TALENT MANAGEMENT IN Elect Co Agnieszka Skuza and Hugh Scullion
Introduction This case explores some of the key talent management issues and challenges faced by a European-based electronics multinational enterprise (MNE). The company has grown rapidly through a strategy of international acquisitions and international joint ventures. The case will highlight links between the business strategy and talent management and particular attention will be paid to the management of talent internationally in both developed and emerging markets. Particular attention will be paid to the challenges of managing talent in the growing emerging markets in Central and Eastern Europe and Asia. There is a significant demand for managerial talent which can operate effectively in these markets and talent management challenges are more acute in these regions because of greater cultural and institutional differences (Skuza et al., 2013a). Context Elect Co1 is a large European MNE operating in the electronics industry, and the global business environment facing the firm has been described as dynamic, complex and turbulent (company sources). The industry has been a strong contributor to economic development, but was adversely affected by the global recession,
which led to restructuring and downsizing in the developed markets. However, the emerging markets are increasingly driving future global economic growth. The company faces tensions between global integration and local responsiveness. Traditionally, pressures for local responsiveness included market structure – where local companies are important and differences exist in consumer needs. On the other hand, the pressures for global integration included global competition, growing dependence on multinational customers and pressures for cost reduction. By the early 2000s Elect Co operated on a global scale with over 20 subsidiaries; however, we suggest that Elect Co was not, in strategic terms, a global company.
The company pursued a multi-domestic or country-centred strategy where national subsidiaries were responsible for their domestic markets. There was little coordination of activities in different countries. However, this strategy was becoming increasingly out of date by the mid-2000s because of changes in the world’s electronic industry, particularly the globalisation of the market and the emergence of global competitors from Asia, and new patterns of industry competition through strategic alliances (company sources). As a result, Elect Co adopted a more global orientation to global markets and restructured product development away from local markets to global markets. This involved the establishment of international production centres (IPCs) as manufacturing centres for products aimed at world markets. This shift from a multidomestic strategy to a more globally integrated strategy also involved far reaching organisational restructuring including the establishment of a global talent management and management development programme.
Elect Co had achieved leadership positions in key markets, and increasingly would be regarded as a leader in the industry. The company has a strong commitment to leadership development and talent management combined with a growing emphasis on Corporate Social Responsibility (company sources). In general terms, Elect Co seeks to achieve high performance through effective talent management and leadership practices, with a strong emphasis on recruitment and effective management of high calibre people. The company operates with an experienced management team and draws on mainly host country national managers (i.e. grass-roots local managers), highly qualified professionals, and a small number of expatriate managers who are used in the early stages of operation in new foreign markets mainly for the transfer of knowledge about company systems. Expatriates are rarely used beyond the early stages of operation in a new market and local managers are developed to take over the management of the subsidiary as soon as possible. The company seeks to secure a good mix and depth of skills and backgrounds and encourages both individual responsibility and a strong team orientation.
The company is increasingly thinking global and seeks to maximise development opportunities across the group to retain top talent and develop broad experience (company sources). In the traditional markets Elect Co seeks to maintain and build on leading market positions which have been established through innovative new products and strong leadership. The company is increasingly seeking to develop leaders who are capable of running more than one country or region and who can identify and deliver on global opportunities. In the higher growth emerging markets the company is seeking to build new businesses through partnerships and alliances with diverse cultures and to operate effectively in conditions of economic volatility. To develop these markets the company needs adaptable high calibre leaders who can build new positions in the market and can also develop the talent pool in the local market. The localised nature of the industry required that Elect Co develop strong management sensitive to the local market and cultural context, and local managers were allowed a high degree of autonomy to develop the business (company sources). Elect Co has developed rapidly over the past 30 years from a business with modest international presence to a global enterprise with operations in more than 20 countries with a global workforce in excess of 60,000 employees.
A major presence has been developed in mature markets in Western Europe and North America which accounts for approximately 60 per cent of the business. More recently, there has also been considerable growth in key emerging markets including Central and Eastern Europe, South America and Asia, with particularly rapid growth in the Chinese and Indian markets. Over the past 20 years the company have achieved impressive growth rates largely based on a highly successful foreign market entry strategy based on international acquisitions and international joint ventures, which has led to the emergence of the company as a global leader in the industry.
Decentralised approach to HR Elect Co operated with a highly decentralised HR approach. A small team of corporate HR staff based at headquarters undertakes a relatively narrow range of functions than would be expected in global firms. This reflected the lean, highly decentralised corporate structure which has been in place at the company. The culture of decentralisation required that HR policies and practices are devolved to the business unit level to support the business strategy. Senior management sought to attract and retain high quality local management who are able to respond effectively to changing conditions in each host environment. The role of the corporate HQ was limited to senior management development, support services and coordination. The recent shift to a more integrated global approach will pose new challenges for the corporate HR function, and the need to ensure the balance between global integration and local responsiveness will become even more critical for Elect Co as the changing business environment is increasingly driving the structure of the business and the HR agenda. The talent management agenda Recent research argues that MNEs increasingly need to manage talent on a global basis to remain competitive, and that talent can be located in different parts of their global operations (Sparrow et al., 2014a).
Shortages of managerial and professional talent have emerged as a key HR challenge facing Elect Co; the growing difficulty of recruiting and retaining managerial talent has been a significant constraint on the successful implementation of global strategies. Elect Co recognised the importance of having a sufficient level and calibre of talent to implement the international growth strategy, and talent management was a major strategic element of the company’s human resources strategy. In practice, Elect Co operates with a number of different leadership programmes for high potential staff at different levels in the organisation to ensure there is a talent pipeline which will deliver the leadership capability to run the business in the future (company sources). However, a significant talent management challenge facing Elect Co was problems relating to the willingness of leadership talent to move to the new strategic markets which are perceived to be higher risk locations (e.g. Russia, Africa and China), and, more generally, dual career and family issues could limit the international career plans of the company. Elect Co: emerging talent management challenges In the developed markets Elect Co’s acquisition strategy involved targeting high performing companies in the local markets. A key element of the talent management strategy was acquiring and retaining top managerial and leadership talent and to retain and incentivise the high quality local management teams. In practice, the acquired firm’s management were allowed a high degree of autonomy to run the subsidiary operation so long as they reached the performance targets set by company headquarters. A weakness of this approach, however, was the very limited mobility of managers between the HQ and the subsidiary which limits international management development opportunities and the ability to develop talent at the global or regional levels. However, as the company increasingly looks to the emerging markets as the high potential areas for business growth, there may be a greater need in the short term to use more expatriates to establish new business in the foreign markets and to move managers between different regions of the world. Some key talent management challenges in the emerging markets are discussed below. The changing balance of power from developed to emerging markets in Elect Co’s global operations had major implications for approaches to human capital and talent management.
The talent management challenges for Elect Co were more complex in emerging markets such as India and China, which experienced high growth rates but also involved higher risk. These markets are very different to the traditional foreign markets developed by Elect Co in Europe and North America, and often joint ventures were used to enter the market to reduce the risks of developing business in these markets. The rapid growth in Elect Co’s business in the emerging markets created huge challenges in the attraction, development and retention of talent, and talent shortages continued despite the recession in many sectors. The retention of managers and professionals in the emerging markets was a key talent challenge for Elect Co because of the high turnover of staff in many sectors, and the severe nature of the competition for scarce managerial and leadership talent which can move to other MNCs or to domestic organisations. The CEE region is an area of growing strategic importance for the company and expatriates have been used in this region to develop the market. However, more recently, a new talent strategy has emerged which involves moving high potential managers between the different countries of the region; a new pattern of international mobility that suggests some progress towards an international talent strategy. However, in Elect Co, in practice, mobility of managers between different regions of the world was still highly limited and was far away from the development of a more integrated global talent management strategy. In practice, some of Elect Co’s divisions still operated with a silo mentality, and was very reluctant to release high potential talent to other parts of the organisation which was linked to the highly decentralised culture of the company.
Managing talent in the recession The initial response to the recession was for Elect Co to undertake a strategic review of portfolios and structures, to focus on cost reduction and to rely on experienced managers to run the business. A major casualty of the recession was the postponement of the graduate recruitment programme as well as significant redundancies and restructuring across the group. However, core leadership development and international mobility programmes were maintained, reflecting the strategic importance of leadership development to future business success. Despite the recession, shortages of key staff persisted in many sectors across the emerging markets and the retention of key leadership and high potential talent was a priority HR issue. In addition, the key role of international mobility in leadership development was increasingly recognised.
Key HR challenges were to leverage opportunities for learning transfer across divisions to improve integration across businesses, to build creative management competences across the business, and to create further opportunities for international managers as well as improving talent retention and increasing the ability of managers to perform at the global level. Finally, a key challenge was to develop the capability of divisional talent by ensuring their exposure to varied challenges throughout their career.
Questions
1 What are the advantages and disadvantages of Elect Co operating with a decentralised management approach to business in general?
2 What were the main talent management challenges facing Elect Co as a result of the switch away from a multi-domestic strategy towards a more globally integrated strategy?
3 Discuss some of the main talent management challenges faced by the company in developed markets.
4 Discuss some of the main talent management challenges faced by the company in the emerging markets.
5 Why does Elect Co generally prefer to use local managers to run its subsidiary operations?
