experience acute stress when
businesses are being merged because it takes time to reconfigure HR subsys-
tems in such a way as to restore vertical alignment with business strategy and
horizontal alignment between different HR subsystems. Experienced change
agents recognise the critical role adjustments to the pay and reward systems
play in communicating not just the need for change but also the imperative to
embrace it. Staff turnover not only results in the loss of tacit knowledge but
also affords an opportunity to recruit personnel with expertise that may offer
a closer alignment with the new business goals. Clarity about the nature of
the new roles required and the associated skill sets are essential preconditions
for success. New recruits not only bring new skills, but they also bring atti-
tudes. If their attitudes are inconsistent with the new cultural requirements,
the pain of transition may be needlessly extended. The challenge is not simply
to recruit the right skills, it is also vital to recruit people with attitudes that are
compatible with the culture management is aspiring to create.
At its most basic level, an attitude can be defined as a predisposition to
respond to given stimuli. Employees who have become accustomed to work-
ing in a particular way, in accordance with established procedures, may sud-
denly find that attitudes that were previously rewarded are no longer valued or
indeed encouraged. Their disorientation can be heightened further by struc-
tural changes that result in the breakup of long-established networks and the
DOI: 10.4324/9781315630557-8
arrival of new colleagues whose outlook, values, skills, and experience are
at variance with norms, routines, and rituals to which long-served staff are
accustomed. This can plunge them into the trough of despond depicted in
change curve theory (Adams et al., 1976; Parker and Lewis, 1981).
Training involves substituting inappropriate responses with appropriate
responses. Trainers may first have to unlearn what they previously taught and
embrace new ideas and principles with which they are not familiar. Unless
they do so, they will be unable to provide the necessary instruction and guid-
ance to equip existing staff with the new skill sets required and induct new
staff so that they embrace the new culture and vision.
Systemic misalignment
At different stages in the journey of transition, the HR subsystems will become
both vertically and horizontally misaligned, resulting in confused signals and
misleading feedback. Earlier in this chapter, reference was made to the transition
from Ford’s push-system of mass production to the Japanese led pull-system of
made-to-order mass production. It is easy to imagine the stress that managers
and supervisors must have experienced when they were required to abandon
buffer inventories. Under the old system, if production was halted because of a
lack of components, individuals were held to account. Under the new system,
surplus inventory was deemed a sin and positively discouraged. A new mantra
involving the elimination of waste (Muda), overburden (Muri) and unevenness
(Mura) came to dominate working life. Similarly, in Chapter 3, the transition
from branch to retail banking was described. Under the old branch banking
system, branch managers were entrusted with significant authority to make
lending decisions. They were highly paid and were required to know their cus-
tomers well. Under the emergent retail model, managers became “sales manag-
ers” required to coordinate the efforts of staff in selling a wide range of financial
products and services. Authority and discretion to make lending decisions were
dramatically reduced. Algorithms replaced judgments formerly made by branch
managers in determining whether a customer represented a good or bad risk
when advancing a loan. Career ladders evaporated. Manager’s salaries were cut
accordingly. Older managers were retired, and younger managers were either
promoted to head office or made redundant. Reward systems changed to rein-
force the new sales culture. Staff had to either retrain and embrace the new sales
ethos or move on. New organisational dynamics were unleashed.
The challenges of achieving cultural

alignment in mergers and acquisitions
So far, we have considered the dynamics of organic growth. We have seen
that organisations co-evolve in an industry environment. They adopt various
business strategies that result in different orientations to the labour market and
SHRM and the Management of Change 101
alternative approaches to managing employees, depending upon whether they

are part of the operating core or function in more peripheral roles. It has also
been argued that vertical and horizontal misalignments in HR subsystems
are inevitable as organisations grow. The reality, however, for many Western
companies is that growth is achieved through acquisition. The rate of acquisi-
tion increases as an industry matures and becomes more concentrated, and we
have seen how the process of concentration leads to two possible outcomes:
bounded instability and chaos, or sustained stability so long as the oligopolistic
players remain good competitors (Porter and Advantage, 1985).
There is substantial literature on mergers and acquisitions from both the
strategy and the SHRM perspective. Both streams highlight the fact that the
full integration agenda presented to shareholders as a pretext for acquisition is
frequently not achieved. Indeed, many acquisitions and mergers are deemed to
have failed either because the acquirer paid too much, or the anticipated syner-
gies were not realised. Success in many cases, like beauty, therefore, is relative
and sits in the eye of the beholder. Thus, we see that whilst the shareholders
in an acquired business tend to benefit, often the same does not apply to the
acquirer Sudarsanam and Mahate (2006).
Whilst acquiring companies will commit substantial resources to financial
due diligence and the search for marketing and product complementarities and
synergies, the same cannot be said when it comes to HR due diligence. As
Teerikangas and Very (2006) have argued, the integration strategy that is cho-
sen by the acquirer will mediate the culture performance relationship. This is
especially important in hostile takeover scenarios.
Without leadership from its top manager, a company that is being bought can all
too often feel like a defeated army in an occupied land and will wage guerrilla
warfare against a deal.
Economist July 20, 2000
Thus, we find examples of high-tech acquisitions that have resulted in empty

shell businesses because key elements in the human asset base have exited
(Bannert and Tschirky, 2004; Krug, 2009). This can be disastrous in those
contexts where a key objective of the acquisition is knowledge transfer.
Strategic failures arising from cultural misalignment

and changes in the psychological contract
There is a rich vein of literature addressing strategic failure arising from cul-
tural misalignment in the context of mergers and acquisitions. Examples
abound from all over the world. Mirc (2014) undertook a substantial review of
the literature on the human aspects of merger failure. She cited no fewer than
92 articles published in top journals on the topic since 1990. Of these, 36 dealt
with cultural differences and 35 addressed the management of the integration

process. She went on to explain the challenges such studies pose because of
the protracted nature of the merger process and the difficulty of the longi-
tudinal nature of any research effort seeking to evaluate success and failure.
Nevertheless, certain common themes emerge, one of which is the changing
nature of the psychological contract and the impact that it has on employee
willingness to remain.
Rousseau (1989) distinguished between the formal written contract of
employment that identifies the contractual basis of the relationship in a sum-
marised form and the psychological contract, which she defined as a set of
shared beliefs, perceptions and informal obligations between an employer and
an employee. It encapsulates the nature of the relationship and the practical basis
for understanding how work is done and what each can expect of the other.
The concept is not without its critics, not least because it is very difficult to
pin down. One of the problems is identifying who the other party is in terms
of the employer. Is it the organisation as an abstraction, is it top management
or is it an individual’s line manager?
The term psychological contract seems to imply that a mutual understanding
somehow exists. It may be between two people, an employee and a group of
people or a group of employees and a group of managers. Commenting on the
concept, Guest (1998) asserted that the psychological contract is an analytical
nightmare. He rightly argued that it defied precise explanation putting it on a
par with constructs like flexibility, job satisfaction and commitment. Sparrow
(1996) demurred, arguing that the psychological contract stands alongside other
organisational frames of analysis such as culture, climate, and competencies that,
in times of change, capture and help explain complex phenomena. He went on
to cite the work of Herriot et al. (1997). Herriot’s research examined the per-
ceived obligations of a matched set of 184 managers and 184 employees working
in the UK. He found that managers had 6 and employees 12 constructs that
captured the essence of common perceptions shared by the two groups.
Managers expect employees to:
• Work contracted hours.

• Do a quality piece of work.
• Be flexible and go beyond the job description.
• Deal honestly with customers.
• Be loyal and guard the organisation’s reputation.
• Treat organisational property with care.
Employees looked to the employer to:
1. Ensure fairness in the selection, appraisal, promotion and redundancy

procedures.
2. Provide justice, fairness and consistency in the application of rules and

disciplinary procedures.
3. Provide equitable pay in relation to market values across the organisation.
4. Be fair in the allocation of benefits.
5. Consult and communicate on matters affecting them.
6. Provide adequate induction and training.
7. Allow time off to meet personal and family needs.
8. Interfere minimally with employees in terms of how they do the job.
9. Act in a personally supportive way.
10. Recognise and reward personal special contribution and long service.
11. Provide a safe and congenial environment.
12. Provide what security they can.
What is clear is that the first seven items of employee expectation relate to
HR systems and procedures and are concerned with fairness and equity. The
remaining five fall primarily on the shoulders of the line manager.
This prompted Bassett-Jones and Cornelius (2002) to offer a refined
working definition of the psychological contract. We argued that it is a set
of interlocking responsibilities operating at two levels that result in a per-
ception of what constitutes a “fair deal.” Drawing upon Herzberg’s notion
of hygiene and motivating factors, we observed that HR systems provide a
framework of hygiene factors. Herzberg argued that these do not motivate
but serve as powerful demotivators if they are perceived to be in some way
inconsistent or unfair. Line manager actions and behaviours and the behav-
iour of colleagues, in contrast, are the motivators. They play an important
part in determining the nature of the psychological contract in play at the
moment in time.
Rousseau and Wade-Benzoni (1994) developed a typology of psychological
contracts. They identified four different types of contracts, depending upon
whether the employment relationship was perceived by the parties to be short
term or open ended. They identified a second dimension that they defined as
specific or weak. These tie in neatly with Bamberger and Meshoulam’s four
strategic archetypes of HR strategy (see Figure 7.1).
Employers seek to develop high commitment in the operating core and
to achieve this, seek to create a relational psychological contract. Employees
benefit from an open-ended employment contract, enjoy good pay and reward
and other benefits and regular training and updating. Employees in the outer
core are also offered an open-ended contract, but unlike their high commit-
ment counterparts, they are less pressured to use their skill and judgement to
deliver results. These roles are circumscribed by rules and supervision that
results in a balanced psychological contract. The short-term contract workers
(free agents) with high skills brought in to use their expertise to solve short-
term problems typically develop a transactional psychological contract, whilst
FIGURE 7.1 typology of psychological contracts (adapted from Rousseau and

A
Wade-Benzoni, 1994)
secondary labour will develop either a transactional or a transitional position.

If labour relations are good, the contract is transactional; however, if trust
breaks down because of a perceived breach, then the contract becomes transi-
tional pending its subsequent repair or collapse.
So why is the psychological contract so important in the context of mergers
and takeovers? The answer is self-evident. In the case of a hostile takeover,
HR systems are often adapted to reflect the systems deployed by the acquiring
organisation. Rationalisation is a legitimate fear on the part of those in the
acquired business. It is often replicated by the acquirer. If the acquirer does not
have a clear post-merger integration (PMI) plan, then decisions get delayed.
The problem is that managers make the mistake of believing that no commu-
nication arising from a deferred decision is just that, a delay. Unfortunately,
in a system’s context this is not the case. Feedback is always present. Non-
communication is communication! Employees perceive silence as a lack
of interest and a lack of caring. Trust wavers, and their psychological contract
adjusts accordingly. It becomes transitional. To test this proposition, consider
the following scenario:
You have been working hard for an organisation for some time. You approach your
line manager requesting a pay rise. The manager listens carefully and agrees to
come back to you shortly with a response. 12 weeks pass and nothing is said. – Has
the manager communicated? The obvious answer is ‘No’. However, the silence
prompts you to look for an opportunity elsewhere and you are offered the role.
You resign, and your line manager reacts with consternation at the prospect of
your departure. A substantial raise is immediately offered; however, development
prospects are better at the new firm, and you really liked your new manager. You
decline the offer. Why did you start searching for an alternative role? Is it true
that the manager did not communicate or was there a message that your effort and
contribution was not especially valued?
What you did not know was that there was an emergent crisis in the depart-
ment in which you worked. The issues were highly confidential. Moreover, the
manager was coping with a personal domestic crisis.
Systems theory tells us that silence is feedback, but the message is ambiguous.
Faced with ambiguity, the receiver will construct an interpretation. The inter-
pretation can become the truth!
In the context of a merger, the problem is compounded further by the
despond that can afflict line managers who are no longer sure of the rules or
the limitations of their authority. If they are good managers, they will project
a brave face and offer what reassurance they can to those they lead. The prob-
lem is that employees know their managers are vulnerable and that any com-
mitment may or may not be honoured. Even if a merger is friendly and jobs
are assured, this does not assuage employee anxiety. Organisational change
is inevitable, otherwise, the merger would not have occurred. Structural
change is likely, extant networks and sources of influence may be lost. Areas of
responsibility are likely to be redefined or adjusted. Status and hierarchy may
change. The merger will inevitably result in some degree of cultural adjust-
ment for both sides. Faced with these uncertainties, marketable employees will
look around. If they see favourable prospects externally, they are likely to be
seized. The key to a successful merger or acquisition where the intention is to
preserve the human capital base, therefore, is a well-constructed PMI plan and
communications strategy. Whilst managers cannot control what happens; they
can prepare responses to different eventualities.
If jobs are not in jeopardy, then this should be stated and amplified through
repetition and the use of multiple channels early on. Changes to HR systems
need to be communicated clearly and unambiguously and the reason for any
changes must be explained along with the prospects that employees can expect.
Again, these messages must be amplified using many channels with constant
repetition. Line managers must be re-empowered as a matter of urgency. This
can only be done if the changes to the HR systems have been properly thought
through. Ambiguity can result in one of two outcomes. Either the manager
decides, in which case it needs to be honoured, or the manager defers pending
policy decisions from HR. If a manager decides in good faith and the decision
is then reversed because it does not conform to a belated HR policy decision,
the line manager’s authority and credibility are destroyed, and trust is broken.
If a decision is deferred, then rumour and suspicion will fill the gap, and those
that can leave will look for opportunities. Departures from the operating core
can be especially damaging because of the loss of both technical and tacit
knowledge leaving gaps in the internal network, along with the potential for
knowledge migration to a competitor.
During times of change, misalignments arise between different HR subsys-
tems. These misalignments give rise to perceptions of injustice. An individual
sense of injustice is likely to result in a personal adjustment to the psycholog-
ical contract. An employee’s sense of affective and continuity commitment
declines. If a sense of injustice afflicts an entire group, then a high commit-
ment or balanced psychological contract can become transitional, triggering
high employee turnover, reduced organisational performance and in a union-
ised context, a strike.
Set out below are two case studies of mergers. The first is an example of
success, the second illustrates failure. Both are examples of systems in convul-
sion. Each has been chosen having regard for Mirc’s (2014) observations on
the difficulty of evaluating success and failure using contingency and contex-
tual research methods. The high number of variables and longitudinal nature
of such studies normally renders any definitive correlation between develop-
ments and performance problematic. In these case examples, culture and PMI
strategy sit at the heart of success and failure in each case.
Two case examples from history
Case Study CEMEX RMC – A story of success
CEMEX was established in 1906. For the greater part of its existence, it oper-
ated as a local company serving the Mexican Market. Cement manufacture,
as an industry, has existed for thousands of years. The longevity of the indus-
try has ensured that it is conservative in nature. The product is widely seen as
a commodity. As a consequence, there is intense price competition.
In 1994, the US signed the North American Free Trade Agreement.
CEMEX’s CEO, Lorenzo Zambrano, and his team recognized the significance
of this development and the nature of the existential threat it posed for the
business. If the company was to survive the competitive threat posed by
larger rivals north of the border, who had ready access to investment capital,
CEMEX needed to grow and expand its operations well beyond Mexico. The
team set about imposing a radical new vision on the business. The vision was
that CEMEX would become a radical offensive innovator. To realise this aspi-
ration, the company embarked on a strategy of growth through acquisition.
Companies were targeted internationally that had a record of innovation

either in product or process that would complement their own distinctive
capability in lean production. Throughout the 1990s, the company grew
rapidly building an impressive international portfolio of businesses. In the
early 2000s, CEMEX began to acquire businesses specialising in ready mixed
concrete. This was a different segment to cement with different logistics and
supply chain characteristics. Like the Japanese Keiretsu, CEMEX developed
and refined a trading arm that was designed to provide some protection
from the cyclical nature of the construction industry for the emerging global
business. It began to diversify into service operations offering consulting
services on construction methods and environmental concerns to different
segments of the market. These services not only targeted construction com-
panies but also local authorities and governments.
In 2004, it acquired ready mix concrete (RMC), a large multinational
Footsie 100 British company with 2,200 business units operating across the
world. It was the largest acquisition in CEMEX’s history and provided it with
a substantial presence not only in the UK but also in Germany, Austria, Portu-
gal and Eastern Europe. RMC was a company with a mixed reputation. It had
become loss making and jobs and plants across the world were being cut or
sold off. It had a major factory situated near Rugby in the British Midlands.
The company was regarded as a mixed blessing by the local community and
by the employees, many of whom were not proud of the company for which
they worked. The plant was old and immensely ugly. It featured in a British
Channel 4 documentary on Britain’s ugliest buildings. The plant was also loss
making. The CEMEX team was sensitive to the local concern about the loss
of jobs and about the esteem in which the business was held. They recog-
nized the need to get both the City of London and the local community on
side. They set about turning the Rugby business around. To do this, CEMEX
made major investments. It displayed its credentials for environmental con-
cerns when it spent £6.5 million on a new air filtration system. By the end
of the first quarter post-acquisition, productivity and safety statistics had
improved and carbon emissions had declined. City investors were reassured,
the local community came on-side, and most importantly, the hearts and
minds of the local workforce were won over quickly. The same story was
replicated time and again in the various RMC subsidiaries across the world.
How was the transformation achieved?

The answer is both simple and complex. The simple answer is that CEMEX
had a clear vision and committed leadership. It had developed a distinctive
core competence in acquisition, and it was skilled in its use of c ommunication
to win hearts and minds. Behind this simple analysis lies a picture of greater
complexity.
First and foremost, CEMEX avoided the hubris that often accompanies
a successful acquisition. From the outset of the launch of its new strategy
in the 1990s, the company realised the value and importance of knowl-
edge acquisition. It had invested in the development of PMI teams who
were not only technically but also interpersonally skilled. They were not
just good active listeners; they were swift to implement action in response
to good ideas. The teams were culturally diverse. Team members came
from Brazil, Mexico, Hungary, Uruguay and Spain. They were given train-
ing in how to understand British culture. Commenting on the behaviour
of these teams, one former RMC manager is on public record as saying,
“They actually listen and seek your advice, and it doesn’t matter if it is
not necessarily what they want to hear. They are open to your ideas.”
In short, the PMIs specialised in listening and harvesting ideas. They did
not replace RMC managers, instead, they were swift to offer assurances
of job security and demonstrated a willingness to work alongside local
managers to facilitate a smooth integration. The company was also quick
to communicate that for those prepared to come on side, there was an
exciting future. In this CEMEX elicited the support of RMCs CEO David
Munro, who stated,
Being part of a powerful new group within the global heavy building
materials industry will offer great scope and opportunities to our staff.
The rhetoric was reinforced by action. To facilitate transition, old sys-

tems were initially run alongside new. RMC employees were schooled
in CEMEX ways. This involved substantial investment. Employees from
Rugby and other RMC subsidiaries were sent to operations in Mexico,
the US and Germany to build experience and insight into CEMEX meth-
odologies and ethics. Reward systems were changed to reflect the new
priorities.
The Rugby experience was replicated across the former RMC empire.
This was achieved because of CEMEXs multidisciplinary, multicultural PMIs.
These highly trained people could be parachuted into newly acquired SBUs
anywhere in the world.
There is a distinction to be drawn between a distinctive capability
and a core competence as defined by Hammel and Prahalad 1990. A
distinctive capability is difficult but not impossible for a competitor to
replicate, given both the time and the commitment. It is something
that a company is exceptionally good at doing. A core competence, in
contrast, is not replicable. Its creation demands a long-term vision. The

vision is translated into strategic architecture and infused into a culture.
It shapes priorities and informs decisions in such a way as to enable an
organisation to learn constantly from both success and failure. Setbacks
become opportunities for learning. Mission, purpose and a sense of
common endeavour facilitate long-term investments with an uncertain
timeline. Commitment to the vision does not waiver. It results in an
ability to keep going and keep learning, long past the time when other
organisations with lesser vision buckle under pressure from investors
to deliver short-term profits. Hamel and Prahalad observed that there
is a history of first to market US innovators ceding leadership to the
Japanese. They wanted to know why and why it was that the Japanese
companies were not only achieving market hegemony but doing so
on a lower R&D spend. They drew on the Japanese metaphor of a tree
to communicate the concept. They suggested that a core competence
forms the roots of the tree. The trunk is founded upon a combination of
strategic architecture and a culture that fosters a willingness to put the
long-term interests of the Keiretsu as a whole ahead of the short-term
interests of individual SBUs. Rather than engaging in acquisitions, the
Japanese were forging strategic alliances that enabled them to ream out
knowledge and best practices from their partners and repatriate it into
their own. Sacrifices made by individual SBUs that had acquired new
knowledge to accelerate its velocity of circulation around the Keiretsu
resulted in acknowledgement and lionisation of the sacrifices made,
rather than recrimination resulting from any blip in performance. This
has significant implications for pay and reward systems and for perfor-
mance management. The branches and the leaves of the tree repre-
sent product families and products. Products are eclipsed over time,
but persistence drives technological convergence. If the investment is
continuously made in building skills that straddle the divide, the vision
is likely to result in a major disruptive innovation that thrusts the com-
pany that is first to bridge the gap into first to market leadership and a
potential rule making position.
These lessons were not lost on the executives of CEMEX. In the early
1990s, the company had developed a distinctive capability in lean pro-
duction. By the late 90s, its new strategic vision led to a recognition
that if the company was to grow and diversify internationally, then it
needed to develop a core competence in successful post-merger inte-
gration. This required it to create the necessary strategic architecture
and an innovative culture. To achieve its objective CEMEX created highly
specialised PMI teams. They possessed both hard technical skills along
with the soft skills associated with cultural sensitivity, a willingness to

learn and share new ideas and skills in mentoring new members of the
CEMEX community in such a way as to build strong affect-based trust.
Eliciting ideas from acquired businesses facilitated the creation of new
knowledge that could be disseminated across the group. This involved
investment in environmental priorities and in people. At the time of the
RMC takeover, CEMEX had developed and trained over 800 person-
nel in PMI teams. Team members received training in team building,
team working, cultural training, communication, and creative problem-
solving skills. These skills were superimposed on well-developed
disciplinary skills. To achieve the required flexibility, each team mem-
ber had a trained substitute who could assume the secondee’s normal
role, allowing the latter to be released without a detrimental impact on
operations. The teams were trained to recognize and value new knowl-
edge and new ideas and to encourage their rapid circulation and
adoption across the business. There was further heavy investment in
training and developing personnel in the acquired businesses associ-
ated with temporary relocation to other parts of the world. The out-
come was the cross fertilisation of ideas across the business. The trading
arm developed skills in spotting and evaluating acquisition targets. The
results speak for themselves. In the early 90s, CEMEX was a local Mex-
ican company operating in a staid, conservative, slow-moving, low-
tech industry. By 2013, it had become a global business and a highly
successful product and process innovator with net sales per annum of
more than $15.5 billion US and Net EBITDA of $2.6 billion.
DaimlerChrysler – A case study of failure
By the late 1990s, the automotive industry had been globalising for
more than two decades. It was an industry that had achieved maturity.
Market share was more likely to be built by stealing customers from
competitors than by creating new markets. The DaimlerChrysler deal
was conceived as a merger founded upon sound logic and analysis of
the enormous potential synergies that would be created. Sadly, it has
become a seminal example of value destruction arising from the unin-
tended consequences of a clash of both organisational and national
cultures. As such, it serves as a cautionary tale for those contemplating

a similar move.
The origins of the deal

The merger was originally conceived by Jurgen Schrempp, Chairman of the
Daimler-Benz Management Board. Schrempp approached Robert Eaton,
Chairman and CEO of Chrysler, at the International Auto Show in Detroit
on January 12, 1998. This decisive meeting was the culmination of several
years of on and off talks between the two men. Four months later, the
merger was completed.
The perceived benefits of the deal

Schrempp’s vision was to build a global corporation of unprecedented
size, reach and efficiency. He had already turned Daimler Benz into a
financially strong global luxury car brand, although 63% of sales still ema-
nated from Europe. Daimler’s reach in the US was small. Chrysler, in con-
trast, was primarily a US-based business deriving 93% of sales from the
American market. Its market share in Europe was equally small. Daimler
was active in four business segments: Automotive (Passenger and Com-
mercial Vehicles), Aerospace, Services and Directly Managed Businesses.
Chrysler Corporation operated in two important segments: Automotive
Operations and Financial Services. It had significant strengths in research,
design, manufacturing, assembly and product sales (including trucks and
accessories), along with the provision of consumer financing for Chrysler
products.
The new merged entity would be founded on strong complementari-
ties. Daimler would extend its reach into the substantial US luxury car seg-
ment whilst Chrysler would have access to the enormous European market
for bottom and mid-range cars, SUVs, utility vehicles and trucks.
The rationale for the merger seemed compelling. The markets recog-
nised the potential. So much so that following the announcement, shares
in Chrysler rose by over 30%, whilst the share premium for Daimler rose
by just under 5%. The combined value of the new business was estimated
to be of the order of $10.2 billion. Significantly more than the value of
each company operating as separate businesses. The value was predicated
on the belief that the new entity would deliver enhanced benefits of
$1.4 billion in sales and savings in the first year of operations with up to a
further $3 billion over the subsequent 3–5 years. In short, the merger was
perceived by investors as a match made in heaven.
TABLE 7.1 Chronology of the merger.
January 12, 1998, Jürgen E. Schrempp, Chairman of the Daimler-Benz

Management Board, in the U.S. for North American International Auto
Show in Detroit, visits Robert J. Eaton, Chairman and Chief Executive
Officer of Chrysler Corporation, to suggest discussion of possible merger.
February 12–18, 1998, Initial discussions on possible merger within a small
group of representatives and advisors from both companies.
March 2, 1998, Robert J. Eaton and Jürgen E. Schrempp met in Lausanne,
Switzerland, to discuss governance and business organisation structures for a
possible merger.
March–April 1998, Working teams prepare possible business combinations in
detail.
April 23–May 6, 1998, Working teams negotiate business combination
agreement and related documentation.
May 6, 1998, Merger agreement signed in London.
May 7, 1998, Merger agreement announced worldwide: Daimler-Benz and
Chrysler combine to form the world’s leading automotive, transportation and
services company.
May 14, 1998, Daimler-Benz Supervisory Board agrees to merger.
June 18, 1998, Daimler-Benz management team visited Auburn Hills.
June 25, 1998, Chrysler management team visited Stuttgart.
July 23, 1998, European Commission approves merger.
July 31, 1998, Federal Trade Commission approves merger.
August 6, 1998, Announcement that DaimlerChrysler shares will trade as
“global stock” rather than American Depositary Receipts (ADRs).
August 6, 1998, Daimler-Benz and Chrysler mail Proxy Statement/
Prospectus to shareholders.
August 27, 1998, Daimler-Benz and Chrysler management teams meet in
Greenbrier, West Virginia, to discuss post-merger plans.
September 18, 1998, Chrysler shareholders approved the merger with 97.5%
approval.
September 18, 1998, Daimler-Benz shareholders approved the merger with
99.9% approval.
November 6, 1998, Chrysler issued 23.5 million shares to the corporate
pension plan to qualify for pooling-of-interests accounting treatment.
November 9, 1998, Daimler-Benz received 98% of stock in exchange offer.
November 12, 1998, DaimlerChrysler merger transaction closes.
November 17, 1998, Day 1: DaimlerChrysler stock begins trading on stock
exchanges worldwide under symbol DCX.
Source: DaimlerChrysler Merger Prospectus (1998).
Early problems
Before the deal was finalised, the project encountered its first setback when
on October 1, 1998, Standard and Poor announced that the shares of the
new merged company would not be included in the S&P 500. The deci-
sion was based on the principle that the S&P index was related to the US
market. The new merged entity straddled many different markets. As an
S&P executive explained, Daimler was a German Company incorporated

in Germany and subject to German tax law. The announcement triggered
an immediate fall of almost 15% in the value of Chrysler shares and in the
weeks that followed, trading in the shares almost doubled as index funds
off-loaded their holdings in Chrysler. According to the New York Times, by
the middle of March 1999, American equity in the new company, which
stood at 44% in November when the merger was completed, had fallen to
25%. This development did not augur well for the new company for var-
ious reasons. For example, executive reward packages were linked to the
performance of the share price. Goldman Sachs acting as financial advisor
for Daimler, and CSFB acting for Chrysler, had each negotiated substantial
front-end loaded fees of $35 million each and additional fees linked to the
market value of the business. These fees would impose a further drag on
the new company’s balance sheet. The most serious problems, however,
related to governance, structures and HR systems. These had a powerful
impact in shaping each company’s culture.
Governance structures and challenges

Governance structures in Germany relating to large corporations impose
a statutory requirement that there should be a supervisory board that
contains employee representation. The law requires that there are ten
shareholder representatives and ten employee representatives on this
board. This stands in stark contrast to the legal requirement in the US,
where Directors are not answerable to a supervisory board and there is no
employee stakeholder representation. Under the terms of the deal, which
had the support of both boards of directors and all major shareholders,
the new DaimlerChrysler company became a wholly owned subsidiary
of DaimlerChrysler AG. Baums, a German legal entity. This is significant
because Germany is committed to social market economics whilst the
United States along with the UK, is committed to free market economics.
These constitute significant ideological differences that shape the differ-
ent legislative frameworks. In 1998, Germany passed a new law on control
and transparency in business known as KonTraG. This new piece of legis-
lation reinforced a raft of previous legal enactments. These included the
German Stock Corporation Act, German Commercial Code, German Anti-
Trust Act, German Securities Trading Act and the German Banking Act.
The combined effect of this legislation was to make financial information
accessible to the public. However, when it came to the reward packages
for top managers and directors, only the total reward bill was required to
be published under German law.
Due diligence
The financial due diligence undertaken by the two companies and their
advisors were extensive and thorough. It would be incorrect to allege
that consideration was not given to issues of cultural difference. Indeed,
the merger prospectus acknowledged that some of the anticipated gains
and benefits that would accrue from the merger could be delayed because
of cultural differences. This prompted a view that there was an urgent need
to create a single corporate culture and a single corporate headquarters.
As previously stated, the merger was trumpeted as a merger of equals.
In truth, this was far from the case. The top Chrysler executives did very
well out of the deal, but their hold on the levers of power was time limited
to three years; thereafter, their role and tenure were subject to review.
In addition, Kirk Kirkorian, whose company, Tracinda Corp of Las Vegas,
the largest single investor in Chrysler prior to the merger and the third
largest in the new venture, became dissatisfied with the performance of
the merged company and with the German way of doing business. Kirko-
rian had backed Chrysler during the years when the American automotive
sector had been mauled by the Japanese. He had launched his own lev-
eraged buy-out campaign to buy Chrysler in1995 with a view to taking
it private. The buy-out failed. The company had been turned around to
become what industry pundits regarded as the most profitable American
car maker. Kirkorian brought a $1 billion dollar lawsuit against the new
company. This was to have a further impact on the share price.
What were the primary cultural differences?

Daimler Benz is a conservative hierarchical company that occupies the
top end of the market. Its reputation is founded upon excellence in engi-
neering. It has a logical, structured top-down, centralised approach to
decision-making. Planning is founded upon precise detailed reporting
and lengthy discussion leading to efficient implementation. Chrysler, in
contrast, had a flat structure, a more egalitarian management and team-
based approach. It was predisposed to minimise paperwork, keep meet-
ings short, and encourage a creative orientation to problem-solving. This
resulted in an experimental approach involving trial and error. The com-
pany’s products were seen as possessing design flair because of a range of
product and process innovations achieved under the charismatic leader-
ship of Lee Iacocca. The company catered to the needs of the mid and bot-
tom tiers of the market. Cost reduction, largely achieved through platform
engineering, therefore, was a priority. At the time of the merger, Robert
Eaton went public in declaring his intention to resign in three years. This
resulted in Schrempp being able to take the more dominant leadership
role. Shrempp adopted a pragmatic response to cultural differences. He
disregarded those that had advised that the early creation of a strong cor-
porate culture would be a precondition for success. Within two years, at
least twelve of Chrysler’s senior executives had either retired or been fired.
In almost all cases, their successors were German. In 2002 following a year
in which Chrysler made a loss, Eaton dismissed Chrysler’s American Presi-
dent on Shrempp’s insistence. Whether it was true or not, the perception
was that Daimler was starving Chrysler of investment funds whilst pushing
the company to drive down costs. Competition was intense, and Chrysler
was forced to offer incentives to promote sales. This had eroded margins.
It was becoming apparent to Chrysler personnel that the company was
not a high priority for its German owners. Power and control to make
key strategic decisions affecting the company operating in its own market
were perceived to be being whittled away in what was clearly a takeover
of an iconic American company by a German corporation. Employee pride
and emotion were aroused. Cynicism and anger were further exacerbated
when, following a further drive to cut costs, the decision was made to
discontinue the Plymouth brand. This popular Chrysler brand targeted the
needs of customers seeking low-cost motoring. At the same time, Daimler
announced the planned relaunch of the Mercedes Maybach. This was an
iconic top-end brand that would challenge the supremacy of Rolls Royce.
It was also associated with Hitler, for whom the Maybach was the vehicle
of choice. Disillusioned employees came to believe that if the company had
remained independent, it would have had a substantial multi-billion-dollar
reserve that would have financed new product development and curtailed
lay-offs. Instead, money had been syphoned off and diverted to finance
German vanity projects at the expense of American jobs and American
products for which there was a ready market. Employees who read the
1998 and 2002 Company Annual Reports would have noticed a significant
difference in the composition of the top echelon positions in the busi-
ness. Virtually all top executives whose smiling faces beamed out from the
2002 report were German. Top US managers with career potential sensed
rightly or wrongly that career progression was less feasible in Chrysler than
in other US companies. Voting with their feet, they joined US competi-
tors. The new German managers were perceived as not being responsive
to local needs and of not playing to Chrysler’s distinctive capabilities of
design and efficiency. Employees perceived them to be birds of passage
with a low commitment to the brand. Having fulfilled their assignments
in the US, their futures lay back in Daimler-Benz, so fighting too hard for
Chrysler resources was likely to be career limiting. Anger, distrust, and sus-
picion became a potent cocktail that eroded morale and promoted higher
staff turnover, especially at the core of the business. Further financial losses
ensued. By 2002, the share value had more than halved having fallen by 56%
from $96 to $42 per share. By 2006 the annual report presented its results in
euros. Dollars are no longer featured. Union representatives in the US scan-
ning the annual reports of the merged group would naturally turn to the
section dealing with human resources. The picture that emerged in terms of
coverage was clear. Every annual report published between 2000 and 2007
was characterised by German chauvinism. There was not a single mention of
US operations or activities. Reference was only made to developments and
issues relating to Daimler and Benz. There are multiple accounts of activi-
ties and events relating to towns in Germany. Even paragraphs dealing with
training and development issues were associated with the German dual sys-
tem. Apart from disclosing employee numbers in each country and world-
wide, a reader could be excused for concluding US operations did not exist.
HR subsystems – Pay, reward, performance

management
Following the creation of the new company, the pay and reward systems in
both businesses were terminated. Employee pay was to be market driven.
Pay levels would be determined on a regional basis, having regard for pay
levels in the industry across the relevant region. Executive reward beyond
pay was rendered performance based. Senior executives received a global
standard pay package. In addition, they were given options to buy the
stock at a price set by the market on the date the option was issued. If the
share price appreciated, then managers could call the option and pocket
the difference. There was a substantial difference in the pay levels enjoyed
by senior executives in the two companies prior to amalgamation. In some
cases, these differences ranged between 50% and 150% more for Ameri-
can executives as compared to their European counterparts. The difference
between the packages for the two CEOs was of the order of $9 million. The
merger exerted upward pressure on executive pay levels across the busi-
ness, creating a larger gap between executives and those they managed
in Europe. One of the ways in which European executives compensated
for the lower pay was to claw it back through expenses. Expense claims for
German executives were a source of consternation for their American coun-
terparts. This created an impression of profligacy. At times when resources
were being cut, and there was a prevailing pressure in the US to cut costs
and headcount, these practises did not pass unnoticed in the US.
What are the lessons to be learned

from these case examples?
Earlier, Rousseau’s four different types of psychological contracts were dis-
cussed. Three of the four rely upon a degree of trust. The fourth recognised
that a breach results in a psychological contract that is in transition.
Goshal and Bartlett (1998) and Thompson (1998) argued that trust provides
the foundation for social capital. As such, it is a firm specific strategic asset.
People have perceptions, organisations do not. Thus, each party’s perception
of its obligations is influenced by the extent to which “the deal” is perceived
to be fair and the extent to which each party is confident that the other will
deliver.
Fukayama (1995) argues that trust is like oil. It lubricates the machinery of
commerce and, in doing so, reduces transaction costs. One has only to look
at the collapse of trust in the financial system in 2008 when Banks withdrew
from overnight lending to recognise the truth of this assertion.
There is an extensive body of literature on trust. There are different
discourses ranging from the interpersonal, to the intra and inter-organi-
sational. These different perspectives share some common themes. These
include the extent to which the parties view the relationship as long or
short-term. Long-term perspectives tend to be relational. They are pred-
icated on notions of symbioses resulting in mutual benef it. A short-term
perspective, in contrast, results in a mutually instrumental approach to
the relationship. This demands a more formal and legalistic grounding,
regardless of whether the relationship is interpersonal or inter-organisa-
tional. The operating core at Chrysler had benef ited from a high com-
mitment HR strategy founded on a relational psychological contract. The
more peripheral workers were secondary labour upon which a balanced
psychological contract had emerged because of the earlier turnaround. A
more detailed summation of trust issues can be accessed in Bassett-Jones
(2005).
These observations form the basis of my assertion that HR subsystems
shape the hygiene dimension of the psychological contract whilst managerial
behaviours and actions provide the motivational dimension. Taken together,
they determine the culture of an organisation.
Violations of the psychological contract result in perceptions of injustice.
These place conceptions of organisational justice centre stage.
To understand the full richness of the cases that have been presented, it is
necessary to consider different notions of organisational justice and how they
relate to changes in the psychological contract. In essence, the literatures iden-
tify three forms of organisational justice, distributive, procedural and inter-
active. In this chapter, we will focus on distributive justice whilst deferring
discussion of procedural and interactive to later chapters.
Conceptions of distributive justice

Distributive justice theory was developed by the moral philosopher John
Rawls (1971). The theory is predicated on the idea that if individuals were
to create an imaginary new society from behind a veil of ignorance that
prevented them from knowing what their standing and status in that new
society would be, they would opt to maximise liberty and equality for all.
This is in sharp contrast to any social context where status and power are
known. In such contexts, those wielding power seek to extend the differ-
entials. Those without power are obliged to accept the difference. In the
context of reward systems, one of the implications of the theory is that once
a reward package is established, groups benchmark against others. Changes
in differentials arising from shifts in pay policy or adjustments arising from
new grading systems or broad banding are likely to be perceived as unjust
and unfair.
Turnover in organisations is triggered by either push or pull dynam-
ics. Normally it is the push that catalyses the impetus for an individual to
search for alternative employment. The push can be delivered by HR prac-
tises that are perceived to be inequitable or by managerial behaviours that
employees find unacceptable. All three types of injustice can act as triggers;
however, whilst perceptions of procedural and interactive injustice provide
the motivation for individuals to leave, distributive injustice is experienced
as a powerful push that triggers group reactions. Because individual cir-
cumstances vary, not everyone will leave; however, those that remain will
typically be demotivated. For some, continuity commitment may remain
high, but normative and affective commitment is lost along with engage-
ment. This has been expressed prosaically as “the lights are on but there is
nobody in.”
Exercises
1. Evaluate the context of each case study in terms of the systemic dynamics
of the industries in which each company is located and in terms of the
positive and negative feedback loops that were entrained first by the envi-
ronment and then by the companies.
2. Consider the scenario presented by each case study and evaluate what
factors may have built or destroyed trust and briefly summarise what they
were.
3. Assess the impact changes in trust would have on the psychological con-
tract in each case.
4. Analyse the amplifiers and transduction processes that contributed to
changes in the psychological contract.
Evaluation
What was the basis of CEMEX’s success?
CEMEX’s success was rooted in recognition of the importance of forging a
strong psychological contract from the outset. The company invested heavily
not only in financial and market due diligence but also undertook a serious
HR audit. It established early on that there were good grounds for both man-
agers and employees at RMCs’ various business units to feel disaffected. (Cuts,
underinvestment, and redundancies are never a good formula for retaining
hearts and minds.) It also recognised that the different SBUs possessed valuable
tacit knowledge in both concrete production and marketing that was different
to that required to produce and distribute cement. CEMEX knew it needed
some quick wins to challenge fear and cynicism. To deal with the former,
it made an immediate announcement that redundancy was off the table if
employees embraced the CEMEX way. It made immediate and significant
investment in the working environment. This was promulgated aggressively
through a range of internal channels, and it was amplified by the presence of
teams undertaking extensive installation work within weeks. Further ampli-
fication was provided by the RMC CEO, whose message was no longer one
of cuts and redundancy. Cynicism gave way to optimism. The PMI teams
versed in relationship building began to be seen not as interlopers but as allies
committed to turning the business around. Their skill at active listening elic-
ited ideas on ways to improve the business that had lain dormant. Many ideas
were implemented. CEMEX teams did not sweep away old systems. Instead,
they introduced new systems in parallel. This amplified the message that what
was required was the best possible system. This ensured a smooth transition
because it gave employees time to understand the reasons for change and to
adjust. It also enabled them to question both the old practises and the new.
This transduction resulted in a belief that CEMEX really was offering a new
and better deal. Temporary secondments, for the purpose of training and
development, acted as a further powerful amplifier that the company believed
in its newly acquired HR base and was investing in it. Further transduction
ensued when these improvements were seen to feed through to the bottom
line providing further reassurance and hard evidence that the “new deal” was
indeed a reality. Given the nature of the bulk of the CEMEX workforce, the
result was a positive balanced psychological contract with some elements of
the relational that grounded new normative commitment based upon emer-
gent shared values. The company really did care about the environment.
Having consolidated RMC into its portfolio, CEMEX continued to
acknowledge the value and the contribution of its UK and other operations.
In 2015, CEMEX produced a UK annual report. It did not focus on financials
(This was addressed in the Corporate Annual Report.) Instead, it focused on
sustainability, people, policies and achievements in the UK, thereby amplify-

ing a recognition of local identity whilst also reinforcing corporate values and
corporate culture.
What was the basis of the DaimlerChrysler Failure?

At the most simple and brutal level, the answer to the question is probably
German hubris combined with a lack of any form of distinctive capability in
international merger and acquisition. Due diligence in respect of the cultural
differences had been cursory at best. Chrysler employees were knowingly sold
a false prospectus that the merger was one of the equals. The symbols told a
different story. A merger of equals implied equality of status, equity of reward,
and equality of access to opportunity for promotion. The announcement that
the Chrysler CEO would leave in three years with an extraordinary package,
along with several other top managers being given time limited contracts,
pointed to a different reality. Giving forewarning of changes to come but not
indicating what form the changes would take.
Because American management tenure was time limited, some American man-
agers would have resented the security that their German counterparts enjoyed.
Some German managers would have perceived their American counterparts as
grossly overpaid. Both perceptions would have acted as an irritant creating a sense
of distributive injustice on both sides. The departure of American and the arrival
of new German managers demanding cost reductions and rationalisation com-
bined with their tendency to neither acknowledge nor exploit Chrysler’s strengths
in design and innovation will have added to anger and frustration. The German
refusal to invest and sustain a strong brand whilst disinterring the Maybach would
have further amplified a general sense of distributive injustice.
Whilst the goal of the new executive reward package had been to incen-
tivize performance, perceptions of lack of investment in the US combined
with a declining performance will have made the exercise of options to
buy shares unattractive building further resentment amongst American
managers. The departure of at least 12 senior American executives to pur-
sue their careers in other American automotive companies attests to dis-
appointment in the reward package and, in all probability, a perception
that the most senior positions were reserved for German talent. Company
publications and in particular the annual reports will have acted as ampli-
fiers not only communicating German control but also indifference to the
American operation.
Some of the observations made above are open to challenge by those who
have a well-informed German perspective. The truth is irrelevant, perception
is what matters. Daimler Benz’s effort to win hearts and minds was lamen-
table. Its post-merger strategy was ill-considered and poorly implemented.
The result was that rumour and suspicion began to fill the communication
vacuum. A sense of distributive injustice afflicted the American operation.

The resentment was fed by a counter narrative. Had the company remained
independent, its fortunes would have been considerably better. The conse-
quences were both predictable and inevitable.
In 2007, nine years after the merger, Daimler Benz made the decision to
off-load its loss-making American subsidiary. The business was acquired by
private equity firm Cerberus Capital Management LLC for $7.4 billion (source
Industry Week), a far cry from the $36 billion it originally paid.
What lessons can be learned from a systems perspective?

The merged DaimlerChrysler business had a European and an American oper-
ation. The European business was the parent operation. An acquisition serves
no purpose if a parent cannot add value. Daimler failed to do this; CEMEX
succeeded. A Systems approach would argue that a clear strategy of devolution
of responsibility to the lowest level of competence capable of meeting the
challenge is required. To do otherwise will place an operation at unnecessary
risk. Rather than seeking to capitalise on the distinctive capabilities of its
American subsidiary and invest in them, the parent either inadvertently or
deliberately tried to impose its own. This situation would have arisen as an
increasing number of top positions were assumed by German executives who
had been trained and socialised in Daimler Benz methodology. This knowl-
edge, whilst clearly highly appropriate to the high-end European market, was
not transferable to the North American middle and economy market seg-
ments. A culture clash was inevitable. It triggered a further loss of know-how
as competent American managers left Chrysler to join competitors. Not only
did Chrysler lose valuable tacit knowledge about the American market, but it
also lost operational competence. Competitors also benefited from the knowl-
edge migration and competitive insights that came with their new recruits.
The departures themselves would have amplified a very clear message to staff
that all was not well in management.
CEMEX, in contrast, made a show of investment by targeting the employee
working environment. This was a powerful amplifier. It did not replace British
managers but enabled them to learn. It also reassured them that they were val-
ued by listening and implementing good ideas from wherever they came. This
process of transduction not only improved operations but also helped build
trust and, with it, a new well-grounded psychological contract.
Daimler’s HR function was clearly parochial. Evidence for this is unequivo-
cally presented in the Human Resources section of the Group’s annual reports.
The contributions made to these reports would have been read and cleared by
the senior executive team prior to publication. The fact that the importance
of this powerful amplifier was not comprehended by the top managers points
to HR illiteracy. The reports were obviously written for European investors
and trade union representatives. That these reports would have an American
readership, amongst whom there would be American managers and employee
union representatives, clearly passed them by. It is possible to forgive the mis-
take in 2000, but to repeat it in every subsequent year highlights the extent to
which the new German managers were either blind to its impact or impervi-
ous to American reaction. It symbolises the degree of disconnect between the
two arms of the business and the two levels of recursion. It also emphasises the
importance of the law of requisite variety.
CEMEX annual reports stand in contrast. The HR function recognises the
importance of national pride and plays to it. Given its roots in construction,
it deploys building as an active metaphor. It talks of building a sustainable
environment, building knowledge, building relationships and so forth. There
is a section of the report devoted to activities and achievements in all national
contexts. In addition, separate local regional reports are available for local
readers. These help to build a corporate culture whilst simultaneously recog-
nising local identity.
One of the features of bureaucratic organisation is that managers are often
more skilled in managing up than they are in managing down. Given the
hierarchical culture within which the German managers had been socialised,
it is likely they would have been more concerned about responding to the
needs and expectations of their bosses in Stuttgart than their employees in the
US. Their willingness to fight the US corner would not have been strong.
Persistent failure to gain investment coupled with constant pressure to cut
costs eroded both employee trust and the psychological contract.
CEMEX, in contrast, recognised the importance of the role of the corpo-
rate parent as a vehicle for adding value. By deploying PMIs and encouraging
acquired businesses to contribute to their work, the velocity of circulation of
new knowledge increased. By ensuring that the teams were not seen as sub-
stitutes for local management but helpful mentors built trust and reinforced a
psychological contract.
Summary
This chapter has sought to show how competitive strategy determines the
nature of an organisation’s orientation to the labour market and its approach to
the management of people. This choice results in the development of an HR
strategic archetype. The policies and practises embedded in the approach to
managing people have a powerful impact upon culture. Indeed, when com-
bined with a dominant leadership style, it shapes the organisational culture.
In addition to its competitive strategy, every organisation has an innovation
strategy. First to market innovators seek to become industry rule makers forc-
ing competitors into a defensive posture. Fast followers seek to erode a leader’s
competitive advantage by learning from the leader’s mistakes and by rapid
reverse engineering. Dependent innovators strive to innovate on demand

from their customers. Company approaches to innovation influence HR pol-
icies. These, in turn, influence culture.
Culture is not static; it is constantly evolving as organisations develop.
Organisational growth results in crises that demand organisational change.
This produces organisational stress. The stress is founded on uncertainty aris-
ing from changes in roles and remits and the breakdown of extant networks.
Organisations are systems that operate in a larger industry system which
itself is a network. They co-evolve. As industries mature, companies’ risk
being acquired by larger competitors. To avoid this fate, they must either
acquire competitors to increase market share or niche in a segment in which
they have distinctive capabilities that enable them to defend their position.
Organisational change results in winners and losers. If the need for change
is not communicated well, trust is eroded. This results in a shift in the psy-
chological contract. The psychological contract is either long or short term,
open ended or specific. Three types of contracts were identified and broadly
aligned with the four SHRM archetypes. A high commitment HR approach,
if successful, produces a relational contract with high normative, affective and
continuity commitment. A paternalistic HR strategy, when successful, results
in a balanced contract in contexts where the free agent and secondary labour
market orientations prevail. However, if trust is compromised or breaks down,
then the psychological contract morphs into a transitional phase. It is shaped
by perceptions of organisational justice. This chapter focused on distributive
justice because of its impact on group perceptions and behaviours.
Two case examples of growth through acquisition were presented. One was
successful and demonstrated how trust and a positive psychological contract
can be built, the other outlined the opposite scenario and explained how and
why these different stories evolved in the way that they did. The case examples
were then used to demonstrate systems principles in action.
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8
LABOUR MARKETS, HR
PLANNING AND RECRUITMENT
AND SELECTION
Overview
Chapter 4 examined how and why companies adopt different orientations to
the labour market and how these orientations result in different patterns of
HR strategy. In this chapter, we go on to consider the implications of different
cultural orientations to the labour market and how cultural predispositions
influence approaches both to competitive and HR strategy. A critical eval-
uation of the systemic implications that national and corporate labour mar-
ket orientations create is presented. Beer’s Viable System Model is deployed
to explain how the different orientations influence recruitment and selection
practises.
History, the evolution of labour market culture and its

impact upon social, economic and political systems
At its simplest, a labour market is a system that abstracts individuals from the
larger socio-economic system and channels them into productive activity by
achieving a match between the needs of organisations on the one hand and the
needs of individuals on the other through a market mechanism that strives to
reconcile demand with supply.
Within any economy, there are many different labour markets. Each
receives inputs from the education system and from the wider economy. In
Chapter 4, we considered organisational orientations to the different labour
markets. We saw that companies pursuing high commitment approaches seek
to build an internal labour market. They do this by investing in the develop-
ment of employees and then encouraging them to seek advancement within
DOI: 10.4324/9781315630557-9
the organisation. The internal labour market can only be viable if the organ-
isation is able to recruit high calibre graduates at entry level. If more senior
personnel are required, head-hunters are frequently employed to seek out can-
didates of an appropriate calibre who are then poached from other sources.
Skill shortages give rise to talent wars.
Organisations procure skilled free agents through specialist intermediaries
with expert knowledge of that segment of the labour market from which such
expertise can be drawn. These agents build portfolios of skilled clients seek-
ing employment. Procurement of low skilled secondary labour is normally
accomplished through agencies of the state or of local administration. The
health of different labour market segments is influenced by several variables.
These include demography, the position in the economic cycle, the degree of
investment in higher and tertiary education, patterns of inward investment
and company perceptions of future business opportunities.
Labour markets operate within cultural contexts

To understand the culture and the cultural differences that give rise to var-
iations in labour markets, it is necessary to develop a grasp of the history of
the social, physical and conceptual artefacts that shape the values, mores and
behaviours of the people socialised within cultural contexts.
The global economy has and is being shaped by the interaction of three
powerful cultural forces in the world today. These forces emanate from the
US, Europe, China and SE Asia.
American and British neoliberalism and its origins

The oldest is the culture of laissez-faire individualism. This took root in the
UK in the seventeenth and eighteenth centuries. Influenced by the work of
the political philosophers Thomas Hobbes and John Locke, the economists
Adam Smith and David Ricardo and the many innovators and industrialists
such as Telford, Trevithick, Stephenson and Brunel, to name a few, created the
technical where with all that delivered the industrial revolution.
Hobbes and Locke formulated the theory of the social contract that was
later to provide the foundations of liberal capitalism, a theory that Macpherson
(2011) described as possessive individualism. The key proposition, according
to Macpherson, is the theory’s possessive quality. This is founded on the belief
that individuals are the proprietors of their persons. They owe nothing to
society at large for their talents. The implication of this proposition is that
freedom and independence from the will of others is paramount. Society,
according to this view, is a system of economic relations and the role of the
state and the political process is one of promoting and protecting private prop-
erty and the social relations that emanate therefrom. With the onset of the
Labour Markets, HR Planning and Recruitment and Selection 127
agricultural and later the industrial revolutions, these precepts became deeply
etched both in the British and later the American common law legal systems
along with notions of voluntarism, arms-length contracting, free trade and
the law of primogeniture under which first born sons inherited landed estates.
The growth of the British Empire and the subsequent growth of US global
influence resulted in the spread of these ideas to many parts of the world. This
culminated in the 1980s with the emergence of the “Washington consensus.”
This provided the ten precepts that shaped the policies of Washington-based
institutions such as the IMF and the World Bank and provided the cutting
edge of neoliberal ideology.
Neoliberalism sees competition as the defining characteristic of human relations. It

redefines citizens as consumers, whose democratic choices are best exercised by buy-
ing and selling, a process that rewards merit and punishes inefficiency. It main-
tains that “the market” delivers benefits that could never be achieved by planning.
Attempts to limit competition are treated as inimical to liberty. Tax and regu-
lation should be minimised, public services should be privatised. The organisation
of labour and collective bargaining by trade unions are portrayed as market dis-
tortions that impede the formation of a natural hierarchy of winners and losers.
Inequality is recast as virtuous: a reward for utility and a generator of wealth,
which trickles down to enrich everyone. Efforts to create a more equal society are
both counterproductive and morally corrosive. The market ensures that everyone
gets what they deserve.
George Monbiot, 2016
Social market economics

Unlike the US and the UK, which have enjoyed sustained periods of domestic
social and political stability, the European experience has been persistently
punctuated by bouts of substantial social and political turmoil throughout
history. Roman Law placed the family at the centre of its social fabric. The
inheritance of an estate did not automatically pass to the eldest legitimate
son. This legacy resulted in the emergence of the Salic Law in many parts of
medieval Europe. It required an estate to be divided equally amongst male
siblings. Whilst this law served to determine inheritance, it was also the source
of repeated outbreaks of conflict between claimants to European thrones and
princedoms over centuries.
The French Revolution and the ascendance of Napoleon Bonaparte
enshrined elements of the Salic Law into the Napoleonic code ensuring its
revitalisation and diffusion throughout much of Europe. In the late eight-
eenth and nineteenth centuries, the patterns of hereditary conflict within
and between different princedoms gave way to emergent nationalism and to
imperial aspirations. Two world wars ensued. An exhausted, emaciated and
reflective Europe emerged. The great inflation during the Weimar Republic
provided the seedbed for National Socialism and the rise of Hitler. National
Socialism sought to subordinate the economy to the service of the state and
is widely regarded as having precipitated the Second World War. Hitler had
fostered and supported the huge industrial cartels that placed themselves at the
service of the Third Reich.
Following the cessation of conflict, political leaders sought a new way for-
ward. There emerged, especially in Germany, a consensus that the economy
and market forces should be made to serve the interests of society. Known
as the Freiberg School of Ordoliberalism, advocates such as Ludwig Erhard,
Minister of Economics and Chancellor Adenauer argued a new economic
model was required. Unrestrained capitalism was an engine that exacerbated
inequality (Razeen, 1996). It spawned cartels, promoted the boom-and-bust
dynamic of the economic cycle, and eroded both the means and the oppor-
tunity for individuals to thrive. The model was founded upon the primacy
of the stable value of money, open markets, private property rights, freedom
to contract and stable economic policy. The aspiration was articulated in the
Journal Ordo as follows,
All we are asking for is the creation of an economic and social order which equally
guarantees economic activity and humane living conditions. We call for competi-
tion because it can be utilized to reach this goal – in fact, the goal cannot be reached
without it. It is a means, not an end in itself.
(Ordo, 1948, cited in Razeen 1966)
In 1957 Belgium, France, Italy, Luxembourg, the Netherlands and West

Germany signed the treaty of Rome and creating the Common Market. The
tenets articulated in Ordo were elaborated to include the free movement of
capital and labour, providing the foundation stone for what is now referred to
as the “European model that incorporates not just the Rhine Feld but also the
more socialised Nordic model.”
Why are these historic developments culturally significant? The answer is
that they shape not just the social and economic environments but the physical
as well. An American flying to Frankfurt or a Russian or Chinese business-
man flying to London will notice a significant difference in the landscape of
Britain as compared with Northern Europe. The former is covered with a
lattice of hedgerows that enclose fields harvesting a single crop. The European
landscape is more open. The fields are much larger and are given over to mul-
tiple crops. Whilst British agriculture is large scale, intensive and efficient,
European farming is diffuse and often characterised by lower levels of effi-
ciency. This physical distinctiveness is a direct legacy of the consequences of
primogeniture and the Salic Law. The Napoleonic code provided a common
root for European Civil and Administrative Law. The British legislature, in
contrast, is predisposed to foster voluntary agreements and to only resort to

legislative enactment when voluntarism fails, the EU is predisposed to intro-
duce legislative regulatory frameworks that hail back to the Napoleonic code.
The common agricultural policy and perceptions of unnecessary and intrusive
regulation on the part of the EU are two antecedents that influenced the UK’s
Brexit decision.
Legal and constitutional frameworks give rise to institutional diversity.
Both the US and the UK are widely seen as possessing a short-term orienta-
tion, whilst the Rhine Feld and Nordic models take a longer-term approach
along with various SE Asia nations. Why should this be? At least part of the
explanation lies in the cultural differences in the banking systems. British
Banking adopts a hands-off approach. British Bankers will lend to anyone
who has sufficient collateral to offset risk. They operate at arm’s length and
have little interest in how the funds will be applied. In the event of a recession,
they have no compunction about withdrawing credit facilities. This contrasts
with the social market approach adopted by the Rhine Feld and Nordic mod-
els, where banks lend money, take an interest in the business, and place their
nominees on the boards of the companies to whom they lend. Thus, when a
recession hits, these banks are less inclined to withdraw lines of credit. They
are also more inclined to advance lines of credit in times of boom where the
business case is strong. This enables managers operating in these economies to
take a long-term view and invest accordingly.
Whilst possessive individualism and a belief in Adam Smith’s invisible
hand reigns supreme in the Anglo-American world, the European stakeholder
model emerged because of the brutal clashes of European capital with organ-
ised labour during the early part of the twentieth century. This was a period
punctuated by riots and revolutions in many countries with a consequent scar-
ring of national psyches. The American experience of social conflict was also
similarly challenging but experience varied because of the devolved nature
of Government. In the UK, in contrast, the socio-economic manifestations
of class conflict were less extreme. The hunger marches of the 1930s were
the strongest and most visible manifestations of social unrest during the great
depression.
Hampden and Fons (1993) also highlight the cultural schism between
Protestantism and Catholicism and other Asian religious heritages. Whilst the
former displays a strong commitment to universalistic principles that elevate
the inviolability of the written contract above interpersonal trust. The latter
are particularists and place a stronger value on the importance of building
interpersonal trust. Particularist cultures prioritise interpersonal trust. Trust
provides the lubricant to sustain long-term relationships when environmental
changes put excessive strain on the contractual relationship. It helps to avoid
costly litigation characteristic of the Anglo-American world but demands a
significant front-end investment of time to build. It is frequently a source of
misunderstanding when people from a particularist culture meet counterparts

from a universalist culture.
South Asian state capitalism

Japanese and most SE Asian society is characterised by groupism and particu-
larism. It is the antithesis of individualism. Anthropologists and commen-
tators attribute the phenomenon to dependence upon rice growing. Hideki
Shirakawa expresses this view clearly:
Fundamentally, Japanese culture is based on rice farming. Rice cultivation requires

a lot of water, and water must be shared evenly by everyone. Planting rice also
requires teams of people walking from row to row, at the same speed. And all of
this has meant that uniqueness had to be suppressed. (French 2001; par. 3).
Mutual co-dependency stresses the importance of the group and down-plays

the relevance of the individual. Confucianism, with its family centred doc-
trine of filial piety, respect for age and for hierarchy, also plays a role.
Apart from Japan, much of Southeast Asia was colonised. The Sino-
Japanese War of the 1930s was a manifestation of the Japanese desire to emu-
late Western colonialism.
Unlike the Western nations that passed through a series of profound social
transitions from feudalism to mercantilism to industrial capitalism over a
period of 700 years, Japan moved from feudalism to an industrial economy
in little more than 60 years following the Meiji restoration 1868–1912. This
exceptionally rapid transition achieved within a single lifetime ensured that
groupism remained deeply socially embedded. It resulted in the emergence of
corporate capitalism in the form of Zaibatsu. These were large cartels usually
centred on a single family, the four largest of which were Mitsui, Mitsubishi,
Sumitomo, and Yasuda. The Zaibatsu achieved a significant commercial advan-
tage during the First World War owing to Japan’s lack of military engagement.
Their ambition and success during this period provided an impetus for Japan
to embark upon imperial expansion in the region prior to and during Second
World War. Japan’s defeat gave rise to an American effort to suppress the
Zaibatsu. The Japanese predisposition to group, however, simply drove the
Zaibatsu underground, where they continued to function whilst masquerad-
ing as social clubs. The arrival of quality management specialists like Deming
and Duran sent to support Japan in its post-war reconstruction effort provided
the cartels with a huge boost. Following the end of the American occupation,
the Zaibatsu re-emerged and rebadged themselves as Keiretsu families. Each
Keiretsu typically incorporated a bank, a major manufacturing concern and a
trading house as the centrepiece of the corporate structure. (These tripartite
structures are celebrated in the symbolic brands of Mitsubishi, Toyota, Isuzu,
and others.) Around the central core trilogy, there is an outer core of major
suppliers and, beyond them, a peripheral group of lesser suppliers. The group
is held together by interlocking shareholdings and directorships that ensure no
member of the group can be acquired by a hostile takeover. The function of
the bank is to provide finance for the family of companies. All employees bank
with the bank at the centre. The trading house provides the eyes and ears for
the family group seeking out trading opportunities and sourcing the require-
ments of the Keiretsu companies. The major manufacturer provides revenue
to support investment across the group via the bank and is largely responsible
for determining the strategic direction of the group.
Japan lacks natural resources. As a result, it always feels vulnerable to outside
forces that it cannot control. This national anxiety gives rise to risk aversion
or to what Hofstede described as uncertainty avoidance. Resilience and auton-
omy from potentially malign outside influences result in enormous loyalty
to the group on the part of all employees. Products produced by companies
within the group always receive preferred consideration over products offered
by non-family businesses. This pattern of grouping, discipline, loyalty and
respect for hierarchy provides the basic cultural building blocks upon which
the team working and problem-solving approach advocated by W.E. Deming
to drive quality management was built. It delivered the enormous competi-
tive advantage that Japanese manufacturing companies have enjoyed ever since.
Whilst the Keiretsu competition within Japan and internationally was always
intense, unlike their individualistic Western counterparts, the Japanese had a
more subtle understanding of when to compete and when to collaborate. In the
same way that the Keiretsu had a tripartite core composed of a bank, a major
corporation, and a trading house, so corporate Japan has a tripartite struc-
ture that consists of the three estates, the Keiretsu, the elected Government,
and the Civil Service. This is what enabled Japan to achieve its supremacy in
micro-electronics and, more recently, in robotics. The Japanese recognised that
electronics and micro-electronics were the keys to competitive advantage in
the latter part of the twentieth century. They were the first to produce a sili-
cone-based very large integrated (VLI) circuit that would come to dominate a
range of industries. The Government tasked the Keiretsu with delivering the
solution. Government provided the necessary infrastructure, the Keiretsu the
expertise whilst the Civil Service monitored and reported on the collaboration
to all three stakeholders. Despite a smaller resource base, the Japanese willing-
ness to collaborate in the furtherance of the common weal led to their success,
and with it came dominance of TV, radio, calculator, watch, hi-fi and micro
computing production, in addition to a host of other industries where micro-
electronic components play a significant role. These include mobile phones,
motor vehicles, robots and other advanced manufacturing devices.
Korea, like Japan, also developed large family enterprises that we know
as Chaebol. In 2014, the top four, Samsung, Hyundai Motors, LG and IG
between them earned 90% of the total net profit earned by the top 30 con-
glomerates, according to the Korea Fair Trade Commission. Japanese and
Korean competitive success inspired other Asian Tigers to embrace many of
the lessons and ideas introduced through trade with Japan and Korea.
Even communist China has morphed into a form of state corporatism fol-
lowing admission to the WTO and the reforms of Deng Xiaoping. Chinese
culture, however, is different in many ways from its Southeast Asian neigh-
bours. The role of guanxi sets China apart. Its strong Confucian heritage
prioritises the family, the extended family and larger society in a structural
hierarchy of relationships that form the basis of individual social networks.
The purpose of these networks is to deliver mutually beneficent personal and
business relationships. The defining characteristic is their closed nature. These
relationships serve both to create and sustain face. They are grounded in inter-
personal trust. In business, guanxi ensures that a business relationship can only
develop after a personal bond has been established. Such bonds, once created,
are both tighter and stronger than is typical of other cultural contexts.
It has been argued that globalisation and the impact of recession in Japan
from 1990 onwards triggered a pattern of convergence between the Japanese
and American labour market dynamics Ono and Marcus (2003). More recent
research drawing upon more contemporary data undertaken by Kambayashi
and Kato (2017) and Rebick (2005) refutes this proposition. Their data, based
upon a cross-national regression analysis, points unequivocally to an adher-
ence to respect for age and seniority made manifest by the little discernible
impact on the job stability of prime age male employees during the long reces-
sion. Female and new male entrants to the workforce, in contrast, lost out.
These findings point to the enduring effects of culture upon which organisa-
tional life depends.
The social welfare consequences of cultural difference

Whereas neoliberalism and social market regimes have continued to recognise
that unemployment may not be wholly the fault of the unemployed themselves
and that a welfare net needs to be provided, state sponsored welfare systems
have not flourished under state corporatism. Instead, companies have tended
to stand in, often providing low skilled jobs on low wages that could other-
wise be automated and eliminated. This has resulted in areas of inefficiency
in the delivery of services in such economies. Exporting industries with the
capacity to earn hard currencies have been prioritised by the state, resulting
in high social costs for those unfortunate enough to find themselves at the
bottom of the social hierarchy. This absence of a social welfare safety net
goes some way in explaining the SE Asian work ethic and the willingness of
Japanese workers to sacrifice holidays and payment for overtime in return for
employment, social engagement and acceptance.
The impact of cultural difference on labour

market orientations
The three different market ideologies, free market, social market and state cor-
poratism, in their different forms, result in different orientations to labour mar-
ket management. Whilst free market approaches argue that state intervention
distorts market mechanisms, resulting in both adverse economic and social con-
sequences, social market approaches argue for state intervention to mute the
worst effects of capitalism. State corporatism, in contrast, asserts that markets
must be managed to the point where the state makes the strategic decisions as
to the future direction and development of the economy. In so doing, the state
determines the characteristics of the labour markets that will be required.
In the Anglo-American world, the employment contract is presumed to
be a contract of equals between employer and employee. Social market con-
texts reject this proposition and acknowledge an imbalance of power between
employer and employee. Thus, they are more heavily regulated. Employee
rights and employer responsibilities are more clearly defined and enforced in
law. Advocates of the free-market approach argue that tight regulations result
in labour market rigidities. Critics of the free market respond that no market
is entirely free, and to the extent that they are free, they create an engine for
social inequality with potential consequences for social and political stability.
State capitalist systems also have unambiguous employee rights enshrined in
legislation; however, there is often a substantial gap between the letter of the law
and reality in respect of salary, holidays, and overtime. In Japan, for example,
contracts are drawn up in accordance with the Japanese Labour Standards Law.
There are major differences, however, in what is legally enshrined and com-
mon practice in the workplace. According to the law, an employee cannot be
required to work more than eight hours a day. Japanese employees face extreme
collective pressure to work overtime hours and not to claim their overtime pay.
Similarly, under the law, Japanese workers are entitled to ten working days of
annual holiday, but they rarely take their allotted entitlement in full.
A critical subsystem within any national labour market is the Vocational
Education and Training (VET) system.
Free labour markets vocational education and training

Any VET system consists of schools, colleges and universities. All three groups
feed the labour markets; however, the output from schools and colleges tends
to supply low and intermediate skills. Universities are the source of intermedi-
ate and high-level skills. Governments tend to impose unambiguous require-
ments on the school sector on the grounds that everyone has a right to a basic
level of education. Colleges enjoy slightly more latitude. Universities benefit
from greater autonomy because the free-market ideology acknowledges the
importance of academic freedom. Interposed between the VET system and
the corporate sector are a group of intermediaries or brokers whose role is to

reconcile labour supply with demand. Figure 8.1 presents a model of a free
market system.
Head-hunters aim to identify scarce skills and, for a fee, to match a cli-
ent’s person specification with an ideal candidate. This requires them to build
extensive industry knowledge in terms of where talent can be found within an
industry. They also build good relationships with universities and are active
in recruiting top graduates and postgraduates. However, many specialise in
seeking the best mid-career and top talent that they can find.
State placement agencies seek to fill low and intermediate skill require-
ments. During times of recession, they build portfolios of intermediate skills,
but when the economy is booming, this pool dries up and they are left with the
challenge of marketing the low skill residue. In most free market contexts,
the state agencies are tasked with imposing labour market discipline. To
achieve this, they are empowered to determine the welfare entitlement for
those who register as unemployed.
Private employment agencies typically operate in the intermediate skills
band and specialise either in meeting the needs of industries or in marketing
specialised skill sets. They actively market clients seeking employment and
take a finder’s fee from the client’s initial wage or salary.
Ultimately the VET system feeds the corporate system that collectively gen-
erates GDP. The latter is typically composed of three archetypes. Organisations
that require a substantial high skill HR stock and deploy what Bamberger
and Meshoulam (2000) defined as high commitment HR and engage in HR
Planning. These include hi-tech industries, creative industries and entertain-
ment, medicine, financial services, and research in its many guises. The second
group requires a mix of high and intermediate skills. Again, financial services
and companies operating in other service sectors require a mix. Here a combi-
nation of high commitment and paternalistic strategies are deployed, supported
by HR planning. The third group adopts a secondary labour market manpower
planning approach for the bulk of the workforce who are low skilled, whilst
deploying a high commitment strategy in the case of managers. These include
employers operating in the retail, fast-food, social care and hospitality sectors.
In free market contexts, the VET System tends to be fragmented and some-
times incoherent. Too often, companies perceive it as not in their interests to
invest in training. Training and development can be seen by some as a cost
rather than an investment. Companies that adopt this approach prefer to poach
talent from competitors. At times of labour shortage, this can have a serious
impact pushing up wages and salaries and imposing a drag on investment in
new technology if the skills to operate it cannot be found. Another dynamic
that feeds into short-term decision-making is the arms-length approach of
the banks and the profit maximising demands of the investment fund indus-
try. Company approaches to investment in a free market context, therefore,
FIGURE 8.1 A free market vocational education and training system
are often opportunistic. It reflects a need to yield rapid short-term returns.

Paradoxically, this phenomenon often combines with individualistic endeav-
our to provide game-changing innovation. Thus, both the US and the UK
have good track records in innovation. First mover advantage, however, is
then often ceded to social and state corporatist players with longer time hori-
zons, greater risk aversion and the patience to build up their skills base and
wait for long-term reward.
VET in the social market

VET systems within social market contexts tend to be better organised.
Industry recognises a need to invest in talent formation. Companies are often
better disposed towards government regulation because it provides an infra-
structure that ensures adequate supplies of skills when needed that supports
longer term planning. Government, for its part, wants to see high employment
and high living standards. To achieve this, taxes are often high, enabling the
government to fund training and development. The presence of employee
representation on company boards serves to improve upward communication
in respect of the need for new skills. Whereas in free markets, the relationship
between organised labour and management operates at arms-length leading to

suspicion as to the other’s agenda, co-determination at company and industry
levels provides vital amplifiers and attenuators that support engagement by
both sides in determining future directions and in assessing the implications
for future skill requirements.
Figure 8.2 presents a model of the Social Market approach to labour market
management.
Unlike the free market context in which governments tend to adopt a
more hands-off approach to tertiary education, the social market philosophy
requires government and industry to work in partnership to determine VET
priorities. These priorities are fed into the schools, colleges and universities
along with the resources necessary for their enactment. The segment of inter-
mediaries tends to be a lot smaller because the dual system is generally better
informed and thus able to achieve a better match of supply with demand.
This leaves a smaller space within which intermediaries can operate. Because
companies are more involved in shaping VET policy, they are more amenable
to paying the taxes necessary to fund it. Adequate supplies of key skills sup-
port longer term planning and investment strategies. Investment risk is lower
in economies with higher skill bases. Investment in new high technology
becomes increasingly risky when there is no assurance that an adequate supply
FIGURE 8.2 A social market vocational education and training system

of skill will be forthcoming to operate it. Banks, therefore, are more prepared
to take a stake in growing businesses and lend longer term, thereby providing
greater stability for the entire economic system. This phenomenon becomes
particularly apparent when consideration is given to labour mobility. People
move more frequently and across greater distances in search of employment
and progression in free market contexts. Why should this be? It seems likely
that individual aspiration, on the one hand, and weaker ties to company and
community are two key factors.
VET under state corporatism

State corporatist approaches to VET are more far reaching. The state deter-
mines national economic priorities in consultation with key stakeholder car-
tels. There is a long history of this pattern of behaviour in both Japan and
Korea and, more recently, in China, although it is the state enterprises rather
than cartels that play a pivotal role. President Trump’s decision to withdraw
from the Paris Climate Change Accords enabled China to step up and commit
itself to world leadership in new green technologies. This commitment has
ensured huge resources are being directed at the challenge.
Figure 8.3 presents a simplified VET model under state corporatism.
FIGURE 8.3 A state corporatist vocational education and training system

The approach avoids some of the rigidities of a full command economy

whilst remaining directive. Industrial strategy is formulated because of interac-
tion between senior government ministers, senior civil servants, and senior busi-
ness leaders from the cartels. Resources are then prioritised to reflect national
industrial objectives and directed towards specific goals that the VET system is
required to achieve. Intermediation between the VET sector and the corpo-
rate sector plays a lesser role. In China, for example, prior to its admission to
the WTO, state agencies undertook all intermediation. Since China’s entry
to the WTO, large numbers of foreign direct investors keen to offshore and ben-
efit from lower labour costs have set up in China. Accompanying their arrival
came a wave of private intermediaries, both Chinese and International in origin,
including many head-hunters, keen to exploit the many market opportunities.
Challenges for HR Planning, recruitment and selection

In Chapter 4, the importance of alignment between business and HR strat-
egy was addressed. It was argued that building and sustaining such align-
ment is always challenging. Recruitment practises change as companies grow.
Appointment of new staff has implications not just for the line manager but
also other managerial stakeholders. New recruits often must integrate into
well-established teams. Whilst skill and knowledge are important, fitting
into a team is a more complex challenge. Thus, as the organisation grows,
line manager interviews tend to be augmented by aptitude and psychometric
assessment culminating in elaborate assessment centres.
There is, however, a second dynamic. As we saw in Chapter 4, both compa-
nies and industries have life cycles. During the period of conception and birth,
the organisation is small and new recruits need to be versatile and flexible if they
are to meet all the challenges that face the organisation. Creativity, flexibility
and ingenuity are the order of the day. If the company is a fast follower, it needs
to grow its market share rapidly to catch up with the first movers. Continuous
product refinement and quality improvement are called for. Systems and pro-
cesses that deliver standardisation and consistency are imposed. This requires
changes to working practises that can alienate early recruits. More managers
are required as teams, and shifts multiply. Recruitment practice becomes more
standardised, and planning is often predicated on the growth trend.
In a world where there are skill shortages and patterns of social and economic
migration, managers have no choice but to manage diversity. The only choice
that they have is whether they manage it well or badly (Bassett-Jones, 2005).
Clearly, if skills are in short supply, reliance on the external labour market
is a risky strategy and some companies choose to develop and train exist-
ing staff to progress. Other companies poach and to do so, enhance reward
packages accordingly. Free labour market systems under these conditions
become chaotic. Company growth strategies may be compromised as a result,
offering rich pickings for intermediaries. As the industry matures, it also con-
centrates. Margins become squeezed and competitors are forced to cut costs.
Mergers and takeovers ensue as strategy focuses on building further market
share by taking customs from competitors. To do this, margins must be cut.
This is often achieved by cutting R&D and training and development. Smart
employees with valuable skills often read the runes. They become restive and
seek to move to larger competitors. Some managers and employees are laid
off, especially in those areas seen as overheads. If top management has failed to
read the signals coming from the environment or has misread them, they may
confuse an industry growth ceiling with an economic downturn, especially if
the two coincide. In these circumstances, they may try to ride out the storm
and, in so doing, make their organisation less competitive, rendering them
targets for larger or leaner predators.
The maturity phase can last for many years with a few large players oper-
ating an oligopoly. Under these conditions, competition for the best talent
remains intense and recruitment practises are continuously improved and
refined. Career ladders and training development systems are first consolidated
and then they become ossified.
What are the implications for labour market systems? Free market systems
may be chaotic and unable to respond to rapid product market expansions
during an industry’s rapid growth phase. Social markets and State corporatism
tend to fare better when those tasked with planning get the calculations right.
National and global oligopolies become more vulnerable under conditions
of decline when the VET system may be overproducing certain skill sets.
However, the higher the quality of the skill sets that are being generated, the
more flexible and adaptable the system’s output becomes. It is for this reason
that the Keiretsu and Chaebols divide their portfolios into sunrise and sunset
businesses and seek to deploy older employees in the mature industries they
are harvesting whilst assigning young talent to the sunrise sectors where their
skills can grow as the company and the industry develops.
Thus, we can see clearly that recruitment and training systems co-evolve
in a cultural context, as both company and industry systems proceed on their
journey through the life cycle.
Case Study: Head hunting in China
Background
China’s admission to the WTO in late 2001 resulted in China opening its econ-
omy to inward investment. China was keen to create an export-oriented econ-
omy that could earn hard currency. Western companies keen to have access
to a vast pool of low skilled and low-cost labour quickly adopted offshoring
strategies. The Chinese Government, however, aspired to achieve a transition

from a low skill, low wage, high growth economy, to one of high skills, high
wages, and high-quality growth. It corralled foreign companies into special
economic development zones. Chinese companies were also encouraged to
set up in these zones so that they would benefit from churn and spill-over.
Today, Chinese industrial policy is focused on upgrading the country’s
manufacturing capabilities. According to Lai and Deng (2017), the Govern-
ment is targeting specific advanced manufacturing segments and prioritising
the building of innovation capability. It has recognised that innovation and
weakness in core technologies are holding the country back. The National
Medium- and Long-term Program for Science and Technology Development
(2006–2020) introduced measures to help develop Chinese companies,
particularly those in advanced, innovation-based industries. In all, over
400 core technologies were identified. These ranged from integrated circuits,
alternative energy to pharmaceuticals and were prioritised for development.
In 2015, the government published its Made in China 2025 plan (MC2025). It
initiated supportive policy measures that made it clear that the Chinese gov-
ernment was absolutely determined to develop indigenous innovation and
upgrade the nation’s manufacturing capability. The plan made clear that 70%
of basic components and materials would be domestically manufactured by
2025. This is to be complemented by a 50% reduction in operating costs,
along with shorter production cycles and significant reductions in defect rates.
To achieve its objectives, 40 national innovation centres are being established
to develop smart manufacturing, advanced equipment, robotics, new mate-
rials, next-generation information and communications technology (ICT),
biopharmaceuticals, high-performance medical devices and green technolo-
gies. The goal is to become self-sufficient in new technologies.
China’s drive to achieve an innovation edge

Xinhua News reported in 2017 that the government had already invested
RMB2.2 trillion, or US$325 billion in the advanced industries targeted in
the Made in China plan 2025 (MC2025). In addition, R&D investment in
2015 reached RMB1.4 trillion, up 8.9% from the previous year. Of this, the
Chinese government contributed a total of RMB 301.3 billion, an increase
of 14.3% over 2014.
To support its strategy, the Chinese Government also introduced
new policy tools. These include new government procurement rules and
government-supported acquisitions of foreign companies with technologies
that complement the goals of MCP 2025, along with new financial policies
that aid both Chinese and foreign investors. The goal is to raise the quality
of foreign participation so that indigenous industries can learn through

spillover and collaboration in much the same way as Japan had done in
previous decades. The government holds out the carrot of unprecedented
profits for those companies that choose to participate so long as they
are prepared to balance the risks associated with technology transfer.
Financial incentives are being made available to foreign firms to support
their R&D effort, especially if they are involved in collaborations or joint
ventures with Chinese companies. Access is also being provided to Chinese
universities and research institutes, and VAT charges have been reduced.
Local Government and Municipal authorities have also been drawn in and
encouraged to offer a wide range of packages and inducements designed
to reduce the cost of doing business for foreign direct investment projects
that accord with MCP 2025 goals. Such measures include reductions in
local taxation, 50-year leases on land for key industrial projects, reductions
in energy charges and social insurance and subsidies to support the skill
upgrading of local employees.
Whilst progress has been impressive with China rising in the interna-
tional league tables in terms of academic publications and exploitation of
established technologies, Applebaum (2014), argued that “the jury is still
out” in terms of whether it can become a first division innovator. One of
the main problems that it faces is the paradoxical role of state enterprises,
the heritage of long-term planning and China’s inherent cultural risk aver-
sion. Yu (2014) argues that to preserve the political hegemony of the com-
munist party, state enterprises play a key role. Driven by targets laid down
in long-term plans, managers are incentivised to deliver short-term spikes
in performance that militate against the realisation of a long-term innova-
tion strategy. For innovation to thrive, Yu argues that open access and free
market competition are required, and ironically, these conditions are more
likely to be found in less regulated areas of the economy.
Nevertheless, the Chinese strategy is to make China attractive to foreign
companies wishing to locate and do business in China. Access to the huge
Chinese market requires that they adopt a permissive stance in respect of
their core competencies and their intellectual property. For the strategy to
succeed, indigenous talent must be developed. It also calls for expertise in
finding and selecting talent that is matched not just to skill requirements
but also to the culture of the organisation to which the talent is recruited.
The rise of intermediaries

Korn Ferry is a major global talent management company. Founded in
the US in 1969, the company has over 7,000 employees operating in over
110 countries worldwide. In 2016, company revenue was $1.3 billion.

The company boasts that 93% of Fortune 100 companies are its clients
and that it holds reward data on 20 million and engagement data on
6 million professionals worldwide. Almost 70% of its turnover is generated
outside the US. Not surprisingly, the company was quick to spot the
emergent opportunities in China. In 2013, less than 10% of its clients
were Chinese companies. In May 2018, over 50% of its clients were Chi-
nese. These included state-owned enterprises that are seeking to estab-
lish themselves overseas. Other clients include Baidu Inc, Alibaba Group,
Tencent and China General Nuclear Power Group. As the company’s rev-
enue figure suggests, the market for top executives is a lucrative one. Top
firms typically charge 28–30% of the candidate’s salary in the first year.
This can exceed 1 million yuan ($153,000) as a service fee over a three-
to-six-month period.
Heidrick & Struggles is another executive search firm. It was founded
in the US in 1953. It is also one of the top five in the world. Huang Jigong,
partner-in-charge of Heidrick & Struggles China has also acknowledged
that Chinese companies now represent the largest proportion of the firm’s
client base (Ecns.cn, 2018). He asserts that Chinese firms are prioritising HR
in their expansion plans. Many of these clients are internet and high-tech
firms that hire foreign employees from Silicon Valley or overseas Chinese
with educational or working experience in developed countries. Compar-
ing foreign and Chinese companies, Huang suggests that the former have
long-term plans for new executive managers, whilst the Chinese firms
tend to seek candidates who are practical, efficient, and quick to generate
profit. This is a view that squares with the Yu’s (2014) assessment cited
earlier that the Chinese executives that are most highly valued are those
that can deliver quick short-term results in a context of organisational risk
aversion arising from a culture grounded in years of targets set-in long-
term plans.
Whilst well-established Western HR companies have a strong presence
in China, local competition is growing fast. Indigenous Recruitment Agen-
cies are growing at an exponential rate and diversifying into other parts of
South-East Asia. According to China’s Ministry of Education, there are over
1,100 technical/vocational institutes at tertiary level and almost 15,000
secondary technical/vocational schools. Collectively, these generate a total
annual output of 11 million people with varying degrees of technical skill.
With support from the World Bank and other Western agencies, the Chi-
nese Government is driving hard to upgrade the curriculum and training
on offer, helping to create a positive feedback loop that encourages ever
more intermediaries to enter the fray.
Summation
This chapter has set out to show how organisational culture evolves through an
interaction between organisational HR systems and technology. Technology
and culture interact to shape institutional and legal frameworks. These but-
tress culture and underpin at the highest level of recursion. The chapter iden-
tified three emergent supra politico economic systems. Those grounded in a
free-market ideology and possessive individualism, those that have embraced
a social market ethos, and those founded on state corporatism.
We have seen that the law of primogeniture and the transfer of wealth from
the land to manufacturing paved the way for the industrial revolution and the
rise of possessive individualism. This ideology provided the bedrock for neo-
liberalism and, latterly, the Washington consensus that shaped globalisation
in the latter part of the twentieth century and precipitated the emergence of
China as a major world power.
War and revolution combined with the Salic Law and the Napoleonic Code
entrained a different view of markets and market forces in Europe, resulting
in a Social Market ideology. Whilst individualism, voluntarism and oppor-
tunism characterise the Anglo-American world, regulation, centralisation and
longer-term aspiration characterise social market institutions and cultures.
State corporatism prevails in countries that have made a dash for growth.
Japanese, Korean and Chinese success have been predicated on both a need
and a willingness to subordinate individual liberties for the collective good.
They have developed rapidly at a time when technology has facilitated cen-
tralised control. Unlike their Western counterparts that left feudalism hun-
dreds of years ago, these countries have transformed themselves in less than
three lifetimes. Employees acculturated in these contexts tend to be more
deferential and compliant to authority and function in systems within which
tradition and hierarchy predominate.
In Chapter 9, consideration will be given to how culture shapes pay and
reward systems.
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9
PAY AND REWARD PRACTISES
AND THEIR IMPLICATIONS FOR
CORPORATE CULTURES
Overview
In this chapter, we will examine approaches to pay and reward. The cen-
tral contention of the chapter is that one of the leading determinants of
organisational culture is the pay and reward systems that an organisation
chooses to implement over time. The chapter will explore the linkages
between strategy on the one hand and pay and reward on the other. As
we have seen, strategic choices are constrained by numerous variables. As we
saw in Chapter 4, these include the stage in the organisational and industry
life cycle, the size of the company in focus, the nature of the competitive
environment and the state of the labour market in terms of the skills and
knowledge organisations need to sustain a competitive advantage. Earlier,
it was suggested that an industry is a meta-system within which multiple
organisational subsystems compete for skills within national labour market
systems. These systems have diverse legal and regulatory frameworks that
render them complex.
At the micro level, pay and reward systems are also complex. They require
careful consideration. Once options have been considered and choices made,
drivers are entrained to either work to sustain or to change organisational
culture and its alignment with competitive strategy. Thus, the pay and
reward system, if well communicated, becomes a most powerful amplifier of
organisational objectives. Power and status shifts emerge as pay and reward
systems change. Changing such systems sends powerful messages not only
about what an organisation values but also the esteem in which groups and
individuals are held. If these are well aligned with strategy, then the results
are likely to feed through into positive organisational performance. If they
DOI: 10.4324/9781315630557-10
are not, then felt injustices impede performance. We saw this in the case of
the British automotive sector during the 1980s when an HR illiterate man-
agement prioritised quality whilst allowing the pay system to continue to
reward volume.
This chapter will draw further upon the Bamberger and Meshoulam model
of HR strategic archetypes introduced in Chapter 4. It will explore how
reward systems deliver or frustrate cultural alignment and the choices and
constraints under which organisations operate in different national systemic
contexts. The case study will consider how Tata, an important Indian corpo-
ration with its roots in an emerging economy, has grown to become a major
multinational conglomerate with a global presence that offers strong reso-
nances with the earlier case example of CEMEX.
As we established in Chapter 2, a system is a conceptual abstraction that
imposes a boundary that enables us to evaluate what sits within the boundary,
the specific inputs the system is absorbing, the processes the system inputs
entrain, and the outputs or emergent properties that are generated.
Links between HR strategies and organisational effectiveness were first
established in the 1990s by Gerhart and Milkovich (1990), Gomez-Mejia and
Balkin (1992) and Huselid (1995).
By far, the most important input to any organisation is the skill and knowl-
edge embedded in the human asset base.
Distinguishing between pay and reward

To begin with, it is important to differentiate between pay and reward. Pay
is usually an amount of money paid by an employer in return for services
prescribed in the contract of employment. Reward, in contrast, can take
many forms. It can include bonuses, commission, and other benefits that an
employee can accrue for achieving certain prescribed thresholds. Typically,
reward kicks in when employees go beyond the basic requirements of perfor-
mance prescribed in the contract of employment. This chapter, therefore, falls
into three parts. The first will look at pay, the second at reward and the final
section will look at system implications.
The variety and complexity of pay systems

Crudely speaking, a pay system can be divided into two basic types, base
pay and variable pay. This creates a classification problem because base pay
typically applies equally to all employees, whereas variable pay tends to be
individualised. This raises a question as to whether variable pay should be
classified as part of a reward rather than a pay system. To illustrate just how
complicated payment systems can be, set out in Table 7.1 are the results of
Pay and Reward Practises and Their Implications 147
the UK Chartered Institute of Personnel and Development’s (2017) report on

Reward Management with a focus on Pay.
The problem is further compounded by the fact that the criteria are not
mutually exclusive. Different permutations are possible. The implication of
this variety is that two hi-tech companies of comparable standing operat-
ing in the same global market with a commitment to being first to mar-
ket innovators might both have high commitment HR strategies but have
dramatically different pay systems designed to achieve similar outcomes. An
American company might pay a proportionately lower narrow graded base
wage, with progression tied to individual performance and offer higher vari-
able pay based on individual performance and a small proportion of profit or
gain sharing. A Japanese counterpart might pay a proportionately higher base
wage, with progression tied to seniority with smaller individual awards for
exceptional achievement and a larger group performance component tied to
goal sharing. As Qi and Rowley (2009) have suggested, company approaches
to reward are shaped by various key exogenous variables. These include the
state of economic development, prevailing cultural norms, the nature of the
political economy, the state of the labour market, and the national legislative
frameworks within which companies are obliged to operate. Collectively,
these shape the nature of the competitive environment and the HR options
and strategies companies can adopt.
Why pay and reward systems must be

perceived to be legitimate
Pay and reward systems play a pivotal role both in building a competent human
asset base and in retaining it. A perception of injustice, regardless of whether it
is well-grounded, will become a powerful push factor for individuals. Employee
turnover gives rise to skill dilution. If a sense of injustice is felt by a group,
then it becomes a distributive justice issue that as we have seen can compro-
mise the psychological contract. If the company has a pluralist orientation to
labour relations and recognises trade unions, then it can catalyse an industrial
dispute that, in the worst case, might culminate in strike action. If the company
has a unitarist orientation, then motivation and engagement decline, turnover
increases, and in some cases, employees may resort to pilferage or other devices
to redress the balance. It may also create the conditions under which employees
may seek to organise and form a trade union. (For more on unitarism and plu-
ralism, see Chapter 9.) Cotton and Chapman (2010), in a survey of UK rewards
for professionals, found that poor communication regarding the rewards policy
and strategy was the single biggest problem and source of greatest risk in ensur-
ing a reward strategy delivered on its promise. Shields (2007), arguing from a
“best fit” perspective, asserted that even well-designed reward systems can fail
to deliver if they are not understood.
The four dimensions of a payment system

Milkovich and Boudreau (1994) argued that all payment systems need to have
regard for four dimensions. These are outlined below:
1. External competitiveness
2. Internal alignment
3. Value of employee contributions
4. Practicalities of implementation
External competitiveness
Considers the limits which an employer can pay below competitors and still
recruit the required level of skill. In setting pay levels, therefore, employers
not only need to know what their industry competitors pay, but they also
need to be aware of the average pay for a given level of qualification or skill
within a locality. Building these insights involves understanding how the mar-
ket defines job categories and industry payment structures. Such knowledge is
built through competitor surveys, analysis of competitor recruitment advertis-
ing and so forth. It enables an organisation to compare its preferred payment
level with that required to compete in the labour market.
Internal alignment
The key question here is, “what is equitable?” Normally, newly recruited
employees join an existing workforce. If their package is seen to be superior
to that of existing employees who identify with the role, then the existing
employees experience felt injustice. Such perceptions, whether well-grounded
or not, are typically highly demotivating. Internal alignment is essential if
such reactions are to be avoided. Employers use job evaluation, job analysis
and job descriptions as mechanisms that enable them to benchmark jobs in a
bid to ensure perceptions of equity and consistency.
Employee contribution
Employee contribution is grounded in job evaluations and job descriptions on
the one hand and performance on the other although the latter is often felt to
be subjective, depending upon how contributions are measured and valued. In
some organisation’s contribution is measured on an individual basis through
performance appraisal or 360 feedback, whilst in others, it is the team’s con-
tribution that is measured using various metrics that might include volume,
wastage, rejects, etc.
Practicalities of implementation
There is invariably a trade-off between equity and cost. The more nuanced a
payment system is, the more costly it is likely to be to administer and to explain.
Complex systems require huge effort to communicate how the system works,
why it is necessary and why it is equitable. The complexity feeds through to
budgeting and financial control. It is for this reason that most employers opt
for systems that are not unduly complex either to operate or understand. They
then strive to legitimise the scheme by highlighting strategic goals and citing
the grounds upon which the system can be regarded as equitable. Payment
and reward systems, therefore, are probably the most efficient feedback loops
in communicating company values and required knowledge, skills, and atti-
tude. They have immensely powerful transduction and amplification capacity.
In consequence, changes in strategy are invariably communicated by making
changes to organisational structures or to the pay and reward systems. Often
both are undertaken in combination.
Aligning the pay system with strategy

There are many ways of classifying competitive strategy. Most approaches
focus on orientation either to the market or to innovation, or both. Porter
(1985), for example, stressed orientation to the market and proposed three
types of strategy and a default position for failure, these were focus, differenti-
ation and cost leadership; the default position for failure resulted in being stuck
in the middle. Freeman (1982, 1995), in contrast, classified strategy accord-
ing to an organisation’s orientation to innovation. Abernathy and Utterback
(1978), also adopted an innovation perspective, whilst Miles et al. (1978) and
Miles and Snow (1984) combined both orientations with their categories of
defenders, prospectors, analysers and reactors.
It would be a misconception to assume that organisations need to con-
form to national cultural stereotypes when designing a system for pay and
reward. The most important consideration is the nature of the organisational
culture that management is seeking to create. King and Bu (2005), in a study
of IT graduates in the US and China, found a greater variation in expectations
between graduates in Shanghai and Beijing than between US graduates and
their Shanghai counterparts. This should come as no surprise given the sheer
variety of industries that collectively constitute an economy and the range
and size of companies operating in different industries and sectors. This vari-
ety is compounded by the spectrum of business strategies different companies
within an industry may adopt. A further problem lies in the fact that compa-
nies must adjust their approach to pay and reward depending upon where they
are in their individual life cycle. In other words, organisational approaches to
both pay and reward are both constantly evolving.
Qi and Rowley (2009), in their review of the literature on changing pat-

terns of reward in Asia, were able to show unequivocally just how dynamic and
fast-moving HR practises on pay and reward can be, especially in fast-growing
economic contexts. Their study focused on 78 articles culled from a total of
113 publications in top journals. In a critical evaluation of the methodologies
adopted by most researchers in their review, they cited a particular problem
first highlighted by Rowley and Benson. It is quoted below.
Theories and frameworks developed in the West were identified as the ones
involved in the cast bulk, nearly three-quarters (70%) of the studies. Thus,
researchers tended to explain Asian phenomena of rewards through either directly
testing Western theories or building-up extensions to them in Asian contexts.
However, given the specific Asian societies and histories, countries may have their
own HRM with ‘Asian characteristics.’
(Rowley et al. 2004)
This is a cautionary statement that provides credibility for Bamberger and

Meshoulam’s four HR strategic archetypes. This is an attractive framework for
classifying reward systems because its elasticity accommodates cultural diver-
sity. The high commitment orientation for example, is typically aligned with
market leadership strategies and results in a corporate commitment to build and
sustain an organisation’s human asset base through the creation of an internal
labour market. To achieve this, organisations establish career ladders and often
pay above the market rate. Such systems are designed to attract and retain tal-
ent. Retention is not just achieved by extrinsic drivers such as an organisation’s
rate of pay. Whilst this may be higher than that available in the marketplace,
intrinsic motivators such as personal development and prospects for progres-
sion also play a key role in retention. Such systems are designed to promote
loyalty and create dissonance for those who might be tempted to take a leap
into the unknown when there is a good chance, patience and commitment will
deliver its own reward. We can see instantly that Indian, Chinese, Japanese, or
American companies can all embrace a high commitment strategy whilst at the
same time placing different degrees of emphasis on pay and on other aspects
of reward. In the same way, the other archetypal HR strategies identified by
Bamberger and Meshoulam (2000) can be found in companies operating all
over the world. Their approach to specific aspects of pay and reward, however,
can vary even between companies operating in the same industry and national
cultural context, not to mention the same group of SBUs!
Huselid and Becker (1997) were the first to provide a solid empirical link
between HRM and organisational performance and to draw attention to the
value of bundles of HR practice that, if well aligned, contribute to supe-
rior performance and competitive advantage. Organisational success typically
results in growth. As we saw in Chapter 4, both companies and industries
operate within life cycles of birth, growth, maturity, decline and demise.
Growth precipitates crises that demand changes in both HR policy and prac-
tice. For example, during the latter phase of Greiner’s growth through direc-
tion, it will become necessary to introduce rationale for determining the pay
levels of different cadres of management and between management and their
staff. It is important that such initiatives are perceived as having legitimate
foundations. Job evaluation is often deemed to be the best way forward. At
this juncture, training and development policies become important factors in
establishing rules for discriminating between different categories of staff in
terms of what they do. This can be contrasted with the initial phase of growth
through leadership, when creativity, problem-solving, and flexibility are val-
ued. This is also a time when funds may be short, and pay is deferred. This
is achieved by persuading managers and employees to accept part payment in
shares. If the company does well, then the shares can be cashed in for a profit
at some point in the future.
The challenges of internationalisation and globalisation

Historically, Holland has been the home of more multinational corporations
(MNCs) per head of population than any other country. The reason for this
is that the Dutch domestic economy is relatively small. Successful businesses
have had to internationalise and achieve growth beyond the Dutch borders.
Growth through internationalisation accelerates the onset of Greiner’s
crises of identity. Internationalisation demands flexibility and problem-
solving capability. Initially, companies have little choice but to send their own
nationals overseas to establish subsidiaries. As Perlmutter (2007) observed, the
journey of international growth usually begins with company policies reflect-
ing an ethnocentric orientation. Policies and practises operating at home are
transferred to the subsidiaries. This kind of orientation is often premised on
the assumption that experienced managers from the home country are likely
to be the most competent. Depending upon the company and the industry,
at some point, the law of requisite variety kicks in resulting in a new form of
crisis, namely a crisis of control. Transduction and attenuation between the
host country and its parent become major problems. The causes are complex.
Differences in national culture play a part, but a further problem lies in the
fact that the parent’s state of evolution is likely to be a lot more advanced than
its subsidiary, and therefore, policies that serve the parent well pose problems
in the subsidiary. This is usually resolved by giving the subsidiary greater
autonomy. At this point, key decisions in terms of the direction of HR policy
and practice are called for. How should issues of pay and reward be resolved in
contexts where differences of culture adversely influence both motivation and
commitment to remain? Some MNCs choose to shift to a poly-centric orien-
tation; others may embrace a geocentric approach. The former results in more
local talent advancing into managerial roles. This can provide the subsidi-
ary with local knowledge about both customers and knowledge about what
motivates employees. This enhances a subsidiary requisite variety. Perlmutter
observed that often companies embrace a polycentric orientation and then
move on to a geocentric position whereby the parent seeks to recruit and
deploy the best talent globally and from an HR and general systems perspec-
tive achieve greater internal integration.
These transitions raise other challenges. How should expatriates on assign-
ment be treated? Initial deployments of expatriate staff will most likely involve
a home-based approach under which the reward level is designed to reflect
home country purchasing power boosted by a foreign-service allowance and
supplementary benefits that may include housing, medical insurance, educa-
tion, and other expenses. This approach is often favoured by Western com-
panies headquartered in developed economies. The host-based approach, in
contrast, seeks to achieve equitability between expatriates and host country
personnel. This is an approach often adopted by parent companies based in
developing economies. If the host country is higher paying, they seek to match
the host country’s remuneration level. If the host country is lower paying,
then the base pay is standardised and then augmented by additional allow-
ances to render the destination appealing to either domestic or third country
expatriates. Finally, a region-based approach is typically deployed if the par-
ent company policy is geocentric. In these circumstances, the reward sys-
tem is designed to acquire and distribute talent wherever it is needed. This is
achieved by upholding a set of fundamental reward tenets that accommodates
both competitiveness and local flexibility. The flexibility is achieved by dele-
gating responsibility for base pay, benefits, allowances and incentives to local
managers.
Figure 9.1 shows an Indian MNC at the highest level of recursion with
regional subsidiaries in the US, Europe and China. The company’s growth
has been rapid, and it faces a dilemma. Up to now, it has adopted a host-based
approach to pay and reward. It wants to leverage expertise from different parts
of the world and to promote maximum mobility of talent between the three
regions of the world in which it operates. Experience to date suggests that key
talent is not as mobile as the company needs it to be. Both the US and Chinese
markets are expanding fast, and competitors are building market share. Should
the company adhere to its existing pay and reward system, or should it move
to a geocentric approach?
The directors of HR in both the Chinese and US subsidiaries are opposed
to the idea. They see it as a move on the part of the Head Office to centralise.
The Director of HR at System 2 must now advise the board at Head Office.
What is noticeable about this scenario is that the pattern of conflict is like
that highlighted by Mintzberg. The board sitting at System 5 in corporate
HQ exerts a pull to centralise whilst senior managers at the national level
FIGURE 9.1 n Indian multinational corporation at the highest level of recursion

A
with regional subsidiaries in the US, Europe and China
of recursion exert a pull to Balkanise whilst the impulse of HR operating at

System 2 in Head Office is likely to push for standardisation. In short, it is
often possible to see similar patterns of tension and conflict reflected systemi-
cally at different levels of recursion.
Aligning rewards and benefits with other

aspects of the payment system
Probably the biggest issue confronting a board of directors when it comes to
pay and reward lies in a philosophical decision to prioritise reward for the
individual or the group. Board decisions are influenced by the extent to which
a company has adopted a unitarist or pluralist orientation. (See Chapter 9
for a detailed discussion of the differences between unitarism and pluralism.)
Typically, unitarism favours an individualistic approach. Companies that have
either embraced a pluralist orientation or have truly bought into Deming’s
doctrine of quality management tend to eschew individual rewards, preferring
instead to reward groups. Whilst it is true that Western countries tend to adhere
to individualistic approaches whilst Eastern countries embrace more groupist
practises, these are generalisations that obscure the rich diversity of evolving
practice that arises in all regions of the world and is highlighted by Qi and
Rowley (2009). They report that there is evidence of a shift towards rewarding
individual performance, for example, in some Japanese corporations.
Benefit packages such as medical insurance, allocation of company cars, travel
allowances and so forth vary enormously across national jurisdictions because
of cultural differences and variations in public policies regarding health, social
insurance, and taxation. As we have seen, whilst many developed free mar-
ket and social market Western economies have evolved elaborate social welfare
arrangements, emerging economies often do not have a comparable social wel-
fare infrastructure. In consequence, companies operating in emerging markets
often step in to fill the void. In so doing, they incorporate benefits that act as
powerful attenuators when it comes to recruitment and retention.
The systemic implications of pay and reward systems

Pay and reward systems are typically designed to attract and retain staff. As we
have seen, they must be designed to support organisational objectives. These
inevitably change in response to changes in both the external and internal
environments. The term entropy is often used to describe the phenomenon
of something breaking apart. In thermodynamics, it has a specific meaning.
It describes the energy in a closed system that is not available for useful work
because it dissipates over time. An organisation is a partially closed system.
The implication of this is that there are forces that are pushing the organisation
apart and forces that hold it together. The goal of an HR system is to amplify
the energy of the organisational system for the achievement of purposeful
goals. These goals change over time in response to dynamics generated by the
interaction between the organisation and the larger systems of which it is a
part, namely its external environment.
Case Study: The Tata Corporation
Tata is a very large Indian global conglomerate. Tata Sons Ltd is the main
holding company for the group and is based in Mumbai in India. In 2017,
it converted from a public to a private limited company. Worldwide, Tata
companies and joint ventures employ nearly 700,000 people of which
over half are employed by Tata Consulting Services.
In an earlier chapter, reference was made to Collins and Porras’s work
“Built to last.” Their book made a link between the culture established by
the founder and an organisation’s longevity. The life of the Tata group
spans 150 years, almost three times the average for a major company.
Founded by Jamshedji Tata in 1868, approximately two-thirds of its

equity capital is held in philanthropic trusts chaired by members of the fam-
ily. It holds a majority shareholding in many of the Tata companies across
the world.
At the highest level of recursion sit two private Companies, Tata Sons
Ltd and Tata Industries Ltd. Most of the shares in these two companies are
held by charitable trusts, the most prominent of which is the Sir Ratan Tata
Trust, with a 66% holding in Tata Sons, and the Sir Dorabji Tata Trust. Tata
eschews the term holding companies preferring to call them sponsoring
companies. Tata Sons holds major shareholdings in most companies in the
group which consists of over 100 operating companies. In the interests of
promoting greater knowledge transfer and executive mobility, the oper-
ating companies have been loosely organised into clusters. The portfolio
of clusters is shown in Table 9.1. Thirty-two of the businesses are public
companies; foremost amongst them are Tata Consultancy Services, Tata
Communications, Taj Hotels, Tata Chemicals, Tata Power, Tata Global Bev-
erages, Tata Teleservices, Tata Steel and Tata Motors.
Tata Industries was established in 1945 as a managing agency for
Tata Businesses. In the 1980s, its role was changed to one of promoting
Tata’s entrance into new hi-tech industries. These included IT, telecoms,
advanced materials, auto components and control systems. Tata Industries
is divided into two divisions, each of which functions as a profit centre. The
first is Tata Strategic Management that provides a range of consulting ser-
vices both to companies within the group and outside. The second is Tata
Interactive Systems which provides e-learning-based training in a range of
disciplines.
The emergence of Tata as a global conglomerate has resonances with
CEMEX. Until 1990 Tata was a highly diversified Indian conglomerate; how-
ever, in 1991, under the leadership of India’s 9th Prime Minister P.V. Nar-
asimha Rao, the complex system of licensing that restricted the capacity
to engage in business activity in India was overturned. Known as Licence
Raj, it had been in place since 1947. The Indian economy was opened to
international competition. Fearful of foreign encroachment, Tata group’s
response was to grow internationally. As such, the group represents a
good example of “second wave” accelerated internationalisation involving
companies aspiring to achieve global stature from emerging economies.
Unlike many of their earlier first wave counterparts internationalising from
developed economies, many of these firms did not wait to become large
within their domestic market before expanding overseas. Tata, however,
was already large and, as such, had resources that enabled it to pursue a
three-pronged multinational expansion strategy. It was able to export and
through partnering with established companies operating in developed
TABLE 9.1 Clusters of TATA businesses.
Defence Communications Manufacturing

& aerospace & ITeS Manufacturing continued
• TAL • Nelco • Indian Steel and

• Tata Daewoo
Manufacturing • Tata ClassEdge Wire Products Commercial
Solutions • Tata • Jaguar Land Rover
Vehicle Company
• TASEC Communications • JAMIPOL • Tata Hitachi
• Tata Advanced • Tata Consultancy • Jamshedpur Construction
Materials Services Continuous Machinery
• Tata Advanced • Tata Elxsi Annealing and• Tata International
Systems • Tata Interactive Processing • Tata Metaliks
• Tata Systems Company • Tata Motors
Technologies • Tata Teleservices • NatSteel Holdings
• Tata Motors
• Tata Teleservices • Rallis India European Technical
(Maharashtra) • Tata Autocomp Centre
Systems • Tata Petrodyne
• Tata BlueScope
• Tata Pigments
Steel • Tata Sponge Iron
• Tata Ceramics• Tata Steel
• Tata Chemicals
• Tata Steel Europe
• Tata Chemicals
• Tata Steel
Europe Processing and
• Tata Chemicals Distribution
Magadi • Tata Steel Thailand
• Tata Chemicals
• Tayo Rolls
North America• The Tinplate
• Tata Cummins Company of India
Consumer Financial Realty

& retail services & infrastructure Services
• Infiniti Retail • Tata AIA Life • Associated • Indian Hotels
• Inzpera Health Insurance Building • mjunction services
Sciences • Tata AIG General Company • Roots Corporation
• Landmark Insurance • JUSCO • Taj Air
• Tata AG • Tata Asset • Powerlinks • Tata Africa
• Tata Global Management Transmission Holdings
Beverages • Tata Capital • Tata Consulting • Tata Business
• Tata Coffee • Tata Investment Engineers Excellence Group
• Tata Sky Corporation • Tata Housing • Tata Business
• Tata UniStore Development Support Services
• Titan Company Company • Tata Limited
• Trent • Tata Power • Tata International
• Tata Power Delhi AG
Distribution • Tata NYK
• Tata Power Solar • Tata Services
• Tata Power • Tata SIA Airlines
Trading (Vistara)
• Tata Projects • Tata Strategic
• Tata Realty and Management
Infrastructure Group
• TRF • TKM Global
• Voltas Logistics
• TM International
Logistics
markets, it could supply a wide range of offshore services both in India and
elsewhere. This is a route adopted by many emerging market companies
seeking to achieve accelerated internationalisation (Bonaglia et al., 2007).
However, Tata also had the resources to engage in foreign direct invest-
ment on a large scale. In 2000, for example, Tata acquired Tetley, a major
supplier of tea in the UK. In 2008, it acquired Jaguar Land Rover and made
significant investments such that the company turned from loss making to
profit in two years. In early 2007, it acquired the struggling Anglo-Dutch
steel producer Corus in a £6.2 billion deal. In short, Tata not only had
the resources available to buy struggling but well-established behemoths
with recognised brands and established supply chains and markets in the
developed world. It also had the financial and organisational capabilities to
restore them to profitability.
Corus proved to be a major challenge. Despite heavy investment, inter-
national overcapacity in steel made a return to profitability more elusive.
Nevertheless, having struggled for over a decade, in 2018, TATA steel
entered a 50:50 joint venture with Thyssenkrupp. Under the agreement,
the flat steel businesses of each company will be merged. The combined
workforce at the time of merger amounted to 48,000 people. The com-
bined entity will be the second largest company in the flat steel segment in
Europe. The deal, whilst contentious amongst some Thyssenkrupp inves-
tors, is expected to yield 500 million euros from synergies in purchasing,
logistics, equipment utilisation and administrative expenses. Both con-
cerns have committed to a future of coevolution. At around the same time,
Tata took the view that its long products division (long products include
bars, girders and rails) was a liability because the price of these products
was being undercut by Chinese steel being dumped on the global market.
The division was sold to a private equity company Grey Bull for £1. Grey
Bull relaunched the division as a new company called British Steel. In May
2019, British Steel went into liquidation amid allegations of asset stripping
on the part of Greybull.
The evidence of Tata’s “accelerated growth” attests to its grasp of the
law of requisite variety. Each company has its own independent board
of directors; however, in return for the right to use the Tata brand, each
company pays a royalty of circa 0.15% of turnover to Tata Sons and must
comply with the Tata Code of Conduct and embrace the Tata Business
Excellence Model (TBEM), based on the Malcolm Baldridge quality
system.
Tata Motors, formerly known as the Tata Engineering & Locomotive
Company, was established in 1954 as a joint venture with Daimler Benz,
the forerunner of Daimler AG. The business was established to produce
commercial vehicles. In 1991, the company entered the passenger car mar-
ket for the first time. By 2012, it was the fourth largest producer of com-
mercial vehicles in the world and stood at number 17 in the passenger car
market in 2017 (Automotive-Technology.com) with a substantial presence
in the economy segment of the market.
In 2008, Tata Motors acquired Jaguar Land Rover, a significant player in
the premium luxury end of the market with a substantial presence in the
US and China.
Ford sold Jaguar Land Rover as a loss-making concern. Ford’s strat-
egy had been to exercise tight control. Unfortunately, it did not invest,
making it difficult for the JLR management to exercise judgement and
take risk (Varun et al., 2010). Within five years of the TATA acquisition,
the company made a £2.5 billion profit. How did this come about? Views
vary, but there is a consensus that it was a combination of good manage-
ment and good fortune. The acquisition occurred in 2008, the year of
the financial crash. Despite this, Tata resisted the temptation to seek early
synergies preferring instead to take a long-term view. It recognised that
the JLR core competencies were very different to its own (Pathak, 2016).
In line with an enlightened system thinking, TATA motors delegated
authority to take all strategic decisions at the lowest level of recursion
within which competence resides, namely, the JLR board. The operational
premise being that the JLR top team knew its market, its customers and
its products.
Today, Tata Motors has manufacturing operations in the UK, South
Korea, Thailand, South Africa, Indonesia, Austria, Slovakia and Ukraine and
a joint venture in Latin America with Fiat and Marco Polo based in Brazil. It
has also established dealership networks in 176 countries across the world.
JLR constitutes a significant proportion of this portfolio.
Figure 9.2 shows the Tata Motors division at the next two levels of
recursion, highlighting the JLR operations in various parts of the world.
The figure above shows both the complexity and the nature of the
requisite variety required to operate manufacturing plants in countries
across the world. The Graz plant in Austria is the home of the new Jag-
uar I Pace, an all-electric premium saloon vehicle. It is being produced
through a joint venture with Magna Steyr in Graz, Austria. A similar joint
venture has been established with Chery, a local Chinese manufacturing
partner.
Clearly, the JLR operation is itself very complex, and again, the need
to devolve authority to the lowest level of competence capable of dealing
with the complexity involved is critical. JLRs strategy is to establish part-
nerships with established local carmakers in different markets to which
FIGURE 9.2 Tata Motors and the Jaguar Land Rover Division
Jaguar supplies vital parts for final assembly. This cuts costs, extends mar-
ket reach and avoids the need to deploy expatriates to establish new
local operations that would demand crucial recruitment, reward and
performance management policy decisions they might be ill-equipped
to make.
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10
HUMAN RESOURCE DEVELOPMENT
FROM A SYSTEMS PERSPECTIVE
Overview
This chapter builds on some of the ideas floated in Chapter 5. There the nature
of meta systems of vocational education and training in different regions of the
world at the highest level of recursion was the focus of consideration, along
with the cultural and institutional dynamics that shaped them. In this chapter,
we look at training and development at the organisational level.
The objectives of the chapter are to show that human resource development
(HRD) plays a critical role in ensuring that organisations are able to sustain
the necessary requisite variety to enable them to achieve their strategic aspira-
tions. Organisational agility and resilience are in large part determined by how
organisations set about building their competences and capabilities at all levels.
Values and attitudes in the boardroom define and shape not only HRD prior-
ities but also the HRD culture. These in turn influence both the options and
the choices made in defining and shaping interventions. The HRD culture in
turn feeds back to help shape organisational culture. HRD is, therefore, a vital
strategic tool that can constrain or liberate a board’s capacity to exercise strate-
gic choices. Mintzberg and Waters (1985) draw our attention to the phenom-
enon they describe as emergent strategy. The board of a company will define
its mission and goals and develop a strategy for its realisation. Unfortunately,
circumstances intervene. New competitors emerge, a recession hits, a leading
competitor acquires or merges with another. Such circumstances serve to knock
the company’s declared strategy off course and result in multiple adjustments
designed to restore the original trajectory or demand a change of strategy.
In the context of this chapter, HRD is defined as an organisational approach
to creating and enhancing the human and social capital base of an organisation
DOI: 10.4324/9781315630557-11
in such a way as to deliver the necessary requisite variety to enable it to fulfil

its strategic objectives or pivot in some new direction dictated by changing
circumstances. The definition is necessarily broad because organisations come
in many shapes and sizes and their purpose can vary from profit maximisation
to some form of social or indeed political agenda.
The chapter is predicated on the following line of argument. We have
already seen that for an organisation to survive and prosper, it must possess
the necessary requisite variety to meet the complexity presented by both the
external and internal environments. People develop in a context. It might
be a department, a team or some other grouping including the board room.
Human resource interventions are shaped by both the context and cultural
predispositions. Strategic choices are constrained by the competences and
capabilities embedded in the organisation. It follows that both organisational
resilience and agility are to a large degree shaped by an organisation’s orienta-
tion to HRD and responsibility for it, therefore, lies in the boardroom.
Clearly, HRD is a generic term for a wide range of interventions that may
focus on individuals or groups. Such interventions are of three main types,
organisational development (OD), management development and training.
Whilst training and management development tend to focus on the individ-
ual, OD seeks to address the knowledge, skill, and attitudes of groups and
ultimately, the entire organisation. Interventions are initiated when there is a
perception that there is a need for significant and far-reaching change.
Factors precipitating a need for change

There are many drivers of change. As we have seen, they emanate from both
internal and external sources. Internal drivers can include a new CEO with
a new vision, a new strategy agreed by the board or a new product or process
innovation represent three examples. External drivers might include a threat
of a takeover, deterioration in financial performance, the advent of a new
technology, a takeover, a change of strategy on the part of a competitor or the
emergence of a new business model grounded in a new paradigm sweeping
across an industry. Clearly, it is unusual for these developments to occur in
isolation. Usually, there is an interactive domino effect that unleashes positive
and negative feedback loops between the organisation and its environment.
The causes and consequences of corporate myopia

In the same way that the advent of digital technology resulted in the collapse
of much of the Swiss watch industry and the failure of major corporations like
Kodak, so the advent of the World Wide Web led to the demise of many retail-
ers ranging from shops to insurance broking and travel agencies. There were
CEOs of large retailers across the world, for example, that were too slow to
Human Resource Development From a Systems Perspective 163
respond to the challenge the internet posed and failed to shift to a new “click
and brick” business model, thereby placing their companies at a competi-
tive disadvantage. Many have been forced to cease trading. Blockbuster Video
Rentals, BHS and Thomas Cook and Woolworths in the UK, Tower Records
and Toys R Us in the US are cases in point.
Were the companies that failed to respond to the challenge posed by the
internet simply blind or in denial? The answer to this question is probably not,
any more than Kodak had been blind to the implications of digital photogra-
phy. What went wrong? To answer this question, it is necessary to understand
the phenomenon of value migration (Slywotzky and Linthicum, 1997). When
a new technological innovation appears, it often affords opportunities to create
new business models. Established incumbents are frequently active in embrac-
ing the new technological possibilities but they are often weighed down by
many factors that make it difficult to pivot or turn to exploit the technology’s
full potential quickly. Hamel and Prahalad (1996) point to high levels of sunk
investment in the current business model and a deeply ingrained belief in the
established recipe for success as two factors that impede rapid engagement
with change. This makes it difficult for employees to change their attitudes
in respect of what is important. At the board level, a commitment to self-
reliance creates a reluctance to engage in strategic alliances. “Why divide up
the cake when we can have it to ourselves”? Are two powerful factors that
constrain progress in embracing and deploying a new technology or a new
business model that is “not invented here”? Slywotzky makes two important
observations. The first is that when value begins to migrate, it will typically
start slowly but upon reaching a tipping point, it will explode exponentially
creating a powerful positive feedback loop that will suddenly result in an envi-
ronmental transformation. It is the suddenness with which the positive feed-
back loop is entrained that catches the established incumbents off-guard. The
second observation is that because the competitive challenge is being posed
by new entrants to the market, they are not as well known or understood
by the incumbents. Slywotzky uses a powerful metaphor of a radar screen.
Established competitors appear close to the centre of the screen. Their strat-
egies and approach to the market are well understood and if the industry has
concentrated, there are relatively few large players. Often in a bid to preserve
the profitability of the industry, they strive to be “good competitors” and
signal their competitive moves so as not to destabilise the competitive envi-
ronment and erode the profitability of the industry (Porter 1985). The result
is that whilst each of the competitors engages in robust environmental scanning,
their focus is on the environment and competition they know and understand.
They can be slow to observe new entrants operating at the margins of the
market on the periphery of the radar screen. Initially, the new entrants may
appear to be non-threatening niche players but when the tipping point comes,
suddenly the new entrants appear on the centre screen, and it is too late. IBM’s
frantic attempt to make up lost ground in personal computing described ear-

lier, by contracting with Bill Gates’s Microsoft is a classic example.
Thus, we see that those retailers that have survived and prospered in the age
of the internet have done so by coordinating a change of strategy with a staff
development strategy that will have impacted employees at all levels and may
have involved OD and most certainly management development and training.
It is to these interventions that we turn next.
Organisational development
OD is an intervention that is typically deployed either as an act of despera-
tion or of inspiration. The Chartered Institute of Personnel and Development
(CIPD) in one of its factsheets defined OD in the following terms:
An approach to change management that applies behavioural science knowledge

and practice to maximise the value gained from the organisation’s resources
by focusing on its strategy, goals, and core purpose.
CIPD, 2018, abridged
Company Boards that find that their strategies have been wrong-footed and
now face an existential threat will often turn to OD in a last desperate step to
turn the situation around. The decision is usually predicated on the recogni-
tion on the part of the CEO and board members that if the organisation is to
survive, it must achieve fundamental changes in its culture and its orientation
to the market and to its customers. In short, it must change its business model
and its culture. To achieve this, it must start by changing the knowledge,
skill and attitudes of both the members of the board and the top managers.
Unfortunately, there is a problem. Top managers as key stakeholders know
that any radical change process can unleash unexpected consequences that
may compromise both their power and status and in extremis, their future
with the organisation. Such scenarios create enormous personal uncertainty
about the future. Trust or rather lack of it, can become a major consideration.
It is for this reason that an external consultant is typically called upon to facil-
itate the change process.
Reg Revans, the man who is widely credited as the founding thinker
behind the OD movement, argued strongly that interventions should be led
by a competent outsider. He asserted that managers are brothers and sisters in
adversity. In his view, it was essential for managers to accept that they owned
a problem and that only they could resolve it (Revans, 1980). A view that was
echoed by Kilman (1989) who like Revans, contended that managers manage
change, not consultants. However, there are some things that consultants can
do better than managers because “managers suffer from non-full disclosure.”
This results in lack of trust.
In his book Managing Beyond the Quick Fix, Kilman asserted that the older
and larger the business, the harder it is to change. Like arteries, assumptions
regarding culture and organisation become ossified as organisations grow and
age. This gives rise to a tendency to engage in an erroneous extrapolation of
the future based upon the experience of past success. Too often, organisations
gravitate towards single solutions that promise success (the quick fix). The
problem is that single solutions invariably fail to deliver. Kilman contended,
in line with the systems view, that the world is complex and multidimensional
(holographic), not a simple machine mechanism. He believed that organisa-
tional problems are complex and that there is always more than one way of
defining the nature of a problem and then delivering a solution. Thus, partic-
ipative rather than top-down approaches are central to the delivery of lasting
long-term results Kilman.
Courageous CEOs who are convinced that the existing business model
is no longer fit for purpose or that the firm’s key resources would be better
deployed elsewhere, may also turn to external consultants in a bid to drive
through organisational change.
Earlier reference was made to Collins and Poras (2005) work, “Built to Last.”
In it, they identify the fact that Nokia began life in the nineteenth century as
a timber business. It moved into white goods and then into mobile telephony.
These transformations were dramatic and demanded courage and considerable
commitment on the part of top executives who presided over the jettisoning
of established core competences, the divestment of a range of businesses, the
recruitment of new talent and the building of new competences and capabilities
that would have inevitably taken them outside their comfort zone.
To achieve transformational change, Kilman argued that it was necessary to
create five tracks of activity initiated at different stages in the overall project that
could last for several years. The five tracks of activity that he identified were,
culture change, leadership and management development, team building across
the organisation, strategy and structure change and reward management. His
key contention was that any initiative requiring a change of culture demanded
the full commitment of top management. They first need to understand the
nature of the existing culture and strategy and the drivers that underpin it.
Foremost amongst these drivers are their own behaviours and priorities. If these
are resistant to change, then nothing else will change. The consultants’ efforts,
therefore, must initially focus on helping the managers to surface and under-
stand their own behaviours and to help them critically evaluate the systems that
have been put in place and assess the extent to which the resulting outputs are
delivering what is required to fulfil the company vision and mission. To achieve
the necessary level of understanding, the managers must engage in a range of
projects and activities that enable them to analyse and evaluate those aspects
of their behaviours and the systems that drive them that are in some way dys-
functional and in need of change. In short, they are required to create new or
improved feedback loops that will involve surveys, ratio analysis, industry, com-
petitor, and product/service analysis. Having determined the extent and nature
of any dysfunctionality, they must then build a consensus about what needs to
be done to address the problems that they now accept they collectively own. In
my experience, the process is both difficult and challenging, however, in the
hands of an effective facilitator, the process can help build a more committed
team with a collective vision and the motivation to achieve it. OD projects are
developmental by their very nature. One of the outcomes of the culture track is
a recognition that certain kinds of new management skills and knowledge will
be required. This results in a management development strategy for both mem-
bers of the board and other senior managers.
Contemporary OD
Times have changed since the 1980s and 1990s. Technological change has
dramatically increased the rate of organisational change. Today, multibillion-
dollar companies exist that had not been conceived even five years ago.
This rate of change is unprecedented and has led some to assert that today,
organisational change is the only constant. Some companies have come to the
view that an in-house OD capability is required to enable an organisation to
make the changes and adaptations necessary to secure its place at the forefront
of developments. Only by instigating and promoting radical innovation in
products, processes, and systems can such momentum be sustained. This has
prompted the CIPD in the UK to state that:
Today, organisation development includes systems thinking, business process re-en-

gineering, total quality management, continuous improvement, and human factors
engineering. This diverse interpretation of what organisation development is often
causes confusion about who does it, and when. Not only is the term ‘OD’ some-
times used interchangeably with other disciplines, such as organisation design, learn-
ing and development, and organisation effectiveness, but the job title ‘Organisation
Development consultant’ can also focus on a number of the above disciplines. This is
why organisation development may sit within a project management office, a quality
and compliance function, or within the HR department. And when it does sit within
HR, organisation development does not replace HR, but it does heavily draw upon
and develop many of the processes of HR to bring about the required change.
(CIPD, 2018 August 28, 2018)
Management development
Management development like OD is a generic term for a wide range of
strategies and approaches that are designed to increase both the capabilities
and resilience of managers. Development strategies can include assignments
and placements in new contexts and environments, courses such as an MBA,

action learning, shadowing, self-appraisal, manager appraisal and coaching
and mentoring.
Training
Training involves the substitution of inappropriate knowledge, skills and atti-
tudes for appropriate knowledge skills and attitudes as defined by the trainer
and the organisation. Knowledge can be imparted by on- and off-the-job
training involving short courses, open and distance learning and so forth. Skill
can only be built through practice. Skills are typically classified into three
categories: psycho-motor such as learning to use a keyboard or ride a bicycle,
cognitive such as diagnosing an illness or formulating a legal argument and
interpersonal skills such as influencing, persuading and leading. Many skills
are a mixture of all three. The changing of attitude represents the biggest chal-
lenge because attitudes are generally socially constructed. They are reinforced
by organisational culture and are difficult if not impossible to observe directly.
Attitudes are typically inferred from body language and what people say and
how they say it. They become manifest in work groups, some of which repre-
sent communities of practice.
Social psychologists draw a distinction between temperament and personal-
ity. Temperament is largely inherited and biologically determined. Personality
evolves over time through formative experiences in the early stages of life.
The combination of these two dimensions gives rise to a core personality that
embraces a set of values and beliefs. Thus, we can define an attitude as a pre-
disposition to respond to given stimuli. When individuals enter a workplace,
they become socialised to the context and there is an interplay between their
core personality and values and the attitudes of the workplace. Some individ-
uals can be quite rigid and inflexible, especially if the values and attitudes of
the workplace resonate strongly with their core personality (risk aversion, for
example). Their values and beliefs are deeply anchored in their personality.
Other individuals may be more relaxed, flexible, and playful. This is what
makes managing change so challenging and culture so resistant to change.
Individuals who are sent on training courses can return to the workplace
enthused and inspired by new possibilities. When confronted with colleagues
who have not shared their experiences, they quickly get worn down by con-
stant dismissive or disparaging feedback. It can take the form of teasing and
may be followed by subtle sanctions and eventually isolation. For most return-
ee’s acceptance of established norms represents an easier and more agreeable
option. This is known as the “re-entry problem.” It means that achieving a
change of attitude can often involve either putting an entire group through
a shared experience that leads to a collective questioning of values, beliefs
and assumptions, or individuals must be surrounded by associates whom they
respect, but who embrace an alternative perspective. These colleagues must

present a convincing logic that undermines an individual’s conviction in his
or her initial perspective.
Clearly, both training and development have an important role to play in
moving an organisation forward. Both rely upon careful identification of need.
Many companies run graduate training and management development pro-
grammes that fast-track talent. Access to such programmes is often determined
by means of assessment centres. The aim is to pick out dispositions that are most
amenable to the requirements of the organisation. The distinctive feature of
management development and training interventions, therefore, is the focus on
the development and the assessment of the individual as opposed to the group.
Evaluating training and development

Training and development strategies represent an important input into the
organisational system. Measuring the contribution that such interventions make
to outputs is a challenging but worthwhile exercise that is undervalued. It used
to be the case that training solutions would involve either on or off-the-job
training. The former involved either shadowing or being shadowed by someone
with more experience whilst the latter involved sending individuals or groups
on courses. Today there is a potential to design many different delivery systems
and to blend learning and development strategies that are customised to the
needs not just of the trainees but also the organisations operational require-
ments. Each solution will bear a different input price tag and demand different
trade-offs between a learner’s need for support and an organisation’s need for
flexibility. This means that it is more important than ever to draw a distinction
between validation and evaluation. Validation seeks to determine whether and
to what degree the training or development objectives have been fulfilled. This
involves training and development needs analysis. The first step is to isolate
the training or development gap. This is the extent to which there is a deficit
between current knowledge, skills, and attitude and those required to achieve
optimum performance in a role. Ideally, an assessment is required to weigh the
importance of the three dimensions. Knowledge can be acquired in different
ways. Books, especially designed learning material and programmed computer-
based training can all be deployed and where appropriate blended. Interactive
activities that incorporate feedback loops can provide both encouragement and
reinforcement. Blended packages can also be interspersed with taught inputs
where learners establish face-to-face contact with both peers and trainers.
Where attitude shift is required, a blended strategy will almost certainly
incorporate more social engagement. Knowledge-intensive learning require-
ments can be met using more flexible technology-based solutions. These tend
to have high fixed and low variable costs. For example, a computer-based
package may involve a ten or twenty thousand investment. If a thousand
learners go through the programme, then the cost per learner is 1 or 2 units of
currency. If the number requiring training is say 2, then the cost per trainee
is 10,000. Systems demanding high social engagement tend to incur low fixed
costs and high variable costs. Successful learning design, therefore, involves
getting the balance right in terms of the modes of delivery by achieving the
highest “gain ratio” at the lowest cost.
Off-the-job training courses remain popular. Unfortunately, validation too
often relies solely upon post-course evaluation sheets, often referred to by
trainers as “happiness sheets.” This is probably the quickest, cheapest and most
ineffective way of evaluating any intervention. It is subjective, opinion based
and short term, when what is required is a measure of the pattern of sustained
behaviour over time.
In short, the validation process focuses on the extent to which outcomes are
achieved. It is not focused on cost but on learning gain. Evaluation in contrast,
incorporates the validation process whilst placing the emphasis on value for money.
The goal of evaluation, therefore, is to achieve maximum gain at optimum cost.
Organisations with a high commitment or paternalistic HR orientation
typically commit substantial resources to training and development involving
significant numbers of people. Like any other investment, it is necessary to
measure the return on investment in the manpower stock. This poses real
challenges because there are many intervening variables over which the T&D
function has little or no control. For example, a department might have been
working well for some time with regular bouts of development input into
new starters and existing team members. The appointment of a new manager
coincides with a cycle of poor team performance. The question is whether it
is the manager, the recruitment process, changes in labour market conditions
or the training that is failing.
Without good evaluation processes, it becomes difficult to determine causa-
tion. Nevertheless, it is important that an effort is made to do so because the
cumulative impact on cost over time can be very significant. In short, the HR
function needs to measure return on investment in much the same way as other
areas of the business. To do this well involves considerable thought and effort. A
training needs analyst will typically begin by looking at a series of financial and
management accounting ratios. The financial ratios provide a general picture
of corporate health, especially if they are compared with leading competitors.
Adopting a systems perspective can be very helpful. Using Beer’s viable
system framework, it is necessary to impose a conceptual separation within
the HR function between operational personnel management operating at
System 2 and strategic human resource management operating at System 4.
Whilst in all probability, the personnel management and accounting functions
will collect most of the data at System 2, it is the strategic HR function that
puts the pieces together to deliver a holistic picture. How can this be achieved?
The answer is to access the same data as that collected by good financial and
management accountants who deploy ratio analysis. Whilst it is true that ratios
can only act as proxy indicators rather than measures of the “real thing,” over
time, they can paint a picture that tells a story.
If we define a market or an industry as a system, then a company is a subsys-
tem along with its competitors. If we take the view that value added is relative
perceived value in the eyes of the customer, then a company that is growing
its market share at a rate that is faster than its competitors and has succeeded
in doing so over several years, is likely to be is doing some things better than
the competition or is adopting a different paradigm. Conversely, if its rate of
growth is slower than the competition in a market that is growing, then this
is an indication that there is room for improvement and that there are training
and development needs that should be addressed urgently. In such contexts,
the HR function and more specifically the HRD function has an important
role to play. Organisational developers and training needs analysts play a piv-
otal diagnostic role. One of the most useful tools in the armoury, therefore, is
ratio analysis. Such analysis can be invaluable in tracking down weaknesses in
the organisational system at different levels.
Financial ratios can provide useful proxies of the overall corporate health
of the business model and the effectiveness of the managerial stewardship of
shareholder funds Darling (1990). Such ratios include:
Profit before tax Profit before tax Sales
Capital employed Sales Capital employed
An important measure of corporate effectiveness is the extent to which the
organisation can turn over its capital employed. (Capital employed = working
capital and is calculated by adding the value of fixed assets to net current
assets.) If a company turns over its capital employed 1.5 times and makes a 10%
profit before tax, then it is achieving a 15% return on capital employed.
Calculating profit before tax is important because tax rates change often
annually, because of shifts in government policy resulting in fiscal adjustments.
Having established that all is perhaps not well, it is possible to dig deeper
by looking at added value ratios. Value added is calculated by looking at Sales
and then subtracting the cost of materials. By taking the resulting value-added
calculation and dividing it by the average number of employees, it is possible
to calculate value added per employee.
Added value
Number of employees
(It may or may not be possible to get the number of people employed by com-
petitors over the cycle, to make comparisons). Nevertheless, even if it is not,
it is useful to know the value added per employee and whether the trend is
improving. Often such titbits of information regarding a competitor’s payroll
size can be gleaned over coffee at exhibitions and conferences.
A key facet here is whether sufficient capital is being invested. This will
show up in the ratio of capital invested per employee. This is calculated by
dividing fixed assets by the number of employees.
There are a vast number of accounting ratios. Whilst financial accounting
ratios paint a picture of top management performance, management account-
ing ratios of which there are many, can be deployed to isolate areas of under-
performance that can then be subjected to Ishikawa (fishbone) analysis. The
key point to be made is that if HR is to be truly strategic, then it must work
closely with the accounting function at both Systems 2 and 4 to deliver vital
information for strategic decision-making at System 5. By deriving ratios
founded on the number of employees across the business and within specific
functions, a rich picture can be derived as to the effectiveness of both manage-
ment and the general manpower stock.
Hard and soft problems

A simple but crude distinction as to when to use training and development as
opposed to OD to address organisational issues is to pose the question, “is the
problem that we face hard or soft?” Paton and McCalman (2008) have drawn
a clear distinction by arguing that a problem can be put to the TROPICS test.
This involves a series of questions. They are as follows:
Time scale: Is the problem amenable to a solution in a timescale?

Resources: Are the resource requirements identifiable and easily measured?
Objectives: Are the objectives potentially clear and measurable?
Perceptions: Is there a consensus about the nature of the problem?
Interests: Are the interests involved shared and agreed?
Control: Is the process responsive to inputs in a predictable way?
Source: Is the source of the problem clear and easy to define?
If the answers to these questions are “Yes,” then the problem is hard. This
makes it susceptible to a hard systems methodology such as training and man-
agement development interventions. They will take the form of a needs anal-
ysis and the design of a delivery system that will result in a substitution effect
in respect of knowledge and skills and, in some cases, attitudes.
However, if the answers to the questions above are predominantly “No” then
the problem is soft. In this event, an OD route is more likely to deliver a result.
Soft problems
In our earlier discussion of the Viable System Model and the law of requisite
variety, it was argued that for an organisation to survive in a turbulent com-
petitive environment, the organisational system must possess sufficient requi-
site variety to remain in balance or be capable of restoring an adequate degree
of stasis with its external environment to enable it to survive. Weick (1977)

and Weick et al. (2005) regard work groups as systems, and he views inter-
actions between individuals in terms of positive and negative feedback loops.
Interactions are mediated by emotions. Stress and anxiety result in positive
feedback loops that if not dampened by a negative will escalate. If we consider
an appraisal meeting for example, involving a manager who lacks coaching
skills and a subordinate whose performance has been patchy of late but with
an employment history that shows promise. The manager might begin by
citing some statistics that show that something is wrong before asking for an
explanation. This entrains a positive feedback loop as the employee responds
defensively. The manager follows up with a dismissive comment suggesting
the employee’s explanation is not satisfactory. This reinforces the positive
feedback loop leading to more defensiveness and more managerial frustra-
tion (a general escalation of negative emotions). The meeting breaks up with
no clear outcome. The manager is frustrated, and the employee is angry and
demotivated. Three weeks later, the employee gives notice and quits.
An alternative scenario
Now imagine the same scenario, however, the manager is an experienced
coach. The meeting opens with the manager inviting the employee to identify
those things that have gone well. This creates a negative feedback loop. The
employee reflects and highlights several examples of good achievement (neg-
ative feedback loop.) The manager then asks the employee to highlight any
disappointments (positive feedback loop). The employee identifies the main
issue that is concerning the manager (negative feedback loop.) The manager
then asks what the employee could have done differently (positive feedback
loop). The employee makes several pertinent observations (negative feedback).
The manager then asks the employee what has been learned (positive feed-
back loop). The employee summarises several key points (negative feedback
loop). The manager and employee then agree on a general strategy going for-
ward. Specific steps are agreed in the event of the same problem re-emerging
(negative feedback loop.) The employee leaves the meeting feeling valued
and positive about the future and the manager with some confidence that the
employee will cope better with the issue in the future.
Wicked problems
The term wicked problem was first formulated by Horst Rittel. He used it
to describe complex problems that are created by social dynamics Rittel and
Webber (1974). Hard technological problems are typically solved through the
systematic formulation of a problem definition that is susceptible to the appli-
cation of a clear linear logic. The nature of a wicked problem is grounded
in the fact that there is a diversity of stakeholder perspectives on what the
problem is. The result is that there is no consensus in respect of a problem defi-
nition. The ephemeral nature of the problem and the lack of consensus render
it impossible to formulate a clear and agreed objective. The absence of a prob-
lem definition and objective means that there is no right or wrong solution and
there can be no logical alternative options. Every wicked problem, therefore,
is unique. Solutions can only be found by trial and error and outcomes can
only be measured in terms of better or worse. A wicked problem, therefore,
creates a paradox, the problem can only be defined after a solution is found.
Contemporary technological possibilities frequently collide with different
social values and priorities. Genetics, artificial intelligence, and robotics con-
stitute fertile ground in which wicked problems flourish. One example is the
bias that has been found to have been built into artificial intelligence that
unfairly discriminates against people of colour when it comes to credit ratings
(Brantingham et al., 2018). In the HR context, recruitment and selection
situations can present soft fuzzy challenges in relation to the key stakeholder’s
needs and expectations of a prospective appointee (Petrovic-Lazarevic, 2008)
or in putting together a project team (Baykasoglu et al., 2007). Determining
the characteristics of a pay and reward system is another example.
At the end of Chapter 4, the fortunes of CEMEX were compared with
those of Daimler Chrysler. CEMEX had faced a wicked problem with the
signing of the NATFA agreement. The case example that follows, explores
how the company implemented its change management strategy using infor-
mation available in the public domain. The evidence suggests that CEMEX
adopted an organisation development approach.
Soft systems methodology

Towards the end of Chapter 8, consideration was given to the nature of soft
and wicked problems. The case study that follows will examine the nature of
some of the problems that are beginning to confront Facebook as the regula-
tory environment begins to change.
Soft systems methodology is an approach to solving both soft and wicked
problems. It was developed by Peter Checkland in the 1970s. It was the prod-
uct of a ten-year action research programme. It has been used extensively by
consultants as a means of breaking out of the “wicked or fuzzy problem para-
dox.” Over the years, several variants have been developed to address specific
challenges by Checkland’s chief collaborator Brian Wilson. These include
analytical frameworks such as the Maltese Cross. Our focus, however, will be
on Checkland’s approach. See Checkland (1981).
Imagine a scenario where a board of a large retail company meets to decide
on the appointment of a new Director of Finance after the forthcoming retire-
ment of the current post holder is announced. Each Director will have specific
needs and expectations, along with the Chairman and the CEO. There are
different perceptions of the threats and opportunities facing the business and
there are a range of views as to what the expenditure priorities should be going
forward, as well as the personal attributes required in the new post-holder.
This is a classic fuzzy problem.
Soft systems defined

A soft system can be defined as a range of individuals or groups that are
engaged in various interrelated activities that deliver outputs. The outputs can
be described as emergent properties. Once the outputs have been identified,
it is relatively easy to isolate the activities required for their delivery. If one of
these activities is not present, then the outputs will be compromised. Thus,
it is the cluster of activities that deliver the required outputs and define the
boundary of what is described as a human activity system (HAS). Soft sys-
tems methodology, therefore, is the process by which the interrelated activities
undertaken by a work group are analysed by first establishing the nature of the
emergent properties. If a consensus can be built around the characteristics of
the emergent properties, then it becomes possible to evaluate the processes that
deliver the required outputs.
By definition, a wicked problem lacks a clear objective and is devoid of
any clear right or wrong solution, the first challenge that must be confronted
is how to break out of the impasse. Checkland and his team developed a six-
stage strategy. To begin with, the consultant or manager must develop a clear
understanding of the context in which the problem is situated and the nature
of the relevant relationships. This is achieved by crafting a rich picture in the
form of a graphical representation of the system and the system boundary. It
is composed of all the actors within the system and their different relation-
ships and patterns of interaction. The aim is to create a picture that encapsu-
lates “the real-world situation.” The rich picture constitutes the consultants’
attempt to capture and distil the essence of the multiple perspectives adopted
by the different players. Once complete, the rich picture represents a consoli-
dation of multiple perspectives into a facsimile of reality.
Having created a “rich picture,” the consultant can begin to formulate root
definitions. A root definition aims to deliver a concise and structured defini-
tion of both the system and the problem.
Developing a root definition using CATWOE

Developing a root definition is usually achieved through the application of
a modelling technique usually described by the acronym CATWOE where:
C = Customers or consumers of the emergent properties

A = Actors, those operating within the boundary of the system and who
have a direct interest in the system and its outcomes
T = Transformation, the process by which the system absorbs inputs and

delivers the outputs for which the system was established
W = Weltanschauung (world view or big picture), the wider context in
which the system is embedded and the likely consequences of any
changes to the system that will impact its wider environment
O = Owner, the individual or agency that owns the situation or the
problem and must achieve some form of resolution to the problem
situation
E = Environmental constraints that will push back against any planned
change.
The formulation of a root definition or root definitions of the system facilitates

the creation of a conceptual model or models. These can then be compared
with the real world. The process demands that the actors work to build
consensus with the owner and in some cases the customers about the changes
to the system and its processes that have the potential to deliver a superior
outcome.
In summary, the process involves seven steps.
Entry into the problem situation, giving expression to the nature of the
problem, creating root definitions of all relevant activities or subsystem pro-
cesses that capture the essence of the HAS. Geographic representations of
the HAS and its constituent parts are identified by the root definitions. The
models can be compared with the real world. By establishing what changes
can be made to the HAS within the environmental constraints revealed by
the CATWOE, a strategy can be developed to address the problem situation.
Armed with these insights, it is now possible to formulate some rich pictures.
Case Study Organisational development

at CEMEX
Lorenzo Zambrano had worked as a CEMEX executive for 15 years prior

to becoming its CEO in 1985. The company had been founded by his
paternal grandfather. Zambrano had been educated in both Mexico and
the US. He graduated from the Institute of Technology in Monterey with a
bachelor’s degree in mechanical engineering and in 1968, secured an MBA
from Stanford School of Business.
In 1988, Mexican President Carlos Salinas de Gortari approached US
President George H.W. Bush with a view to establishing a new trading
arrangement. In 1994, the North American Free Trade Agreement (NAFTA)
was signed. Having lived and studied business in the US, Zambrano was
acutely aware of the dangers such an agreement would pose for CEMEX.
He quickly set about evaluating the strategic threats such an agreement
would pose when a regional cement business was confronted by American
interlopers with grand plans and deep pockets. Calling his senior team
together, he announced that the company faced an existential threat. The
threat called for a fundamental change both in vision and business strat-
egy. The senior team set about evaluating both threats and opportunities.
The team quickly came to the view that it should seek to grow the
business through acquisition within its domestic market to extend the
company’s reach domestically. Zambrano, however, was familiar with a
new strand of emergent literature on accelerated internationalisation. He
encouraged the team to think outside the box. It became apparent that
the only way forward would be to consolidate in the domestic market and
diversify and seek growth abroad. The outcome was the formulation of a
problem definition. It was to transform the company from a regional player
in a domestic market into a large multinational company operating in
many international markets. The team recognised that access to such mar-
kets would only be attainable through acquisition. This would enable the
group to reap the benefits of established customer bases. This presented
the team with a further problem. How could rapid growth be achieved in
unfamiliar territories defended by established companies with extensive
local knowledge? Zambrano believed there would be a need to establish a
strong overarching culture. The answer that he and his team came to was
that they needed to bring something new to the context. In other words,
innovation was needed that would prompt customers to defect from their
existing suppliers. This insight prompted a second attempt at a root defi-
nition of the problem.
Zambrano was the problem owner, and the management team was the
key actor. The prevailing Weltanschauung was one of parochialism focused
on the Mexican market. The transformation being sought, therefore, was
from parochial regional supplier to international innovator. The challenge
that CEMEX faced therefore was:
“To transition from being a large local single product company with a sig-
nificant regional presence to a diversified international corporation with a
portfolio of businesses and products with a competitive advantage rooted
in innovation.”
The new vision demanded the development of three new critical capabili-
ties. The first was skill in selecting and executing international acquisitions
and the second was to become a learning organisation capable of tapping
into not only codified local explicit knowledge but also local tacit knowl-
edge. The key to success would lie in internalising new ideas and insights
rapidly and diffusing them across the portfolio of businesses. The third was
to develop communication systems and interpersonal skills that could win
the hearts and minds of employees operating in many different national
and organisational cultures.
As a leader, Zambrano was grounded, charismatic but modest. These
attributes enabled him to create a sense of shared ownership of the chal-
lenges the company faced. The senior management team formulated an
organisation development strategy with a culture track designed to create
an outward-looking learning organisation with a strong commitment to
resisting the “not invented here” syndrome that afflicts so many organisa-
tions. Reward systems were needed for good ideas and recognition of the
managers who championed them. Action learning teams were established
to address projects conceived through various team collaborations. Top
managers were assigned roles as project managers. The project managers
assembled teams to address specific challenges that included evaluating
potential acquisition targets. This was not straightforward. Criteria were
established that included portfolio and market analysis. Prospective tar-
gets were selected based on distinctive capabilities, market size, market
penetration, financial strength and management capability. An ideal target
would have a substantial market presence, some level of financial vulnera-
bility and evidence of top management complacency.
An HR strategy was devised with a strong focus on revising the reward
and HRD systems so that they were supportive of international aspirations
associated with overseas assignments and the development of a coach-
ing culture. A management development team focused on the creation
of a learning organisation. Its mission was the diffusion of best practices
throughout the group.
In 1987, the company launched its own satellite communications sys-
tem and acquired a large national competitor Cementos Anuhuac. The
acquisition was secured using the company’s first post-merger acquisition
team. A device used repeatedly thereafter.
Cross-cultural training and development programmes were initiated,
and managers were empowered not just to recognise and implement good
new ideas wherever they found them but to promulgate them and ensure
credit and recognition were accorded to the source of the idea. The strat-
egy team came to the view that Spain and Spanish-speaking territories
should be targeted first. Linguistically and culturally, Mexico and Spain
shared affinities and provided the best environment to launch CEMEX on
the international acquisition trail.
In 1992, CEMEX launched its first sortie into Europe when it purchased
two Spanish companies, Valenciana de Cementos and Cementos Sanson.
Two years later, Vencemos, the largest cement company in Venezuela was
acquired and Cemento Bayano in Panama. The company’s acquisition
strategy involved leveraged buyouts. The acquisition of Vencemos ran into
difficulties after President Hugo Chavez determined to nationalise the Ven-
ezuelan cement industry, placing the company under significant financial
pressure. Despite the setback, the group marched on acquiring an Ameri-
can cement company Balcones. Also, during this period, CEMEX launched
an eco-efficiency programme and developed a more efficient means of
powering its plants using petroleum coke.
By 1996, CEMEX had become the third-largest cement company in the
world, following the acquisition of two Columbian companies Cementos
Diamante and Samper. Having achieved a presence in both the US and
Europe, Asia was the next region to be targeted. In 1997, the Filipino com-
pany Rizal Cement was acquired.
In 1999, the company was listed on the New York Stock Exchange and
moved into Africa and Costa Rica where it acquired an Egyptian company,
Assiut Cement and Cementos del Pacifico. The following year it became
the largest cement company in the US after its acquisition of Southdown.
This delivered an upgrade in its Standard and Poor’s rating giving the com-
pany more leverage to extend its portfolio further, enabling it to acquire
interests in Nicaragua, Thailand and Costa Rica.
In 2005, the company doubled its size with the purchase of the British
Company RMC. The latter had extensive interests across the world, especially
in Europe. This was followed in 2007 with the purchase of Rinker, a large
Australian owned Florida-based business with a diverse portfolio of compa-
nies operating across three divisions, Readymix concrete, Rinker Materials
Corp, a division that operated an extensive network of retail outlets and
Humer which specialises in pre-caste structures for bridges and roads. The
company was not solely focused on acquiring businesses. It created centres
of excellence through which it could diffuse best practice across the group.
By 2014, the year of Zambrano’s death, the company was listed on
multiple stock exchanges across the world and had fulfilled its aspiration
to build exemplary core competencies in international acquisition, organi-
sational learning and cross-cultural management.
What is interesting about the CEMEX case is that the company was
operating in what was a mature well established and relatively slow-moving
industry and yet the company’s growth pattern bore many of the
characteristics normally associated with the hi-tech sector. This distinctive
feature attests to the importance of effective transformational leadership
combined with a commitment to OD and organisational learning.
Summation
In this chapter, it has been argued that responsibility for HRD must lie in
the boardroom. It has been shown that HRD is a subsystem of vital strate-
gic importance because when it is well designed, it delivers improvements in
the performance of an organisation’s human capital base. Such improvements
are required to enable the organisation to adapt to technological advances,
economic perturbations, and social evolution. Both organisational growth
and survival depend upon an organisation’s capacity to generate the neces-
sary requisite variety to respond to the challenges posed whether it be from
one stage of growth to the next or an entirely new orientation to the market.
Training and development strategies will often suffice in contexts where what
is required is “more but better,” however, if what is required is “new and
different,” then OD assumes priority. Growth and maturity typically result in
inertia and organisational myopia. This limits adaptive capacity and induces a
crisis. Organisational renewal, therefore, emanates from one of two sources,
external pressures or internal vision and aspiration, often a combination of
both. Whichever the trigger, OD is likely to be the best response because
renewal requires either significant adjustment to the organisation’s existing
design, business model and culture or an entirely new business model and
culture to support it.
Organisations, when seen as systems, import resources and generate out-
puts. Ideally, the output delivers greater value than the cost of the inputs.
Thus, one very useful way of evaluating performance is to divide the output
by the input to create ratios. Whilst ratio analysis is not a diagnostic panacea,
it provides a series of proxy metrics of comparative performance. One year can
be compared with previous years to establish trends in terms of both corporate
and operational effectiveness. In addition, if details of the number of employ-
ees employed by a competitor can be established, then performance can be
compared by accessing reports in published company accounts.
Interventions that aim to improve the effectiveness of an organisation’s
human resource stock include training on and off the job, coaching and devel-
opment projects. This type of initiative focuses on an individual’s knowledge
and skill. Because attitudes are formed through processes of socialisation, they
are more challenging to change.
Organisations that are misaligned with their environment must adjust their
internal systems and processes. This demands changes in employee attitudes.
Faced with such challenges, OD may be the only way forward.
Organisational challenges are of three types. They can be hard in which
case there is a clear solution that can be determined through the application of
deductive logic. Soft problems in contrast are more difficult to resolve because
there may be more than one solution. Problem resolution demands a consen-
sus that can be challenging to build. The TROPICS test can be applied to
determine the type of problem the organisation faces. Wicked problems are a
particularly taxing form of soft problem because the problem itself evades defi-
nition and without a problem definition, it becomes impossible to determine a
solution. Established organisations frequently encounter new emergent forms
of competition grounded in technological advance or unanticipated innova-
tion. The challenge is to establish whether the new competitive manifestation
poses an existential threat. Corporate history is a graveyard populated by once
highly successful organisations that failed to read the runes and make timely
adjustments because the magnitude of the threat remained ambiguous until a
tipping point was reached, at which point it was too late! It is in the circum-
stances such as these, that transformational leadership is required. Leadership
that can envision new pathways to the future, pathways that demand the
development of new distinctive capabilities and ultimately the building of
an entirely new core competence. Such strategies involve enormous risk and
uncertainty and may demand the abandoning of substantial sunk investment,
the divestment of formerly highly valued elements of an organisation’s port-
folio, facing down shareholder opposition and commitment to new strategies
and a new business model. It is scenarios such as these that constitute “wicked
problems.” There are no obvious solutions, and all options are fraught with
risk. Under such circumstances, OD interventions of the type presented in the
CEMEX case offer the best way forward. What makes the change so challeng-
ing, however, is that it demands changes of attitude in the organisation’s senior
leadership. It is they that must change first. Only then can they spearhead
efforts to drive cultural change across the organisation.
In the CEMEX case, we saw that a new vision had to be created to which all
senior managers had to commit. It involved the transformation of a parochial
regional cement company into an aggressive, acquisitive business dedicated to
rapid international expansion through skilful target selection, financial engi-
neering, post-acquisition integration and the rapid diffusion of innovation.
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11
INDUSTRIAL AND EMPLOYEE
RELATIONS SEEN THROUGH
A SYSTEMS LENS
Overview
This chapter focuses on the employment relationship and the ideologies that
define it. To do this, the differences between employee relations and industrial
relations will be explored. It will be argued that human resource management
(HRM) is an Anglo-American construct. As a result of the powerful influence of
American multinational management practises and abetted by Anglo-American
academia, it has influenced both the debate and the language of managerial
practice on a global scale. There is, however, a second ideological perspective
embedded in many economies of the world that whilst less influential in shaping
the contemporary managerial discourse, nevertheless, determines management
practises and the nature of the employment relationships in many countries.
Thus, the concept of ideology will be addressed along with the nature of frames
of reference as the basis for the competing ideologies of Unitarism and Pluralism
(Fox, 1974). These alternative perspectives of the nature of the employment
relationship will be viewed from a systems perspective and the implications
for management practice and HR research will be critically evaluated. To do
this, discussion will focus on Anglo-American, Rhine Feld/Scandinavian and
Japanese approaches to industrial and employee relations.
As previously discussed, any system draws in inputs that feed processes that
deliver outputs or emergent properties. In terms of the employment relationship,
it is necessary to ask what the inputs to the system are, what processes
they generate and what outputs result? Figure 9.1 draws together concepts
that have been introduced in earlier chapters with a view to showing
how the concepts link together. HR policies and practises have a direct impact
upon perceptions of organisational justice. A poor relationship between a
DOI: 10.4324/9781315630557-12
Industrial and Employee Relations Seen Through a Systems Lens 183
manager and an individual employee can result in a dispute about perfor-

mance. It may be perceived by the employee as a violation of either admin-
istrative or procedural justice or in some cases both. An employee’s affective
and continuity commitment will be influenced accordingly. If two groups
experience change in pay differentials, a distributive justice issue may emerge
triggering a loss of goodwill or strike action. Such situations arise when the
reasons for the change in pay are not explained adequately to the group that
is not benefiting. Again, employee commitment, especially amongst those
who perceive that they have lost out, will impact all three areas of employee
commitment. Change in employee commitment results in adjustments to the
psychological contract. Perceived violations may produce changes in organ-
isational performance. If such changes in commitment and performance are
to be avoided, then it is essential to recognise the vital role that employee
voice plays in preventing unnecessary oscillations in the organisational sys-
tem. Figure 11.1 links HR policies to perceptions of organisational justice.
This influences employee commitment and the psychological contract. These
FIGURE 11.1 HRM policies and practices and human capital performance
Source: Author
largely determine the human capital performance that ultimately feeds back
into HR policies and practises.
In the context of this chapter, the input is a managerial ideology. It shapes
both the nature of the employment relationship, along with the people man-
agement policies and practises an organisation deploys. The resulting output
is normally deemed to be relatively short-term organisational performance,
when compared with the organisation’s peers.
The two competing ideologies that shape the

employment relationship
Ideology from a systems perspective can be defined as a pattern of values
and beliefs that influence the behaviours and actions of a society or social
group, the purpose of which is to build consensus around what constitutes
acceptable behaviour within the social system. It provides a basis upon which
legitimate authority is premised. Every ideology, therefore, has a proselytising
characteristic. HRM in the Anglo-American world at least, is grounded in the
ideology of Unitarism. A belief that in the context of the employment rela-
tionship, managerial and employee interests are convergent and managers in
undertaking the managerial task, seek to build harmonious relationships with
employees. In the f inal analysis, employer and employee interests are co-
terminus. To the extent that tension and conflict exist, therefore, it arises
either from misunderstanding or because of poor communication. The exer-
cise of the managerial prerogative is the central tenet of Unitarism. It dates
back at least as far (Taylor, 1914) who asserted that “the pursuit of efficiency
in every aspect of organisational life would result in a meritocracy and an
improvement in the quality of life for all.” For the realisation of his uto-
pian dream, Taylor argued that the managerial prerogative combined with the
application of the principles of scientific management provided the only basis
for the attainment of industrial efficiency and the advancement of the human
condition. Contemporary discourses around employee engagement, therefore,
constitute an updating of Taylor’s philosophy.
Pluralism as a construct challenges the view that management and employee
interests are co-terminus. Instead, it asserts that whilst employees and man-
agement share some interests in common such as profitability and the conti-
nuity of the enterprise, there are areas in which their interests may conflict.
Work pace, personal autonomy and participation in decision-making regard-
ing work design, being cases in point. Managers who achieve higher levels of
output because of work intensification may be deemed to be high performers,
but their results may involve compromises in safety or in employee well-being.
Whilst the results are measured, the deterioration in well-being or in working
conditions often passes unscrutinised in organisations where there is a lack
of employee voice, at least until something significant goes wrong. Pluralism
acknowledges that there is a need for employee voice and, therefore, amplifi-
cation and attenuation mechanisms to enable employee voice to be heard is a
prerequisite for a healthy working environment. These mechanisms involve
some level of employee participation. The degree of such participation varies
widely and can take two forms, financial and decision-making. Practice varies
widely between both organisations and pluralist economies.
The performative role of frames

Building on the work of J.R. Fyvel (Fox, 1974) introduced the notion of
frames of reference into the employment relationship. For him, a frame was
synonymous with an ideology that defined Unitarism as a “true picture of the
work situation as characterised by harmony and trust.” For Goffman (1974),
in contrast, a frame was “schemata of interpretation.” It enables individuals
“to locate, perceive, identify, and label” occurrences within their life space
and the world at large (Greenwood and Van Buren, 2017, p. 21). Building on
Goffman’s insight, they rejected Fox’s interpretation of a frame as being the
same as an ideology, citing Oliver and Johnston (2000) and Benford and Snow
(2000). The latter asserted that:
Ideology and frames are not one and the same. Ideology is generally portrayed as
a broad, coherent, and relatively durable set of beliefs that affects one’s orientation
not only to politics but to everyday life more generally. This conception holds
whether one subscribes to a more general and neutral view of ideology (e.g., Geertz
1973) or to a more critical view wherein ideology is seen as functioning to sustain
existing class structures and relations of domination (e.g., Thompson 1984). In
either case, the reference is to a pervasive and integrated set of beliefs and values
that have considerable staying power. In contrast, collective action frames function
as innovative amplifications and extensions of, or antidotes to, existing ideologies
or components of them. Accordingly, ideology functions as both a constraint and
resource in relation to framing processes and collective action frames.
Benford and Snow (2000, p. 613)
Their contention was that frames provide a basis for the study of social move-
ments and collective action. Pointing to the fact that in 1984 there was only
one mention of frames in sociological abstracts, they showed that by 1998, there
were nearly 250. In 1998 alone, there were 43. They went on to argue that there
was a growing momentum of informed opinion that frames and framing play a
critical role not only in creating a consensus around meaning that communicates
and controls perceptions of the ideal but also and more importantly, in providing
the basis for the validation of claims about what constitutes truth.
Prior to the Enlightenment, ideological conflicts were typically resolved
through warfare, the start of the 100 Years War in Europe, being a case in
point. The advent of the scientific method, however, enabled parties with
conflicting ideas to express them and subject them to empirical examination
by a diverse group of informed peers. Evidence and critical evaluation of what
was observed became the basis for determining what was true. It was based
on empirical verification that knowledge was thenceforth advanced, obviating
the need for physical conflict. This was the genius of the scientific method.
Greenwood and Van Buren (2017) utilised these insights to argue that frames
of reference are ideologically performative. That is to say that they act as epis-
temic tools that create and perpetuate a perception not only of what is ideal
(what ought to be) but also what is true (what is). They go on to offer a cogent
critique of Unitarism in general and New Unitarism in particular, to advance
the case for what they describe as the New Pluralism. Their central proposi-
tions are that Unitarism as an ideology has morphed from what they describe
as traditional Unitarism into a new Unitarism. The latter foregrounded the
common interest of managers and employees and the managerial right to man-
age into a new, more subtle frame that we now recognise as Strategic HRM.
This new frame emerged in the 1980s and 1990s (Beer et al., 1984; Delaney
and Huselid, 1996; Guest, 1997; Legge, 1989). Managerial authority became
more diffuse under the new orthodoxies of high commitment management,
team working, continuous improvement and engagement. Such social control
was less obvious and, therefore, potentially more controlling (d’Arcimoles,
1997; Kinnie et al., 2000; Wood and De Menezes, 1998). The articulation of
employee voice through trade unions came to be regarded as both divisive and
inimical. The narrative of managers and employees shared interests system-
atically downplayed an inconvenient truth. Namely, that under the capitalist
system so forcefully articulated by Friedman (2016), managers have a duty to
prioritise the pursuit of profit and the interests of shareholders over all other
considerations rendering the shared interest argument erroneous.
Greenwood and Burren’s second important proposition is that HR research
focused its attention on both the perceptions and the behaviours of managers.
HR research into perceptions and lived experience of employees by comparison
is under researched. Thus, not only is employee voice largely repressed within
the Unitarist ideology but it is also suppressed within the HR frame laying
HR research open to the charge of a lack of reflexivity. Indeed, in their study
of the ideological undercurrents of HRM and workplace values Geare et al.
(2014) go so far as to argue that HRM professionals “have made the shift to a
strategic mindset. In doing so, they have marginalised employee-focused HRM
responsibilities and ethics activities.” In consequence, in the Anglo-American
world, the SHRM frame has delivered a new narrative that is held to be the true
reality, especially where it underpins the contemporary paradigm of employee
engagement and it moulds the values and mores of the workplace accordingly.
Pluralism also has an established heritage. It rejects the assumption that man-
agement and individual employees are equals when it comes to the employment
relationship. Hence its focus is centred upon industrial relations and the relation-
ship between groups. Traditional Pluralism was rooted in the industrial age. It
was predicated on a belief that conflict in the workplace between managers and
employees was to some degree inevitable and unavoidable. It became necessary
for it to be managed. Collective bargaining whereby employee interests were
represented by trade unions acting as amplifiers and transducers of employee
voice-enabled issues to be resolved through negotiation. Whilst the ideal out-
come of the negotiation process was a win-win scenario, it was not always fea-
sible. Nevertheless, the idea that both sides should come to the table prepared to
seek a compromise, was a central tenet of the bargaining process through which
industrial relations became institutionalised. Writing in the early days of the
emergent HRM frame, Torrington posited that whilst:
“personnel management focused on conciliation, propitiation, and motivation of

employees as a potentially uncooperative cost, the HR argument is that people need
less goading and supervision but more scope and autonomy. They are not to be seen
as a cost, but as an asset in which to invest, adding to their inherent value.”
Torrington and Hall (1998)
Like Unitarism, the ideology of Pluralism has evolved. Whilst collective bar-
gaining remains a central tenet, the new Pluralism has been influenced by stake-
holder theory and places a strong emphasis upon partnership. It asserts that both
management and employees have legitimate interests along with shareholders
and other stakeholders. The bargaining strength of each of the parties is a func-
tion of many complex and interconnected variables operating not just at the level
of the organisation as a system but also at the level of the industry, the economy,
and the larger global geo-political system, all of which can have a bearing upon
both organisational success and employment outcomes. Thus, the employment
relationship becomes one of path and co-dependency.
Both Unitarism and Pluralism address the governance of the employment
relationship and have at their core a concern with both coercive and collabo-
rative control of employee voice and behaviour. It follows, therefore, that any
analysis of the control of the employment relationship must seek to under-
stand and explain how managers shape the attitudes, behaviours and values of
employees through the exercise of organisational power. This is made man-
ifest through the application of SHRM (Greenwood and Van Buren, 2017).
Applying the Viable System Model to the

employment relationship
As we have already established, to remain viable, any system must possess the
necessary requisite variety to meet the complexity posed by the environment
of which it is a part (Ashby’s Law).
The internal dynamics of any organisation are themselves complex. As

Mintzberg (1993) and Porter (1980) have shown, there are disparate groups
pursuing different ends making conflict inevitable. Employees operating at
System 1 will include teams of people responsible for inbound logistics, value-
adding processes and the customer interface. Day-to-day management activ-
ity is centred on System 3. HRM policies once determined at macro level at
System 5 result in practises that emanate from System 2 and serve to prevent
wild oscillations in the organisational system when conflicts arise in the work-
place or when the organisation is buffeted by external eventualities. Under
the Unitarist model, employee voice is typically articulated by line managers
supported and advised where necessary by HR business partners. The Unitarist
HR Frame is presented within the Viable System Model (VSM) in Figure 11.2.
FIGURE 11.2 Employee voice within the HR Frame
It is the line manager who acts as both the amplifier and transducer of
employee voice ensuring that it is heard within both Systems 3 and 4. If line
managers are competent and relationships are good, then this model can work
well. However, as we saw in Chapters 4 and 5, changes in the external envi-
ronment arising from an acquisition or takeover, may result in retrenchment
that will call the psychological contract into question. Alternatively, organ-
isational success accompanied by organisational growth will, from time to
time as Greiner argued, induce crises. If employee voice is deliberately or
inadvertently suppressed during such times, it is inevitably problematic for
managers. As we have seen, knowledge capital and social capital are eroded.
Patterns of employee commitment change. Continuity commitment amongst

longer served employees may rise, whilst normative and affective commit-
ment declines especially amongst younger members of staff and along with it,
organisational performance. This is almost inevitable because managers are
focused on many diverse problems simultaneously. Some will prioritise staff-
ing issues whilst others will argue that there are more serious and burdensome
issues that should command managerial time and attention. To cope with
these challenges, many large unitarist organisations recognize that the sup-
pression of employee voice has consequences. One of which may be a pressure
to Unionise. To offset this eventuality, management may initiate the introduc-
tion of staff associations that have within their remits, a responsibility for artic-
ulating employee concerns or grievances that stop short of a right to negotiate.
(This is shown separately in the Figure 11.2), but the staff association’s func-
tion like Finance, Audit and HR is to help prevent unnecessary oscillation. It
is, therefore, technically part of System 2. By creating a separate channel that
provides feedback directly to System 4, it is hoped that the worst effects of a
breakdown of trust and goodwill can be averted.
Modern Pluralism emphasises partnership. As in a successful marriage,
partners can fall out and when they do, a resolution must be achieved through
negotiation. Even in the case of the most bitter of disputes, for the marriage
to continue, a negotiated solution must be found. Sometimes the process of
collective bargaining may involve an independent third party that acts as a “go
between.” Because a trade union is a separate organisation, paid officials can
articulate employee fears, concerns, and anxieties more robustly and without
fear of victimisation, thereby ensuring employee voice is heard. The outcome
of such negotiations is typically determined by the bargaining power of the
respective parties in the context; however, it should be added that often the
robust articulation of employee voice can result in creative solutions being
found that involve the reciprocation of concessions that neither side finds
hugely onerous that can result in positive outcomes for each of the parties to
the dispute. When the employment relationship is good, negotiations are typ-
ically carried out at local level with employee representatives acting for their
peers in discussions with management without the involvement of full-time
union officials. Indeed, in my experience, employee representatives seek the
support of full-time union officials only as a last resort. When they do so, they
accept the loss of control which in most cases they are loath to sacrifice.
The Pluralist frame is presented within the VSM in Figure 11.3.
Returning to the observation made in Chapter 6 that other regions of
the world have evolved their own interpretation of what constitutes SHRM,
we now turn to practice in other parts of the world. Many countries of the
European Union have embraced the pluralist ideology and various permuta-
tions of employee participation and or co-determination. Each country has
evolved its own approach. At the level of generality, the Northern countries
FIGURE 11.3 Employee voice within the Pluralist Frame
are more favourably predisposed to promoting employee voice through par-

ticipation. Probably the best known is the German system. The German term
for employee participation in the affairs of companies is “Mitbestimmung.”
Employee relations in Europe

The Co-determination Act of 1976 reinforced by decisions of the Constitutional
Court established a fundamental principle that employee interests should carry
equal weight to those of the shareholders in any business, assigning equal status
to both labour and capital. Thus, under German law, employees have a right of
representation and of participation in a firm’s corporate governance. Employee
participation, therefore, occurs at two levels, the Work Council “Betriebsrat”
and the Supervisory Board, “Aufsichtsrat.” The former functions at the shop
floor level of business units, whilst the Supervisory Board functions at cor-
porate level, the highest level of recursion Edwards et al. (2009). Unlike the
Anglo-American model, where there is a single board composed of both exec-
utive and non-executive directors, German Law specifies that there should be
an Executive Board composed of senior executives and a Supervisory Board
half of which is composed of shareholder representatives and the other half
employee representatives. The latter are often members of trade unions or are
union nominees. Representation is determined by the size and legal form of
the organisation. The Chairman is required to be a shareholder representative
and is entitled to exercise a casting vote if the two sides become deadlocked
(Fauver and Fuerst, 2006).
Normally the Supervisory Board appoints executive directors and sets remu-
neration levels and is, therefore, part of System 5. It also oversees executive decision-
making, thereby ensuring that executives will find it challenging to pursue
a wholly short-term managerial agenda that might work to the detriment of
either shareholders or employees. This is sometimes perceived to be the case
in the laxer Anglo-American context where a remuneration committee, usu-
ally chaired by a non-executive director and composed mainly of independent
non-executive directors, determines senior executive pay and reward packages.
A recent example is the tendency for British and American companies to engage
in share buybacks. By borrowing money at very low levels of interest, company
directors have been able to push up the price of shares. This boost in the share
price triggers bonuses for the executives, even though no real value has been
added to the business. Mergers and takeovers are also approached with more
caution in countries that embrace co-determination because both shareholders
and employees have an interest in the long-term viability of the business and are
predisposed to eschew risky short-term financial engineering that promises a
substantial senior executive pay-off if successful (Dyballa and Kraft, 2016). Wage
agreements are not negotiated at enterprise level in Germany. Instead, collective
bargaining is done between the unions and employer associations at a national
level (FitzRoy and Kraft, 2004).
Like Germany, Austria and Denmark also embrace the principle of worker
and shareholder representation on a supervisory board. Sweden in contrast oper-
ates a more limited form of co-determination within a unitary board system.
Employee relations in Japan

After Second World War, Japan, like Germany, was encouraged by its American
occupiers to embrace a stakeholder approach and adopt a two-tier executive
board. At the end of the occupation, however, much of the Japanese corporate
sector reverted to a unitary board system. Since the 1990s, partly because, and
in part in response to globalisation, OECD countries have engaged in the
reform of Corporate Governance systems. For the most part, the driver has
been the liberalisation of financial markets. It has resulted in more ownership
by both foreign and domestic investors, mostly voluntary measures to promote
greater effectiveness in external monitoring of board room decisions, and a
general overall improvement in transparency and disclosure. Thus, Japanese
corporate governance has, like Germany, become more shareholder ori-
ented. Employee conflicts with managers and shareholders over the speed of
divestment strategies, equity-oriented performance targets and performance-
related pay that gives rise to perceived inequities between groups, has increased
( Jackson, 2005). Despite this, employee voice via company unions remains
strong at both the corporate level and through the “Rengo,” the Japanese
Federation of Trade Unions, although it is argued that in the mid-2000s,
Japanese employees were still disaffected by constraints on voice (Chuma
et al., 2005).
It comes as no surprise given that Unitarism and Pluralism are conflicting
ideologies that the field of employment relations is bitterly contested, espe-
cially by managers and shareholders in the Anglo-American world, many
of whom have felt buoyed by the liberalisation of financial markets and the
increasing transparency of governance systems in stakeholder economies. This
has encouraged them both to warn against co-determination and to predict its
ultimate demise. There is, they argue, a tendency to inertia, within domains
where co-determination prevails, leading to a loss of competitive advantage.
The evidence, however, points to adaptation, not abandonment. Indeed, there
are some in the Anglo-American world such as Bill Gross of Pimco who
argue that the shareholder model is itself in danger because of rising levels of
inequality Gross (2014). Our concern here, however, is with their respective
effects on performance as different ideological systems and it is to this issue
that we turn next.
Unitarism and Pluralism’s effects on

corporate performance
There is a substantial discourse around the benefits and disadvantages of each
ideological perspective with evidence marshalled on both sides to support
and buttress deeply held views. It must not be forgotten, however, that the
economic systems that have evolved through these different ideological per-
spectives are also profoundly different. In the US and UK, at the beginning
of the millennium, approximately 40% of the population held stock market
investments (although a significant proportion is held in pension funds rather
than by retail investors). In Germany, according to the Financial Times, in
2015, 13% of the population owned shares (Bryant, 2015). This compares with
a range of between 65% and 55% of Americans between 2008 and 2015. This
is an important distinction because it goes a long way to explaining the move
towards promoting shareholder value during the 1990s, both in the US and
the UK. This was driven by institutional investors such as pension funds and
insurance companies whose requirements for short-term results stimulated
extensive activity in corporate downsizing.
Governments were also active in divesting themselves of responsibility for
administering public utilities. Such divestments not only provided a short-
term boost to the public purse but also weakened the strength of public sector
trade unions. The successive waves of privatisation ensured many employ-
ees found themselves no longer public servants but private-sector employees
with reduced holidays and pensions. The advocates of the shareholder model
as previously outlined, were able to point to private sector investment and

favourable performance in respect of the price earnings and price-to-book
ratios. Gorton and Schmid (2004) advanced the case by asserting that employ-
ees resist reorganisation and restructuring. This militates against the crea-
tion of shareholder value. They argued that such resistance had a detrimental
impact at the societal level because co-determination resulted in overstaffing.
This impacted the price-to-book ratio by as much as 31%.
There can be little doubt that observations of this kind drove debate in
Germany, Scandinavia and Japan leading to genuine anxiety about future com-
petitiveness. This concern prompted legislative adjustments and changes in
practises and behaviours, both on the part of management and employee repre-
sentatives. In Germany, for example, there was a move to improve the status and
voice of institutional investors to some degree at the expense of Bank representa-
tion. In 1998, German Chancellor Gerhard Schröder resisted an attempt on the
part of Chairman of the Employers Federation to abandon co-determination.
Academic contributions on the other side of the debate stress, as previously
stated, that shareholders and employees share a long-term interest in the viability
of the business that discourages unnecessary risk taking by self-serving avaricious
executives. One of the most persuasive arguments in support of co-determination,
however, is the improvement in communication. Whereas Unitarism relies
largely upon a single feedback loop from System 1 to System 3 often via System 2,
Pluralism has three loops because both HR and the works council feedback
to System 3 thereby amplifying and improving transduction. This results in a
greater likelihood of employee voice being both heard and understood.
Unitarism relies upon straightforward upward and downward communication.
One of the problems with this is that the downward flow is almost always stronger
than the upward flow. Management holds a monopoly in terms of power over
amplification and transduction. Executives can deploy team briefings, town hall
meetings, email messaging, video conferencing, notice boards and so forth to
communicate with employees. Employees in contrast can give feedback through
team briefings and town hall meetings if they feel confident enough to do so.
Attempts to organise via email or notice boards may be perceived to be fraught
with risk. Any deterioration in climate, therefore, will tend to stifle the motivation
to speak at the very time managers need to hear employee voice.
Works Councils also facilitate the amplification and transduction of
employee voice. Jirjahn et al. (2011) found positive correlations between
the age of works councils in Germany and manager-employee relations. (In
Germany, the Works Council may contain union representatives, but it is
not a requirement for a representative to belong to a Union.) Their study
of organisational learning found that employees and managers need to learn
together over time. By doing so, the adversarial relationship between manage-
ment and works council was found to decrease and that the council’s age was
positively associated with influencing decisions where it had no legal powers.
Productivity was also found to increase whilst employee churn rates declined.
These results have been echoed on a larger scale by Vitols (2005) in a study of
25 EU countries. He found that whilst GDP growth was slower in those coun-
tries with higher rates of employee participation, those same countries tended
to have higher R&D intensity, higher labour productivity and lower strike
rates. Hörisch (2012) deployed the Gini Coefficient to examine income equal-
ity in countries with and without high co-determination. His results showed
that those countries with higher co-determination, perhaps unsurprisingly,
had higher levels of income equality. From a societal perspective, this finding
is potentially significant because of the many studies that have found that
both health and happiness correlate negatively with high levels of income ine-
quality (Berg and Veenhoven, 2010; Frey, 2008; Graham and Felton, 2006;
Oishi et al., 2011; Oshio and Kobayashi, 2010), These findings go some way
to explaining the Brexit phenomenon in the UK and the election of President
Trump in the US in 2016. The graph presented in Figure 11.4 is abstracted
from the UN World Income Inequality data base (2018, WIID). The report
argues that the extensive privatisations that have occurred across the world
since 1980 have increased private wealth whilst reducing public wealth. This,
the authors argue, reduces the capacity of governments to address income and
wealth distribution.
FIGURE 11.4 The decline of public capital, 1970–2016
The decline of public capital, 1970–2016

Unitarism, therefore, has emerged as a complementary ideology to neoliber-
alism and the HR frame has played an active role in advancing the agenda.
Figure 11.5 shows the impact of the neoliberal dynamic.
FIGURE 11.5 The impact of the neoliberal dynamic
The report makes two highly significant observations. The first is that
increasing polarisation of income and wealth in line with Goss’s prediction,
will ultimately lead to economic and political destabilisation and secondly,
that efforts to reverse the process, assuming there is a political will to do so,
will prove intractable. The report found that:
The combination of large privatizations and increasing income inequality within

countries has fuelled the rise of wealth inequality among individuals. In Russia
and the United States, the rise in wealth inequality has been extreme, whereas in
Europe it has been more moderate.
The report goes on to observe that:
We project income and wealth inequality up to 2050 under different scenarios. In a

future in which “business as usual” continues, global inequality will further increase.
Alternatively, if in the coming decades all countries follow the moderate inequality
trajectory of Europe over the past decades, global income inequality can be reduced—
in which case there can also be substantial progress in eradicating global poverty.
World Income Inequality Report (2018)
In the two case studies that follow, Unitarism and Pluralism will be consid-
ered from the perspective of an emerging economy on the one hand, and the
developed world and its relationship with the developing world on the other,
in a context where the neoliberal agenda has been perpetuated.
Case Study Indian Industrial Relations, the

case of Larsen & Toubro (L&T)’s Hazira factory
in Gujarat
Background
The Indian industrial heritage and the nature of employee relations are
rooted in British Colonialism and the move to independence. The British Raj
was opposed by Mahatma Gandhi who initiated and led many “Harthals,”
(the Gujarati word for large-scale strikes against British rule.) When India
finally achieved independence, Gandhi’s influence prevailed to the extent
that certain employment rights were guaranteed under the Constitution
of India 1950. Articles 14–16, 19(1)(c), 23–24, 38, and 41–43 specifically
addressed the rights of employees. Articles 14–16 deal with equality
before the law, non-discrimination by the state and equality of oppor-
tunity. Article 19 assigns to every citizen the right to join a trade union.
Part (IV) of the Constitution, unlike those Articles that form parts 1–3,
are aspirational rather than enshrined. They are designed to provide guid-
ance to states when formulating new laws. In other words, Part (IV) of the
Constitution is designed to provide guidance whilst also allowing flexibility
on the part of individual states to exercise judgement having regard for
the circumstances prevailing at the time and the financial implications and
burdens implementation would impose on state exchequers. Thus, Article 41
creates a right to work. Article 42 creates a right to humane working
conditions and article 43 provides for a right to a living wage. In 1976, a
43rd amendment was made to the Indian Constitution (Article 43a). This
article requires state legislatures to promote the right of workers to partic-
ipate in the management of undertakings through co-determination. This
aspirational move has met with protracted resistance from employers and
inertia on the part of legislators and has been accommodated by the flex-
ible nature of Part (IV) of the Constitution. The result is that India shares
many characteristics of the British economy of the nineteenth century.
Trade Unions have proliferated. The employment relationship is charac-
terised by successive rounds of tension and conflict that arise over wage
rates and safe working conditions in the workplace, resulting in strikes and
occasionally full-blown Harthals. A contemporary example of the latitude
provided by Part (IV) of the Indian Constitution is the current situation in
Uttar Pradesh. At the time of writing, India is being wracked by the impact
of Covid-19. Uttar Pradesh is one of the poorest states in India.
On September 2 and 16, 2016, for example, 180 million people staged
a one-day strike over wages and working conditions across a range of
industries. In July 2018, the entire Indian transport system ground to a

halt. These actions are a response to an economic dynamic that is mak-
ing the country ever more industrialised and urbanised, stimulated by the
neoliberal agenda being driven by Indian Prime Minister Narendra Modi.
On May 6, 2020, the Government of Uttar Pradesh, suspended 35 out
of the 38 labour laws in the state for three years. Foremost amongst
them are the Minimum Wages Act, the Trade Unions Act, the Industrial
Disputes Act, the Factories Act, the Contract Labour Act, the Payment of
Bonus Act, the Inter-State Migrant Workmen Act, the Working Journalists
Act and the Employees’ Provident Funds and the Miscellaneous Provisions
Act. The rationale provided by the State Government is that there is a need
to promote economic regeneration in the face of the predations caused by
the Covid-19 crisis. If the three-year temporary exemption order is upheld
in the Constitutional Court, the only labour laws that will remain opera-
tive within the state will pertain to women and child exploitation, like the
Maternity Act, Equal Remuneration Act, Child Labour Act, and Section 5
of the Payment of Wages Act. (The latter states that wages of a person
earning less than Rs 15,000 a month cannot be reduced.) The new legis-
lation is being challenged by representatives of organised labour on the
grounds that it violates the Constitution. Other poor and better-off States
are awaiting the final ruling with great interest. If the State’s position is
upheld, then there is little doubt that the new regulations will be widely
adopted by other states.
Labour relations at Larsen & Toubro

Larsen & Toubro Ltd is one of India’s largest multinational companies. It
was established by two Danish Engineers in 1938 to represent the Danish
dairy equipment manufacturers in India. The outbreak of Second World
War resulted in the company diversifying into shipbuilding and it grew
rapidly.
Today the company operates in three main segments: engineering
and construction, electrical and electronics and machinery and industrial
products. The company operates a shareholder model of governance that
results in regular clashes with organised labour. One of the main sources
of conflict revolves around productivity and wages. Wage differentials
typically become an issue where operations are established in several
states and wage rates differ between plants in the different states along
with union representation. This pattern echoes the British experience in
the manufacturing sector. Wage rates were persistently contested. Trade
Unions jealously guarded their differentials and conflict between unions
trying to change or sustain the status quo were as much a cause of indus-
trial disputes as were the disputes with management.
In 1975, Larsen & Toubro established a plant in Bangalore. In 1997, the
plant became a joint venture with Komatsu of Japan. Between 1994 and
2002, there were three major strikes. In 1994, there was a dispute over wage
rates that lasted 120 days. The following year a new agreement was struck.
It involved a wage hike and a new productivity target. The latter became a
source of grievance, and four employees were dismissed for agitating and a
further 13 were suspended. A strike lasting 99 days was initiated (Roychow-
dhury, 2008). Feelings ran high and in union elections, the less assertive
All India Trade Union Congress (AITUC) was displaced by the Centre for
Industrial Trade Union (CITU), which took a more aggressive stance over the
suspensions. Eventually, the state government intervened and demanded
the parties go to arbitration. The following year 1998, the tribunal found
in favour of the employees and required their reinstatement. Management
refused and appealed to the High Court. It reversed the decision, exacer-
bating an already fraught relationship. A new demand was made for an
increase in wages. Management refused to negotiate unless there was a
50% increase in productivity. Eventually, in 2002, the impasse ended with an
agreement that productivity would be increased by 40%, however, relation-
ships between management and employees did not improve significantly
and in 2013 Komatsu divested its interest in the venture.
Some parallels have been drawn between industrialising India and
nineteenth-century Britain. It would, however, be dangerous to push the
case for similarity too far. Whilst it is true that employee power in contem-
porary India is weak and there is competition for membership between
trade unions that can cause tension between employee groups and gov-
ernment. The latter is largely indifferent to employee working conditions
as was the case in Britain in the last century.
There are also important differences. In the UK, employers tended to
be local, whereas in India, they are often multinational companies seeking
the benefits of lower labour costs. Shareholder interest in these compa-
nies is both remote and diverse. The one interest they share is the divi-
dend payments. Financial and trading news travels fast. Amplification and
transduction capacity in respect of financial performance is huge. Investors
in the form of pension funds, investment trusts, unit trusts and insurers
in Europe, the US and Japan react fast to negative reports. Information
regarding working conditions in contrast seldom travels.
Bangalore has a significant Engineering sector; however, it also has many
garment factories as well as a thriving IT and information services sector.
One consequence is an absence of what Roychowdhury (2008) has called
proletarianisation. Within the same city, there are vast numbers of workers
subjected to secondary labour HR conditions, whilst there are also signifi-
cant numbers of better-educated citizens with strong consumer aspirations
enjoying the fruits of high commitment HR policies. These groups are more
tolerant of the Unitarist ideology and HR frame than their less fortunate
low-income counterparts. There is, therefore, little or no sense of solidarity. If
one regards the city and the surrounding hinterland as a governance system,
then it becomes easy to see why politicians and administrators opt for per-
missive stances in respect of labour relations. MNCs bring inward investment
as an input to the local economic system. Their activities deliver both salaries
and outputs that enhance the local tax base. This funds roads, schools and
hospitals. Thus, it falls to international NGOs to call attention to imbalances in
the employment contract along with the occasional general strike.
Case study
Diversity, requisite variety and competitive rivalry

in international fashion retailing
Zara
Amancio Ortega established Zara in A Coruña, Galicia, Spain in 1975. He
started his career by opening a clothing factory in 1965. He then decided to
diversify. Inspired by the film Zorba the Greek, he initially named his first retail
outlet Zorba but upon recognising another business had the same name in
the neighbourhood, he changed it to Zara. Since that time, the company has
evolved to become one of the largest and most successful fashion companies
in the world. It operates in 88 countries and has close to 6,500 stores.
Initially, the company’s innovation strategy was one of fast follower.
Ortega’s vision and mission were to “democratise” fashion. The company
would rapidly copy successful fashion designs and bring them to mar-
ket in short order at lower prices. He recognised the transitory nature of
fashion and the shortness of each product’s life cycle. A curious feature of
the company is that whilst the brand is well known, its annual accounts
suggest that by comparison with its competitors, it has never been actively
marketed. The reasons will become clear.
Throughout the 1980s, the company expanded its retail operations
across Spain. One of the challenges Ortega faced was the relatively mature
nature of the Spanish fashion market. This encouraged Ortega to look
for markets outside of Spain. The country was admitted to the European
Common Market in 1986. This triggered both pull and push decisions.
The push resulted in his establishing retail outlets in Paris in 1990 and
Milan in 2001. The New York branch opened in 1980 in contrast. It was a
pull decision that would give the company access to a huge market. The
latter, according to Ortega’s 1998 annual report, proved to be both very
challenging but also rewarding. It enabled Zara to learn about American
culture and about Gap, a major international competitor.
The big opportunity, however, arose in 2005 when the World Trade
Organisation (WTO) removed tariffs from textiles and clothing. This
opened markets and provided unrestricted access to the European, Amer-
ican, and Canadian markets. It was a critical factor in the evolution of
the clothing sector according to Keenan et al. (2004). It provided new
opportunities for China and India, whilst creating competitive challenges
for European-based businesses that had fragmented production facilities
but highly concentrated channels of distribution. The reform unleashed
dynamics that were to transform the textile and clothing manufacturing
and retail sectors across the world. Foremost amongst them were deci-
sions by Western companies to offshore clothing production to countries
with lower labour and transportation costs and reduced lead-times. This
involved investment in new technology to increase productivity and com-
petitiveness (Berkeley and Steuer, 2000).
The Zara business is grounded in two highly distinctive dynamic capabil-
ities. The first is the speed with which the company can spot and create new
fashion trends and then bring new products to market. The second is the way
in which Zara builds its customer relationships. This is founded on a two-way
feedback loop. Each retail outlet is tasked with constantly and systematically
engaging in conversations with customers with a view to really understand-
ing customer needs, desires and aspirations. The manager of each retail out-
let is required to provide daily reports of these conversations. The results are
collated and analysed centrally. This enabled Zara to move from its “fast fol-
lower” approach to innovation, to a “first to market strategy.” Ortega always
believed that fashion does not respect borders and is international in its out-
look. This enabled the company to recognise interesting developments in
one market and through conversations with customers, introduce it to other
markets, thereby exploiting the diversity of its international customer base.
Zara, like Cemex, internationalised in stages, initially expanding in geo-
graphically close and culturally similar markets (except for New York). The
approach was ethnocentric at first. Managers from Spanish outlets were
expatriated to establish new operations in new markets but owing to prob-
lems in Mexico and France, recruitment policies shifted to geocentrism
(Bonache and Cerviño (1997).
Opening new factories and outlets in new markets is costly. The com-
pany’s approach to international expansion, therefore, was predicated
upon three strategies, franchising, strategic alliances and direct owner-
ship and control. Each is defined by the nature of the market in question.
Those with good growth potential and steady patterns of governance elicit
direct investment. Joint ventures were used in markets that were hyper
competitive resulting in high costs to procure premises and facilities. By
partnering with an indigenous company with significant investment in
fixed capital associated with plant and premises and established sources of
supply and distribution, costs could be cut and expansion accelerated. It
is an approach that served the company well in Germany, Italy and Japan.
Franchising was the strategy of choice in markets that were perceived to
be relatively small, where the culture and legal system were potentially
challenging and volumes likely to be small, Saudi Arabia and Kuwait being
cases in point (Lopez and Fan, 2009).
Suli and Xiaobo (2011) emphasises the importance of requisite variety,
arguing that when it comes to agility, most companies are only endowed
with agility in one area. Some companies can change their competitive strat-
egy quickly, adjust their portfolio of businesses to reflect market opportunities
and threats or make radical adjustments to operations. An effective combina-
tion of patience and boldness is required to go the distance when conditions
get tough, whilst always mitigating risk and exploiting opportunities when
they arise. What makes Zara distinctive is that it has demonstrated agility in
all three areas. It is these attributes that enabled the company to overtake its
rivals. Zara’s approach to international expansion represented a risk mitiga-
tion strategy. When some national economies are experiencing hard times,
others prosper. A large international footprint ensures that impaired perfor-
mance in some economies can be offset by outperformance in others.
In 1985, Ortega had established a holding company called Indetex
under which the manufacturing and retail divisions operated. By 2018, the
portfolio included:
• Bershka: Modern fashion and urban styles and for young women and
men.
• Massimo Dutti: High-end clothes and accessories for cosmopolitan
men and women.
• Oysho: Lingerie, casual outerwear, and original accessories.
• Pull & Bear: Casual clothes and accessories for the young for young
people.
• Stradivarius: Casual clothes for young women.
• Uterqüe: competitively priced high-quality fashion accessories.
• Zara Home: Domestic goods (Brand stretch and extension from Zara
fashion).
Zara’s main competitors

Zara was confronted by two major competitors. The American-based com-
pany Gap and Sweden’s H&M (Lopez and Fan, 2009). Gap was established
in San Francisco in 1969 by Donald and Dorris Fisher. The Fishers were
friendly with Walter Haas Jr, President of Levi Strauss & Co., Fisher had
been impressed by the success of Tower of Shoes, a shoe retailer that guar-
anteed it could supply any size of shoe. Donald Fisher decided to replicate
the business model and did a deal with Levi Strauss whereby Gap sold only
Levi products but in all possible sizes. Later the company created other
brands that served different markets. Alarmed by the Gap’s success and
rate of growth, Levi Strauss refused to continue to supply the company
but by that time, the Fishers had established their own brand and manu-
facturing capability. The Fisher family retained a controlling interest in the
business, which was divided into five divisions: Gap Banana Republic, Old
Navy, Intermix, Weddington Way, and Athleta. Gap Inc., the holding com-
pany, became the largest specialty retailer in the United States.
The company exploited the vast American market and sought interna-
tional expansion late. Thus by 2005, Gap only had operations in five coun-
tries outside the US, namely, Canada, UK, France, Japan and Germany. In
2004, owing to poor sales, Gap withdrew from the German market (Wells
and Raabe, 2005). Thus, international sales accounted for only 10% of the
Group’s turnover (Lopez and Fan, 2009).
In January 2008, Gap had signed a franchise agreement with the Mari-
nopoulos Group to open Gap and Banana Republic stores in Bulgaria, Cro-
atia, Cyprus, Greece and Romania. The following year, Elbit Imaging, Ltd
bought a franchise to open and operate Gap and Banana Republic stores in
Israel. In 2010, the company established a major retail outlet in Melbourne,
Australia and in 2011, Komax bought a Gap franchise to open a store in
Chile. Later that year, Gap opened its first branch in Warsaw. This was
followed by outlets in Wroclaw and Katowice. Unlike Zara, the company’s
success in international expansion was more chequered.
According to Steinberg (2017), The Israeli operation was sold off in
2017. The company’s failure in Israel was not just about the local market.
She argued that financial reports from 2014 to 2015 showed that:
The all-American retailer has been facing stiff competition from trendier,
lower-priced retailers like Swedish H&M, California’s Forever 21 and the
Spanish Zara. They’re all retail brands that are better at turning around
fashion trends more quickly and cheaply for fashion-forward customers.
Times of Israel (January 12, 2017, 11:49 am)
The Polish story similarly ended in failure prompting Gap to pin its hopes of
expansion and profits in the emerging markets of India where it opened a
branch in New Delhi in 2015 and Mumbai in 2016 and operated company-
owned stores in the United States, China, Canada, the United Kingdom,
Ireland, Japan, Taiwan Mexico, France and Italy.
In 2015, the company had to close 175 stores in the US and made a
commitment to a turnaround. In 2017, it announced the closure of a fur-
ther 200 US outlets. It also shut down its operations in Malaysia.
H&M
The company was founded by Erling Persson in 1947. He called his first
shop, Hennes, the Swedish name for “hers.” He opened another store in
Norway in 1964. Persson then acquired a hunting apparel retailer called
Mauritz Widforss in 1968 and renamed the group H&M. The group went
public on the Stockholm Stock Exchange in 1974.
In the 1980s, the company expanded into Germany and the Nether-
lands and continued its European expansion in the 1990s using leading
models and billboards to promote the company’s products and image.
In 2000, the first American retail outlet was opened in New York. A suc-
cessful design collaboration with Karl Lagerfeld in 2004 resulted in fur-
ther design collaborations with other leading designers including Versace,
Stella McCartney and Roberto Cavelli helped develop the brand further.
In 2007, shops were opened in Shanghai and Hong Kong. By the turn
of the decade, H&M had committed to becoming a global business with
operations in Australia, Asia, the Middle East, Africa and South America. By
the end of 2015, the Group had 3,450 stores worldwide.
The company’s strategies compared

Founder influence has shaped these companies. Ortega had a background
in clothing manufacturing. As a result, in the early years, wherever he
opened stores, he established a local company to manufacture and sup-
ply the outlets. As a result, Zara developed integrated supply chains and
became more deeply embedded in the local markets in which it operated.
Both Gap and H&M were quick to mount offshore operations to garner
the benefits of low labour costs. Both companies also spend heavily on
a dvertising and in the case of H&M capitalising on the brands of its designers.
Zara in contrast seeks close customer relationships through face-to-face
dialogue between customers and shop managers.
Gap is a design follower. Its founder had a background in real estate
and sought to maximise revenue by achieving high levels of turnover per
square metre. Persson was a clothing retailer and sought to maximise the
retail experience. It comes as no surprise, therefore, to learn that whilst
Gap companies went online between 1999 and 2000, neither Zara with its
reliance on face-to-face customer feedback and H&M with its focus on the
retail experience and designer image did not take the plunge until 2010.
Labour market orientations

Recruitment is market-led in both Gap and H&M whereas Zara has sought
to promote an internal labour market orientation that results in most senior
talent emerging from the cadres of its shop managers. They are well versed
in the skills of dialogue and are trained and coached for upward progres-
sion. Whilst all three companies have enjoyed a good deal of success, their
relative performance is rooted in different sources of competence. Gap is
ruthless in seeking short-term profit by driving down costs, maximising the
use of space and minimising labour costs by sourcing from low–labour cost
countries. H&M seeks market leadership through leveraging the brands
of designers and keeping manufacturing costs low by also sourcing from
low–labour cost countries. Zara competes with H&M by exploiting its
more integrated supply chain. New designs are created with extraordinary
speed at its headquarters in Spain, informed by diverse customer feedback
from all over the world and collated centrally to create new fashion trends.
Whilst Gap Inc’s top management has been characterised by quite a high
rate of turnover, both Zara and H&M are characterised by greater stability
and continuity. This has resulted in long-term visions that contrast with
Gap’s short-term opportunism and willingness to close underperforming
outlets quickly.
Labour relations
Operating in diverse markets always poses challenges. Gap’s approach
appears to be one of financial due diligence but with lower control over
its suppliers that left it vulnerable to brand damage arising from litiga-
tion and adverse newspaper reports. It also experienced higher levels
of dispute with employees and suppliers than its two competitors. In
1995, the National Labour Committee, a workers’ rights group, exposed
serious labour violations in the Mandarin International garment factory in

El Salvador.
In 1999, Gap and 26 other US retailers, including Levi’s and Nordstrom,
were sued over labour conditions in their supplier factories in the US-
administered south Pacific Island of Saipan. As in El Salvador, the Saipan suit
alleged cases of forced labour, non-payment of minimum wages and other
violations of the rights of the island’s mostly migrant workforce. In 2000,
Gap again faced allegations of child exploitation for which it and a few
other companies paid hefty compensation despite there being a lack of
evidence. In 2001, a class action was initiated against a Gap supplier in the
Philippines for union busting. In 2007, child labour exploitation in India
was exposed by the Observer newspaper in the UK and again in 2009, the
company was wracked by allegations of environmental pollution in Leso-
tho. To Gap’s credit, the company had recognised its vulnerability to brand
damage arising from the behaviour of its suppliers in the early 1990s. It
tried to create tighter control over its supply networks. It had initiated one
of the first codes of conduct by the industry when engaged in offshoring,
suggesting that they had been easy targets (Smith et al., 2011). It had also
refined a comprehensive strategy to exercise much tighter control over its
suppliers and their subcontractors between 2000 and 2010. Thus in 2009,
Neil Kearney, former general secretary of the International Textile Garment
& Leather Workers’ Federation praised both Gap and Levi’s roles in improv-
ing working conditions in Lesotho.
By comparison, reported abuse and bad management practice has
until recently appeared less frequently in reports on Fashion retailers H&M
and Zara. H&M is vulnerable to allegations of undue secrecy about its
sourcing practises. A 2018 report published by the Asia Floor Workers Alli-
ance alleged that suppliers to H&N along with Walmart and Gap were
actively resisting unionisation, failing to address gender discrimination,
using short-term contracts to suppress grievances, and resisting legitimate
claims for a living wage.
Zara too has had its problems with suppliers in Brazil and Turkey and
more recently in the US, however, the scale and frequency of adverse
reports of labour abuse, labour disputes and discriminatory practice either
by the company or companies in its supply chain are fewer. It is not unrea-
sonable to ask why this should be? Clearly, shorter supply chains are easier
to manage and in-house supply chains even more so, in ensuring good
practice. The question is, however, is this all there is to it? The answer
would seem to be no. Managers who are well trained in listening to cus-
tomers, who are promoted from within and climb the corporate ladder
are likely to bring greater diversity to more senior management positions.
There the listening skill set is applied to employees as well as suppliers.

Listening to stakeholders at all levels and seeking to promote voice pays
dividends in respect of lower labour turnover and higher management
retention. This enables teams to coalesce making it possible to accommo-
date diversity without the risk of destructive conflict. This in turn feeds
through to creativity and innovation not just in product design but also in
the design of systems.
Zara exemplifies loose tight management. The logistics are highly cen-
tralised enabling the group to operate a global just-in-time supply chain
that can deliver 10,000 separate fashion pieces a year to its customers
in an industry where the average is no more than 4,000 pieces. It is this
characteristic that has enabled Zara to eclipse its competition by creating
its own demand rather than responding to demand from customers. The
group achieved an A+ in policies, audit, and supplier relations in the 2018
Ethical Fashion Report. The report also looked at wages and worker power
initiatives. It scored a B in worker empowerment and an A in knowing its
suppliers and manufacturing partners. However, it must also be acknowl-
edged that in 2015 the Centre for Popular Democracy produced a damning
report about favouritism and discrimination in Zara’s New York operations.
In conducting the background research for this case study, each compa-
ny’s annual reports were examined. Gap Inc.’s annual reports stood out for
their bland opaqueness and obsessive focus on the bottom line. Published
only online, the document is presented in monochrome, bereft of any image
other than tables of numbers that address only the interests of shareholders.
It makes no mention of employees except to say there are no issues. Other
stakeholders are completely disregarded. The company does not appear to
understand that its annual report provides feedback not only to sharehold-
ers. Other stakeholders such as potential graduate recruits, labour organi-
sations such as the ILO, the Asia floor workers Alliance, the National Labour
Committee of San Salvador along with many charitable organisations and
news agencies will pick up on labour and environmental abuses and draw
unfavourable conclusions about the company’s culture and management
style derived from its approach to reporting. Gap’s success in achieving fifth
place in the 2018 Thomson Reuters Diversity and Inclusion Index could easily
be overlooked. Such conclusions may be unjust and ill-informed, but the
annual report communicates a brand image, nevertheless.
It is perhaps worthy of note that whilst Interbrand places Zara and
H&M at 23 and 24, respectively in the 2017 International League Table of
the Top 100 Brand Values, Gap does not appear at all. Both Inditex and
H&M are predisposed to a pluralist view of employee relations whilst Gap
is firmly unitarist.
Inditex annual reports of which Zara is a part, are laden with information
that goes way beyond the financials, providing details on the number of
employees, a gender breakdown and confirmation that in 2019, 79% of the
company’s managers were promoted from within. The impression that is
created is of a company that is seriously interested not only in its sharehold-
ers and customers but also in its employees, suppliers, and the environment.
The report lists its relationship with its many partners. These include the
International Labour Organisation, the Uni Global Union, a federation of
international trade unions representing 20 million workers in 150 different
countries, IndustriALL, a federation of 600 trade unions that collectively rep-
resent 50 million industrial workers. It is a report that projects a company
image that is both adept at listening and feeding back, of being in touch
with its markets, its suppliers, and its employees and that it is willing to
share information. No doubt Inditex and Zara too have secrets they do not
want to share, but this is not the impression that the annual report creates.
Moreover, during the first stage of the Covid-19 pandemic, Zara saw its sales
halve but it did not furlough any of its staff who continued to receive full
pay. Gap Inc. in contrast furloughed 80,000 staff, whilst its silence on gov-
ernance issues is communication. It points to an obsession with the bottom
line whilst hinting of disengagement with the great social issues of our time.
Summation
This chapter has sought to offer a critical evaluation of two ideologies,
Unitarism and Pluralism. It has posited that Unitarism is an ideological off-
spring of Anglo-American Individualism and a key driver in the advancement
of the shareholder model and the neoliberal agenda. HRM is an emergent
frame that has evolved out of Unitarism. It has sought to shape and mould
employee attitudes and values within the workplace environment and give
expression to the idea that the true nature of the management and employee
relationship is one of the shared interests and common purpose. Pluralism,
in contrast, offers a more nuanced alternative frame that acknowledges that
whilst there are some areas of common interest, there are also areas within
which interests will conflict. Because HR research has been largely dominated
by American and British academics, the HR discourse has followed a unita-
rist agenda. SHRM, however, is practised in other parts of the world where
the unitarist ideology does not hold sway. Thus, whilst Anglo-American aca-
demic hegemony has dominated the discourse, alternative approaches exist.
Whilst both ideologies address the employment contract, they differ in
their approach to employee voice. It has been argued that Unitarism tends to
suppress voice whilst Pluralism gives it expression.
Explicit consideration was given to the German system of co-determination

and to some other approaches. Research findings from both sides of the divide
were reviewed and it was established that whilst co-determination slows down
the rate of organisational change and can adversely affect short-term perfor-
mance as measured by ratio techniques such as the price-to-book ratio, it also
conferred benefits such as discouraging unnecessary risk on the part of senior
executives hungry for short term reward, higher levels of capital investment
and investment in R&D, fewer strikes, higher productivity and lower differ-
entials in the income and wealth divide.
The chapter concluded with two case studies. The first looked at India and
the employment relationship in a large multinational engineering company.
Parallels were established with nineteenth-century employment relations in
the UK that served to highlight the importance of institutional structures
in shaping the way in which employment relations are viewed and policies
developed. Differences were also emphasised. The nature of Indian urbanisa-
tion that envelopes both low-tech traditional industries that are characterised
by secondary labour market practises, and hi-tech industries with high com-
mitment HR practises within the same urban boundary was highlighted as a
distinctive difference between nineteenth-century England and twenty-first
century India. The latter context militates against a solidaristic working class.
There are various consequences. Information on organisation performance,
for example, is efficiently communicated to investors whilst investor insight
into employment conditions remain opaque.
The case study compared three companies operating in the fashion retail
sector. One company with roots in the US and the other two in Europe that
illustrate how cultural differences result in alternative employment practises.
Overall, Unitarism’s success has not only shaped the managerial discourse
for the last 30 years seducing both managers and academics alike, but it has
also served to further enhance the neoliberal agenda by providing the propul-
sion for an economic system that has greatly enhanced the degree of wealth in
the global economy, whilst simultaneously exacerbating inequality in income
and wealth within individual nation states.
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12
DELIVERING SOLUTIONS TO
COMPLEX ORGANISATIONAL
PROBLEMS USING SOFT SYSTEMS
MODELLING
Overview
The objectives of this chapter are to examine the challenges and opportunities
posed by coevolution. To consider in what ways soft systems modelling might
enable both top management and the HR function to coevolve strategies,
policies and practises that are responsive to changes in the external environ-
ment whilst in some cases, catalysing environmental change. Earlier chapters
demonstrated that it is inevitable for there to be a degree of misalignment
between HR strategy and business strategy during times of change. It will be
argued that the key to success lies in recognising and addressing systemic mis-
alignments in the shortest possible time. Soft systems modelling can facilitate
this process.
Previous chapters of this book have explored what systems theory brings
to HRM and to our understanding of how organisations operate. HR sys-
tems have played a pivotal role in providing organisational stasis especially
in contexts of environmental turbulence. Two systems approaches have been
presented, cybernetics in the form of Beer’s Viable System Model (VSM) and
Checkland’s soft systems methodology. The former provides us with a better
understanding of the critical role that feedback loops play in shaping organi-
sational behaviour and why the management of organisations is such a chal-
lenging task. The latter provides us with a method of analysing challenging
management situations. The creation of a rich picture of stakeholder percep-
tions facilitates the evaluation of alternative options when dealing with the
management of change.
Industries evolve and companies grow and coevolve within industries.
Organisational growth can be achieved organically, through acquisition or a
DOI: 10.4324/9781315630557-13
combination of the two. Opportunities for growth arise at various points in an

industry’s life cycle. In Chapter 6, it was argued that disruptive technological
innovation is the harbinger of transformational change. It heralds either the
start of a new emergent industry or a major disruption that will unseat some
dominant players in a mature industry. This results in a renewal of the cycle
of growth as barriers to entry collapse and new players achieve dominance. As
we saw in Chapter 6, during the period of growth, the innovation focus shifts
to process and system innovation as new business models become established
and each player seeks to achieve improvements in performance. In each of
these contexts, there is always the danger of misalignment between HR sys-
tems and business strategy on the one hand, and misalignment between the
different HR subsystems on the other. When managers find themselves not
only operating in a turbulent competitive environment but also in an unsup-
portive organisational environment in which HR systems are misaligned, then
the challenges they face multiply and can become potentially overwhelming
because of a lack of requisite variety.
What is coevolution?
The term coevolution like many terms used in systems theory has emerged
from biology. Biologists have long recognised that species do not evolve on
their own. Evolution is driven by the persistent interaction of species one
with one another in a continuous cycle of development and adaptation, each
triggered as a symbiotic or competitive response to an evolutionary develop-
ment in another species sharing the same habitat. In short, species coexist in
a form of competitive and cooperative arms race in which they compete to
promote and propagate their gene pools. The analogy with the competitive
business environment is self-evident and provides the underlying premise for
this chapter. Coevolution is, therefore, a complex phenomenon that involves
many systems operating at different levels of recursion (Benbya and McKelvey,
2006; Lewin et al., 1999). The macro level involves economies and industries,
at the miso level companies within industries, and at the micro level compa-
nies operating at VSM System 1 within larger corporate systems operating at
the miso level. At firm level, VSM System 1, production, marketing, finance
and HR systems also coevolve.
Coevolutionary theory is grounded in two research traditions, adapta-
tion and selection theory. The former is predicated on a belief in managerial
agency associated with strategy formulation and organisational change. The
latter in contrast, is not specifically concerned with managerial intentionality
but in population ecology and the drivers that result in organisations being
selected out of an environment (Volberda and Lewin, 2003). Scholars typically
refer to the process of coevolution as a journey during which different actors
make adaptations and adjustments to survive and thrive. Scholarly interest in
Delivering Solutions to Complex Organisational Problems 213
the phenomenon has grown with the recognition that the pace of change in
organisational environments is accelerating dramatically, generating higher
degrees of competitive intensity (D’Aveni et al., 2010; Wiggins and Ruefli,
2005). The result is ever shorter product life cycles (McGrath and Cliffe, 2011).
Murman (2013) has argued that there are two reasons why organisations
remain well adapted to their environment. The first is managerial agency.
Beer’s VSM draws upon Ashby’s law of requisite variety to advance the propo-
sition that it is the process of attenuation that ensures that the decisions made at
System 5 ultimately determine an organisation’s fate. An alternative view ini-
tially formulated by Hannan and Freeman (1977), Aldrich (1979) and Weick
(1979) emerged to the effect that selection pressures result in the elimination
of ill-adapted entities in a population that is endowed with significant variety.
Returning to the earlier discussion of theories of the industry cycle, we have
seen that once an industry standard has been created, a major barrier to entry
in the form of risk and uncertainty is eliminated. New entrants result in a rapid
expansion of the number of firms competing in the space. Because the market
is growing rapidly, there is room for many competitors, however, as the mar-
ket becomes saturated, so the industry concentrates. Weaker competitors are
selected out through acquisition or exit. This leaves a few major players and a
small number of well-adapted niche competitors. At this juncture, the industry
is at a plateau in terms of growth. At some point, a new technological substi-
tute will emerge. Its arrival induces a breach in the barriers to entry. Structural
inertia in large dominant players results in some dominant players being selected
out. Others may have made timely adjustments by either driving the new tech-
nology or embracing it quickly enough to make the necessary adaptation.
Adopting the viewpoint of managerial agency as the driver of evolutionary
dynamics, Volberda and Lewin (2003) identified what they call “four engines
of coevolution,” in the multi-unit firm. Naive Selection, Managed Selection,
Hierarchical Renewal and Holistic Renewal. They argue that for coevolu-
tion to occur, firms competing within a space must be heterogeneous and
have adaptive/learning capability. Each engine makes significant but different
demands on strategic human resource management (SHRM). Each engine is
also a form of archetype. It is to these dynamics and the calls that they make
on SHRM to which we turn next.
Coevolution engines and their implications for HRM

Naïve selection
The naïve selection journey is characterised by a hands-off approach on the
part of corporate headquarters. It is an approach often favoured by large con-
glomerates. Corporate head office acts as a capital market. Investment in units
is determined by performance. An example would be Gap where retail outlets
are selected out by the market. Another would be GEC under Jack Welch.
During the first phase of Welch’s leadership, units had to achieve industry
leadership or at worst, second place. Failure to do so resulted in their being sold
off or shut down. Only those units, therefore, that achieved a match between
their capabilities and market demands survived. This keeps corporate admin-
istrative overheads low and staffing lean. The implication of this approach is
that unit heads and their teams are caught between a need to build capabilities
on the one hand and the need to deliver performance on the other. The HR
function is not controlled centrally, and HR policies and practises emanate by
and large from each unit’s System 5. They are executed by HR departments
at System 2. When there is an effective business strategy and good alignment
with HR strategy, the unit is likely to perform well or adequately, however,
when the environment demands a change in strategy, it can often be difficult
to elicit the resources necessary to support the change of direction. Declining
demand can prompt cuts in training and development budgets at the very
time when training and development are most needed to support the change
of direction. Head count may also be reduced making it even more difficult
to release staff for training, assuming there is funding to support it. HR may
have to manage a redundancy programme whilst simultaneously recruiting
staff with new capabilities. This sends out confusing signals to the employees
at system one. Those that can, begin to look for opportunities elsewhere,
affective commitment declines. For those that cannot leave, the only option
is to hunker down, continuity commitment for this group rises but so does
resentment. Employees become more transactional in their relationship with
management. It is at such times that transformational leadership is needed.
Managed selection
Whilst naïve selection is predicated on an assumption that managerial agency at
the corporate level is largely passive, managed selection recognises that managers
learn from experience and respond to certain kinds of variation coming from
the environment. Previous experiences predispose managers to make decisions
on past insights. Learning results in top managers developing responses that
enable them to anticipate environmental selection and make critical anticipatory
decisions that impose time and resource constraints on variation. This results
in new alignments and realignments between units. The consequence is that
whilst failing units may be selected out, new alignments can potentially protect
units with latent potential. Clearly, corporate engagement with subsidiary divi-
sions and units is greater than in contexts where naïve selection prevails. This
promotes learning and counters inertia at the centre. Progress on the coevolu-
tion journey is accomplished by encouraging and supporting strategic initiatives
emanating from the strategic business units (SBUs). By continuously splitting
SBUs as they grow and by supporting variety generators such as intrapreneur-
ship, skunk works and spinouts, under managed selection, the corporate HR
function is typically larger and more engaged with individual divisions and units
than corporations that tend towards naïve selection.
Hierarchical renewal
Volberda and Lewin suggest that whilst selection is the focus of naïve and
managed selection, Hierarchical renewal is predicated upon a recognition that
organisations can in some cases shape the environment in which they operate
through the business and innovation strategies that they deploy. Apple under
the leadership of Steve Jobs is a case in point.
Managers at all levels are involved in the coevolution process. The impetus
is generated by the vision and aspiration developed by the senior management
team at corporate System 5, the highest level of recursion. This team selects
goals, often grounded in a vision of where technologies of the future are likely
to converge. It implements new directions and monitors progress, whilst
SBUs interpret the dynamics of their local environment, initiate actions and
set goals designed to further the long-term vision. One of the best examples
of this approach is manifested by the Japanese Keiretsu described in Chapter 5.
Prahalad and Hamel (1994) offered an excellent account of these dynamics in
their book the Core Competence of the Corporation.
The success of hierarchical renewal is contingent upon an accurate reading
of future technological developments and a remorseless drive to create conver-
gence that drives out the systemic short-term thinking characteristic of naïve and
managed selection. Such an approach is most likely to flourish in countries with
strong groupist cultures where self-sacrifice in the service of the group is reified.
It is this distinctive cultural characteristic that enables managers at SBU level to
agree to release staff with critical knowledge and skills to support a vital strategic
endeavour somewhere else within the group, secure in the knowledge that if
their unit’s performance dips because of the departure of key staff, they will be
judged favourably for the sacrifice made, rather than punished. By increasing the
velocity of circulation of critical knowledge and through the redeployment of
older personnel to sunset sectors and young personnel to the sunrise sectors, HR
can play a critical role in sustaining top management’s vision and mission.
However, in large complex multinational organisations, decision-making
can be a lot less centralised, complex and to a degree, less rational (Van
Cauwenberg and Cool, 1982). To understand this, Volberda and Lewin offered
a fourth coevolutionary engine.
Holistic renewal
Holistic renewal is an approach to change that relies upon a collective sense.
Such approaches are found in corporations operating in dynamic fast-moving
industries. Whereas in hierarchical renewal, change management is driven
from the top by a focused and disciplined administrative engine in line with
the dictum proposed by Chandler (1962), Where strategy goes, structure follows,
the sensemaking approach relies upon a well-informed middle management
cadre exchanging knowledge and insights regarding market trends and oper-
ational insights. In this context, top management does not set the agenda,
instead it evolves through sensemaking (Weick et al., 2005).
Collective sensemaking coevolution is grounded in a socially constructed
reality involving organisational actors at each level. The result is a shared
understanding and interpretation of data from which inferences about the
cause-and-effect relationships are drawn. Collective perceptions are usually
affirmed or modified in a pattern of single-loop learning. Learning is a result
of a search for feedback during which perceptions across different levels of the
organisation are shared. Sometimes, in circumstances where the data is incon-
sistent with the received wisdom as to what constitutes reality, the established
paradigm may come to be questioned, ultimately leading to its replacement
by a new emergent paradigm analogous to the pattern ascribed to scientific
revolutions by Kuhn (2012). This results in double-loop learning and catalyses
dramatic change, which is both episodic and cyclical. Because of the nature of
devolved authority, Corporate HR at System 2 works closely with other HR
departments within the business units to try and ensure policies and practises
are fit for purpose in terms of the perception of the shared reality. Volberda
draws attention to the fact that the holistic engine of renewal is potentially
vulnerable to groupthink and single-loop learning.
Volberda and Lewin’s change engine archetypes, therefore, are broadly
based conceptual frameworks that assist in our understanding of organisational
dynamics in the context of environmental turbulence. The naïve and manage-
rial selection approaches are well aligned with individualistic Western cultures
and management styles. The hierarchical model of renewal is more widely
embraced in state capitalist contexts such as Japan, Korea and China, whilst
the holistic model can be found in many cultures where market trends and
technological innovation move fast. Zara, one of the case studies previously
presented, would be a good example. There, technology has been deployed to
gather insights into customer needs and wants to be gleaned from managers in
retail outlets across the world daily. The aggregated data is compiled resulting
in a mechanism of collective sensemaking. It is then converted into fashion
designs that are manufactured and distributed at extraordinary speed across
the network of retail outlets.
A useful framework that helps us elucidate and understand why different
national cultures lead to different patterns of coevolution is the OODA loop
expounded by Colonel John Boyd (Richards, 2004). The model is normally
associated with military decision-making. It offers a framework that can be
equally well applied to business strategy. It has many similarities to Deming’s
Plan, Do, Check, Action cycle that underpins Total Quality Management.
Boyd postulated that strategic decisions are predicated on a cycle of activity

that begins with observation of the environment, the dynamics at play and the
actors involved. Strategists then orient themselves to the context before decid-
ing what action to take. Having come to a decision they act. The problem is
that the process of orientation is shaped by implicit paradigms that act as filters
that help determine the problem definition. Various powerful influences result
in a synthesis of a range of variables. These include national and corporate
culture along with the culture of the dominant coalition, corporate heritage
and legacy of the founder. These are embedded in rituals and routines and
combined with historic experience. The resulting decision is shaped by the
possible options that are available. Action follows. Whatever action is deter-
mined, it will have an environmental impact. This results in feedback and a
revised set of observations that again are filtered by the dominant paradigms.
The model is shown in Figure 12.1.
Boyd’s framework helps us to see why, when reaching decisions, Eastern and
Western corporations will develop different problem definitions that shape the
direction of their strategies. It also explains why Eastern Corporations often
embrace organic metaphors that lend themselves to more long-term hierar-
chical and holistic orientations, whilst Anglo-American companies embrace
a short-term time horizon and more mechanistic approaches to selection
decisions.
Coevolution of HR policies and practises

Environmental turbulence entrains organisational change. As we saw in
Chapter 6, organisational change triggers periodic crises as organisations
try either to create environmental change or adapt to it quickly and grow.
Organisations that are slow to adapt need to downsize, reconfigure or exit. In
all these scenarios, the HR subsystems must coevolve with both the strategic
direction and with each other. This is always difficult to achieve for reasons
previously discussed in Chapters 6 and 7. Misalignment with business strat-
egy results in the amplification of mixed messages to the workforce. When
reward and incentive arrangements, for example, are not echoed in training
and development practises or when managerial decisions deliver policies and
practises that drown out employee voice, adverse consequences invariably fol-
low. Perceived violations of organisational justice result in the organisation
being trapped within a trough of despond at the bottom of the change curve.
Soft systems modelling as a methodology offers a way of recognising such traps
and either avoiding or reducing the period of pain.
Figure 9.1 traced the pattern of interlinkage between effective and ineffec-
tive diversity management. In the case study that follows, soft systems model-
ling will be used to inform strategic options and the HR implications of each
option.
218
SHRM From a Systems Perspective
FIGURE 12.1 ow paradigms evolve, Colonel Boyd’s essence of winning and losing (adapted from Boyd, John R., 1995, The essence of
H
winning and losing; a five-slide set by Boyd)
Case Study Meta, formerly Facebook
This case study is of necessity quite long. Its purpose is to reveal both
the pace of change along with the complexity and the interrelatedness of
socio-technical dynamics. Ultimately it draws together several interrelated
themes and offers an assessment of the implications for HRM.
Facebook was arguably one of the most successful companies the world
has ever seen. The company was founded in 2004 by Mark Zuckerberg
with four fellow students from Harvard. Its original mission was to serve
Harvard students. It then grew to serve students more generally, before
expanding its horizons to the wider community. The company has grown
at an exponential rate to serve more than 2 billion people worldwide,
largely through a process of acquisition and managed selection. In 2010,
Facebook’s annual revenue had reached nearly 2 billion dollars. By 2012,
revenues had doubled to over 5 billion dollars. It more than tripled again
by 2015 when revenues reached nearly 18 billion dollars and it more
than doubled again by 2017 when it reached over 40 billion dollars
($40,653 billion; source: Facebook annual accounts).
Towards the end of 2017, the company’s fortunes began to change. It
became embroiled in a series of scandals that damaged the brand.
The end of the beginning

Although the news broke in 2018, Facebook’s problems began four years
earlier. In 2014, a Cambridge academic Aleksandr Kogan established a
company called Global Science Research (GSR). The company developed
a quiz designed as an app “This is your digital life.” The app was marketed
to Facebook through another company, Cambridge Analytica (CA). CA
persuaded Facebook to offer the quiz to its users. The users each received
a personality profile of their results in return for a payment and an agree-
ment that the results could be used for academic research. What CA failed
to disclose was that it had developed a method not only of accessing the
personal data of the users who had been paid but also their entire net-
work of friends and contacts. The result was that whilst the actual number
of quiz respondents amounted to no more than 50,000, the aggregate
data set enabled CA to harvest the data of millions of people. The New
York Times reported that the dataset contained the personal information
of 50 million people. Later the company acknowledged that the data set
contained information on 87 million people (Kozlowska, 2018). The data
cache consisted of 70.6 million Americans, the balance was composed of
Filipino and British citizens (Horwitz, 2018). This enabled the company
to target up to 3 million British people who normally did not vote and
who were anti-immigration and hostile to remaining in the EU with subtle
propaganda. The 3 million proved to be the tie-breaker that delivered a
Brexit victory. This success encouraged Donald Trump’s campaign team
to buy the US citizens’ data set. Again, Trump campaigners targeted mar-
ginal voters with specially tailored messages that played on fears and anx-
ieties designed to either motivate them to vote for Trump or if the profile
suggested they were hostile, to encourage them to not vote (Rosenberg
et al., 2018).
Facebook’s problems were compounded by the inept handling of dis-
closures. These were reported by the Guardian and Observer newspapers
in the UK. Initially, Facebook denied any breach of confidentiality and then
asserted that it had asked CA to delete the records two years earlier. It had
been informed that the data had been deleted. The initial denials were
followed by a clear pattern of evasiveness and reluctance to disclose the
truth. This alerted American, British and European authorities not just to
the breach of confidentiality, but to the power of the internet giants and
Facebook in particular, in influencing democratic processes in return for
revenue. Mark Zuckerberg found himself pilloried in the court of public
opinion. His behaviour was perceived as arrogance in dealing with the US
senate enquiry and the UK Parliamentary and European investigative com-
mittees. Facebook’s share value tumbled.
Facebook’s problems did not diminish. The company was now centre
stage in respect of everything that it did. Mark Zuckerberg and Sheryl
Sandberg’s utterances were constantly amplified on a global scale and
both they and the company became a persistent source of media analysis
and comment. Having enjoyed celebrity and the role of media darling for
more than a decade, Zuckerberg found even his old emails to staff coming
back to haunt him.
A series of his emails were leaked. They revealed that delivering value
for users was a very secondary consideration as compared with the priority
given to expanding the bottom line, anything, and everything that Face-
book did had to contribute to the bottom line. If it did not, then creating
value for users was irrelevant. In 2012 he wrote:
We’re trying to enable people to share everything they want, and to do

it on Facebook. Sometimes the best way to enable people to share some-
thing is to have a developer build a special purpose app or network for that
type of content and to make that app social by having Facebook plug into
it. However, that may be good for the world but it’s not good for
us unless people also share back to Facebook and that content increases
the value of our network. So ultimately, I think the purpose of platform –

even the read side – is to increase sharing back into Facebook.
Mark Zuckerberg 2012 (emphasis added)
Guardian December 6, 2018
‘Good for the world’? Facebook emails reveal what
really drives the site
J.C. Wong
A more damaging leak was an internal email posted in 2015. It revealed the
extent to which the company’s pursuit of profit involved unethical business
practises.
Apps installed on Android devices were supposed to alert users to the
permissions that they were granting. When an app was updated, fresh
permissions were required. If a user failed to give permission, the app was
not updated. This presented Facebook with a problem. It wanted to be
able to read user call logs. This would give the company access to “big
data” permitting analysis of call patterns. Such data would have immense
value both to Facebook and to its advertisers. The usage patterns could
be correlated with registered user phone numbers that could then be
used to target advertising. The subterfuge, however, did not stop there.
Facebook then invited users to add friends that it suggested, thereby con-
tinuously expanding its user base, by helping people to keep in touch.
Unfortunately, most users would regard the act of accessing their call logs
as snooping and invading their privacy. To overcome the problem, the
company devised a way of circumventing the need for user permissions
whilst simultaneously ensuring the users were completely ignorant of the
fact that Facebook was not just using the data for its own purposes, it was
also marketing it to its corporate customers enabling them to target users
with customised advertising messages. The legality of such a development
was highly questionable in most democratic countries where some form of
judicial overview would apply when accessing call logs.
From email dated 4 February 2015

Michael LeBeau – Hey guys, as you all know., the growth team is
planning on shipping a permissions update on Android at the end of this
month. They are going to include the ‘read call log’ permission,
which will trigger the Android permissions dialog on update, requiring
users to accept the update. They will then provide an in-app opt in NUX
for a feature that lets you continuously upload your SMS and call log his-
tory to Facebook to be used for improving things like PYMK, coefficient
calculation, feed ranking etc.
This is a pretty high risk thing to do from a PR perspective but it appears

that the growth team will charge ahead and do it.
Yul Kwon – The Growth team is now exploring a path where we
only request Read Call Log permission, and hold off on requesting
any other permissions for now.
Based on their initial testing, it seems this would allow us to upgrade
users without subjecting them to an Android permissions dialog at all.
It would still be a breaking change, so users would have to
click to upgrade, but no permissions dialog screen. (Emphasis
added)
Note by Damian Collins MP, Chair of the
DCMS Committee, House of Commons, London UK
Summary of key issues from the Six4
Three files Released December 2018
Other political developments in the tech world

2018 was not just a difficult year for Facebook, and there were other worrying
developments that had been building up over several years. The cyber world
has become the latest front in a new cold war. The situation was brought into
sharp focus by the poisoning of Sergey and Yulia Skripal with the nerve agent
Novichok in the UK in March 2018. Sergey Skripal was a former Russian
spy. He and his daughter had been given a haven in the UK in return for his
services. It took the UK authorities less than three weeks to ascertain who the
perpetrators were, despite rigorous Russian denials.
The identification of Colonel Anatoliy Vladimirovich Chepiga, a deco-
rated Colonel in the GRU, Russia’s State Security Service and his accomplice
changed the nature of state secrecy overnight (Mendick and Dixon, 2018).
How was this possible? The answer is that the British security services traced
the perpetrators through social media by matching photographs of Colonel
Chepiga taken years before and posted on his regimental website with facial
images of him in Salisbury a short time before the poisoning. This develop-
ment set alarm bells ringing throughout the international security apparatus
resulting in a lasting impact on perceptions of secrecy and what it will take for
secrecy to be maintained.
In late 2020, a scoop by Britain’s Channel 4 News revealed that President
Trump’s 2016 campaign had targeted minority ethnic voters known to be
sympathetic to the Democratic party in key battleground states with messages
that encouraged them to stay at home and not vote.
Cyber-crime surges
Hacking user accounts has become an accepted risk of using the internet.
It gave birth to a thriving cyber security industry but despite the industry’s
best efforts, the ingenuity of cyber criminals it appears, knows no bounds.
Each year since the mid-2000s, the problem has grown. In 2018, it reached
global proportions; no country was immune. In the early days, cyber crim-
inals sought to elicit personal data to target spam, but the industry of crimi-
nal enterprise quickly morphed into something a lot more sinister including
blackmail, extortion, identity theft and theft from bank accounts.
Cyber-crime has become increasingly attractive to the criminal fraternity
because it affords a high degree of anonymity and in general does not carry the
kind of risks of detection associated with more traditional criminal endeavour such
as armed robbery. Moreover, the punishment for detection is typically less.
Cyber-crime thrives because of easy access to the dark web. The dark web
is simply a set of sources that are not indexed and, therefore, not easily trace-
able using search engines. When combined with the existence of digital cur-
rencies such as bitcoin, criminals can steal data and then post it on the dark
web where it can be sold either to the highest bidder or access bought to a data
set. Moreover, because the data sets are so huge, tranches can be sold in blocks,
often repeatedly.
Some of the biggest cyber hacks in US history are listed in Table 12.1.
What made 2018 a watershed moment?

2018 became a key moment in social media history for several reasons, and
the most significant were the revelations about Facebook. It alerted the public
at a very personal level to the power of social media. It also highlighted the
fact that hitherto, trusted media such as Facebook were abusing their power
on a scale that posed a threat to democracy and to democratic freedoms to say
nothing of the systematic violation of personal information on an unprece-
dented scale. The Facebook revelations also sensitised the public to the impli-
cations of hacking in general. The number of hacks in the first half of 2018
exceeded the total for the whole year of 2017. One hack raised public aware-
ness more than any other. It was the data breach at Equifax in 2017. Almost
half the population of the US had their personal data compromised by an
organisation that it was impossible to withhold data from and yet buy a home
on a mortgage. Research by Equifax itself suggested that it is the most well-
known breach and probably the least forgiven of any in internet history. In
2019, a Pew Research poll established that 79% of Americans were concerned
about the way companies used their data. In addition, most respondents also
felt they had “little or no control over how” their personal information was
TABLE 12.1 Some of the biggest cyber hacks in US history.

Year Company Size of the hack Nature of the damage done
Mid-2000s (actual My Space 360 million Email addresses, usernames and weakly hashed passwords.
date unknown)
2008–2009 Heartland Payment Systems 130 million Details 130 million credit and debit cards.
2011 Sony online entertainment Consisting of 78 million login credentials, names, addresses,
phone numbers and email addresses of PlayStation users plus
24.6 million SOE and Qriocity credit card users. The credit
card data of approximately 23,400 SOE users in Europe was
also stolen.
Yahoo 3 billion Names, dates of birth, email addresses, security questions and
answers and weakly protected passwords.
2013 Target Stores 110 million Consisting of 40 million credit and debit card numbers that
had been used at target stores in the US and 70 million
customers’ credit card data compromised.
2014 Yahoo 500 million Real names, email addresses, dates of birth and telephone
numbers, helpful to spammers and identity thieves.
2015 Anthem Circa 69–80 million Names, addresses, dates of birth, Social Security Numbers and
employment histories – everything an identity thief might
need.
2016 Friend Finder comprising Adult 412 million Names, email addresses and other undisclosed data ideal for
Friend Finder, Penthouse.com, blackmail purposes and scandalous revelations.
Cams.com, iCams.com and
Stripshow.com,
2012 fully revealed by LinkedIn 165 million Account details including passwords.
company in 2016 700 million
& Hacked again in 2021
2017 Equifax 145 million Social Security Numbers, birth dates, street addresses and, in
some instances, driver’s license numbers. Ideal for criminal’s
intent on identity theft.
Source: https://www.tomsguide.com/us/pictures-story/872-worst-data-breaches.html#s15
used. The report also suggested that the majority also believed that the costs
associated with loss of privacy outweighed the benefits. On March 4, 2021,
Forbes reported that Google was planning to stop using technology to track
users across the internet. This development has significant implications for
companies that advertise online. The report quoted David Temkin, the direc-
tor of product management, ads, privacy, and trust at Google, who said, “We
realise this means other providers may offer a level of user identity for ad track-
ing across the web that we will not.” He went on to say, “We don’t believe
these solutions will meet rising consumer expectations for privacy, nor will
they stand up to rapidly evolving regulatory restrictions, and therefore aren’t a
sustainable long-term investment.”
In 2021, news broke that a major data breach at Facebook had occurred in
2019 in which hackers stole phone numbers, full names, locations, birthdates
and email addresses of half a billion users. Facebook tried to play down the
gravity of the problem by arguing that the breach was old and that it had imple-
mented changes that had taken care of the problem. The company subsequently
stated that it had no intention of alerting users because of the changes it had
made. This view was challenged by Kari Paul of The Guardian. It reported that
Data leaked from Facebook could be used in combination with existing user data
online to hack accounts, including bank and other accounts that require two-factor
authentication – texting a confirmation code to a phone number to verify a per-
son’s identity. The leaking of phone numbers can also be problematic amid the
meteoric rise of robocalls in recent years.
Kari Paul Guardian Journalist in San Francisco
Tue 6 Apr 2021 21.50 BST
On October 28th, 2021, Zuckerberg announced that Facebook was changing

its name to Meta, ostensibly to reflect a new mission, to create the Metaverse
that will enable users to access virtual and augmented reality and interact with
the avatars of other users in a new shared experience platform. In January
2022, there were reports that Meta’s virtual environment was hosting paedo-
phile participants with grooming agendas.
Other developments with potential to impact Meta

Each year that passes sees new technological advances and new concepts find
traction. Perhaps the most significant nascent concept to become established in
cyberspace in 2018 was blockchain (DLT: distributed ledger technology). The
concept began to achieve public recognition because of the emerging maturity
of virtual currencies such as Bitcoin and Ethereum. According to Investopedia,
the name bitcoin was first registered in 2008. The earliest recorded transaction
using Bitcoin occurred on 22 May 2010, when Laszlo Hanyecz bought two
pizzas in Jacksonville, Florida for 10 bitcoins. By 2011, the value of a bitcoin

was about 30 cents, one-third of a US dollar. By the beginning of 2013, the
price had risen to $13 but by the beginning of 2014, the price had climbed to
over $700 dollars, an exponential rise in value!
By December 17th, 2017, at its highest point, the bitcoin price had risen to a
staggering $19,783.06 before crashing to half that price in 2018 and then rising
and falling again. On January 7, 2021, the price of Bitcoin exceeded $40,000.
This story tells us many things apart from the fact that as a currency, Bitcoin
is very volatile and as a store of value, it is unreliable.
One of the most important factors is the role Bitcoin initially played in sup-
porting criminal enterprise, but perhaps more important is the fact that the cur-
rency is grounded in blockchain technology. The blockchain is an accounting
programme built on a ledger that is distributed across hundreds of computers.
Each bitcoin is numbered on the register. Each transaction involving that num-
ber appears simultaneously on the network leaving a footprint of its history.
Proponents assert that to perpetrate a fraud, it would be necessary to comman-
deer the entire network, which is distributed across the globe. Because this is
virtually impossible, it is argued that the technology is foolproof. This gives
the currency both the legitimacy and trust normally only accorded to national
currencies that rely upon complex alternative print watermark and hologram
technologies to hold counterfeiters at bay and gold bullion.
A final but critical environmental development occurred in late 2020. Now
known as the Solar Winds Scandal, a covert unit of the Russian Secret Service
successfully hacked into the US Departments of State, Commerce, Treasury,
Homeland Security, the National Institutes of Health, Energy Department and
the US National Nuclear Security Administration, responsible for safeguarding
the nation’s nuclear weapons. In addition, an untold number of businesses, said
to include America’s largest and wealthiest corporations, were also hacked.
Having accessed all these systems, patches of code were inserted that ena-
bled the hackers to drain out data and create data lakes. The patches were
then replaced with the original code. This disguised the fact that a breach had
occurred. Having created individual data lakes within individual corporate
systems, the perpetrators then waited for opportunities when large amounts
of data were shifted within and between systems. The data was then exported
out of the system for analysis and evaluation. The magnitude of the damage
done is potentially so huge it is not quantifiable because it is impossible to
know what was taken.
In 2021, Russian and other hackers undertook ransom attacks on US hos-
pitals, JBS America’s largest meat processing company, a major US oil pipeline
and Ireland’s health infrastructure. In consequence, Governments, companies,
politicians, and individuals across the world are now reassessing the power,
role and contribution of social media, hostile states, and criminal enterprises in
undermining critical national institutions and infrastructure. New legislation
is bound to follow that will reshape the regulatory environment.
Developing a root definition using CATWOE

In Chapter 8, we saw how the formulation of a root definition facilitated the
creation of conceptual models at Cemex. The same approach will now be used
to analyse what the future may hold for Meta.
To recap on the CATWOE acronym
C = Customers or consumers of the emergent properties.

A = Actors, those operating within the boundary of the system and who
have a direct interest in the system and its outcomes.
T = Transformation, the process by which the system absorbs inputs and
delivers the outputs for which the system was established.
W = Weltanschauung (world view or big picture), the wider context in
which the system is embedded and the likely consequences of any
changes to the system that will impact its wider environment.
O = Owner, the individual or agency that owns the situation or the prob-
lem and must achieve some form of resolution to the problem situation.
E = Environmental constraints that will push back against any planned
change.
The formulation of a root definition or root definitions of the system facilitates

the creation of a conceptual model or models. The process demands that the
analysts work to build a consensus with the system owner and in some cases
the customers about the changes to the system and its processes that have the
potential to deliver a superior outcome for the relevant stakeholders.
In summary, the process involves seven steps: Entry into the problem situa-
tion, giving expression to the nature of the problem, creating root definitions
of all relevant activities or subsystem processes that capture the essence of the
human activity system (HAS). Geographic representations of the HAS and its
constituent parts can then be created by reference to the root definitions. The
models can be compared with the real world. By establishing what changes
can be made to the HAS within the environmental constraints revealed by
the CATWOE, a strategy can be developed to address the problem situation.
Armed with these insights, it is then possible to formulate some rich pictures
around which a new consensus as to what to do can be developed.
Using soft systems methodology to analyse Meta

and the contemporary challenges that it faces
If we look at Meta through the lens of top management, then the owners of
the transformation are Mark Zuckerberg and Sheryl Sandberg. The transfor-
mation involves the conversion of the social engagement of users into revenue
for both Meta’s customers and Meta itself. The actors fall into two categories,
Meta employees and Meta users. The latter utilise the platform to engage
with their network of family and friends. Meta’s revenues and Meta itself are
dependent upon user engagement. The customers are the companies that pay
for advertising and the promotion of their products to Meta’s users. The cus-
tomers pay Meta for harvested data on its users. This enables the customers
to target specific user groups with customised messages regarding the benefits
their products confer.
The worldview revolves around the perpetual extension of Meta’s user base.
The platform is seen as a mechanism for securing customer loyalty and a means
of ensuring the continued commitment of users to the platform. The platform
itself is viewed as a vehicle to promote products and services in exchange for
dollars.
Finally, there is the environment and the many positive and negative pres-
sures that it imposes on the company and the owners of the transformation.
There are, therefore, three potential root definitions depending upon the
role and perspective of those involved in Meta.
Three root definitions

A user’s root definition would likely be “a system that enables me to remain in
contact with friends and family and send and receive news and photographs anywhere in the
world at no charge, in exchange for access to personal data I have agreed Meta can access.”
A customer’s root definition would probably be “a system that delivers
unprecedented customer insights, market intelligence and the ability to remain in contact
with customers and transmit targeted messages that enable us to influence the buying
behaviour and political choices of both current and potential customers in return for a fee.”
Meta’s root definition might be “a system that delivers enormous revenues by
accruing real time tranches of data on the hobbies, interests, lifestyles, political leanings, and
purchasing activities of our users and packaging it for sale to our corporate customer base.”
Readers will recall that in Chapter 2, the concepts of amplification, trans-
duction and attenuation were introduced.
Amplifiers transmit information across system boundaries. Transduction
is what takes place when signals encoded in one system travel across a sys-
tem boundary into another system so that the information is interpreted and
understood by the receiving system or subsystem. Attenuators simplify a com-
plex message or data set into something easily comprehensible when it crosses
a system boundary.
Set out in Figure 12.2 is a rich picture depicting the contemporary Meta
business model operating at the time of going to press.
When supplying data to its customers, Meta is acting as an attenuator.
When receiving advertising messages from its customers and transmitting them
onwards to its users, the platform is acting as both an amplifier and transducer.
Given the environmental dynamics unleashed since 2018, it seems highly
probable that this rather simple and cosy picture will, over time, morph into
something a lot more complex.
FIGURE 12.2 The Facebook business model
A political reassessment
For the first time governments across the world along with their various state
agencies are beginning to look very seriously at the power and influence not
just of Meta but of the “FAANGs” in general. (Facebook, Amazon, Apple,
Netflix and Google) to which can also be added Tencent and Alibaba. These
internet behemoths have succeeded in maximising their profits often by evad-
ing local taxes across the world to the point where their revenues far exceed
those of many national economies.
Whilst traditional retailers have increasingly modified their business mod-
els to embrace click and brick, both revenue and taxes from this source
have declined relatively as online sales have grown exponentially because
of Covid-19. Tax avoidance on the part of many of the large internet
companies and the decline of traditional retail is resulting in a shift in the

burden of taxation with more falling upon households. In many economies,
the measure that is used is the “Tax Freedom Day.” This is the measure of
the number of days employees must work to pay their taxes before income
accrues to themselves. This is likely to become an issue of growing political
importance in many Western economies in the years to come because of
the impact of the 2008 financial crash and the volume of additional govern-
ment debt that has built up because of Covid-19 and in some national con-
text’s demographics. Politicians can resort to two solutions. They can raise
taxes or reduce the purchasing power of their currencies through inflation.
The first option will require younger people in employment to pay higher
taxes. The alternative is to tax companies with buoyant revenues. There
will come a point where this first option becomes unacceptable because
working people vote. The alternative is to build a transnational consensus
for action and make a coordinated effort to frustrate tax avoidance on the
part of multinationals. Only then will the FAANGs be obliged to pay more
tax, thereby reducing their margins.
The abuse of personal data by Meta and CA along with ransomware
attacks will add further pressure to address issues around the abuse of both
data and privacy. Issues around who owns personal data are also likely to
emerge. To date, the platforms have argued that the data of deceased persons
is theirs. The data loaded onto platforms like Meta and Twitter, however,
has in some cases been shown to be harmful and there have been allegations
that such material has resulted in both suicides and the radicalisation of
young people. German courts have already ruled that the data of deceased
juveniles accrues to parents or next of kin, not the companies and a sim-
ilar decision has been made by the British High Court. These decisions
may well be replicated in other countries. ISIS propaganda and the Whale
game prompted teenage suicides and are also cases in point. In March 2019,
the gunning down of 50 Muslim worshipers at a Mosque in New Zealand
and the posting of the live action of the killings on Facebook and its rapid
dissemination to other platforms once again, cast Facebook in a negative
light. A further brand-damaging development occurred after it was discov-
ered that spy software developed by the Israeli company NSO had breached
WhatsApp’s security, rendering its proud claim of end-to-end encryption
meaningless. Strong evidence points to the fact that this breach was a key
factor in providing intelligence to the House of Saud. It led to the brutal
murder and dismemberment of the dissident Saudi journalist Jamal Ahmad
Khashoggi in the Saudi Embassy in Istanbul.
In October 2021, Frances Haugan, a former Facebook executive testified
before a Congressional Committee where she asserted, “I’m here today because
I believe Facebook’s products harm children, stoke division, and weaken our
democracy. The company’s leadership knows how to make Facebook and
Instagram safer but won’t make the necessary changes because they have put
their astronomical profits before people.”
It is perhaps unsurprising that Zuckerberg announced the changing of the
tarnished brand image of Facebook to Meta shortly after these revelations.
In July 2021, the mobile phones of numerous human rights activists were
also penetrated by a software programme called Pegasus. On September 14,
2021, Business Insider reported Apple had released emergency software
updates in iOS 14.8 after learning of a vulnerability that let hackers break into
Apple devices without users even clicking a link. Citizen Lab said it discovered
the exploit, which it calls Forced Entry, in March 2021. Quoting Citizen Lab
researcher John Scott-Railton, the article suggests that the spyware can do
more on an iPhone than its user.
Further pressure is also being exerted by the Solar Wind and other hacks
into corporate databases and the potential for onward sale of this bounty to
criminal enterprises on the dark web.
Blockchain technology offers new routes to the guarding of personal privacy
hitherto not available. This will afford new opportunities for alternative business
models to emerge that guarantee personal privacy. This could potentially place
Meta’s current business paradigm under pressure. Tim Berners-Lee, founding
father of the world wide web has already created a new organisation called “rede-
centralise.org.” Its mission is to wrench back control from the internet behemoths
and to re-democratise the web by giving users control of their data. If successful,
the initiative will make personal data inaccessible to corporate interests without
an individual’s consent. These emergent dynamics have a potential to disrupt
contemporary business by the FAANGs and by Meta in particular.
The legacy of the 2008 financial crisis continues to reverberate. The policy
of many Western governments to slash interest rates and pursue ultra-loose
monetary policies had the effect of pumping up asset prices making those who
owned them much richer whilst making those who did not, a lot poorer, both
in relative and in many cases absolute terms. The crisis arose after Western
economies had offshored both low-skilled and many higher-skilled jobs. The
higher-skilled employment was often substituted by lower-skilled and lower-
paid service work at home in, for example, call centres distribution depots,
taxi services and fast-food delivery. These dynamics help to explain the popu-
list appeal of both Brexit in the UK, the election of Donald Trump in the US,
and the populist regimes that emerged in Brazil, Hungary and Italy during the
period 2015–2018, the Yellow Vest movement in France, the Rohingya gen-
ocide and the military takeover of Myanmar. Meta and CA played a central
role in making these political developments possible. They shook the political
establishments in the countries in which they occurred. Any loss of traction
by the populist parties will almost certainly entrain consequences that will
involve more regulation by the political establishment in those countries that
are not already populist. If the populist movements succeed in their demands
and achieve power, it is likely that they too will seek to ensure that their grip
on power will not be eroded by social media.
Over the next decade, these trends will be further exacerbated because of
the legacy of Covid-19 and the impact of artificial intelligence, blockchain,
robotisation and cryptocurrencies. These technologies have the potential to
deliver new emergent properties that will unleash further waves of creative
destruction. These waves will simultaneously create new jobs, whilst deci-
mating employment in many long-established professional and artisan occu-
pations. The combined effect of some, or all these forces, do not augur well
for the continuation of unfettered operational freedom of internet companies.
The big question

What are the challenges that will confront Meta’s management going forward,
and how does the soft systems approach help a company build a sense of the
future and what it may hold that is sufficient to enable it to formulate strate-
gic responses to emergent scenarios? Clearly, there is value in looking at the
business model from different stakeholder perspectives and developing a root
definition that accords with each perspective.
Will a typical Meta user’s root definition evolve from “a system that enables
me to remain in contact with friends and family and send and receive news and photo-
graphs anywhere in the world at no charge, in exchange for access to personal data I have
agreed Facebook can access?”
To
“a system that enables me to remain in contact with family and friends by access-
ing my personal privacy and spying on the way I live and work, and how I may
vote, with a view to packaging and selling information about my lifestyle and
those of my friends to companies that then nudge us to make lifestyle and political
choices we might not otherwise be inclined to make.”
In the case of Meta’s customers, the root definition might change because of
privacy restrictions and increases in Meta’s operating costs from “a system that
delivers unprecedented customer insights, market intelligence and the ability to remain
in contact with customers whilst enabling us to influence the buying behaviour of both
current and potential customers in return for an acceptable fee.”
To
“A system that delivers broad market intelligence at ever increasing costs.”
Figure 12.3 presents a rich picture of the complex systemic interactions that have
been operating for years, but which are now rising in the public consciousness to
the point where they are likely to create socio-political agendas.
A rich picture of systemic interactions
FIGURE 12.3
Key = Solid lines represent cash flow.

Dashed lines represent data flows.
Large, dotted dash lines represent new patterns of legislative enactment.
The picture suggests rising overheads as Meta invests increasing resources
into the policing of the platform. Increasing costs associated with building
market intelligence for clients arising from legislative restrictions on the trans-
fer of data between Meta and its subsidiaries. The possibility that anti-cartel
legislation may impose additional costs associated with defending Meta’s inter-
ests and less satisfied customers because the data they can purchase is becoming
more anodyne and expensive.
Since 2014, Meta has invested millions of dollars buying the support of
politicians in the US, the UK and the EU to lobby against internet regulation,
privacy restriction and anti-cartel legislation. Indeed, a former UK deputy
Prime Minister was appointed as Meta’s Head of Global Affairs. These devel-
opments will increase costs whilst reducing margins. Clearly, the answer to
the question is that Meta and the other internet behemoths may have to rede-
sign their business models.
What are the key issues that Meta will need to consider going forward?
Some of the critical questions are outlined below:
Will the legislative status of social media platforms change from inter-
mediary to publisher?
Will the EU pass further legislation to protect user privacy?
Will the US pass anti-cartel legislation with a view to breaking up Meta?
Will Tim Bernes-Lee’s vision of a democratised internet where users
are empowered to monetize or withhold their personal details when
accessing services achieve traction?
Will countries seek to insulate themselves from the web by creating local
national intranets that can be policed by their security services? Russia
and China are already well advanced in moving in this direction.
What challenges will HR departments face?

The implications for SHRM are potentially profound. The internet compa-
nies face rising hostility from environmentalists and the socially concerned.
This is likely to result in rising costs, reduced freedom to operate, growing
competition for scarce skills from newly emergent industries, a rising tax bur-
den on corporate profits combined with fewer opportunities to evade tax laws
and rising costs of litigation. These developments raise a series of important
questions for HR departments as wicked problems multiply within the sector.
Amongst the most important are:
What new skill sets will be required to cope with the challenges outlined
above? How many people will be required? What kinds of post-entry training
and updating will different categories of personnel require and how can the
training best be delivered? How should the different skill sets be rewarded?
What additional or alternative benefits should employers offer to existing staff
and what should they offer to the newly emergent categories of job role? Will
industrial strife grow as perceptions of distributive injustice rise? In 2020,
both Amazon and Google faced demands for union recognition. Will there be
new pressures to unionise in response to the straightened circumstances these
corporations are likely to face?
Summation
This chapter has focused on organisational evolution. Organisations evolve
over time, but they do not evolve in isolation. If an organisation is a business,
it coevolves within an industry. If it is a public service organisation it coevolves
with other similar agencies operating within a policy space. If it is a third-sector
organisation, it will have a mission that evolves as the systemic context
develops and other agencies enter or withdraw from the frame resulting in
coevolution within that context.
We have seen that in the case of the business world, coevolution can take
different forms and that these different forms represent patterns that may be
influenced by different variables. These may include the leadership values of
the founder as in the case of TATA and Zara, the maturity of the company or
group and the culture in which the business has evolved.
Volberda posited that there are four coevolution engines. The dominant
engines in the Western context are managed and naïve selection. The former
is characterised by the board of a holding company operating at System 5
at the highest level of recursion committing to active portfolio management
and engagement with SBUs. The SBUs generate both learning and insight
that inform the board’s thinking and ultimately the selection decisions that it
makes. The HR function is, therefore, also active at the highest level of recur-
sion undertaking due diligence activities to support acquisitions and redun-
dancy strategies for deselected SBUs.
Naïve selection represents a more hands-off approach in which both the
Board at System 5 and the HR function at System 2 in the holding company
make selection and deselection decisions on the performance of the SBUs. The
naïve selection engine, therefore, lends itself to complex diversified conglom-
erates where learning is specialised and corralled in individual SBUs making it
difficult for the board of the holding company to understand the detail of each
SBUs operating environment.
Hierarchical renewal is more often observed in corporations operating in
Eastern cultural contexts. The approach is reliant on the Board at System 5
at the highest level of recursion striving to envision the future and anticipate
how future technological convergences may evolve. A clear mission statement
issued by the board of the main holding company elicits the commitment and
support of the SBUs in the furtherance of the mission, the Senior Board may
well divide the portfolio of businesses into sunrise and sunset operations. The
role of SHRM is to determine the deployment and redeployment of exper-
tise and the shaping of strategies for human resource development across the
portfolio.
Holistic renewal relies upon collective sensemaking. Most learning, there-
fore, is a single loop Argyris (1976) but from time to time, the consensus
around the dominant paradigm breaks apart following the pattern described
by Kuhn (2012) in his theory of Scientific Revolutions when he differentiated
between ordinary and extraordinary science. A new paradigm emerges pro-
ducing dramatic episodic changes that involve double-loop learning.
The Facebook case highlighted a company that has grown through man-
aged selection. It has sought to build a portfolio of complementary businesses
that generate huge tranches of data that can be merged to provide increas-
ingly detailed pictures of the user base across the group. The hold of Mark
Zuckerberg and Sheryl Sandberg is such that any possibility to embrace a more
holistic development engine is likely to be frustrated, as the resignations of the
two founders of WhatsApp attest.
Mark Zuckerberg has recognised the threat anti-cartel legislation poses. It
is for this reason that Facebook sought tight integration of WhatsApp and will
integrate virtual and augmented reality gaming and other services along with
other diverse business interests into a single integrated platform under the Meta
banner in a bid to make it almost impossible to break the business up. The role
of the politicians is to lobby on its behalf to slow down the pace of change.
The process of evolution can appear to be slow, even in fast-paced indus-
tries. Therefore, it becomes difficult to recognise nascent emergent properties
as they morph into new dynamics that ultimately result in the transformation
of industries. It also explains why recipes for success become so deeply etched
in a paradigm, from which for many businesses, it becomes impossible to break
or escape when a tipping point is reached.
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PART 2
The Future of SHRM From

a Systems Perspective
13
THE NEW SAECULUM AND
ITS IMPLICATIONS FOR
STRATEGIC HUMAN RESOURCE
MANAGEMENT?
Overview
As the world emerges from the Covid-19 disaster, there will be a new nor-
mal. It will be unlike the world we knew before the virus struck. The aim
of this chapter is to view the world through a systems lens and to seek out
patterns that can provide us with insights into the challenges both managers
and organisations will face as the decades of the twenty-first-century progress
and assess what it will mean for the practises of people management and more
specifically, human resource management (HRM).
In the first part of the last chapter, consideration was given to the challenges
presented by coevolution and the way in which different cultures tend to tackle
the challenge. The case study sought to show how diverse and apparently unre-
lated issues cohere into patterns that shape the competitive environment for a large
dominant company operating at a miso level. The present chapter will evaluate
the ways in which our world is changing and what it will mean for organisations,
HR professionals and managers operating in different industries at a macro level.
It also provides the foundation for the penultimate chapter that examines the fault
lines appearing in the contemporary dominant managerial paradigm.
To provide a foundation, consideration will be given to the ancient theory
of the Saeculum and its modern equivalent that we know as long cycle theory.
Neil Howe’s sociological approach to Generational Theory Strauss and Howe
(2009) will set the scene. It will be followed by an evaluation of the work of
the Russian economist Nicolai Kondratieff. Thereafter, the implications of new
technologies and their convergence will be assessed. It will be argued that the
world is transitioning to a new hyper-technology context. It will result in a new
epoch that will totally transform the way in which different societies across the
DOI: 10.4324/9781315630557-15
242 The Future of SHRM From a Systems Perspective
world live and work. It will induce what Toffler (1970) aptly described as “future
shock.” A condition in which the rate of technological change overtakes human
capacity to respond, inducing a state of acute anxiety.
The Saeculum is an ancient theory of change first formulated by the
Etruscans to describe the period between a founding event and the time
when all the initial founders have died, circa 90 years. Today the term is
used to distinguish and define generations by blocking cohorts into bands of
22 years, hence the terms Baby Boomers, Generation X, Millennial, etc. The
start of the Saeculum is determined by a defining event such as the ending of
the Second World War that gave rise to the Baby Boomer Generation or the
Covid-19 pandemic. It is also divided into four seasons beginning with Spring
and ending in a winter that culminates in a new defining event. Strauss and
Howe (2009) argue that America is approaching the fourth turning. It is a
time of crisis and social turmoil when institutions are challenged. The authors
claim there is a historic pattern of a four generational cycle in American his-
tory that has prevailed for several centuries. The theory has been subjected
to much criticism, however, their prediction and timing tie in with the older
work of the academic economist Nicolai Kondratieff.
Kondratieff and the long wave cycle

Kondratieff was born into a Kulak family in 1892. He was awarded a doctor-
ate from Moscow University and in 1925, he published his great work The
Major Economic Cycles. It was based on his study of commodity cycles. He
posited that the capitalist system was shaped by long cycles of 50–60 years.
During this time, the cycle passes through four phases which he likened to
the seasons. Spring represents the start of a new cycle during which previously
nascent technologies begin to emerge and in so doing, disrupt entire industries
destroying some and recreating others in profound ways, often resulting in the
loss of dominance by established corporations. New leaders emerge that have
adopted a different paradigm. The impact of the new technologies stimulates
economic growth and inflation unleashing Schumpeter’s “winds of creative
destruction” Schumpeter (1928). The new technologies induce an investment
mania that results in a stock market crash. The perturbation marks the onset
of Summer when the market leaders begin to dominate the economy and
become the new household names. Economic growth accelerates further. The
investment focus shifts from backing radical new ideas to investment in incre-
mental improvements and in brand management. Society experiences a feeling
of affluence and people re-evaluate their attitudes to work. The ways in which
populations live and work are transformed. Autumn brings with it the matu-
rity phase of now well-established industries. Mergers and takeovers abound,
and the competitive environment becomes increasingly oligopolistic. The
only way that the dominant players can grow is by either acquiring or destroy-
ing the competition. The onset of Autumn is characterised by stagnation and
The New Saeculum and Its Implications 243
deflation typically precipitated by another financial crash. Unemployment

rises, swathes of the population begin to feel economically insecure and polit-
ical tensions rise as the gap between the wealthy and the rest of the population
grows ever larger. Nationalism takes hold, along with isolationism, a financial
crisis precipitates the onset of a winter. The gap between the “haves and have
nots” grows wider, yet whilst hardship abounds, new nascent technologies
begin to emerge like green shoots that become the harbingers of a new spring
cycle and the dawn of a new age.
Salum and Alves (2017) argue that there have been five Kondratieff waves
since the onset of the industrial revolution. These waves along with the time-
line are presented in Table 13.1. They also predict the emergence of a sixth
cycle. It is this coming cycle that this chapter seeks to address.
TABLE 13.1 The five Kondratieff waves.
Cycle Period Description
1st Cycle 1770–1820 Initial mechanisation

2nd Cycle 1820–1870 Steam power, railroads and telegraphs
3rd Cycle 1870–1930 Electricity, internal combustion and heavy engineering
4th Cycle 1930–1980 Mass production, Fordism and nuclear energy
5th Cycle 1980–2030 Telecommunications and informatics
6th Cycle 2030–2080 Robotics, alternative energies, and Human Enhancement
Technologies (HET)?
Source: https://knowledge.insead.edu/strategy/the-next-cycle-of-capitalism-5226
Kondratieff enjoyed widespread popularity and acclaim for his work. For
a period, he appeared in the pantheon of the great academic economists. In
Russia, his theory challenged the tenets that underpinned the Marxist theory
of historicism. A theory that predicted that capitalism would be displaced first
by socialism, and then communism. In 1938, Stalin had Kondratieff shot in a
Soviet Gulag for his iconoclasm. In the West, his star also faded.
Today, many academics remain critical of Kondratieff’s work. Their objec-
tions are often ill-informed and in the case of economists, are often grounded
in the prejudices of the contemporary dominant paradigm of positive and
quantitative economics. This paradigm rejects complexity by seeking preci-
sion, sometimes at the expense of reality.
Covid-19, in line with Kondratieff’s prediction of winter has built on a
pattern of populism, growing isolationism and autocracy, characterised by
Trumpism in the US, President Putin in Russia, Prime Minister Orban in
Hungary, Chairman Xi in China, Prime Minister Morawiecki in Poland,
President Bolsonaro in Brazil, Prime Minister Modi in India, Prime Minister
Johnson in the UK and President Duterte in the Philippines.
Despite the best efforts of the Federal Reserve in the US, the Bank of
England, the European Central Bank, and the Bank of Japan to combat
deflation, the global economy has struggled, and the unity of response to the
financial crisis seen in 2008 stands in stark contrast to the unilateral responses
to the recent global pandemic and its economic consequences.
The next stanzas of the rhyme that is history

The sudden and largely unexpected outbreak of war between Russia and
Ukraine may well trigger a recession. Our emergence into the light of day after
Covid-19 would probably have been characterised by two patterns of recovery.
The first would be V shaped. Economic stimulus provided by the central banks
of the Western world would be combined with an appetite on the part of their
populations to leave the constraints of lockdown behind. The US would likely
have emerged as the economy that led the recovery as its logistical and techno-
logical prowess in vaccine development and logistics leads the world.
The second pattern of recovery would be X shaped. On the one hand, there
would be Zombie companies and industries that have been kept on life support
by cheap credit, government loans and furlough arrangements in response to
Covid-19. They are unlikely to recover because central banks will be forced to
manage the yield curve in the bond markets. The implication being that interest
rates will rise gradually making heavily indebted companies unviable. On the
other hand, there will be both established and new emergent industries that will
go from strength to strength. There may be a post–Covid-19 economic boom
that will make some people wealthier, however, the war in Ukraine will almost
certainly amplify extant inflationary pressures. Property values may continue to
rise as the wealthy become wealthier. A proportion of new wealth is typically
invested in land driving up the price of property. Unfortunately, inflation hits
the lower end of the social hierarchy disproportionately. Social tensions may
rise as the cost of the Covid lockdowns, and the provisions and sacrifices made
because of the war in Ukraine, will put public finances under additional pres-
sure further eroding public services. Populism will persist as working people
reach out to leaders who promise solutions to their problems. Historic property
market cycles suggest the bubble will finally burst in 2026 plus or minus two
years. A stock market crash will ensue heralding the final throes of a Kondratieff
winter. This conjecture is informed by historical patterns grounded in property
and stock market cycles as well as long-wave theory.
Spring and the dawn of the hyper-technology revolution will follow. A
host of nascent new technologies will burst forth. We already have some clear
insights as to what the front runners are likely to be. There are, however, two
things that we do not yet know. The first is in what ways these new technol-
ogies will converge in 10 or 15-years’ time. The second is the choices and the
priorities that different societies will make as the potential for both good and
bad developments become apparent. Without these insights, prediction inevi-
tably becomes speculative.
The harbingers of change and “future shock”

Every major industrial revolution is presaged by the emergence of a new
source of energy. Water and horsepower gave way to steam, steam to elec-
tricity and hydrocarbons. Hydrocarbons are presently giving way to hydrogen
and renewables. It is perhaps timely to remember that each of these tran-
sitions was accompanied by dramatic changes in the way in which organ-
isations were designed and structured and the way in which people were
managed. Personnel management emerged because of the shift from fixed
position to large-scale assembly line production and the birth of the human
relations movement spearheaded by Mayo’s Hawthorne studies. The transi-
tion from personnel management to HRM, reflected the transition from the
machine bureaucratic ways of organising that were reliant on supervision, to
more adhocratic approaches characterised by downsizing, team working and
reductions in middle management. It seems likely, therefore, that new ways of
organising and managing people will emerge as the new technologies evolve.
The evolution of hypertec revolution

The sheer magnitude and scale of the dynamics that will emerge in the next dec-
ade and beyond defy both description and analysis. In Chapter 2, attention was
drawn to the linear pattern of cause and effect characterised by Newtonian physics.
Systems theory and Cybernetics embrace the notion of circular causation, whereby
a cause triggers an effect that feeds back to change the character of the initial cause
thereby stimulating a different effect we describe as emergent properties.
It is widely acknowledged that the Covid pandemic accelerated the rate of
change and that highly resistant paradigms such as presentism and proxemics have
been subject to dramatic change. Pre-Covid-19, most organisations defined flex-
itime as a benefit. Post pandemic, the requirement to be present at a workstation
will be viewed differently as tracking technologies evolve and rising fuel prices
exacerbated by war in Ukraine make the costs of commuting unbearable for com-
panies and individuals alike. New patterns of rights and responsibility will emerge
along with new issues of autonomy and privacy. Another post-pandemic consider-
ation will be concerned with the agility and resilience of supply chains.
The later stages of the industrial age and the dawn of the information age
were characterised by offshoring as Western and Japanese companies sought
to take advantage of new communication technologies and cheap low-skilled
labour available in emerging economies.
Low-skilled labour will have less and less value in economies of the future.
To understand why, it is helpful to recognise the pattern of industrial evolu-
tion developed by Paraloni (1999) who argued that technological revolutions
advance in two phases. During the first phase, the focus is on the development
of infrastructure and production capability. A second phase follows when
the focus shifts to product and service delivery. Set out in Figure 13.1 is a
FIGURE 13.1 Parolini’s industrial development schema
representation of Paroloni’s original industrial development schema discussed

earlier in Chapter 5 with the addition of the hypertec revolution that follows.
During the second information revolution, the context setting was charac-
terised by the arrival of the world wide web and the creation of the internet
superhighway. The proliferation of support activities such as e-retailing grew
exponentially. Food delivery services burgeoned, new platforms offered holidays,
real estate, insurance, tourism, taxis, news and health services. Little remained
unaffected. Large distribution centres and call centres sprang up on the outskirts
of towns and cities creating new roles for unskilled secondary labour, mobile
phones and social media became ubiquitous. A bifurcation between click and
brick, became manifest. Large retailers struggled; many had been around for gen-
erations. The onset of the Covid-19 pandemic saw many household names in the
retailing world collapse whilst e-platform-based businesses in contrast, flourished.
The arrival of the hyper-tech revolution and the Kondratieff Spring will be
no different. At the time of writing, the new context is being established with
the arrival of wind, solar, and hydrogen energy along with the rollout of 5G. 5G
is a fundamental context setting new technology that will enable the realisation
of the internet of things (IoT). There has long been a vision of machines in
their various guises being able to talk with each other, function autonomously,
and dispense with the need for human mediation. Two issues have impeded its
development, bandwidth, and speed. Both these issues will be resolved with the
arrival of 5G, cryptocurrencies and blockchain. Together, these technologies
will in the 2030s presage the transition to the Kondratieff summer character-
ised by resource integration. It will create an entirely new socio-economic
ecosystem and a parallel trading universe in goods and services.
The evolution of context and support activities

Today, as in the case of the first industrial revolution, we are witnessing new
context-setting activity being established. It is taking the form of the build-
out of autonomous mining equipment. The mining of copper, lithium, nickel,
cobalt, rare earths are all critical for the delivery of zero-carbon economies.
Whilst steam power first became established in mining during the first indus-
trial revolution, autonomous mining equipment is powering the hypertec
revolution. As in the case of early road transport, it will take longer for auton-
omous road transportation to become ubiquitous, because of the unpredictable
behaviour of pedestrians. Improvements in battery technology both in terms
of costs and storage are required to reduce the costs of e-vehicles, and carbon
emission pricing must become established to enable the hydrogen fuel cell, and
hydrogen storage markets to emerge, before hydrogen-powered heavy goods
vehicles, and trains can deliver low-cost public transport.
Support activity will emerge on the back of the new infrastructure. Initially,
new services will, as Hammer (1990) observed, seek to improve existing ways
of doing things. Rather than automating, he argued work should be reengi-

neered. Hence his call, “don’t automate, obliterate.” The appearance of the
desktop app “Slack” exemplifies the point. It is an elegant piece of software
designed to support remote working, but in effect, it imports all the bad prac-
tices associated with traditional office work. Eventually, the design of work
and the structures required to support it will be reengineered, often, at consid-
erable human cost Taylor (1995). This prompted critics like Coulson-Thomas
(1995) to argue that Business process reengineering is a very blunt instrument
that can precipitate organisational disasters. The approach ignores organi-
sational politics and can result in the destruction of employee engagement
and commitment to remain, not to mention deep wells of tacit knowledge.
Organisational development in the information age, Thomas argues, does not
call for obliteration but information delivered through soft system approaches,
values-based HR and human-centred policy design (see chapter 14).
The challenge of predicting path-dependent trajectories

It is a simple matter to engage in conjectural visions of the future. What is more
challenging is to anticipate with any accuracy the choices and decisions that will
create what will become path-dependent trajectories that the different technolo-
gies will take, and the consequences that will be entrained. Some will be planned,
others serendipitous and others wholly unintended. How these technologies and
industries will coevolve, therefore, is difficult if not impossible to determine. What
we can evaluate are some of the patterns that are likely to emerge. Figure 13.2
is a PEST analysis. It identifies five main silos of knowledge, 5G, blockchain,
artificial intelligence, IoT and 3D printing. These innovations will provide the
technological push that will catalyse a range of new technologies. The input side
is mediated by two adjusting variables, climate change and demography. Their
effects will vary depending on which area of the world is the subject of focus. It
quickly becomes apparent that no aspect of living or work in any industry will
escape unscathed by the remorseless nature of technological advance.
The technologies that are about to shape the future

In previous long waves, progress has been characterised by a small number of
new technologies. Today, technological advancements are so rapid and exten-
sive that it is probably sensible to try and manage the conceptual complexity
by creating silos of disciplinary knowledge from which a myriad of new tech-
nologies and industries will emerge and coevolve.
There will be an unprecedented multiplication effect that will induce
extraordinarily complex and dynamic emergent properties. These will
deliver significant benefits coupled with a potential for substantial harm both
to the planet, and all the species that depend upon it. On the West Coast
of the US, drought and forest fires are emerging as normal summer events.
FIGURE 13.2 A PEST analysis of the impact of five key technologies and two critical variables
Australia experienced its worst wildfire ever, in 2020. In July 2021, major
floods hit Germany, Belgium, China and India, the magnitude of which was
unprecedented and caused by long and intense periods of heavy rain in which
a month’s rain fell in a matter of hours, overwhelming drainage systems and
creating flash floods. Brazil experienced a similar catastrophe in 2022.
Table 13.2 highlights five technological themes that together provide the
input side of the equation. The second column specifies the technologies, and
TABLE 13.2 The five technological themes and their impact on human activity
systems.
Technological themes Industries and human activity

(input side) Categories of technology systems most impacted (output side)
Energy Hydro, Biomass, Solar, More than one of these

Thermal, Light energy, technologies will be adopted
Wind, Tidal, Geothermal and applied to every aspect of
Hydrogen, Hydrocarbon human activity on the planet.
Battery energy storage No one will remain
untouched
Digitisation Blockchain, Internet of Manufacturing, Transport
Things (IoT), 5G (Aerospace, Automotive,
Artificial intelligence (AI), Rail, Shipping), Law, Civil
Machine learning, Engineering, Education,
Robotics, process automation Training, Public Services,
(RPA), Edge computing Armed Services, Agriculture,
Quantum computing, Virtual Medicine, Public Utilities,
reality, Augmented reality Forestry, Fishing, Finance &
3D Printing, Cloud computing Insurance, Construction,
Satellites in low earth orbit Hospitality, Retail,
Wholesale, Extractive
industries, Entertainment
Health Electronic health records Administration, Pre-natal and
(EHRs), Health information post-natal services. Geriatric
exchange (HIE), Nationwide services, Fertility services
Health Information Networks Surgery, Psychiatry,
(NHIN), Personal health Radiography
records (PHRs), Patient portals, Immunology, Pathology
Nanomedicine, Genome-based
personalized medicine
Robotised surgery
Genetics Gene cloning Agriculture
Gene trait selection Medicine
Gene editing DNA/RNA Chemical production
Vaccines and immunology Health
Sport
Space Agriculture Farming
Geology Mining and Extraction
Oceanography Weather, Climate,
Communication entertainment
Defence, materials
the third column identifies the industries and human activity systems that will
undergo transformational change. It is important, therefore, that we acknowl-
edge that technologies in all their forms are neutral. It is the choices that we
make in how to deploy them that deliver both intended and unintended conse-
quences. Never has humankind had a greater need for a moral compass.
Changing organisational forms

The transition from the early to the late industrial revolution was character-
ised by the shift to mass production and the growth of machine bureaucracy.
The transition to the first information revolution saw the emergence of the
M Form organisation. The transition to the second information revolution
resulted in downsizing, the stripping out of swathes of middle management
and the emergence of adhocratic ways of organising work. The transition to
the hypertec age will no doubt result in the emergence of new organisational
forms and new ways of working that will impact people management and
human resource practises. Emergent patterns are already becoming apparent.
Disembodied organisations and the proliferation

of virtualized adhocracies
Mintzberg’s book Structuring Organisations was published in 1979. He
observed that organisations are typically composed of five structural elements.
See Figure 13.3.
FIGURE 13.3 Mintzberg’s organisational configurations

The strategic apex, the structural equivalent of Systems 4 and 5, the

middle line, the equivalent of System 3, the value-adding operating core,
the equivalent to System 1, a technostructure and a support structure that
stabilise the organisation and function as System 2. In the decades follow-
ing the publication, only HR and Finance remained as part of the support
structure. Staff canteens, cleaning, caretaking services and the like, were
usually contracted out. The technostructure has, till now survived. The
adhocratic form emerged in response to the need for speed and agility. It
was a way of organising that was typically associated with consultancy.
Teams of experts from different disciplines combined to address a particu-
lar challenge a client faced. Techno and support structures were combined
within the other three elements. Once the client’s problem was resolved,
the team was disbanded. The members were reassigned to work in newly
created teams to address issues facing other clients. This way of work-
ing has become increasingly pervasive, even impacting machine and pro-
fessional bureaucracies and, increasingly, extending across international
boundaries. The hypertec revolution heralds the arrival of the “disembod-
ied organisation” and the “virtual adhocracy.” Employees, especially those
working in SMEs in various contexts, no longer need to work in offices.
Many can work from home. Overheads associated with office rental, heat-
ing, lighting and maintenance can be slashed. Organisations may no longer
need a physical HR department or finance office. Senior executives can
meet online with both colleagues and report working in the field, or at
home, without requiring them to be present in an office. The technostruc-
ture will be contracted out or bought in, as and when required utilising
cloud and edge computing technologies combined with virtual and aug-
mented reality.
Blockchains and cryptocurrencies will give rise to new forms of disin-
termediation whilst older forms of intermediation will dematerialise. (See
Chapter 15 for a more in-depth discussion of blockchain technology and its
implications.) Brokers will be able to assemble teams of expert free agents to
address challenges on behalf of their organisation or a client. Such services are
likely to multiply as happened in the Case study on China outlined in Chapter 6.
This possibility points to the “gigification” of professional expertise on a
large scale along with the subcontracting of knowledge creation. This
already happens in many fields where free agents with specialist expertise
are paid premium rates whilst working on short-term contracts. Companies
frequently parcel out work to different universities, for example. Each
University works on a particular problem. The academics are not in con-
tact with colleagues working on other aspects of a project commissioned in
another university. The researchers, therefore, do not have a comprehensive
understanding of how the knowledge they create will be used or what the
client is seeking to achieve. Organisations like Fiverr Inc are already assem-
bling legions of professionals who can market their expertise through the
platform. LinkedIn is also moving to respond to this new emergent need.
Covid-19 has made remote working acceptable on an unprecedented scale.
A 2020 report by Gartner, a US S&P 500 HR Consultancy, highlighted five
key areas of change that have accelerated because of the Covid-19 pandemic.
These are:
1. More employees will continue to work remotely.

2. The range and volume of data collected on employees will increase
substantially.
3. The use of contingent labour will rise as a proportion of the total
workforce.
4. The role of employers in providing a social safety net will increase.
5. Employers will prioritise agility and resilience over efficiency in their
supply chains.
Evaluating the implications for the HR

function and people management
Traditionally, HRM in large organisations is divided into five main areas
of activity, recruitment, and selection, pay and reward, establishment con-
trol, employee relations and training and development. These functions
can represent a substantial overhead. As companies’ contract to an oper-
ating core, it may become increasingly challenging for an HR function
to justify its presence within the organisation when companies can part-
ner with specialist HR consultancies that can deliver critical expertise for
project work. Blockchain technology can facilitate a reduction in the need
for pay and reward administration and establishment control as companies
embrace smart contracts. In February 2021, a new blockchain technology
was announced. Prior to this, there were a series of factors that limited
adoption. Foremost amongst them were scaling, customization, interopera-
bility, governance, and upgradeability. Polkadot, is a disruptive open-source
technology that aims to overcome the scaling, interoperability, and upgrade-
ability challenges facing blockchains by accommodating parallel processing
across multiple chains. The ability to scale will eliminate the single biggest
constraint to the adoption and diffusion of blockchains and the corporate
capability to use smart contracts. It is likely to encourage the global adoption
and deployment of blockchains.
With smaller operating cores, employee relations may also be managed by
specialist consultancies rather than in-house experts because of the potential
decline in direct labour requirements.
The Gartner (2020) report pointed to the prioritisation of resilience over

efficiency in supply chains. The likelihood is that the same will apply to all
corporate settings. It is frequently observed that popular business software
packages such as MS Word and Excel possess levels of functionality that
most users never deploy. SAP argues that this underutilisation follows the
80/20 Pareto rule with 80% of customers only using 20% of the available
functionality.
The arrival of a huge range of new forms of software required to sup-
port manufacturing, shared autonomous transport systems, IoT, blockchain,
robotics, 3D printing and so forth, will demand new mindsets that go
beyond simply getting the job done. There will be opportunities to innovate
in every system, process, and activity. The only limitation will be the moti-
vation and the opportunity for people to learn, combined with the ability
and willingness of managers to embrace innovative ideas and possibilities.
Continuous training and updating, combined with executive development
will flourish. The arrival of technologies like augmented reality, when com-
bined with artificial intelligence and IoT has the potential to transform the
training and development function. Skill development and data flow will
become key sources of competitive advantage. Augmented reality will ena-
ble operatives to access expert knowledge virtually and on-demand, whilst
the combination of robotisation, 3D printing and IoT technology will dis-
pense with the need for various service and maintenance functions that
have traditionally required safety, materials handling, and hygiene training
in labour-intensive businesses. To remain an inhouse service, HRM will
need to develop its skills base in data analytics and knowledge management.
Analytics advance in three distinct phases: descriptive, predictive and pre-
scriptive (Evans and Lindner, 2012). The HR function is likely to become
a smaller and more focused discipline that either merges or is merged with
analytics. It may well attract a new functional title repeating the pattern of
transition from Personnel Management to HRM that occurred in the shift
from the industrial to the information age.
Major challenges associated with people management will revolve around
two critical dimensions, autonomy and privacy. Each will create both ethical
and practical challenges and will call forth new forms of employment contract
and conditions of service. Figure 13.4 illustrates the point.
The figure seeks to show the proportions of the labour force employed
under distinct types of employment contract, as defined by Bamberger and
Meshoulam (2000). The proportion of the working population that might be
categorised as secondary labour will decline because of artificial intelligence,
3D printing and robotisation. People who continue to be employed under
this approach will experience diminishing autonomy and privacy, along with
low wages, limited training and inferior conditions of employment. In March
2021, Amazon, for example, announced that all its drivers in the US would
FIGURE 13.4 utonomy and privacy implication for different types of HR

A
employment approach
have to provide biometric consent to the company if they wished to continue

their employment.
Those subjected to paternalistic HR will constitute a larger proportion
of the working population and will benefit from a higher degree of both
autonomy and privacy although less than those who sit in the high skilled
free agent and high commitment categories. These groups are likely to grow
as a proportion of the working population although the size of the working
population may well shrink. In the US and UK, groups working under condi-
tions of paternalistic HR are likely to experience more limited term contracts
unless national legislation seeks to promote a stronger employment relation-
ship. Those enjoying the highest levels of autonomy and privacy will be senior
executives and technologists of different stripes whose skills and knowledge
are highly valued. Whilst many large multinational organisations will con-
tinue to flourish, new ones will scale at unprecedented speed as Table 4.1
revealed. This will result in a growing ecosystem of highly profitable small
and medium-sized enterprises offering specialist services to consumers, large
enterprises and to each other. Many will buy in HR consultancy support.
Creative Virtual adhocracies will require personnel skilled in Kanban and
SCRUM methodologies that contain different combinations of employees
and free agents. Various American corporations are already talking about
the importance of a scalable workforce composed of full-time and part-time
employees, independent contractors, gig workers and freelancers. The bene-

fits of the approach are seen to offer improvements in productivity, enhanced
responsiveness and reduced operating costs. Scalability is a priority because
of the pace of innovation. To illustrate the point, imagine if in the 1970s, the
transition from mainframe computing to desktop computing was achieved in
a single year. The armies of punch card operators would all have disappeared
virtually overnight.
Today it is possible to 3D print a house employing only one person in
little over a week. This is an attractive proposition for real estate develop-
ment, however, once investment in 3D technology has occurred, all those
“wet trades” associated with bricklaying, plastering, rendering, and so forth
will become very largely surplus to requirements and will dematerialise.
Attaining scalability will require clear goals, and systematic human resource
planning. Constant environmental scanning will be needed to recognise and
embrace innovative opportunities combined with ready access to sources of
capital that will be necessary to invest in innovative technology and training
and development.
In short, we have yet to experience the full impact of a VUCA world.
The VUCA acronym originated from the US military at the end of the Cold
War to describe the challenges posed to leadership by volatility, uncertainty,
complexity and ambiguity in a world in which the enemy was not recognisa-
ble. Business thinkers have embraced the framework because of its perceived
relevance. Figure 13.5 captures the essence.
FIGURE 13.5 The full impact of a VUCA world

These issues are explored in the case study that follows. Whilst elements of
the case example are based on conjecture, there is sufficient emerging evidence
to recognise patterns that support the main conclusions. As we have seen, it
is pattern recognition that becomes critical under conditions of entropy and
chaos.
Case study
The coevolution of TAAS and digital manufacturing

TAAS stands for Transactions on Autonomous and Adaptive Systems.
One of the most advanced examples revolves around self-driving vehi-
cles. Driverless cars already exist, but their universal acceptance is lim-
ited by considerations of range and safety. The range issue is being
solved by advances in battery storage and hydrogen technologies.
Safety considerations will be overcome with 5G, IoT and low orbit satel-
lite technology. Cars and lorries are already able to communicate with
each other and with traffic signs and infrastructure. This capacity to
exchange data will create an integrated traffic control system. It will
eliminate the human driving function. Google’s project Waymo has
already created a test bed that demonstrates such a system. Apple is
similarly eying up the potential and is currently seeking dependable
manufacturing partners.
Advances in technology progress in spurts. Autonomous vehicles can-
not realise their potential until the 5G rollout and long-life battery tech-
nology can liberate IoT. The same applies to 3D printing, which is the
gateway to digital manufacturing. 3D printers were greeted with enor-
mous excitement and investor acclaim when they first appeared. Since
that time, enthusiasm has waned. The vision of every household being
able to print artefacts of their choice at home from designs downloaded
from the internet has failed to achieve traction. This is typical of the arrival
of some innovative technologies. They burst onto the scene in a bubble
of optimism only for the concept to fail to scale. This causes the bubble of
optimism to burst, leaving investors to take losses. The nascent industry
either dies or quietly persists in development activity, learning and build-
ing on its initial experience. Eventually, its star rises again seizing investors’
imagination with its new paradigm. It seems probable that this will be the
destiny of 3D Manufacturing.
The impact of autonomous vehicles and the

dematerialisation of automotive support services
The arrival of self-driving vehicles will bring extraordinary changes to the
automotive sector. Unlike vehicles powered by the internal combustion
engine, electric vehicles powered by batteries and fuel cells will require
little maintenance. This will sound the death knell of small garages. Pet-
rol stations with tankers supplying them with fuel will be replaced by
charging facilities powered by green energy and hydrogen. For urban
dwellers, owning a car will become uneconomic. Transport companies
will acquire fleets of vehicles that will be able to respond to travellers’
requests to ride share. The cost of city commuting will fall. Young people
will no longer need to pass a driving test. Driving licences will become
outdated. Most car dealerships will disappear. Auto manufacturers will do
business directly with fleet buying transportation companies. Cars will be
made to order, and once commissioned will drive themselves to transport
hubs where the transport fleets are garaged and maintained. Passengers
will be able to plan and execute journeys by logging in departure times
and receive real-time reports of journey times and charges. Passengers
will pay electronically. Revenues from taxes on petrol and diesel will no
longer be available. Governments will have to consider alternative meth-
ods of raising revenue. Transport companies and private owners are likely
to pay tax per road mile, with vehicles tracked by low orbit satellites.
The role of the police in road traffic management will decline because
lane discipline, speed and distance will be controlled by the traffic man-
agement system. Criminals will relocate to cyberspace as limitations on
means of escape constrain the options available for criminal activity.
Penalties for cybercrime will increase. Insurance companies will need far
fewer personnel to process road accident claims and road rescue services
will contract dramatically.
The coevolution of autonomous vehicles with digital

manufacturing and the arrival of robotised fulfilment
centres
Covid-19 has highlighted the vulnerability of international supply chains.
Companies will seek to improve their resilience. This will be achieved
by shortening the chain and reshoring production. The need for low-cost
labour from emerging markets is likely to decline as the developed world
embraces new 3D technologies and the emerging economies become
advanced economies. Second-generation 3D printing factories containing
hundreds of machines will emerge. The factories will specialise in printing

specific materials. They will be located adjacent to fulfilment centres. Cus-
tomers will place orders electronically. Each order will be custom manu-
factured and passed to the adjacent fully automated, robotised fulfilment
centre for onward delivery to the customer via autonomous vehicles or
drones. The value of the product is likely to be in the design, so the 3D fac-
tory and the fulfilment centre will take their cut and the balance will accrue
to the source of the design in the form of royalty payments. Settlement will
be by smart contracts and blockchain technology. Blockchain records of all
relevant input costs including design will enable payment using either fiat
or cryptocurrencies. Amazon estimates that fully automated end-to-end
fulfilment centres, the size of six or more football fields and operated by
only one or two members of staff, are likely to become a reality in about
2030 (Statt, 2019).
Implications for the future

What do the prognostications in this case study reveal? The world’s tran-
sition to a Kondratieff spring will be uncomfortable for everyone. Firstly,
the rich will fear loss of power and influence as new techno elites emerge.
Secondly, many currently secure jobs like drivers, traffic police officers,
accountants, bookkeepers, legal professionals, insurance agents, garage
mechanics, maintenance personnel and many other roles will disappear.
The provision of personal services will grow. As with the earlier industrial
and technological revolutions, new jobs not yet conceived will emerge.
The new occupations will require high-level skills. Those who lack such
skills will face difficult challenges. The present gap between the developed
and developing worlds will be supplanted by a digital divide between
those who are digitally savvy, well-educated, and digitally connected and
those who are not, regardless of where people live. Finally, the hyper-
tec revolution will transform the way in which societies function and as
previously highlighted, privacy will become a major regulatory concern for
both organisations and governments.
Wearable technologies will improve the ability of organisations to
monitor what employees are doing, where they are, the pace at which
they are working, whether they have consumed alcohol or are experi-
encing stress or anxiety, their general state of health and wellbeing and
so forth. These technologies are already making their presence felt in
the workplace and in the field. As the capacity to collect and collate data
increases, the concerns about privacy and autonomy will grow. A report
in Verge in April 2019 presented an account of how Amazon employees

are monitored and often terminated at its Baltimore fulfilment centre
for failing to meet productivity requirements. The report suggested
that up to 10% of employees are dismissed each year, following fail-
ure to meet the requirements of corrective training Lecher (2019). This
churn rate is both high and costly. It provides ample evidence to sup-
port a case for Amazon to invest in fully automated fulfilment centres.
Similar innovations are likely to occur in other high-volume retailing
operations. Supermarkets are a case in point. Unskilled labour currently
employed in activities like fruit picking, will be redundant and replaced
by technology. Tevel Aerobotics Technologies is an Israeli company that
fruit farmers in Israel contract to harvest their fruit crops. The company
delivers a squadron of drones equipped with visual guidance and arti-
ficial intelligence. The drones can work 24 hours a day and can distin-
guish between ripe and unripe fruit, which the drones carry to hoppers
that progress down rows of fruit trees. Such technologies will reduce
the demand for migrant labour to undertake the work.
National cryptocurrencies
In February 2021, Janet Yellen, US Secretary of the Treasury, announced
that the “Fed” was actively researching the viability of introducing a dig-
ital dollar (Smith, 2021). The announcement suggested that the decision
to initiate such an innovation would be determined by Congress and
the American public. The proposal would at a stroke eliminate a signifi-
cant slice of commercial and retail banking business. It would, in effect,
amount to nationalising the banking system. As such, there would be
substantial opposition. However, in the event of large-scale unemploy-
ment, it is also suggested that there will need to introduce a social wage
system to enable the unemployed displaced by new technology to live
and to help sustain economic activity. The digital dollar would eliminate
the need for a bank account in which to receive funds. It would enable
the government to make payments directly to individuals and if neces-
sary, impose a timeline for spending. This would discourage saving if an
economic stimulus were required. It would also make money traceable,
thereby, making it difficult for criminals to launder. Smith also suggests
that at present, digital mining consumes the equivalent of the national
electricity supply of Argentina. A digital dollar would not require proof
of work and would eliminate the pressure digital mining imposes on
the environment. In short, there are potentially significant driving and
restraining forces around such an innovation. In those parts of the world

where democratic principles are less revered, however, there is likely to
be less debate. An important consideration will be the extent to which
there is a further polarisation of income and wealth along the lines dis-
cussed in Chapter 9. Those governments facing a combination of infla-
tion and a widening chasm between rich and poor may well come to the
view that a national digital currency controlled by the central bank would
enable it to target help to regions and individuals in most need, whilst
simultaneously inflating away a significant proportion of post- Covid-19
national debt. This would make it easier for the state to meet its interna-
tional financial obligations without defaulting.
In September 2021, El Salvador became the first country to recog-
nise Bitcoin as legal tender. It is a move that, on the one hand, brings a
perception of credibility to the crypto world, although Bitcoin’s excep-
tional volatility augers ill for an impoverished population where 25%
of GDP is grounded in remittances from abroad. On the other hand,
such a development will hit companies that charge exchange rate fees
exceptionally hard.
Whilst employment opportunities at the bottom end of the skill spec-
trum will shrink, demand for skilled labour endowed with digital literacy
will grow along with a need to keep the human capital base up to date.
There will be perpetual talent wars that will make it attractive for individu-
als to seek free agent status and capitalise on the skill premium. Whilst data
analytics is currently in its infancy, large corporates are embracing it. There
are currently critics who argue that its future within the domain of HRM is
by no means certain. There is a compelling case for suggesting that over
time, systemic integration is likely to occur, resulting in changing roles for
HR professionals in corporate settings. Senior HR personnel may well need
to manage technical specialists whose role is to harvest data and compile
it into status reports that link production, sales and personnel performance
in ways not yet conceived.
Summation
This chapter considered the implications of long wave theory and seasonal
patterns of socio-economic evolution. We are presently living through a
Kondratieff winter. The world will emerge into a new springtime when
currently nascent technologies become established triggering economic
growth, along with increasing bouts of chaos arising from new patterns of
coevolution. The challenge facing managers will be their ability to peer

through the fog of ambiguity and discern patterns that enable them to estab-
lish new purpose and direction. Five technologies, 5G, blockchain, artificial
intelligence, IoT and 3D printing, are the key drivers of an epochal trans-
formation that will progress in two distinct phases. The first will focus on
the creation of new infrastructure and production capability and the second
on the development of new products and services that will transform the
way in which societies live and work. Their collective impact will induce
“future shock” on an unprecedented scale as old industries collapse, and
new industries emerge. These changes will prompt the emergence of new
rights and responsibilities. They will have significant implications for both
autonomy and privacy. The case study focused on TAAS and the transforma-
tional implications it is likely to have on patterns of employment over time.
It has been argued that the impact of these new technologies will create
a new VUCA world in which volatility and uncertainty are compounded
by a powerful multiplier effect grounded in an upsurge in ambiguity and
complexity. New ways of organising and new organisational forms will also
emerge. In short, the chapter has sought to create the foundation for a dis-
cussion that makes the case for the new managerial paradigm in the chapter
that follows.
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14
A SYSTEMS DYNAMIC
PERSPECTIVE OF THE
POST-COVID-19 WORLD
The Report of the Oxford Martin Commission for Future Generations enti-
tled “Now for the long term (2020)” asserted that humanity is at a crossroads:
This could be our best century ever, or our worst. The outcome will depend on
our ability to understand and harness the extraordinary opportunities as well as
manage the unprecedented uncertainties and risks.
This chapter will address some of the many issues that organisations will face
under the conditions of the hypertec revolution. The reader will recall that in
Chapter 2, it was suggested that most management thinking has been influ-
enced by linear cause and effect thinking rooted in Newtonian Science. In this
penultimate chapter, it will be argued that the lessons of coevolution and of
dissipative structures will move into the ascendancy and will pose challenges
that the present dominant managerial paradigm is ill-equipped to address.
Conventional management theory is predicated on the idea that managerial
interventions are designed to enable organisational leaders to keep the system
they manage under control in the face of turbulent environmental conditions.
Much of the effort, therefore, is focused on creating negative feedback that
dampens the impact of environmental change. If we compare the world in the
1990s at the time of the Daimler-Chrysler merger and the CEMEX acqui-
sition of RMC with the markets these organisations face today and, in the
future, we can instantly see that both industries were relatively slow moving.
Yes, competition within the automotive sector was intense and provided much
of the logic that gave support to the Daimler Chrysler initiative. CEMEX had
been fortunate to have a Harvard educated CEO who could see the writing
on the wall for a large Mexican cement company operating in what had been a
DOI: 10.4324/9781315630557-16
A Systems Dynamic Perspective of the Post-Covid-19 World 265
slow-moving traditional industry that was about to face the prospect of serious
international competition. We could describe these companies in the 1990s as
operating in near to equilibrium conditions. The main challenges that they
faced were uncertainty and volatility in line with the VUCA model illustrated
in Figure 13.5. Managerial intervention was designed to restore equilibrium
in the context of turbulence. Today, if we regard each of those industries as
systems, then the forces bearing down on them are very different. Daimler-
Chrysler was focused on two primary dimensions, broadening the product
range and reaping economies of scale in an industry undergoing consolida-
tion. There was relatively little regulatory pressure. Innovation was focused on
process and product design, whilst supply chains were incrementally evolving
because of offshoring, they were reasonably stable. If we fast forward to today,
the dynamics the leaders face are characterised by complexity and ambiguity.
Auto manufacturers are engaged in radical innovation, transitioning from the
internal combustion engine to battery powered vehicles. They are compet-
ing in the knowledge that their established product ranges have a shelf life
in some important national contexts of less than ten years. Not only do they
have to abandon established and proven processes and practises and devise new
approaches to production; they must also innovate in terms of their power
trains, embrace artificial intelligence in a new wave of robotization in their
production systems and blockchain, smart contracts, and Internet of Things
(IoT) in their processes. They must also prepare for Tech-as-a-Service (TaaS)
a comprehensive, flexible solution that bundles hardware, software, and ser-
vices into a single subscription price as well as design for recycling a huge
proportion of each vehicle at the end of its life. Moreover, they must critically
evaluate their supply chains with a view to redesigning them for resilience as
much as agility in response to Covid-19 and the potential for future pandemic
disruptions. They must also minimise their carbon footprint to meet new reg-
ulatory standards for manufacturing.
In the case of the Cement Industry, environmental regulation and carbon
trading will impose significant costs on production if companies fail to reduce
their carbon footprint. 3D printing of new building structures combined with
robotization may well demand the redesign of the form and shape of building
materials. New international trading regulations will induce unprecedented
environmental challenges. In short, these industries are moving from a posi-
tion of relatively stable equilibrium to a world that is far from equilibrium.
Companies operating in these environments face turbulence both from within
as well as without. Whilst new technology will make swathes of employ-
ees redundant, the need to compete for newly emergent skill sets that are
being eagerly sought not just by direct competitors but by other industries will
unleash considerable internal angst as status and reward packages change and
insecurity grows. In short, the companies in these industries, along with oth-
ers, will be moving from relative stability into the same far from equilibrium
world. Whole industries will be plunged into intermittent periods of chaos,

punctuated by bouts of relative stability. This new emergent state is the oppo-
site to the world that we are leaving behind. That was a world that to a large
degree was characterised by relative stability punctuated by bouts of chaos.
How can we know that this will happen?
Theories of thermodynamics highlight the fact that open systems can exist
in three different states in relation to the environment in which they function.
Equilibrium, close to equilibrium and far from equilibrium (Stacey, 1996).
The world that companies face going forward will call for a different paradigm
that places value on the nature of informal organisation, the value of self-
organisation and the role that dissipative structures can play in enhancing the
prospects of organisational survival.
What is a dissipative structure?

In a managerial context, a dissipative structure is typically a temporary phe-
nomenon triggered by environmental turbulence. It induces a recognition of
the need for change. A consensus develops around what the need for change
demands. Radical change is always difficult and invariably painful. In con-
sequence, it triggers resistance that must be overcome. Success demands an
enormous investment of senior management time and significant investment
in other resources. The outcome is not assured. Commitment and confidence
can erode. Leadership is essential and if leadership waivers the status quo
prevails. It is for this reason that scientists use the term dissipative structure
because of the enormous energy that must be discharged to deliver eventual
success.
Earlier, the case of Kodak was cited as an example of an organisation that
could envisage the future as being digital photography and for a period had the
benefit of first to market leadership. Unfortunately, the company was unable
to sustain the energy and the associated pain and disruption required to enable
the business to alter course. It ceded its initial advantage to entrepreneurial
new entrants and ultimately collapsed. A story that was repeated when Steve
Jobs visited Xerox Park and saw the future that Xerox executives did not want
to see.
Different types of change

Stacey (1996) argued that managers face three different kinds of change: closed
change, contained change and open-ended change.
Closed change is the type of change that can be predicted. There are laws
that govern the process, and, therefore, it is possible to predict what will hap-
pen with accuracy. In nature, the seasons in temperate climates are an exam-
ple. In employee relations, it is predictable that a significant increase in pay
will result in a temporary increase in productivity lasting several weeks before

output returns to normal.
Contained change arises when we are unable to make a precise prediction,
but we can use the laws of probability to deliver reasonably accurate forecasts,
at least in the short term. We can do this because, in the short term, many
organisational systems typically remain stable. In the medium to long term,
however, intervening variables will change, impacting other variables causing
the system to deviate from the predicted trajectory.
Open-ended change renders prediction impossible. This is because vari-
ables are constantly interacting with other variables within the environment
triggering reactions that entrain other reactions, the complexity of which
becomes overwhelming as the connections between cause and effect multiply.
This is the nature of chaos and as we have already seen, under these conditions,
whilst it is impossible to make predictions, it is possible to recognise patterns.
The challenges facing the dominant managerial paradigm

The machine metaphor and engineering rationalism informed managerial
thinking throughout the industrial age. It remains highly influential today.
The organisation is seen as a system operating within a larger supra-system.
Managers set goals that are derived from a vision and mission. When the
organisation encounters environmental turbulence, to remain on course,
managers take corrective action by entraining negative feedback loops. If sales
and profitability are falling because of the impact of a recession, contingent
labour is laid off, and if the necessary savings are not achieved, voluntary
redundancy and cuts in training and other expenses are implemented. The
objective is to move closer to a state of stable equilibrium by initiating pat-
terns of negative feedback that restore a degree of balance between the new
demand conditions and the resources needed to fulfil that demand. These are
the conditions of contained change under which behaviour and performance
become progressively more synchronous, disciplined, and orderly over time.
The price that is paid for this condition of harmony that we call balanced or
close to equilibrium is the loss of innovation and creativity. The implication
of this observation is that as we journey further into the twenty-first century,
organisations that adhere to the established balanced equilibrium paradigm
will find it increasingly difficult to survive because they will lack adaptive
capacity. Adaptive capacity is the source from which innovation emerges. The
question that arises, therefore, is how do organisations create and maintain
adaptive capacity?
Mintzberg (1978) was the first to challenge the traditional paradigm of
strategic planning when he noted that environmental turbulence renders it
next to impossible to fully execute a strategic plan. His ideas were subse-
quently developed by Lovas and Ghoshal (2000); Mantere and Sillince (2007);
Ocasio and Joseph (2005). Instead, strategy becomes emergent. It is shaped

by the need to respond to unforeseen contingencies such as the emergence of
substitutes to a firm’s offer or the arrival of new competitors whose strategies
are grounded in alternative visions and fundamentally different business mod-
els. Such developments create the conditions of open-ended change in which
strategy becomes a wicked problem. In short, the environmental dynamics
outlined in the previous chapter will ensure that in future, organisations will
compete in conditions that are far from equilibrium. Those that respond to the
impulse to perpetually seek balanced equilibrium under such conditions will
place themselves at risk because balanced equilibrium promotes inertia. What
can be done to prevent this?
The first thing managers must do is to recognise the limitations to the
formal authority that they exercise. Formal authority can either constrain or
liberate. Too often, such authority is used to constrain because the traditional
paradigm is preoccupied with control which is exercised through formal struc-
tures. This creates a paradox because the formal structures both facilitate the
flow of information and constrain it within prescribed channels. The formal
system is not typically set up to support learning and to the extent that learn-
ing may occur, it is inevitably limited to single loop learning that results in
the emergence of routines. Survival in a fast-changing environment demands
double loop learning that challenges the paradigm upon which previous deci-
sions were predicated. Progress is often achieved by deviation from established
norms and routines. It requires experimentation and trial and error. Profound
change demands that human activity systems become more self-organising.
Self-organisation triggers new patterns of communication. The channels
through which information flows, under conditions of spontaneous self-or-
ganisation, are by their very nature informal. In other words, informal organ-
isational networks get to work in building a new consensus around an issue or
a problem. What Volberda identified as holistic coevolution. A new problem
definition emerges, often resulting in innovative steps that begin to cohere
into a larger picture. The shift from Henry Ford’s push system of production
to the made to order system of mass production illustrated in Figure 5.1 is an
example of a sustained commitment to incremental process innovation.
Formal systems, in contrast, are both unsympathetic and generally unre-
sponsive to experimentation. This is because the system itself has codified
processes and defined parameters that become deeply etched in routines and
procedures and are buttressed by the organisation’s culture. Those issues that
sit outside the defined parameters are simply not seen, or if they are seen,
they are either ignored or suppressed. Mintzberg’s machine and professional
bureaucratic structures, therefore, are particularly resistant to any form of
innovation.
The impact of Covid-19 serves as a useful reminder of spontaneous self-
organisation. The event was so dramatic and disruptive to health services across
the world that long established norms and protocols had to be abandoned.
Chaos prevailed within which informal networks flourished and exchanged
ideas and information. In consequence, there was a dramatic upsurge in inno-
vation in both processes and procedures on an unprecedented scale. The report,
international crisis-led healthcare innovation in response to the COVID-19 pandemic,
published by the NHS reset team (Ettehad et al., 2021), cites a host of exam-
ples of health-care innovation from across the world in the production of
vaccines, ventilators, personal protective equipment, medicine production,
administration, space utilisation, primary and secondary care and health sur-
veillance. There is one common theme that characterises many of these exam-
ples. It is spontaneous self-organisation within what had previously been stable
equilibrium bureaucratic organisations. Whereas previously, innovation had
advanced at a glacial pace, the spontaneous activation of informal networks
that focused on a common mission released a surge of creative energy. Actors
within multiple systems began to interact, and, in the process, new problem
definitions emerged that afforded opportunities for orchestrated and coordi-
nated experimentation. The many organisations that had to adapt to the new
crisis conditions became dissipative structures where individuals at different
levels created or embraced a consensus around what was needed and a com-
mitment to ensure it happened. The result was the overturning of long-
established protocols. Such endeavour demands enormous inputs of energy,
distributed leadership, time, and resources, simply to sustain the momentum.
It ultimately results in exhaustion and in consequence, is at best, temporary
and intermittent.
In short, a crisis triggers a period of chaos through which new patterns
and new forms of consensus emerge and become established, triggering a
move towards a new equilibrium. This dynamic has strong resonances with
the second law of thermodynamics. It requires an ability to be able to deter-
mine when corporate energy should focus on restoring equilibrium and when
it should stimulate experimentation and promote dialogue, the purpose of
which is to break with the past and build a new consensus about the future and
what is needed, both to embrace and create it.
The need for corporate entrepreneurship

Studies of entrepreneurs and entrepreneurial behaviour have highlighted the
fact that entrepreneurs share some behaviours with managers whilst differing
profoundly in others (Sarasvathy 2001, 2008; Alsos et al., 2016; Coudounaris
and Arvidsson 2019; Arvidsson and Coudounaris, 2020). Effectuation the-
ory posits that entrepreneurial agency is underpinned by a willingness to
embrace heuristics rather than adhere to established managerial practice.
In determining whether to proceed with an innovation project, managers
will engage in lengthy discussions and utilise various tools and techniques
such as discounted cash flow to establish whether to proceed. Entrepreneurs,

in contrast, deploy heuristics, often informed by previous experience.
Managers as custodians of shareholder capital are mindful of the need to
only select projects that are likely to deliver profits, whereas entrepreneurial
decisions to proceed are based on conviction and the principle of affordable
loss. Managerial networks prioritise getting things done within established
structures, entrepreneurs’ network vicariously with a view to creating ena-
bling structures that will sustain momentum. This allows the entrepreneur
to seize the advantage and build market share, often before the incumbents
recognise the danger the entrepreneur poses as the achievements of Steve
Jobs and Elon Musk attest (Arvidsson and Coudounaris, 2020).
It is arguable that the arrival of Tesla under the leadership of Elon Musk
induced a period of chaos within the automotive sector. Traditional auto man-
ufacturers were proceeding cautiously. They were conscious of the threat of
global warming but were undecided as to whether the future lay in battery or
in fuel cell technology. Tesla was at the periphery of their vision. Tesla’s high
performing battery technology demonstrated what was possible. The company
created a new market segment. Prevarication amongst the established automo-
tive manufacturers ended. The entrepreneur had cut through the confusion.
Suddenly, a new consensus emerged amongst the auto manufacturers that,
in the case of the automobile, the future lay in batteries. The hydrogen fuel
cell would power trucks and shipping. Governments recognised the potential
to cut carbon emissions and provided financial support by subsidising early
purchases. One by one, the leading manufacturers announced a commitment
to abandoning the internal combustion engine. Governments, in turn, raised
barriers to its future production and investors began to lose deep commitment
to the oil majors looking instead for opportunities to invest in alternative
energy. The shift to electric vehicles also produced ferment in supply chains.
Most motor car bodies were made of pressed steel. Steel is heavy and weight
limits battery range. Manufacturers have begun to search for new recyclable
materials and new lighter weight metallic and other compounds. In short, the
many subsystems of which supply chains are composed are transitioning into
a state of chaos stimulating new self-organising activity from which a new
consensus as to how things should be done will emerge. What is clear is that
senior management teams of the future will have to think and behave more
like entrepreneurs than their forebears.
The industrial age paradigm was grounded in the idea of growth. Growth
of profits, markets and number of employees. Managerial status was derived
by the number of employee reports and the number of divisions managed.
The information age paradigm rested on the notion of scalability and the
customer relationship. Reward and recognition reflected these priorities and
growth of market share through acquisition, customer satisfaction, profit shar-
ing, increased market value and share buy backs became engines of reward.
The hypertec age will be predicated on innovation and adaptation as indus-

tries, products and markets undergo perpetual patterns of transition and trans-
formation. It took more than 20 years for Deming’s ideas of total quality
to transform Ford’s push system into the pull system of made-to order mass
production. In the coming years, what took decades will, in some cases, be
reduced to months. The arrival of Covid-19 vaccines in little under a year is
an example that attests to the point. Status and recognition will be determined
by success in project management and innovation. Reward systems will evolve
accordingly.
Organisations are moving from a stable equilibrium paradigm to a far from
equilibrium paradigm induced by the hypertec revolution that is about to
engulf almost every aspect of corporate life. To survive, organisations must
innovate, but because the dominant managerial paradigm is rooted in linear
systems thinking, the organisational impulse is to seek stable equilibrium. In
doing so, many are setting themselves up for an existential crisis that will
culminate in failure. Those that survive will do so by recognising the need
to change and are prepared to promote dissipative structures that support self-
organising groups.
Self-organising groups not Self-organising teams

Self-organising teams are endemic to many organisations. They are not
self-organising groups. The former is defined and shaped by management,
and as such, they are management’s creatures. Rather, self-organising groups
are spontaneous emergent phenomena that are triggered by a crisis that for-
mal management is unable to resolve because of established frames and linear
thinking that is deeply etched in an organisation’s routines and practises. This
rational linear approach yields and supports single loop learning that seeks
to restore organisation’s equilibrium with its environment. The routines and
practises have both shaped and been shaped by the organisation’s dominant
paradigm that is itself grounded in its lived experience. The paradigm is con-
stantly reinforced and buttressed by culture.
Self-organisation is grounded in the informal organisational and sometimes
inter organisational networks that constitute an emergent shadow organisa-
tion. When encouraged, it becomes progressively more iconoclastic because
of the chaotic undirected non-linear pattern of interaction. The more the
formal organisation processes are perceived to be failing, the more icono-
clastic the dissenting voices become. Here a direct analogy can be made with
Kuhn’s theory of scientific revolution. Faced with iconoclasm, management
must confront a dilemma. To resist or go with the flow. Those managements
that choose the latter do so not because they want to, but because they are
open and responsive to informed criticism. In doing so, they face a paradox.
They cannot abdicate responsibility on the one hand, whilst on the other, they
cannot, at least initially, control or direct the process. Like culture, the process if
nurtured simply evolves. Gradually a new consensus begins to emerge and with it,
an alternative paradigm that reframes the management problem and, if embraced
creates the energy to support the emergence of a new vision and mission.
Three coexisting innovation paradigms

Today, three innovation paradigms coexist. They can be characterised as the
industrial age model, the information age model and the hypertec model. The
three models are depicted in Figure 14.1.
FIGURE 14.1 Three innovation paradigms
Industrial age innovation was centralised and closed. Companies priori-

tised market share and viewed both competitors and suppliers with suspicion.
Intellectual property was generated from within and jealously guarded. The
arrival of the information age triggered a shift of perspective. Company com-
petitiveness no longer relied exclusively on market share. Innovation was the
new key to success. Corralling creativity within the boundaries of a company
was perceived to be limiting opportunity. By making corporate boundaries
permeable, managers realised that ideas from other parts of the organisation
could help improve product and process innovation whilst benefiting previ-
ously marginalised employees as well as delivering benefits to inventors from
outside the organisation who were often struggling to find investment capital.
A new paradigm of open innovation (OI) popularised by Clayton Christianson
began to be embraced.
Today, company thinking is shifting again. OI is morphing into OI 2. The
new paradigm is predicated on the realisation that competition when tempered
by collaboration can accelerate the rate of coevolution because self-organising
groups can build an early consensus on future direction, thereby reducing risk
and directing investment, bringing benefit to the entire ecosystem. Progress,
however, will be constrained by managerial approaches to people manage-
ment and HRM. It is to this issue that we turn next.
Managing and motivating the operating core through

value-based HR and human centred design
In the twenty-first century, the world faces many existential problems created
by climate change and its consequences. As natural disasters accumulate and
public consciousness grows, so will anxiety. Table 13.2 highlighted some of
the key issues. They included rising sea levels inundating coastal areas and
increased desertification that results in the impoverishment of communities
that can catalyse local resource wars. These trigger mass migrations that, in
turn, promote a rise in populism and nationalism. The ensuing crises will
bring out the worst as well as the best in societies.
By and large, working people prefer to undertake socially purposeful work.
The implication is that if corporate leadership wishes to promote engagement
and loyalty in its operating core, then its vision, mission and strategy should
be informed if not shaped by a set of values. People with scarce skills have
options. They do not have to settle for a transactional employment relation-
ship. As the banker and entrepreneur Walter Wriston put it:
Human capital will go where it is wanted, and it will stay where it is well treated.
It cannot be driven; it can only be attracted.
The implication for HR policy and practice going forward is that an organisa-
tion’s strategic HR approach should embrace human centred design (HCD). Its
heritage is grounded in design thinking. Its purpose is to place the employee at
the centre of the policy design process. To illustrate the point, one only needs
to consider the limitations of traditional employee performance management
systems. Research repeatedly revealed that managerial forced choice ratings
delivered demotivated, disengaged members of staff, the opposite of what was
intended (Van Camp and Braet 2016). For whom were such systems designed?
Not employees, not managers, but senior management and HR departments
who could use the insights provided to make promotion, training, redeploy-
ment and redundancy decisions. History now reveals that there are infinitely
better ways of eliciting superior performance from staff whilst also enabling
management to secure the same benefits.
As the horror of Covid-19 recedes and people are required to return to
work, companies are facing different employee responses. Some staff will wel-
come the opportunity to return to the workplace and the social milieu and
support that a good working environment can offer. Others are likely to be
resentful and unhappy to shoulder the commuting travel time and costs and
there will be growing concern about the environmental pollution commuting
generates. Some will see access to the workplace as an opportunity to raise
their personal profile, enabling them to access the career opportunities a raised
profile will offer. Others will fear that if they do not return to the workplace
and once again shoulder the burden of the loss of family time, and the costs of
the commute, they will lose out. Simple either/or solutions made in the board-
room are unlikely to yield an optimum outcome. Firms that retain remote
working and seek to cut overheads by shrinking office space, risk losing some
dynamic and ambitious young employees. Firms that adopt a universal return
to work, risk losing experienced staff and intellectual capital when key work-
ers make lifestyle choices. Some companies were surprised to find that work-
ing from home did not necessarily impact productivity negatively. Indeed,
some organisations saw productivity increase. How can this be explained?
One answer is that employees working from home can engage in “deep work”
(Newport, 2016). Freed from the tyranny of perpetual meetings, email, social
media, banter and other distractions, they were able to concentrate and think
deeply and creatively about work related problems. In his book, Newport
draws a distinction between deep and shallow work. The latter characterises
the typical traditional workplace, where presentism prevails and employees
engage in routine tasks constantly interrupted by emails, phone calls, and
the need to attend multiple meetings. Elite workers, he argues, think and
behave differently. It is to them, that creative problem-solving break through
thinking and future reward will accrue, for it is they that will spearhead the
hypertec revolution. It falls to senior managers and HR departments to forge
the conditions in which they can thrive.
Human centred policy design

Human centred policy design involves creative problem-solving. It recon-
ciles the needs of employees and the possibilities technology affords with an
organisation’s vision and mission to create the necessary conditions to deliver
business success. Like design thinking, the approach is predicated on three key
principles, observation, framing and imagination and design (Thompson and
Schonthal, 2020). It requires time and research effort on the part of a team.
Observation involves making inferences, recognising patterns, and avoiding
confirmation bias (making inferences that confirm an existing preconception).
Framing demands looking at a problem from multiple perspectives. In con-
sidering the issue of returning to work in the post-Covid-19 world, for exam-
ple, a good understanding of why some employees may be keen to return and
others less so is required. There is also the line management frame to consider.
Will some managers feel concerned about the impact of home working on
operational efficiency whilst others are more relaxed and can see benefits?
Another key area is performance and reward management. Many start-ups
cannot pay the going rate. A useful option is to offer staff part payment in the
form of equity in the business. Some staff will need the going rate, others may
be happy to settle for part payment in equity, especially if there is the prospect
of an IPO (initial public offer) at some point in the future.
Instead of viewing a category of staff as homogenous, an HCD approach

posits that there may, in fact, be multiple sub-categories within an employee
group with different needs and priorities. Imagination and data results in a
granular understanding of what these needs might be. It enables policy makers
to develop creative solutions that enhance the value and esteem in which the
employment contract is held for all parties.
The AEIOU design thinking approach shares much in common with the
CATWOE principles of soft systems modelling.
The design team needs to analyse and evaluate the activities in which a
category of employees is engaged, the environment in which they undertake
their work, the other actors with whom they share information and interact,
the objects tools, hardware, and software they use to undertake their work,
and the users of the output that they deliver.
The approach involves interviews and focus groups. It enables those most
affected by changes to the system in which they work to have their voices
heard. The results facilitate the process of problem definition from which cre-
ative solutions can then be derived and enshrined in policy and practice that, in
turn, promotes creativity and innovation in the larger organisational system.
Improved HR systems promote retention, continuity commitment, and
engagement of key staff in a context where skill and knowledge dilution
through turnover adversely impacts competitive advantage.
Summation
In Part 1 of this book, it was argued that HR systems reinforce and buttress
culture. The HR function is often seen as a conservative force in organisa-
tional life because HR practitioners are usually sensitive to the challenges
posed by perceptions of organisational injustice and the impact such percep-
tions can have on the psychological contract, motivation, and engagement, not
to mention the risk of strikes and litigation.
As the hypertec revolution unfolds, the HR function will have to become
more proactive and innovative in its approach to both systemic and interper-
sonal communication. Organisational survival will be dependent upon good
human resource planning and the engagement and the commitment of core
workers during periods of chaos induced by new possibilities of technologi-
cal advance and convergence. Holding an organisation together at such times
demands distributed leadership, creativity, open-mindedness, and a willing-
ness to build consensus. It will be necessary to onboard new groups of staff
with new skills whilst, at the same time, requiring other groups that are not
retrained and redeployed to face redundancy. These periods of instability and
insecurity call for a new managerial paradigm that is prepared to eschew the
lure of restoring the equilibrium of an established business model by embrac-
ing disruption and exploiting informal networks that characterise holistic
renewal and offer opportunities for radical innovation. Such approaches will
demand constant attention to ensure employee messaging conveys what man-
agers intend to be communicated and that they have regard for employee
perceptions of organisational justice. Changes in approach to reward and per-
formance management along with talent development and mechanisms that
support deep work will be key to success.
Successful HR policy development, therefore, will benefit from HCD
approaches that avoids “one size fits all” solutions that weakens employee
commitment to remain.
Historically, one of the key arguments for takeovers and acquisitions has
been the burden of transaction costs. By acquiring other businesses, a com-
pany can internalise and reduce these costs. This provides a compelling argu-
ment that an acquisition should proceed. With the arrival of blockchain and
smart contracts, however, transaction costs will, in many cases, be minimised.
When a company is considering an acquisition in the future, therefore, it will
have to give considerable thought to cost and benefit. Due diligence will
demand that the costs of acquisition be set against the savings in transaction
costs and the risks of culture clash. Such risks are real as the Daimler-Chrysler
case demonstrated. They can often be avoided through strategic partnerships.
The value of such partnerships that bring together traditional companies
with new often start-up digital businesses convey advantages for both. It ena-
bles all parties to make rapid advances whilst dispensing with the need to
invest in building in-house expertise and the time and expense that involves,
or the clash of cultures, as one organisation ingests another. The creation of
such partnerships enables disruptive innovations that deliver new customer
benefits and rewards for all parties.
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15
EPILOGUE
The socio-economic implications of the Techno Chasm

Part one of this book offered a series of case studies that were developed to high-
light the value of a systems perspective when considering Strategic HRM. The
first part of the book sought to explain the systems approach. It made a case for
the system’s perspective and evaluated its limitations. Thereafter, the remainder
of Part 1 examined the different facets of Strategic HRM through a systems lens.
The central tenet of the book is that HR systems, in their different guises, shape
and sustain organisational culture. Whilst senior managers determine the shape
and form of HR systems, policies and practises, once they are established, manag-
ers become imprisoned by the consequences of the decisions that have been made.
Looking forward, organisations like individuals are going to experience
future shock on an unprecedented scale along with an emergent techno chasm.
Once valued skill sets will become irrelevant, and those who possess them will
have to retrain or face redundancy.
Every generation faces pivotal moments. For me, it was the Cuban missile
crisis and the Vietnam War. For young people today, it will be Covid-19 and
its aftermath, the knock on effects of climate change, a potential energy crisis
and a period of high inflation. The war in Ukraine, which is raging at the time
of writing, will trigger rising food prices and a reengagement with fossil fuel
energy. It will also accelerate its demise.
The centralization/decentralisation paradox

The hypertec revolution will present the world with an irreconcilable para-
dox. The nation state as we know it is facing unprecedented challenges. On
the one hand, digitisation is unleashing forces of decentralisation characterised
DOI: 10.4324/9781315630557-17
Epilogue 279
by bitcoin and blockchain; on the other, there are powerful forces pushing for
greater centralisation.
The implication is a potential widening of the gap between those who will
benefit enormously from the coming hypertec revolution and those that will
fall further behind. Since leaving his post as US Secretary of State for Labour,
Robert Reich has been voicing his concern over what he sees as a shift from
1980s stakeholder capitalism to a new post-millennium shareholder capitalism.
In his book The System: Who Rigged It, How We Fix It, Reich argued that whilst
the latter improved the efficiency of capitalism, it came, in his view, with huge
social costs arising from offshoring and gigification. He has highlighted the
fact that in 2021 over 40% of rural America did not have access to the internet.
Similar disparities apply in the UK and various EU countries, along with much
of the developed and developing world. Computer literacy, combined with
access to the internet, is the key to both resources and to opportunity. Should
the international effort to stop companies moving profits to territories with
low or zero corporate taxation fail to gain traction, then the tax Freedom Day
discussed in Chapter 12 will be pushed back. The consequence will be further
growth in the wealth divide. The chapter also highlighted the potential vulner-
ability of digital behemoths like Meta, as concerns over security and democratic
accountability highlighted in the case study meet new conceptions of the right
to privacy that may be enabled by 5G and smart contracts. The value of soft
systems modelling in dealing with wicked problems by developing alternative
root definitions for key stakeholders was illustrated.
New patterns of coevolution are emerging, powered by AI 2, with self-
organising groups determining the focus and future direction of entire eco-
systems. Whilst the Anglo-American world remains predisposed to embrace
naïve and managed selection, nations with stronger groupist orientations are
developing competitive systems that predispose them to favour hierarchical
renewal. In the future, the acceleration in the pace of change that will be
generated by the hypertec revolution will demand a shift to greater engage-
ment with corporate entrepreneurship. self-organising networks, strategic and
collective sense making. Perceptions of affordable loss are likely to play a more
important role in executive decision-making as the opportunities for disrup-
tive innovation multiply. The implication of such developments is that the HR
function will have to become more outward facing and forward looking in its
management of employee relations and in its approaches to the management
of diversity, reward, performance management and employee development.
Adopting systems thinking will be key to success.
Given the decrease in the volume of secondary labour needed for low
skill activities, blue-collar trade unions will experience a further contraction
accompanied by loss of power and influence. Many white-collar unions rep-
resenting employees whose work can be done by robots using AI, smart con-
tracts and blockchain will fare similarly. Those representing employees with
high level skills will improve their bargaining power. Privacy and autonomy at
work will become increasingly contentious. Payroll and establishment control
will diminish in importance because of advances in blockchain technology
and smart contracting. Technical, managerial and executive development will
become more prominent as talent wars evolve. Corporate HR departments
may shrink as service roles are contracted out affording new opportunities for
HR consulting.
Chapter 13 argued that we face a new saeculum. Substantial numbers of
employees will see their jobs and livelihoods dematerialise. There are more
than 3.5 million heavy goods drivers currently employed in the USA alone.
A further 10 million works in construction, many in the wet trades along
with 1.13 million hired farm workers and ¼ million taxi drivers and chauf-
feurs. What will happen if a sizeable proportion of these employees find them-
selves without work? In addition, many previously secure middle-class jobs in
accounting, insurance, legal services, banking, shipping, insurance, real estate
and retail will also go, swept away by the substitution effect arising from the
progressive introduction of 5G, AI, robotisation, digitisation and blockchain.
A major mismatch between the skill sets available in the different labour
markets and the skill sets required to drive the hypertec revolution will result
in intense competition for scarce skills. High wages will accrue for some
workers, whilst for many, a period of grinding unemployment and poverty is
likely to ensue.
The extent to which different states seek to intervene to mitigate the crises
remains to be seen. The fact that the CCP has empowered the bank of China
to issue cryptocurrency and has already banned bitcoin, may well be a straw
in the wind signalling changes to come as the twin forces of centralisation and
decentralisation batter nation states.
The central banks in the US, the EU and the UK have already expressed
interest in launching state backed cryptocurrencies and on July 23, 2021, India
announced that it too is determining whether it will launch its own digi-
tal currency. These countries are actively researching both the opportunities
and their implications. A shift from cash to digital economies appears to be
a real possibility. Such a move, if it happens, will transform financial services
across the world. Traditional retail banking may suffer, particularly if inter-
est is paid on deposits of national digital currency. It will eliminate the need
for the unbanked to ever possess a bank account. It will strengthen the grip
of governments and the central banks on both monetary and fiscal policy. It
will make tax evasion more challenging, money laundering more difficult
and enable the state to deliver financial relief to the unemployed. The Biden
administration has already declared an intention to finance its infrastructure
agenda in part by taxing cryptocurrency trading.
In the EU, there has been a long-running debate about equalising cor-
porate taxation. In 1975, the European Commission proposed a harmonised
Epilogue 281
corporate tax rate for the Member States in a band between 45% and 55%, but
the aspiration failed to elicit sufficient support.
In May 2021, the Organisation for Economic Cooperation and Development
(OECD) committed to agreeing global rules on where to tax large multina-
tional corporations like Google, Amazon and Facebook, and at what effective
minimum rate. International consensus will have significant implications for
the future of the nation state. If Russia’s isolation persists because of its inva-
sion of Ukraine, it is likely to turn to cryptocurrencies as one means of evad-
ing economic sanctions, unleashing a new pattern of cyber warfare.
Conclusion
Part 2 of this book has drawn upon patterns of the past to envisage how the
future is likely to unfold. The argument that has been advanced is that the
world is moving from dependence upon hydrocarbon to green energy. It is
presently mired in a Kondratieff winter. It is likely to culminate in a major
monetary crisis in the mid-2020s when the full force of the Kondratieff win-
ter peaks. A financial crash precipitated by prolonged easy credit caused by
Government responses to Covid-19, the impact of global warming, an energy
crisis and inflation/stagflation are potential catalysts, assuming there is no
escalation of hostilities between Russia and the West.
We have seen that when asset prices become inflated, money flows into
property and land triggering a speculative mania. Prices crash and the con-
tagion spreads into the real economy. Possible trigger events include Central
Banks having to take steps to curb inflation, a loss of confidence in cryp-
tocurrencies arising from over-leveraged buying and a lack of adequate
regulation and the impact of both scaling and fractionalisation afforded by
blockchains. So far, fractionalisation has been confined to digital art and to
real estate in the metaverse. It is, however, possible for it to be applied to real
estate in the real world. The world may also be fast approaching an energy
crisis regardless of what is happening in Ukraine. The shift to zero-carbon
economies will demand high carbon input to support context creation at a
time when investment in fossil-based industries is in decline. The challenge
facing governments is to get the balance right. Thereafter, the world will
move into a Kondratieff springtime. Nascent disruptive technologies will
fully emerge and converge. Many are at an early stage of development and
are already with us. Environmental and demographic forces will interact
with technological advances to produce a new VUCA world along with
the new emergent properties of the hypertec revolution. The result will
be complex patterns of social and economic coevolution, characterised by
creative anarchy. New industries will emerge as small companies scale to
become major new corporations. New industry standards will be established
on the back of inter and intra-industry collaborations. Their creation will
encourage the entry of fast followers, stimulating rapid economic growth

and the dawn of a new epoch.
People management processes and practises will change much as they did
during the transition from the industrial to the information age when Strategic
HRM displaced personnel management and emerged downstream to comple-
ment strategy and the resource-based view of the firm.
Organisational forms will mutate to reflect a digitally connected world
where homeworking and virtual team working become viable and cost-
effective alternatives to the daily commute. Techno structures and support
structures will contract in organisations where digital and other support ser-
vices can be procured off the shelf or through the cloud. Thriving new echo
systems will emerge as old forms of intermediation give way to the new.
The implications for SHRM will be no less significant. Privacy and auton-
omy at work will become increasingly contentious. Payroll and establishment
control will diminish in importance because of advances in blockchain tech-
nology, Traditional areas of training and development will contract whilst
technical, managerial and executive development will become more promi-
nent as talent wars evolve.
The future is fraught with uncertainty in every aspect of life. As we tran-
sition to the new hypertec age and a world of anthropogenic climate change,
the practice of people management will face unprecedented challenges.
Historically, SHRM has tended to be reactive to strategy and the external
environment. Whilst the nature of this relationship is unlikely to change, it
will need to become more initiative-taking and human centred.
Policies and practises will coevolve in different national cultural contexts.
They will demand profound societal choices. These choices will have exis-
tential implications, as the sixth report of the Intergovernmental Panel on
Climate Change (IPCC) intimated.
For the last 200 years, human activity systems have shaped the natural envi-
ronment. During the next 200 years, it is the natural environment and demo-
graphics that will shape human activity systems and, with that, the nature and
form of SHRM and people management.
GLOSSARY OF SYSTEMS THEORY
TERMINOLOGY
Amplifiers Mechanisms that consistently amplify a signal and trans-

mit it across system boundaries. Effective communication
relies upon redundancy. A decision made in a meeting can
be amplified by the minutes supported by team meetings,
a video message from the CEO, notices on notice boards
and emails to individuals that all communicate the same
message.
Attenuator A mechanism whereby complex information is distilled to
its essence enabling decision-makers to understand nuance
without having to wade through complex and detailed
information much of which might represent noise that
obscures the ability to understand the essence of the issue.
E.g., An executive summary of a complex report.
CATWOE Is an acronym for a soft systems methodology developed by
which stands for:
C = Customers or consumers of the emergent properties
A = Actors, those operating within the boundary of the
system and who have a direct interest in the system and its
outcomes
T = Transformation, the process by which the system
absorbs input and delivers the outputs for which the system
was established
W = Weltanschauung (world view or big picture), the wider
context in which the system is embedded and the likely
consequences of any changes to the system that will impact
its wider environment
284 Glossary of Systems Theory Terminology
O = Owner, the individual or agency that owns the situa-

tion or the problem and must achieve some form of resolu-
tion to the problem situation
E = Environmental constraints that will push back against
any planned change
Cybernetics Defined by Norbert Weiner as the study of control and
communication in the animal and the machine. The term
cybernetics stems from the ancient Greek for steersman,
pilot or rudder.
Emergent Systems thinking abandoned the linear Newtonian idea of
properties cause and effect, recognising instead the phenomenon of cir-
cular causation, whereby a change in one variable will impact
other variables. The other variables interact with one another as
well as the originating variable. This stimulates change in the
initiating variable with consequential effects on all the others.
In extremis, the pattern of circular causation can unleash chaos.
Feedback A term borrowed from biology that describes the way in
which an output from a system is routed back into the sys-
tem to create a loop as cause and effect. The output of the
system creates a perturbation in the external environment
the effect of which is fed back into the system.
Law of A concept developed by Ross Ashby that asserts that in order
requisite to deal effectively with the complexity and remain in equi-
variety librium with its environment, the management of an organ-
isation must be capable of deploying the variety of responses
necessary to meet the complexity it is presented with.
Negative Dampen or buffer changes in a system enabling it to return
feedback to a state of equilibrium, thereby enabling the system to
loops achieve stability.
Positive Enhance or amplify changes in the state of a system that
feedback pushes it away from a state of homeostasis rendering it
loops increasingly unstable; a recent example would be the recent
outbreak of Ebola in Africa. Positive feedback loops trigger
an exponential increase in a phenomenon. Another example
might be a run on a bank.
Recursion The process whereby systems replicate themselves in the
manner of a Russian doll.
Rich picture A graphical representation of key relationships used in soft sys-
tems modelling is typically grounded in CATWOE analysis.
Soft An approach to modelling organisational life. A hard system
systems is typically a tangible artefact such as a central heating system
modelling or a production system in a factory. A soft system is intangi-
ble, although it may offer tangible artefacts as evidence of its
existence, for example, a brand or logo.
Glossary of Systems Theory Terminology 285
Stasis A state of equilibrium or stability

System A construct of the mind whereby a system is defined by impos-
ing an arbitrary delineation between that which sits within the
system. Anything outside the line of delineation constitutes the
larger external environment. In order to remain viable, a sys-
tem will import resources to sustain itself and deliver outputs
to the external environment. Systems have a recursive quality
similar to that of a Russian doll. The implication being that
systems are nurtured within larger systems. A finance system,
for example, sits within a company. It imports resources in
the form of information, invoices, receipts and revenue and
disburses financial reports to decision-makers and payments to
creditors. The financial system, therefore, sits within a larger
system of the organisation. The organisational system sits
within a larger system, usually an industry. An industry sits
within an economy, and the economy sits within a regional
economy that, in turn, sits within a global economy.
System 1 Is the system that interfaces with the customers and end users. It
is the primary source of added value delivered by direct labour.
System 2 Is the system that exerts negative feedback when the organ-
isation is in danger of lurching out of control. It is the
primary source of information that feeds into decisions made
in systems 3 and 4. It typically consists of the key overhead
functions of HR, Finance and Marketing.
System 3 Is the domain in which day-to-day management decisions
are made. It consists of both middle and senior managers.
System 4 Is the intelligence function where information from
systems 1,2 and 3 is assessed, evaluated and communicated
to system 5.
System 5 Is where strategy is formulated and long-term decisions that
will determine the future of the organisation are made. It
is the forum for top-level decision-making, where policy is
ratified and critical decisions are made.
Transduction Is the process that takes place when signals encoded in one
system travel across a system boundary into another system
so that the information is interpreted and understood by the
receiving system or subsystem in the way the source intended.
Viable A generic model of the nature and pattern of relationships
System that define an organisation. It was developed by Stafford
Model Beer. It is premised on an organistic metaphor of hierarchical
relationships that determine whether an organisation is via-
ble. I.e., capable of sustaining a sufficient degree of requisite
variety to maintain a state of equilibrium when faced with a
potentially hostile and turbulent environment.
INDEX
3D printing 248, 254, 257, 258, 262, 265 Bonaglia, F. 159

5G 247, 248, 250, 257, 262, 279, 280 Boston Consulting Group 91
Boulding, K.E. 38
Abernathy, W.J. 159 Brantingham, J.P. 180
Ackoff, R.L. 37, 74 Bratton, J. 15
Adam Smith 126, 129 Brewster, C. 15, 16
Adaptive capacity 267 Brexit 129, 194, 220, 231
Adizes, I. 97 Brunel 126
AEIOU design 275 Bryant, C. 209
Alcázar, F.M. 15 Buono, A.F. 84
Aligning reward 153
Alsos, G.A. 276 Calori, R. 15
Anderson, P. 74 Cambridge Analytica 219, 237
Apple 8, 215, 229, 231, 257 Camillus, J.C. 38
Argyris, C. 236 Cartwright, S. 84
Atkinson, J. 59 CATWOE 174, 175, 227, 275, 283, 284
CEMEX 22, 107, 108, 109, 110, 119,
Baird, L. 83, 97 121, 122, 146, 155, 173, 176, 177, 178,
Bamberger, P. 83, 143, 159, 262 180, 264
Bank of America 44 Chaos 62, 269
Banking 64, 74, 113, 129 Chartered Institute of Personnel
Bannert, V. 123 Management and Development 159
Bassett-Jones, N. 97, 123, 143 Chatterjee, S. 84
Baykasoglu, A. 180 Checkland, P. 38, 74, 180
Becker, B. 84, 160 China 13, 15, 21, 7, 15, 16, 69, 71, 73,
Benford, R.D. 208 74, 126, 132, 137, 138, 140, 141,
Berg, M. 208 142, 143, 144, 149, 152, 153, 158,
Berkeley, N. 208 160, 200, 203, 216, 234, 243, 250,
Bird, A. 15 252, 280
Bitcoin 96, 225, 226, 261 Churchman, C.W. 74
Blockchain 95, 96, 231, 250, 253, 259 CIPD 164, 166, 180
Bonache, J. 208 Claude, Shannon 24
Index 287
Closed change 266 FitzRoy, F. 209

Coevolution 212, 213, 217 Flamholtz, E. 98
Collins, J.C. 84, 180 Forrester, J.W. 38
Common Market 128, 200 Fox, A. 209
Complexity 277 Free agent 81
Contained change 267 Freeman, C. 98, 160
Contextual theory 17, 9 Frey, B.S. 209
Copyright 9 Friedman, M. 209
Corporate agility 80 Future shock 263, 277
Corus 157
Cotton, C. 160 Galbraith, J.R. 98
Coudounaris, D.N. 276 Gerhart, B. 84, 160
Cox, T. 97 Globalisation 17, 8
Cultural difference 80 Goffman, E. 209
Culture 18, 21, 16, 80, 82, 97, 123 Goodwin, R.M. 38, 74
Cybernetics 23, 24, 25, 26, 27, 38, 180, Gordon, G. 15
245, 284 Gorton, G. 209
Governance 51, 113, 191, 209
Daimler Chrysler 173, 264 Graham, C. 209
Darling, P. 180 Green, K.W. 98
Datta, D.K. 84 Greenwood, M. 209
David, K. 84 Gregory Bateson 23
David Ricardo 126 Greiner, L.E. 38, 98
Delaney, J.T. 209 Gross, B. 209
Dependent innovator 87, 123
Deregulation 64 H&M 202, 203, 204, 205, 206
Disruptive innovation 88 Hall, A.D. 38
Distributive justice 118 Hamel, G. 16, 38, 59, 180, 237
DOS 93, 94 Hammer, M. 262
Drucker, P. 15 Herriot, P. 124
Due diligence 114, 120, 276 Heylighen, F. 38
Dyballa, K. 209 Hierarchical renewal 215, 235
Dynamic capabilities 17 Hines, A. 262
Hitler 16, 115, 128
Ebola 15, 284 Hofstede, G. 16
Ely, J. 97 Holistic renewal 215, 236
Employee contribution 148 Homeostasis 37
Employee relations 190, 191 Hope, J. 84
Enlightenment 21, 185 Hörisch, F. 209
Entropy 33 Horwitz, J. 237
e-ticket 79 HR planning 21, 8, 30, 31, 33, 35, 134
Ettehad, D. 276 Huygens, M. 59
EURACTIV.com with Reuters 276
European Community (EC) 7 IBM 51, 65, 93, 94, 163
Evans, J.R. 262 Ideology 184, 185, 209
External competitiveness 148 Iles, P. 98
ILO 206
Facebook 13, 23, 79, 173, 219, 220, 221, IMF 63, 127
222, 223, 225, 229, 230, 231, 232, Inditex 206, 207
236, 237, 281 Industrial Revolution 16, 17
Fast follower 86, 87, 122 Intellectual property 272
Fauver, L. 209 Intermediation 78, 138
Fayol, H. 59 Internal alignment 148
288 Index
Jackson, G. 209 Mirc, N. 124

Jaguar Land Rover 13, 156, 157, 158, 160 Mirvis, P.H. 16
Jermier, J.M. 16 Misfeasance 52
Jirjahn, U. 210 Monbiot, G. 144
John Locke 126 Morgan, G. 59
Julian Bigelow 23 Morosini, P. 84
Jurgen Schrempp 111 Muda 100
Mulloy, P. 74
Kambayashi, R. 143 Mura 100
Kanji 76 Muri 100
Kanter, R. 98 Murmann, J.P. 237
Keenan, M. 210
Keenoy, T. 16 Nahavandi, A. 84
Kilman, R.H. 181 Naïve selection 213, 235
Kim, E. 74 Napoleonic code 127, 128, 129
King, R. 160 Narendra Modi 197
Kinnie, N. 210 Naznin, H. 98
Kirk Kirkorian 114 Negative feedback 26, 28, 284
Kodak 79, 93, 162, 163, 266 Neoliberalism 127, 144
Kramer, R. 16 Newport, C. 277
Kuhn, T.S. 237 Newton 21
Norbert Weiner 23, 284
Labour market orientation 204
Lado, A. 84 Ocasio, W. 277
Lai, R. 144 Oishi, S. 210
Laszlo, A. 38 Oliver, C. 84
Lecher, C. 262 Oliver, P. 210
Legge, K. 16, 210 Open-ended change 267
Lehman Brothers 19, 39, 51, 53, 62, 67 Opportunist innovator 87
Lepak, D.P. 84 Organic structure 41
Lewin, A.Y. 237 Organisational culture 75
Lewin, K. 16 Organisational development 164, 248
Lopez, C. 210 Oshio, T. 210
Lovas, B. 277
Pareto analysis 76
Macpherson, C.B. 144 Parolini, C. 85, 262
Macy Foundation 23, 24, 37 Pathak, A. 160
Managed selection 214 Paton, R.A. 181
Management development 166 Patterns 12, 16, 91, 159, 189, 277
Mantere, S. 277 Pay and reward 21, 13, 147, 154
Marciano, V.M. 16 Perlmutter, H.V. 16, 160
Margaret Mead 23 Perrow, C. 59
Mark Zuckerberg 219, 220, 221, 227, 236 Personnel management 245
Mayo, E. 59 Petrovic Lazarevic, S. 181
Mechanistic structure 41 Pettigrew, A.M. 16
Mees, H. 74 Phillips, A.W. 38, 74
Mendick, R. 237 Pluralism 182, 184, 186, 187, 189, 192,
Menguc, B. 84 193, 195, 207
MERS 15 Pluralist frame 189
Microsoft 8, 93, 94, 164 Polkadot 253
Milkovich, G.T. 160 Porter, M.E. 124, 181, 210
Miller, D. 98 Positive feedback 26, 27, 284
Mintzberg, H. 16, 59, 181, 210, 277 Principia Mathematica 21
Index 289
Rajan, R.G. 74 Systemic change 16

Razeen, S. 144 Systemic misalignment 100
Recursion 29, 284 Systems theory 17, 24, 61, 105, 245
Reg Revans 164
Revans, R.W. 181 TAAS 23, 257, 262
Rhine Feld 21, 128, 129, 182 Tajfel, H. 98
Richard, O.C. 98 Taylor, J.A. 263
Richards, C. 237 Techno Chasm 278
Rittel, H.W. 38, 181 Teerikangas, S. 124
RMC 107, 108, 110, 119, 178, 264 Telford 126
Robotics 243, 250 Telstar 30, 31, 32, 35, 47
Rolls Royce 87, 115 Toffler, A. 263, 277
Rosenberg, M. 237 Torrington, D. 17, 210
Ross Ashby 23, 24, 284 Training and development 134, 168, 179
Rousseau D.M. 124 Trevithick 126
Rowley, C. 160 Tustin, A. 38, 74
Roychowdhury, S. 210
Ulrich, D. 17
Saeculum 11, 241, 242, 243, 245, 247, Unitarism 182, 184, 185, 186, 187, 192,
249, 251, 253, 255, 257, 259, 261, 263 193, 194, 195, 207, 208, 209
Sarasvathy, S.D. 124, 277 Universalism 6
SARS 15
SBU 95, 215 Van Camp, J. 277
Schuller, R.S. 59 Van Cauwenberg, A. 237
Schumpeter, J. 262 Van Maanen, J. 85
Scott, M. 98 Varun, S. 160
Self-organising 271 VET system 133, 134, 135, 138, 139
Shields, J. 160 Viable System Model 5
Skripal 222, 237 Vitols, S. 210
Slywotzky, A. 181 Volberda, H.W. 59, 60, 237
Smith, K.G. 98, 236 Von Bertalanaffy, L. 38
Smith, N. 263 VUCA 13, 23, 256, 262, 265, 281
Smith, N.C. 210
Social Market 136, 143 Warren McCulloch 23
Soft problems 171, 179 Way, S.A. 98
Soft systems methodology 38, 74, 173 Weiner, N. 38
Solar Winds 226 Wells, J.R. 210
Staff turnover 95, 99 Western Enlightenment 21
Stakeholders 209 Wicked problems 34, 172, 179, 181
Statt, N. 263 Winter, S.G. 85
Steinberg, J. 210 Wood, S. 210
Stephenson 126 Woodward, J. 60
Stochastic 28 World Health Organisation (WHO) 15
Strategic business unit 95, 215 Wright, P.M. 85
Strategic failure 101
Strauss, W. 263 Yeung, A.K. 17
Structural change 105 Yu, J. 144
Suli, Z. 210
System 10, 19, 21, 22, 23, 25, 27, 29, 31, Zaibatsu 130
33, 35, 37, 38, 41, 43, 45, 46, 47, 49, 51, Zambrano 176, 177, 178
53, 55, 56, 57, 58, 59, 70, 134, 152, 153, Zara 199, 200, 201, 202, 203, 204, 205,
169, 171, 188, 189, 191, 193, 212, 213, 206, 207, 210, 216, 235
214, 215, 216, 235, 252, 279, 284, 285 Zollo, M. 85

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STRATEGIC HUMAN RESOURCE

This innovative text applies a systems theory perspective to strategic human

Nigel Bassett-Jones is a currently a senior lecturer at Oxford Brookes Uni-

ISBN: 978-1-138-64135-8 (hbk)

List of Figures vii

1 Strategic HRM and the Systems Perspective 3

2 What Is a System and What Is the Value of a Systems Approach? 18

3 The Organisation as a System39

4 A Critical Evaluation of the Systems Perspective, When

5 Organisational Orientations to the Labour Market and

6 SHRM and the Management of Innovation 86

7 SHRM and the Management of Change99

8 Labour Markets, HR Planning and Recruitment and Selection125

9 Pay and Reward Practises and Their Implications for

10 Human Resource Development From a Systems Perspective161

11 Industrial and Employee Relations Seen Through

12 Delivering Solutions to Complex Organisational

13 The New Saeculum and Its Implications for

14 A Systems Dynamic Perspective of the Post-Covid-19 World264

Glossary of Systems Theory Terminology 283

9.1 An Indian multinational corporation at the highest level

4.1 A list of companies showing the time it has taken them to

Epochal change, as the phrase implies, is an unusual and infrequent phe-

cultures and the nature of cultural alignment with an organisation’s corporate

The book’s structure

Chapter 2 What is a system and what is the value of a

Chapter 3 The organisation as a system

Chapter 4 A critical evaluation of the systems perspective,

Chapter 5 Organisational orientations to the labour market

Chapter 6 SHRM and the management of innovation

Chapter 7 SHRM and the management of change

Chapter 8 Labour markets, HR planning and Recruitment

Chapter 9 Pay and reward policies and practises and their

Chapter 10 Human resource development from a systems

Chapter 11 Industrial and employee relations seen through

Chapter 12 Delivering solutions to complex organisational

Chapter 14 A systems dynamic perspective of the

SHRM From a Systems

This introductory chapter adopts a critical approach to the accepted conven-

Many organisations with vast amounts of sunk capital in production lines

The universalist approach to HRM

a debate. Was HRM really a new concept or was it personnel management

The contingency perspective

recognises and addresses three generic categories of variables: strategic,

The configurational perspective

The contextual perspective

more deeply by looking at the extent to which a dependent variable is influenced

professional socialisation that is being driven by the different research tra-

Why do functional managers need a deeper

Why do HR professionals need a deeper understanding of

The implications of organisational climate

Whilst acquiring companies will commit substantial resources to financial

It is methodologically important to set apart a theoretical system from an empir-

FIGURE 2.1 An organisation operating within its own immediate ecosystem

or subsystems. In the case of HR for example, recruitment and training, pay

Why do information flows within organisations take

A brief history of systems thinking

described as chaos. Evolutionary biology was driven by chance, human and

This insight had profound implications. It challenged the received wisdom

If we take as an example, a committed tennis player who sustains a lasting

The systems approach – An alternative paradigm

Hard and soft systems

List of Figures vii

1 Strategic HRM and the Systems Perspective 3

2 What Is a System and What Is the Value of a Systems Approach? 18

3 The Organisation as a System39

6 SHRM and the Management of Innovation 86

7 SHRM and the Management of Change99

8 Labour Markets, HR Planning and Recruitment and Selection125

10 Human Resource Development From a Systems Perspective161

14 A Systems Dynamic Perspective of the Post-Covid-19 World264

Glossary of Systems Theory Terminology 283

FIGURE 2.2 he information input and outputs generated by the HR function at

EXHIBIT 3.2 A VSM of Lehman Bros depicting the downward flow of

EXHIBIT 3.2 A VSM of Lehman Bros depicting the downward flow of