Human Resource Management Review 20 (2010) 176185

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Human Resource Management Review

j o u r n a l h o m e p a g e : w w w. e l s ev i e r. c o m / l o c a t e / h u m r e s

Evolutionary and revolutionary events affecting HRM in Israel: 19482008

Jacob Weisberg
Bar Ilan University, Israel

a r t i c l e

i n f o

a b s t r a c t
In Western countries, HRM strategies, policies and practices commonly develop in a gradual and incremental evolutionary way, but unforeseen domestic or external events can also engender revolutionary rapid changes. This paper reviews the major evolutionary and revolutionary changes arising from internal and external sources that Israel has experienced since the founding of the State in 1948, which stem primarily from the political, economic, societal and technological spheres. Israel's HRM has been required to take on new roles to adjust to these changes. A set of propositions derived from a 2-dimensional conceptual model associating source (internal/external) with nature (evolutionary/revolutionary) of change is put forward to account for HRM responses and operations in Israel. 2009 Elsevier Inc. All rights reserved.

Keywords: Evolutionaryrevolutionary Internalexternal source Human Resource Management Transition Israel

Changes in economies as well as in other systems are ongoing and inevitable. Understanding changes in organizations and other systems is particularly important when changes and uctuations emerge from the external environment, e.g. the economy, technology and society (Gersick, 1991), and in the internal environment of an organization. Changes tend to emerge gradually, but there are drastic and massive external developments that can also affect the operations of an organization. These external and internal inuences have a strong impact on the organization's subsystems, such as nance, marketing, IT, R&D and Human Resource Management (HRM). Today, it is imperative for Human Resource (HR) departments to develop appropriate policies and practices to respond to internal developments in management systems such as in technologies and human capital, as well as to external inuences. Gradual, external or internal developments are more easily adopted and absorbed than dramatic and substantial external changes such as a subprime crisis, war, etc. Such changes require tremendous effort, exibility and advanced HR knowledge to retain high quality employees in a rm or dismiss those of lower quality. Klimecki and Litz (2004) argued that HRM can and must intervene in the emergent evolution process in order to inuence the speed and direction of the development. In their view, the impact of HRM is such that it can either enhance or hinder the dynamics of evolutionary change Organizational change theories aim to provide a better understanding of how internal and external inuences affect the ability of a rm to cope with these changes. These theories have focused on the rm level, but currently there is no conceptual framework exploring the national-country level. This paper attempts to ll this gap by providing a framework that captures the concurrent macro-environment and microenvironment inuences at the country level that can affect systems such as the economy, labor market, and values. These broader inuences reach the organizational level and in particular their HRM, which is illustrated through an analysis of HRM in Israel. Israel is on a par with Western countries as regards its political, social and economic systems (Tzafrir, Meshoulam, & Baruch, 2007), and is comparable in terms of its advanced management systems and the management of its human resources. This is striking in itself, since in its 60 years of existence the population has increased tenfold, mainly through waves of immigration from different countries and cultures, and has thus experienced constant changes in its demographic composition and values. Israel has

E-mail address: weisberg@mail.biu.ac.il. 1053-4822/$ see front matter 2009 Elsevier Inc. All rights reserved. doi:10.1016/j.hrmr.2009.08.004

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shifted from an underdeveloped economy to a rapidly growing one, with a relatively high quality of human capital. Its consistent economic growth is not a result of successful exploitation of natural resources, of which it has few, but rather the development and utilization of its human resources by high quality managerial systems, guided by professional Human Resource managers. HRM in Israel has undergone radical transitions due to major external and internal changes in the State's 60 years of existence. The changes in HRM operations have been the outcome of many factors. These include: a shift from a socialist ideology to an increasingly capitalistic more Western-oriented one; wars that have required exibility towards employees who are called up as reservists for active military duty for long periods of time; and employment of temporary legal (and illegal) foreign labor that peaked in the late 1990s and early 2000s to account for about 18% of the labor force. This paper is divided into three sections. Section 1 denes the conceptual framework and its two dimensions: sources of inuence (internal environmentexternal environment) and nature of change (gradual, incremental evolutionary change and drastic-massive revolutionary change) followed by a set of propositions. Section 2 applies this framework to the case of Israel, reviewing the major evolutionary and revolutionary events that have arisen from internal and external sources. These events have affected the operation of organizations and required adjustments of its HR departments. The nal section discusses the contributions, and limitations of this study, and provides some suggestions for future research. 1. Conceptual framework 1.1. Source of change: Internalexternal environment Druckman, Singer and Van Cott (1997, p.2324) reviewed theories of organizational change and stressed the difculties involved in responding to changes. The literature on organizational change theory emphasizes the importance of environmental external and internal inuences on an organization and its success (Boies & Prechel, 2002; Fligstein, 1985). Pfeffer and Salancik (2003) argue that based on resource dependence theory, both environmental and organizational constraints impact organizational change. The main concept underlying this theory is that organizations are constrained by their environment because organizational survival is dependent on resources located in the environment. Morris (2007) points out however, that resource dependence theory fails to deal with the interaction of internal and external constraints on organizational change. Pfeffer and Salancik (2003) also highlighted the importance of examining the link between environmental factors (external) and organizational constraints (internal) on organizational change. Thus, even when contextual macro-environment factors are specied at the organizational level, they are often not integrated into the empirical analysis, due to the difculty of operationalizing and integrating macro-level factors. The problem of analysis is even greater at the macro-country level where we know very little about the impact of external and internal environmental inuences; i.e., how these macro factors inuence the country and by extension its organizations and ultimately, the operation of its HRM subsystem. One useful attempt in this direction was made by Walker, Armenakis and Bernerth (2007) who put forward an integrative model at the organization level that includes content, process, contextual and individual factors that inuence organizational change. These are discussed below. 1.1.2. Content, process and contextual issues and individual differences Content issues are organization-specic, and may trigger either fundamental or incremental change. Fundamental change is likely to occur when attempting to meet environmental demands such as increased competition or new government regulations (Reger, Mullane, Gustafson, & DeMarie, 1994). These authors differentiate between fundamental changes that modify the very character of the organization, and incremental change which is a gradual movement towards achieving the organization's targets. External factors such as technological demands or internal factors including personnel management can also be seen as content issues (Weick & Quinn, 1999). Process issues refer to the actions taken by change agents during the introduction and implementation of the proposed change. Contextual issues refer to the pre-existing forces in an organization's external and internal environment. External contextual factors may include competitive pressure (Meyer, Brooks, & Goer, 1990), governmental deregulation (Kelly & Amburgey, 1991), or legislative and technological changes (Haveman, 1992). Typically, organizations have little control over external contextual forces and must make changes in response to them. Contextual factors may include levels of professionalism, managerial attitudes toward change, managerial tension, technical knowledge, and slack resources (Damanpour, 1991). In addition to more macro-level factors, in terms of individual differences, each organization is home to a variety of different individuals who possess various dispositional and personality traits that have the potential to inuence organizational attitudes and behaviors (Schneider, 1987). At the national level, contextual issues that emerge from an organization's internal or external environment must be recast. Factors at play here stem from the external macro environment or from internal micro-country circumstances. For example, globalization can have specic effects on a country's performance which, in turn, can impact on organizations. Finally, these effects call for a response on the part of HR departments. Handling content, process, contextual issues and individual differences on employees is crucial to organizational success. The human factor in organizations plays a major part in their success and therefore HR departments are gradually becoming key strategic players (Belout, Dolan, & Saba, 2001; Konrad & Deckop, 2001). Dessler (2008) argues that changes in globalization, technology, the nature of work and work force demographics have propelled HRM into playing a central role in managing companies. These HRM adjustments has been applied in various areas such as modifying strategic plans, creating high-performance work systems and evaluating the HRM team's performance.

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HRM research has explored the relationships between HRM and different factors such as performance, training in the UK (Guest, Michie, Conway, & Sheehan, 2003) and in the US (Huselid, 1995; Wright & Kehoe, 2008). Still others have looked at trends and emerging practices and values in HRM in Canada, France, and the USA (Belout et al., 2001; Cerdin & Peretti, 2001; Konrad & Deckop, 2001). Selmer (2001) analyzed the change or transformation of HRM in Japan; and a very recent paper by Lengnick-Hall, Lengnick-Hall, Andrade, and Drake (2009) focuses on the evolution of the eld of strategic human resource management. Yet, to date, there is no comprehensive framework to classify macro-external-environmental and micro-internal-environmental inuences. The present paper theorizes that it is more difcult for HRM practices to cope with external factors than internal ones. This is due to the relatively higher degree of control the country, its organizations and HRM operations have on internal developments as compared to the external ones, over which there is much less control. Obviously, the more control one has over events, the easier it is to cope and respond to them. Moreover, internal events can more easily be forecasted with a greater degree of certainty than events that emerge in the external environment of the rm. As such, the following proposition is put forward: Proposition 1. It is more difcult for Human Resource management departments to absorb and implement external inuences than internal ones. 1.1.3. Nature of change: Gradual (evolutionary) and drastic (revolutionary) Changes in the environment and in organizations do not have the same volume or impact. Some are incremental, involving processes in the organization such as updating technology, whereas others have a more massive impact such as economic crises or wars. Greiner (1994) dened the term evolution as prolonged periods of growth where no major upheaval occurs in organization practices and the term revolution as those periods of substantial turmoil in organization life. Druckman, Singer and Van Cott (1997) focused on how an organization copes with changes. They differentiate evolutionary change that requires incremental adjustments over long periods of time from revolutionary change that demands a concurrent response from the organization to realign the organization with its environment. Nevertheless, they note that the evolution and revolution perspective on organizational change is still in its youth and perhaps should be recognized only as a theory in the making. Gersick's (1991) punctuated paradigm is another attempt to capture how managers, organizations and industries react to changes in their environments. Organizations strive to maintain equilibrium and therefore are reluctant if not skittish of change. One of the questions Gersick (1991, p. 34) raised in this context is: should the system undergo radical changes? Here it is theorized that for organizations and HRM, it is more difcult to cope with drastic-revolutionary factors rather that with those that develop in an incremental and gradual pattern, i.e. ones that are evolutionary. This is due to the relatively higher degree of control the country, its organizations and HRM operation have over gradual developments than drastic ones. Obviously, the more gradually the events develop, the more control one has over events, the easier it will be to cope and respond to them. Moreover, evolutionary events can more easily be responded to with a greater degree of certainty than events that emerge in the external environment of the rm. This might also be due to the rm's arsenal of ways how to respond to events that develop incrementally. Proposition 2 derives from the notion that rms can cope more effectively and respond to events that emerge in a gradual evolutionary process than in a revolutionary drastic context that implies radical developments (see Miraglia, 1994; Tushman & O' Reilly, 1996). These evolutionary events can be anticipated with a greater degree of certainty than events that emerge in a revolutionary way. As such the following proposition is suggested: Proposition 2. For Human Resource management departments, it is more difcult to absorb and implement revolutionary inuences than evolutionary ones. 1.1.4. PEST and SWOT in organizational and market change Companies that strive for a competitive advantage in the market have to evaluate their relative position and analyze their options to increase their prots or other objectives. Tushman and O' Reilly (1996) apply the term ambidextrous organization to describe how rms manage their evolutionary and revolutionary changes. They argue that in order to achieve sustainable success managers and organizations must be ambidextrous by implementing both incremental-evolutionary and drastic-revolutionary change. Two theoretical tools are commonly used to analyze external and internal environments: PEST (Political, Economic, Social and Technological) and SWOT (Strengths, Weaknesses, Opportunities and Threats), respectively. PEST analysis is concerned with environmental inuences on the organizational operation, whereas the SWOT analysis is more appropriate for microenvironmental factors that cover opportunities and threats (Kotler, 2003). PEST helps the rm to collect data in a structured and systematic way to identify future prospects and opportunities in the market. For example, events and developments in the political area include tax policy, employment laws, environmental regulations, trade restrictions, tariffs and political stability. In the economic area, these include economic growth, interest rates, exchange rates and ination rate. The social area covers population growth rate, age distribution, career attitudes, cultural aspects, health consciousness and safety. The technological area encompasses barriers to entry, minimum efcient production level, inuences on outsourcing decisions, R&D activity, automation, technology incentives and rate of technological change. A rm uses a SWOT analysis to improve its strategic planning model. The SWOT is comprised of four elements: (1) Strengths, which refer to the attributes of the organization that could help it achieve its objectives; (2) Weaknesses, which refer to the attributes of the organization that might decrease the rm's chances to achieve its objectives; (3) Opportunities, which refer to external environmental conditions that could assist the rm in achieving its objectives; and nally, (4) Threats, which refer to external environmental conditions that could harm the rm's ability to achieve optimal performance (Kotler, 2003).

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1.2. Theory of source of changes and nature of changes Changes in rm operation are inevitable. These can arise in response to events or situations that affect the way a business operates; thus adjustment to them is a prerequisite for a rm's survival. These changes and developments, either from external or internal sources, act as motivators that impose adjustment on the rm. Assuming that these forces are dynamic and ongoing, the two key issues are the magnitude of these environmental developments and their sources. A better understanding of these two dimensions is likely to have a substantial impact on HRM operations.

1.2.1. A 2-dimensional classication model Expanding on these notions and in order to account more fully for environmental changes that impact the organization's operations, the notion of external macro-environmental change and the notion of evolutionaryrevolutionary change are combined here into one conceptual framework comprised of two dimensions: (1) the source of change, which is divided into the internal-micro level and external-macro level, and (2) the nature of the change, divided into evolutionary gradual changes and revolutionary, drastic changes. These two dimensions can then be evaluated in terms of their different political, economic, societal and technological areas of inuence (Hitt, Black, & Porter, 2005). Internal developments arise within a rm, and are more likely to be under the rm's control; e.g., organizational culture, management systems and technological capacity. Examples of evolutionary change include the rm's development and investment in its human capital, wage policies, bonus payment, and Employee Stock Options (ESO), whereas examples of revolutionary change include events such as the Enron fraud, the cessation of the rm's activities, mergers and acquisitions. External developments emerge outside of the rm and are beyond its control. These may include economic upturns and downturns, demographics, competition and political interference. Evolutionary-external changes can affect recruitment from the labor market, whereas revolutionary changes derive from changes in state ideology such as a shift from a Communist economic system to a free market economy or massive arrivals of foreign/immigrant labor. Based on the combination of these two dimensions, four propositions are put forward here, based on the underlying rationales of the rst two propositions. They deal with events that involve the combination of external sources and the revolutionary nature of changes. Firms can cope more effectively and respond to events that emerge from an external evolutionary source than events that emerge from an external source but are revolutionary in nature. Clearly, events emerging from external sources are more difcult to manage than internal ones, but a rm can cope in a more effective way if the event is evolutionary rather than revolutionary. As such the following proposition is suggested: Proposition 3. It is more difcult for Human Resource management departments to absorb and implement a combination of external and revolutionary inuences than a combination of external and evolutionary inuences. This proposition may be interpreted as follows: when the source of an event is external, events of a drastic nature are more difcult to control than incremental-gradual ones. Proposition 4 is also based on the underlying rationales of the rst two propositions, and covers events that involve an interaction between internal sources and revolutionary change. Firms can cope more effectively and respond to events that emerge from an internal evolutionary source than events that emerge from an internal source but are revolutionary in nature. Clearly events emerging from internal sources are more easily confronted than external ones, but a rm can cope in a more effective way if the nature of change is evolutionary rather than revolutionary. This leads to the following proposition: Proposition 4. It is more difcult for Human Resource management departments to absorb and implement a combination of internal and revolutionary inuences than a combination of internal and evolutionary inuences. This proposition may be interpreted as follows: when the source of an event is internal, events of a drastic nature are more difcult to control than incremental-gradual ones. Proposition 5 deals with events involving an interaction between revolutionary changes and internal sources of events. Firms can cope more effectively and respond to events of an evolutionary nature that emerge from an internal source than events of a revolutionary nature that emerge from an external source. Logically, events of a revolutionary type that emerge from internal sources are more easily confronted, since the rm can exercise a higher degree of control than over events that emerge from external sources. This results in the following proposition: Proposition 5. It is more difcult for Human Resource management departments to absorb and implement a combination of revolutionary and external inuences than a combination of revolutionary and internal inuences. This proposition may be interpreted as follows: when the nature of an event is massive-drastic-revolutionary, if it emerges from an internal source, it is more easily managed that if it emerges from an external source. Proposition 6 deals with events that involve the interaction between evolutionary change and internal sources of events. Firms can cope more effectively and respond to events of an evolutionary nature that emerge from an internal source than events of an evolutionary type that emerge from an external source. Logically, events of an evolutionary nature that emerge from internal

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sources are more easily confronted, since they are more likely to be anticipated and controlled to a greater extent by the rm than events that emerge from external sources. This forms the following proposition: Proposition 6. It is more difcult for Human Resource management departments to absorb and implement a combination of evolutionary and external inuences than a combination of evolutionary and internal inuences. This proposition may be interpreted as follows: when the nature of an event is of an evolutionary type; i.e., it is gradualincremental, it is easier for HRM to absorb and manage events that stem from an internal source than those emerging from an external source. Based on the above propositions, it is obvious that events of a revolutionary type emerging from the external environment are more difcult to manage than those of evolutionary type stemming from internal sources. What remains unknown at the theoretical level is whether the combination of evolutionary-external is more or less complicated than the combination of revolutionary-internal as regards rm behavior. The next section examines the case of the State of Israel. It reviews several of its major developments and events that have emerged since its founding in 1948 and discusses the response of HRM to these events. 2. The case of Israel Israel is hard to t into one category. It is a democracy located in the Middle East, surrounded by non-democratic regimes. Its population in January 2009 stood at 7.373 million; composed of 75.5% Jews, 20.2% Israeli Arabs and 4.3% other groups (Central Bureau of Statistics [CBS], 2009). Israel's annual population growth rate in the last 5 years has been 1.8%, of which 92% was from internal sources and 8% immigration. Israel is surrounded by Arab states with which it has experienced eight wars in a relatively short time. This has had a substantial impact on its economy, a relatively advanced and fast developing one, with a high GDP (estimated in 2007 as $26,600 per capita) compared to its neighbors (Egypt$5000, Jordan and Syria$4700). Israel's relative advantage resides in its high human capital, high investments in R&D and high quality of management systems, including its HR management. As of the rst wave of immigration in 1882, Israel began developing the country even before becoming a sovereign state. When the State was founded in 1948 the population was estimated at 600,000 Jews. Immigrants have come from highly developed Western as well as underdeveloped countries. The country's mindset was originally based on socialist and communal values that the founders adapted from Socialist and Communist ideologies, and put into practice mainly in the kibbutz (a small community which rejected the notion of private property and shared resources among its members), whose heritage remains a signicant part of Israeli society. As various groups of Jews immigrated to Israel, the cultural values of the State shifted ever so slightly and after years of accepting immigrants, Israel today has a somewhat different prole. It is no longer dominated by Eastern Europeans who were the majority in the early years, but rather is a conglomerate of people from North Africa, Western European countries, and the Former Soviet Union (FSU). Most of them share Zionism, an ideology of Jews returning to their ancient homeland, a major philosophy and culture which motivated them to come to Israel. Concomitantly, they are exposed to the country's pluralistic and diverse cultures and values, all of which have had considerable impact on employment and HR management. As more immigrants came to the modern State of Israel, the concept of politicalsocial ideology was revisited, moving from socialism in the early stages to a more capitalistic orientation in more recent years. Accordingly, Israel's HR management has shifted from its old centralized socialistic practices to a more Western socialdemocratic and welfare state mindset. However, HRM orientations vary depending on the sector. In the high-tech and nancial sectors for instance, more advanced and performance- related practices are applied such as wage systems, bonuses and employee stock options, as compared to more collective agreements with trade union involvement in the public sector. 2.1. Major changes that have inuenced Israel In the last 30 years, the country has experienced substantial changes and transformations in its economy, labor market, ideology, immigration, and in the mindset of its citizens, managers and employees. Rather than dwelling on the various changes that develop gradually and are typical of Western countries, the next section examines salient developments and events unique to Israel, and discusses their impact on HRM. 2.1.1. Internal evolutionary changes Three major internal evolutionary changes have developed gradually and affected Israel: economic growth, professionalism and entering of minority groups into the labor market. 2.1.1.1. Economic growth, market structure context and industries. These areas can be related in the PEST analysis to economics and to the labor market. The Israeli economy can be characterized by two distinct periods of growth: from the establishment of the State until the mid 1970s, and from then up to the present time. During the early period the economy grew at a rapid rate of roughly 10% per year, as Israel built its infrastructure and the labor force swelled. Industry was centralized and only a few rms were privately owned. The Israeli Federation of Labor (Histadrut) played a dual role as a workers' trade union organization and as

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the owner of substantial number of companies organized under the umbrella of Society of Workers. Trade Unionism in Israel resembles the organization and structure of the British Trade Union Congress (TUC). Although the ideology of the Histadrut was to provide employment to its members and develop strong trade unions, due to inefciency in their operation these companies were privatized in the 1990s. Trade unions were very strong and represented about 80% of all employees. During this era, HRM had to deal mostly with centralized labor relations and strong unions. In addition, HR departments had to deal with absorbing, integrating and training a diverse immigrant workforce. The second stage of Israel's economic growth, as of the mid 1970s, commenced with change and modernization of the entire industrial system. After a recession that followed the 1973 (Yom Kippur) War, the country was forced to search for new solutions to maintain growth and competitiveness in the increasing globalization. HRM had to deal with labor issues such as mass layoffs while facing a changing industrial environment brought about by the entry of multinational companies with new HRM practices, and the shift to a predominantly private industry. Many HRM practices were instigated to combat poor growth and extremely high ination (Schein, 2007), that peaked to about 450% in 1985. Consequently, an agreement between the government, the employers' associations and the Histadrut enabled stabilization of the economy in the space of a few years, which was followed by impressive economic growth, low unemployment, low ination, substantial foreign investments and both a dynamic nance and high-tech sectors. 2.1.1.2. Professionalism. This can be related to the PEST managerial context. Many Israelis acquire their advanced education in Western countries such as the USA, Canada, and the UK in a variety of managerial areas. Moreover, relocation and working for multinational companies abroad equips these individuals with more advanced managerial tools. On returning to Israel they tend to prompt managements and boards of directors to adopt advanced HR policies, planning and practices as well as introducing tools for running HR departments. In addition, many multinational companies have branches or subsidiaries in Israel, and bring with them their own brand of management and HR departments. These can differ radically from the old socialist-rigid personnel administration. This gradual, evolutionary transfer of managerial knowledge has upgraded HR departments to become strategic partners (Barney & Wright, 1998), particularly in the high-tech sector. The human factor in companies has become crucial due to substantial investments in employees. However, at the same time the dynamism of the professional sectors has led to relatively high labor turnover (an estimated 30% to 35%, per annum, in the high-tech sector in the late 1990s and early 2000s). These high labor turnover costs, in particular as regards high human capital, has spurred HR departments to retain valuable staff so as to avoid the brain drain, mainly to the USA, and to save internal know-who and know-where. 2.1.1.3. Minority groups. This can be related in the PEST analysis to the social context. Two minority groups are represented marginally in the Israeli labor force: non-Jewish (mainly Arab-Israeli) residents and the Jewish Ultra-Orthodox religious community. Nevertheless, both groups are gradually penetrating the labor market and require HRM departments to make special arrangements for their integration. Among the Jewish Ultra-Orthodox, religious norms conne men to full-day religious studies, whereas women tend to be out of the labor market for too many years due to their high birth rate. The income of such families is very low and most fall below the poverty line. Nevertheless, in recent years there has been an increase in both men and women from this sector in the labor market, particularly women in teaching and men in information technology jobs. In the Israeli-Arab sector men tend to have low levels of education and thus are less well paid. They are employed mainly in construction, agriculture and in low-skilled manufacturing companies. On the other hand, Israeli-Arab women are reluctant to join the labor market due to lack of skills and childrearing obligations. Concurrently, the younger generation has been acquiring more academic education; thus a certain change in employment trends can be noted for this group. In comparison to the percentage of Israelis in the workforce (56%), these two groups average 40%. The real problem is that these two groups constitute almost one-third of the Israeli population. Israel as a welfare state provides government support which comes from working peoples' taxes. On the national level, the government is encouraging minority groups to join the labor market and runs special training programs. In the future HR managers are likely to see a different prole of employees and special arrangements and exibilities will have to be developed. 2.1.2. Internal revolutionary changes Three major internal revolutionary changes have developed gradually and affected Israel: political and ideological change, privatization, and massive entry of females into the labor market. 2.1.2.1. Government and ideology. This can be related in the PEST analysis to the politicalsocietal context. The Israeli political system works through coalition governments. These were led until 1977 by left-wing Labor parties who governed on the basis of a socialist ideology. In 1977 Israel experienced its rst political revolution when right-wing parties won the elections and formed a coalition government that introduced a free market agenda. This led to a huge upsurge in nancial markets which encouraged foreign investment. Even the left-wing parties realized that the old (socialist) system had limited economic viability, and accepted a free market orientation; today the differences in economic agenda and policies between left and right are slight. The Israeli Labor party and the Histadrut tended to overlap, leading to a high degree of coordination between the trade unions and the ruling labor party. However, when right-wing coalition governments began to alternate with left-wing coalition governments the power of the Histadrut declined, removing a substantial obstacle to a free market agenda. With the decline of the collectivistic ethos, there was a transition to greater individualism. In 1993, the Histadrut stopped requiring workers to be members in order to receive healthcare,

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and thus trade union membership fell considerably (Sagie & Weisberg, 2001), and is estimated today at about 50% (no ofcial gures have been published). It stands to reason that with the change in ideology people would look out more for themselves rather than for the good of the workers as a group. As the work force shifted from the agriculture and manual labor into hightechnology, business and soft skill jobs, the need for unionization lessened. This development reduced collective bargaining in the Israeli market, which led to more dynamism, greater labor turnover and a decrease in the number of strikes from a peak of 156 in 1988 to 35 in 2006. 2.1.2.2. Privatization. This can be related in the PEST analysis to the economicpolitical context. Since the late 1970s, both left and right-wing governments in Israel have adopted policies of privatization and liberal legislation, opening up Israel to more international trade and to adjustment to trends in globalization. The country's free market agenda has encouraged successive governments to curtail their involvement in managing rms and services and in the last three decades there has been increasing privatization of public facilities and government companies. For example, the government has sold off major banks, its national airline (El-Al), and its huge chemical companies, and has overseen the privatization of healthcare organizations. This privatization has forced HR managers to nd policies and practices that can deal with market competition and employees' expectations. The new owners of the privatized rms replaced the veteran leadership with younger and more professional managers, including in the HR arena. Privatization has also involved HRM in staff reduction, eradication of latent unemployment, and the negotiation of termination and redundancy compensation plans. 2.1.2.3. Women in the workforce. This can be related to the economic-labor market context in the PEST analysis. In the rst three decades of its existence Israel was extremely conservative, with a low Labor Force Participation Rate (LFPR). Sephardic women immigrants (or the second generation) from Arab and Moslem countries (e.g. North Africa, Iraq, Egypt) were reluctant to join the labor market due to their traditions and values. As of the 1970s, the inuence of Western culture encouraged women to join the market, resulting in a massive increase in the females LFPR from about 29.6% in 1970 to 51.3% in 2008 (as compared to 62% of males LFPR). In addition, there has been a growing tendency of women to work full-time rather than parttime (CBS, 2007). Despite the increase in the number of women in the workforce and the seeming availability of full-time work for them, they have consistently been treated with some discrimination. Women tend to be employed in lower status jobs and earn signicantly lower salaries than their male counterparts, they do not get promoted as often as men and experience the glass ceiling effect and a larger proportion of women tend to have jobs with lower security and benets (Sagie & Weisberg, 2001). Nevertheless, a number of anti-discrimination and equal opportunity laws have been passed, which has somewhat improved the situation of women in the workforce. This increase in rate of females LFPR, that virtually increased the proportion of employed females to 46.67% (as compared to 53.33% of males) out of the total number of 2.792 million employed workers, has led to an important change in the attitude of HR departments to female employment. In work arrangements, HR departments have had to take into consideration shorter working hours per day, part-time work, and higher rates of absence due to children's sickness. These arrangements are based on labor laws, collective agreements with the unions, and personal arrangements at the workplace. 2.1.3. External evolutionary changes Three major external evolutionary changes have developed gradually and affected Israel: legislation, industry structure and work values and culture. 2.1.3.1. Legislation. This can be related in the PEST analysis to the political-legal context. Human rights and anti-discriminatory measures, which have been enshrined in Israeli legislation since the founding of the State, have been extended in recent years. The gradual increase in labor laws is mainly due to social and political pressures on the one hand and ratication of employment conditions initiated mainly by the International Labor Organization (ILO). Various laws, particularly since the 1980s, have further reinforced individual rights. These laws include the 1987 minimum wage law, the 1988 equal opportunities law, and the 1996 regulations regarding temporary workers and are crucial to the protection of individual rights in the workplace (Sagie & Weisberg, 2001). For example, arbitrary dismissal is illegal and an employer must show due cause, even for an employee without tenure. Thus, HR managers need to treat their employees more carefully to avoid suits in labor courts. Anti-discrimination laws have obligated HR managers to modify their approach to minority groups in the rm. For example, non-Jewish workers are entitled to days off on their specic religious holidays despite potential disruption in the rm's activities. 2.1.3.2. Market structure and industries. This can be related in the PEST analysis to the economic context. Since the founding of the State, manufacturing/industry and public services have remained the largest employment sectors. In 1950, the industry sector employed 21.5% of the workforce and public services 21.2%. These numbers have remained fairly constant over time with public services growing to about 30% and industry stabilizing at about 24%. The proportions of other sectors, such as electricity, commerce, and transportation have also remained fairly constant. Obviously all sectors have increased substantially in absolute numbers as a result of population growth. The change in the composition of the labor force can easily be demonstrated when looking at the transition from a low-skilled economy to a high-skilled one. Israel has transformed itself from an economy of which one of its primarily and well-known branches was the agriculture sector (which decreased from 17.6% in 1950 to 2%3% by 2008) to one based on high human capital and intellectual property such as high-tech software, Information and Communication Technology (ICT), nance and advanced engineering. Two sectors represent a breakthrough: nance, which has increased to about

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18%, and high-technology which accounted in the 4th quarter of 2008 for 9.1% of all employed workers. In recent years, the share of ICT jobs in the business sector has remained about 7%8%, compared to an average of 5.5% in the Organization for Economic Cooperation and Development (OECD) countries; the share of ICT added value in the business sector was 15.7%, compared to an average of 9.1% in OECD countries (CBS, 2007). This relatively large high-tech sector has boosted Israel's technology development internally and has beneted from new technology from external sources. Israel has one of the highest rates of startup companies in the world, which is largely due to several factors. The rst is entrepreneurship and the ability to attract investors; this is seconded by the government's policy of providing seed money for promising startups. These companies also benet from Israel's high human capital and from the wave of extremely qualied Russian (FSU) scientists who arrived in the waves of immigration in the1980s and 1990s. The development of the high-tech industry has since then attracted global investors and encouraged many multinational companies to open subsidiaries and acquire Israeli companies. Over 130 rms are listed on the NYSE and NASDAQ (Tzafrir et al., 2007), including the world's biggest generic drugs maker (TEVA). But while workers in the high-tech industry form the bedrock of Israeli human capital, even this industry appears to be limited and unsustainable due to insufcient investment in R&D and to a weak education system (Economist, 2008). Due to a more diverse composition of workers embedding both different human capital levels and demographic characteristics, HR departments have had to develop another set of approaches to enable them to attract and absorb new employees with different employment backgrounds. For example, in R&D teams, HR departments have had to nd a common language and adjust to different leadership styles. Immigrants arriving from FSU countries were used to a more authoritative style whereas those from Western countries to a more participative style. In addition, the structural change and the substantial growth of the nance, business and high-tech sectors has required HR departments to develop monetary and nonmonetary compensation systems related to performance. 2.1.3.3. Culture and values. This can be related in the PEST analysis to the social context. The heterogeneity of immigrants arriving from almost every place on the globe has created an interesting mix of cultural and societal dynamics. According to Hofstede's measures of cultural dimensions, Israelis have a very low power distance (about 10%), an increasing but average level of individualism (about 60%) and masculinity (about 52%), and are extremely (about 75%) uncertainty-avoidant (Hofstede, 2003). Each of these dimensions has had varying effects on Israel's industries. Work values of Israeli workers have changed over the years. Harpaz (1999) surveyed a representative sample of the Israeli labor force in 1981 and 1993 and examined their views concerning their work values. He found notable changes in how employees dened work between the 1980s and the 1990s. Moreover, he found that work centrality and individual needs have replaced collective values. These ndings, indicating the dynamism of Israeli employees and the change in their set of values, required HR departments to modify and adjust their approach according to changes in values. Thus, employees are expected to be more involved in the rms; e.g. to participate in the decision making process, to be compensated according to their performance rather that according to collective settlements, to take on more responsibility at work. Multiculturalism at the workplace has been a real challenge for HR managers. 2.1.4. External revolutionary changes Two major external revolutionary changes have developed drastically and affected Israel: the waves of migration and entry of legal and illegal foreign workers into the Israeli market. 2.1.4.1. Demographics and immigration. This can be related to the societal-labor market context in the PEST analysis. Changes in the demographics of the society, e.g. average age, birth rate, level of education and baby-boomers, are likely to affect the composition of the supply of labor on the market. These factors have led to difculties in manpower planning and to uncertainties concerning how the demand for labor will be met. In the span of one decade, (from the late 1980s to the late 1990s) an inux of immigrants and potential job seekers equal to 20% of the total Israeli population entered the country. In 2008, the population of Israel was about 7.4 million. The labor force has continually grown at an average rate of 7% since 1949 (Harpaz & Meshuolam, 1993), due to internal population growth and waves of immigration. There were two massive waves of immigration: rst, shortly after the foundation of the State, immigrants arrived from both: Europe (Holocaust survivors), and Arab countries; second, the wave of immigrants in the 1980s and 1990s from FSU countries. These two waves differed in their impact on the labor market. While the rst wave represented relatively low human capital, the second one was higher, but there were few corresponding job openings available (Sagie & Weisberg, 2001). When such a heterogeneous population as regards education, skills and technological background is concentrated in one place, there are likely to be effects on equality among members of society. The Gini coefcient, a measure of statistical dispersion of inequality of income and wealth distribution, showed an increase from 0.33 in 1997 to 0.39 in 2006, ranking Israel dismally low on the scale among Western countries, indicating high inequality. 2.1.4.2. Foreign workers. This can be related in the PEST analysis to the economic-labor market context. The integration of foreign workers from different countries into the Israeli labor market has been concentrated specically in certain industries such as construction, home care for elderly people, agriculture, food and restaurants. This has required HR managements to merge the foreign workers with the local ones. Some of these industries have been invaded by foreign workers and the number of native Israelis has declined. Whereas over time some Israelis have moved from blue-collar type jobs to the high-tech sector and other white-collar professions, lower-income, skilled and unskilled labor jobs have generally been lled by foreign workers who are in the country legally or illegally. Until the 1990s, many of these jobs were held by daily-commuting Palestinian workers (see

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Weisberg, 1992), but as security concerns led to restrictions on employing this group, there has been an increase in workers from other countries. In 2007, the ofcial number of foreign workers holding work permits was about 110,000, and 90,000 with tourist permits. Together these groups make up 7%8% of the total workforce of 2.8 million. However, the unofcial numbers, which include people working illegally, are estimated to be much higher. Examples of these foreign workers include nurses and home care aides from the Philippines, workers in agriculture from Thailand, and construction workers from China, Rumania and Turkey. Women make up 47% of the foreign labor force. Employers recruiting foreign workers are notorious for taking advantage of the inability of illegal workers to le complaints against their employers. However, this type of exploitation is more common in small businesses; e.g., restaurants and cleaning services. Nevertheless, Israeli society has taken some steps to protect foreign workers, and public pressure and volunteer organizations have also pushed hard to guarantee decent working conditions. HR departments have been called upon to implement fair and honest employment arrangements for this population. 3. Summary Of the many responsibilities HRM must take on, two are crucial to this analysis: adjustment to both changes in the economy and in the organization, and the initiation of policies, strategies and practices to consolidate and retain employees. The basic role of HRM is to preserve a rm's human capital in the face of external and internal, as well as, gradual and drastic forms of change. Israel, with its unique features, was used to illustrate how HRM departments must contend with these scenarios. Trends in globalization, advances in technology, demographics and world economics compel HRMs worldwide to adjust their strategic plans. However, HRM departments in Israel have also had to deal concurrently with waves of immigration, the protection of minority rights of non-Jewish citizens, the nature of women in the workforce, the absorption of skilled and less skilled immigrant groups, extended absenteeism due to active military duty of reservists at all levels of the rm, and the shift from a socialist orientation to vast privatization resulting in mass layoffs and the abrogation of the traditional xed compensation scheme. This paper presented a two-dimensional model that associates external and internal sources of change in Israel with two types of changes: incremental-evolutionary and drastic-revolutionary. Israel's HR practices are likely to evolve into more capitalist models, if capitalism retains its popularity among its citizenry. Israel is now coping with the subprime nancial crisis and its ramications that are forcing HR departments to introduce policies that will enable rms to recover with as little damage as possible. The steps include reductions in both staff and monetary rewards such as salaries and bonuses. 3.1. Study contribution The contribution of this study is twofold: rst, it attempts to provide a wider framework to observe changes at the national level. It builds on the small body of available theories and conceptual frameworks to better understand the inuences of political, economic, societal and technological events on the national level, including its organizations and HRM departments. It argues for analyzing macro (outside the country) and micro (within the country) inuences. The impact is best seen as the result of the combination of the source of change (internalexternal) and the nature of change (evolutionaryrevolutionary). Second, this model was applied successfully to the case of Israel, as an illustration of a country that has undergone tremendous changes impinging on HRM operations and decisions. 3.2. Study limitations This paper is a preliminary step in a nascent area that attempts to apply organizational change theory from the organizational level to the country level. As such, the conceptual framework and the propositions need to be substantiated with more theoretical developments and empirical studies. Second, not all events t neatly into one category or another. For example, certain labor market changes can be dened as external drastic-revolutionary such as the entry of massive waves of immigrants into the labor market. By contrast, changes in labor market structure across industries (a decrease in agriculture vs. an increase in the high-tech and nance sectors) can be related to internal evolutionary change. 3.3. Future research There are several areas of inquiry that would benet from elaboration on the conceptual framework presented here. For example, it does not examine how long the effects of changes last. This can be crucial, given that even one wave of immigration can last as long as 10 years and its impact can extend further. Second, the conceptual framework could be transformed into an empirical study design by subjecting the propositions presented in this paper to operational denitions. Empirical research in this area in Israel is hampered by the lack of publically available data at the company level. Sagie and Weisberg (2001, p. 230) noted that current HRM benchmarking in Israel is limited due to the scarcity of comparative data, and not much has changed over the years. Finally, the conceptual framework could be extended to other countries, to identify similar forces that affect HR departments. The key events that emerged in the case of Israel could then be associated with other comparable sources of inuence and a set of operational denitions for each one of the events could be formulated. In Western countries changes typically stem from the internal gradual-evolutionary sources, whereas Israel has experienced, in addition, concurrent dramatic external events.

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Acknowledgements This article is dedicated to the memory of Professor Rami Sagie, a close colleague for many years, who passed away on March 24th, 2004. We traveled down similar academic paths and coauthored several articles, one of which was on the transition of HRM in Israel. I would also like to extend my gratitude to the two anonymous reviewers who commented so constructively on earlier versions of this paper. References
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