106 Academy of Management
^^ David Halberstam, The Reckoning (New York, NY: William
Morrow, 1986).
^^ See, for example, Peter M. Blau, The Dynamics of Bureau-
cracy (Chicago, IL: University of Chicago Press, 1955); and V. F.
Ridgway, "Dysfunctional Consequences of Performance Mea-
surement," Administrative Science Quarterly 1, 1956, 240-247.
^^Presentation by Peter Thigpen at Stanford Graduate
School of Business, February 26, 1991.
Executive Commentary
Toru Hatano
Nomura Research Institute
The author points to thirteen practices for manag-
ing people, some of which are coincidental with
Japanese management practices. These include
employment security, employee ownership, cross-
utilization and cross-training, training and skill
development, wage compression, and promotion
from within. The remaining practices are not
widely accepted by Japanese companies but
should not be considered insignificant. In my opin-
ion, we need to consider two questions when ap-
plying Pfeffer's framework to Japanese corpora-
tions. First, what are the environmental and
cultural factors that have enabled Japanese firms
to adopt the six practices I listed above? Second,
how are Japanese companies altering their overall
human resource practices and why?
Environmental and Cultural Factors
Japanese corporations have, for some time, be-
lieved in "growth" and "maximizing market
share." Their management strategy has generally
focused on imitating and improving the products
and services invented in Europe or the United
States, often at lower costs. The competitive ad-
vantage most significant to them during this pe-
riod has been their efficiency-oriented technolo-
gies and the use of the collective wisdom of a
homogeneous and highly-educated work force.
The shared mindset of Japanese workers can be
attributed to the country's uniformity of race, cul-
ture, and national educational system. Organiza-
tional cultures shared the sense that decisions
could be made and problems resolved with non-
verbal or "belly-to-belly" communications even be-
tween superiors and subordinates. It is not un-
usual to find ambiguity in job descriptions,
mission statements, definitions of authority and
responsibility, and evaluation criteria of personnel
in Japanese organizations. The Japanese manage-
ment style has been one which relies on control-
ling people through norms based on long-standing
Executive November
Jeffrey Pfeffer is Thomas D, Dee 11 Professor of Organizational
Behavior at the Graduate School of Business, Stanford University.
He is the author of more than 90 articles and six books, including
Managing with Power (Harvard Business School Press, 1992), Or-
ganizations and Organization Theory (Pitman, 1982), is a winner of
the Terry Award, and is co-author of The External Control of Or-
ganizations (Harper, 1978). He has won the Irwin Award for Schol-
arly contributions to management, among other honors.
customs. The lines between society, family and
work are not rigidly drawn. In fact, they are quite
blurred. As a result, the traditional management
style has been dependent on linking cultural and
work norms and values which has been quite ef-
fective in past years of rapid growth and the em-
ployment of "me-too" strategies.
New Directions in Human Resource Management
Now Japan and its companies are facing many
challenges. Not every company can or will survive
if it adheres to the old paradigms of strategy and
management. They must think through how they
develop and deploy human resources, particularly
if there is little opportunity for favorable growth.
The values of the younger generation of workers
are also prompting change. Younger workers tend
to be reluctant to argue with their superiors in
business situations; they prefer to be rewarded
now, not at some future point; and they are com-
fortable switching jobs or companies if they feel
their talents are being underutilized.
Leading Japanese firms have come to realize the
significance of these changes and are working at
altering their human resource systems. Some Jap-
anese companies have been involved with restruc-
turing in recent years. They are trying to improve
their competitiveness through business process
engineering. In these cases, they inevitably find
that such an initiative requires the destruction of
the company hierarchy and the downsizing of the
organization. They are faced with the challenge of
helping managers to cope with the unfamiliar en-
vironment and develop their skills as leaders. Un-
less they are successful in getting managers to
change their traditional management style, em-
ploying some of the practices described by Pfeffer
(information sharing, empowerment, and self-man-
aged teams), they may not succeed. To this end,
more companies are considering
2005 Pfeffer
• results/performance-based wages and broad
banding systems. This implies the collapse of
traditional seniority systems and wage com-
pression
• elimination of "bad" egalitarianism; that is,
practices which do not differentiate between
high-performing and low-performing employees
• respect for diversity as opposed to uniformity. In
a traditional company, an employee who has an
exceptional talent but doesn't easily obey job
rules and directions tends to drop out. Such peo-
ple need to be appreciated and retained by com-
panies as resources whose talent must be uti-
lized
• delegation of authority. Decisions must be made
where the jobs are to be done
Toru Hatano is the manager of the Management Consulting
Group at the Nomura Research Institute, Ltd., Osaka, Japan. He
is a member of the AME's Executive Advisory Panel.
Timo Santalainen
SAMl
Considered from a European perspective, Pfeffer's
thirteen practices are similar to those currently
used or emerging in many places throughout Eu-
rope. One group of practices—participation and
empowerment, self-managed teams, and em-
ployee ownership—which we w^ill label as a trend
toward self-management, can be linked to the
Scandinavian experiments that began decades
ago. The popularity of these practices has in-
creased and is spreading. The most powerful driv-
ers of the trend toward self-management include
the overall restructuring of industries, privatiza-
tion, and the adoption of Western management
and human resource practices in Eastern Europe.
Asea Brown Boveri (ABB) is a great example of a
translational manufacturing conglomerate that is
moving toward self-management. It is simulta-
neously global, local, big, small, centralized and
decentralized. The "global glue" unifying the firm
comes through strong, people-oriented leadership
along with participative human resources man-
agement practices. The European telecommunica-
tions industry is another example where participa-
tive human resources management practices have
been embraced. Most European national telecoms
will be privatized by the end of this decade. Much
has happened already, even in Eastern Europe;
e.g., the privatization of Hungarian Telecom. The
resulting competitive pressure has strengthened
107
the case for the reduction of bureaucratic struc-
tures and decision-making processes; people
closer to the customer are being empowered to act.
The second group of Pfeffer's practices—those
related to human resource development—is also
significant for European firms. Promotion from
within is a common practice as a developmental
tool when things are going well. However, when
companies are in crisis, the standard has been to
go to the outside for new ideas and execution
power.
Many European companies, even industries,
have set standards for investing in human re-
sources development. As a rough benchmark, most
successful firms invest a sum equivalent to more
than four per cent of payroll in training. This is
about the same level as General Electric (4.6%) and
Motorola (4.0%). It is not unusual for European
managers to spend two or more weeks a year in
management development activities based on the
belief that the "return on brainpower investment"
will be high.
Changing Human Resource Practices
A third group of Pfeffer's practices can be labeled
as "administrative." They include job security, re-
cruitment, and compensation. There has been con-
siderable change in these practices recently. Secu-
rity in the traditional sense is not a major topic in
Europe any more. The "casino era" has taught us
that management risk is an important security is-
sue that needs to be considered.
Attention to recruiting has declined as compa-
nies as well as public organizations face restruc-
turing and dehiring. The challenges facing most
firms now include how to be selective in dehiring,
how to motivate the survivors, and how to avoid
organizational anorexia; i.e., becoming leaner but
weaker. There is a growing realization that down-
sizing needs to be down in the context of a vision of
future growth. With this in mind, companies are
relying upon redesigned business processes and
outsourcing backed by increased attention to the
development of its core skills and capabilities.
For Europeans, Pfeffer's practices related to com-
pensation sound very American. Although money
is important to Europeans, freedom of choice, qual-
ity of life, and other qualitative issues count even
more. For example, in companies in the "feminine"
Northern European countries, the term "working
with people" is preferred over "working through
people."
108 Academy of Management
Linking Human Resources Management
with Strategy
Currently, there is a growing emphasis on finding
ways to integrate human resource practices and
strategy. One way of doing this is by strengthening
management development. British Airways is a
good example of a successful integration. It has
almost realized its vision to become the world's
best airline by conducting four waves of intensive
management and human resources development.
Skopbank Group of Finland is an example of an
organization that initially capitalized on the inte-
gration, but later found itself underestimating the
need for continued emphasis on the evolution of
the process. It invested five million dollars in a
five-year project developing and implementing a
Executive November
concept called "result management" during the
first half of the 1980s. Business flourished. As its
profits increased, attention to human resources de-
velopment declined, particularly in international
business and investment banking. Shrinking val-
ues and worldwide changes in capital markets led
to the takeover by the State in the early 1990s.
These examples demonstrate that attention to
human resources development must be continuous
and significant for it to be considered, as Pfeffer
suggests, a competitive advantage.
Timo Santalainen, Ph.D., is Director for Development at Strategic
Analysis and Management, Inc. (S.A.M.I.) Finland, and an adjunct
professor at the Helsinki School of Economics. He is currently on a
leave of absence working as a professor of international manage-
ment at Thunderbird-Europe, French Geneva campus. He is also a
member of AME's Executive Advisory Panel.