Influences on the choice of HR systems: The network organisation perspective

By

Nick Kinnie, Juani Swart & John Purcell

University of Bath School of Management Working Paper Series

2003.15

2

University of Bath School of Management Working Paper Series

University of Bath School of Management Claverton Down

Bath BA2 7AY

United Kingdom Tel: +44 1225 826742 Fax: +44 1225 826473

http://www.bath.ac.uk/management/research/papers.htm

2003.01 Stephan C. M. Henneberg

The Conundrum of Leading or Following in Politics? An Analysis of Political Marketing Postures

2003.02 Richard Fairchild Management’s optimal financial contracts, the degree of alignment with investors, and the ‘carrot and stick’ role of

debt.

2003.03 Richard Fairchild An Investigation of the Determinants of BT’s Debt Levels from 1998-2002: What does it tell us about the Optimal

Capital Structure?

2003.04 Steve Brown & Felicia Fai

Strategic Resonance Between Technological and Organisational Capabilities in the Innovation Process within

Firms

2003.05 Paul Goodwin Providing Support for Decisions based on Time Series Information Under Conditions of Asymmetric Loss

2003.06 Will Liddell &

John H Powell Are you still here?: Reconciling patient access and GP

effectiveness in the management of a large medical practice: a case study using QPID

2003.07 Felicia Fai A Structural Decomposition Analysis of Technological

Opportunity in Firm Survival and Leadership

2003.08 John Purcell & Nick Kinnie

Employment Regimes for the Factories of the Future: Human Resource Management in Telephone Call Centres

2003.09 Juani Swart & Nick Kinnie

The impact of client-relationships on organisational form and HR practices

2003.10 Sue Hutchinson, Nick

Kinnie & John Purcell

HR Practices and Business Performance: what makes a difference?

2003.11 Bruce Rayton, Kim Hoque & John Purcell

Does one size fit all? : Exploring the impact of employee perceptions of HR practices on motivation levels

2003.12 Sue Hutchinson, Nick Kinnie & John Purcell

Bringing Policies to Life: Discretionary Behaviour and the Impact on Business Performance

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2003.13 Stephan C. M. Henneberg

CRM Implementation: Hard Choices and Soft Options

2003.14 Stephan C. M. Henneberg

Move aside, advocatus diaboli: It is time to hear the position of the advocatus dei on political marketing

2003.15 Nick Kinnie, Juani Swart & John Purcell

Influences on the choice of HR systems: the network organisation perspective

4

Influences on the choice of HR systems: the network

organisation perspective1

Kinnie, N, J., Swart, J., & Purcell, J. All at the Work and Employment Research Centre (WERC)

School of Management

University of Bath

BATH BA2 7AY

mnsnjk@management.bath.ac.uk

mnsjas@management.bath.ac.uk

mnsjp@management.bath.ac.uk

Abstract This purpose of this paper is threefold. Firstly we give a brief overview of the research that we have conducted into the links between HRM and firm performance during the past five years. Within this context we address the wider debate on research in HRM and highlight the necessity of studying strategic choice and practices in an in-depth manner which appreciates the complexity of organisational processes. Finally, we explore in greater detail how the choice of HR policies and practices are constrained. This is a key theme in our work and illustrates the importance of a relational approach to research wherein firms are seen to exist in a complex web of relationships and networks.

This paper is in draft format and should not be quoted without permission of the authors

1 Paper previously presented at Cornell Conference, Research in Human Resource Management, 9-10 May 2003

5

Introduction

In 1999 the Work and Employment Research Centre (WERC) at the University of

Bath, was commissioned by the Chartered Institute for Personnel and Development

(CIPD) – the equivalent body in the US is SHRM – to open the black box of HR and

performance by examining ‘the impact of people management on organisational

performance. The question was not ‘is there a connection’ but ‘assuming a

connection, how does people management impact on performance’? This became a

three year programme with research undertaken in 12 organisations, most large, well

known firms, referred to here as the ‘People and Performance’ project (or simply

P&P). The 12 companies covered in the research were chosen because they were

either nationally well known for the quality of their HR and for product or service

quality, or were making deliberate efforts in these directions. Five of the 12 were

listed in the Sunday Times top 100 companies to work for.

A year later we were commissioned further by the CIPD to look especially at small or

medium sized knowledge intensive firms (KIFs). The assumption was that conditions

in these firms were markedly different than those faced by the P&P companies to the

extent that either they had little choice over their HR policies and practices, or that the

type of choices they made would be markedly different from big stable firms. We

studied six companies mainly in software and R&D.

Research and theory in the HR implications of the resource-based view of strategy

(RBV) (Boxall and Purcell, 2003), where the interest is in the sources of sustained

competitive advantage, led us to adopt a broad research design, certainly beyond the

requirement for parsimony. We needed to understand the nature of the HR Advantage

in these organisations, making the crucial distinction between human capital

advantage, the stock of labour talent (cf. Lepak and Snell, 1999), and organisational

process advantage, the way human capital is combined and used. While we could, to

some degree, look at the sources of human capital advantage – careful recruitment, a

mix of internal and external selection, job design to utilise and develop skills, training

and development activities, mentoring, coaching and appraising – and certainly

evaluate employee views on these policy areas, the exploration of organisation

process advantage is much more difficult and uncertain.

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After all, this is where researchers and theorists use terms like ‘path dependency’,

‘firm heterogeneity’, ‘resource immobility’, ‘causal ambiguity’ and ‘idiosyncratic

contingency’. If successful firms develop routines and processes which combine

people together and with technologies in unique ways which competitors find hard to

copy, then researchers also face much the same problem. Even people inside

successful companies, like the senior HR staff, do not readily know the sources of

their success and thus can attribute it to their own policies (Wright and Gardner,

2000).

The central proposition informing the research design and influencing the choice of

research methods was the assertion, first, that most employees have discretion over

how, and how well, they perform their tasks and do their jobs. Second, that

employees with high levels of affective organisational commitment, job satisfaction

and motivation (separately or combined) will be more likely to exercise discretion for

the benefit of the firm, in part because they see this will be of benefit to themselves.

The key to discretionary behaviour is thus action by management to improve and/or

sustain levels of organisational commitment, motivation and job satisfaction held by

employees. Our research needed to find what HR policies and practices in each

organisation were associated with positive attitudes. In short, looking for

organisational process advantage meant we had to adopt a case based qualitative and

quantitative approach which included studying how HR policies were actually

operated on the shop floor and what employees thought of these.

Employees were interviewed face to face using a structured questionnaire with control

questions taken from national surveys. This had the advantage of producing a very

high response rate and allowing us to ask follow-up questions but meant our number

of respondents within each chosen unit of analysis was small (around 40 in P&P) and

in KIFs it was often the whole organisation. In the P&P research in 11 cases we

repeated the employee interviews 12 months after the first round. The aim was to

monitor changes in employee views and in performance. In all, covering both

projects, we achieved 1067 employee interviews which is an invaluable database. In

addition we conducted extensive interviews with senior directors and managers and

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with middle managers and team leaders, as well as the extensive study of written

policies and procedures.

In our reports to the sponsor, the CIPD2 we focus on three aspects of organisational

process advantage. First, those organisations with much higher than average

employee commitment were the ones with clearer, well-articulated and embedded

organisational values, or a strong culture. Second, variations in performance between

sites in the two companies where we could make multi-site comparisons, and where

identical corporate HR polices were in force, could most credibly be explained by

differences in the way front-line managers applied policies, brought them to life and

exercised front line leadership. This was true too in three cases where changes were

made to front line leadership between the two years of the survey. The way policies

were applied was much more important than the existence of policies in the view of

the employees.

Third, in knowledge intensive firms it was those organisations able to deal with the

tension between maximising the interests of knowledge workers, who at the time of

the research were at the heart of the ‘war for talent’, and managing knowledge for

commercial exploitation through inter-personal and team collaboration, building high

levels of social capital and networks beyond the firm, which were most successful.

This was their organisation process advantage. This latter point has already been

explored in a paper (Swart and Kinnie, 2003). The other two, culture as an attribute

of advantage, and front-line leadership as key variable in HR policy and practice, will

be developed this year.

There is a fourth area we wish to try to develop here since it challenges some of the

fundamental assumptions about how we envisage the development of appropriate

macro HRM at the firm level. The rationalist, free market assumption in most studies

where macro HRM is linked to firm performance is that the firm is a free actor (if you

allow for this reification) able to choose the best policy mix. True, there is a tension

2 Purcell, J., Kinnie, N., Hutchinson, S., Rayton, B. and Swart, J. (2003) Understanding the People and Performance Link: Unlocking the Black Box, CIPD, London; Swart, J. , Kinnie, N. and Purcell, J. (2003) People and performance in Knowledge Intensive Companies, CIPD, London.

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between ‘fit’ now and ‘flexibility’ for the future (Wright and Snell, 1998), and we

cannot make unitarist assumptions that the firm has a quiescent, non-union yet highly

motivated and performing workforce. The pursuit of social legitimacy internally and

the need to meet legal and ethical requirements externally influences, but does not

eradicate, choice. The assumption of the capacity of senior management to make

strategic choices within these constraints remains. It is central to virtually all models

of SHRM.

This was certainly the case in some of our organisations in the P&P research which

were market leaders dominating supply networks and with a capacity to ride out most

economic cycles. One of these was Jaguar, the quality car maker now owned by Ford.

Another was Tesco with 195,000 employees in the UK and the biggest and most

profitable multiple retailer in the UK. A third was Nationwide, now the world’s

biggest ‘mutual’ (i.e. owned by the members) building society. In a slightly different

vein, Selfridges, once part of Sears, had embarked on a major expansion programme

and was clearly able to choose an appropriate and highly successful HR strategy

linked to the desire to be a leading departmental store. These were four of the six

companies in the P&P research we considered excellent. They exemplified the

macro HR perspective of organisations able to make rational choices within

constraints because they were able to buffer themselves from the environment and

have some form of control over competitive forces. They were also able to

significantly influence the network within which they were operating. What of the

rest? Some firms can make wrong or inadequate choices best explained by the power

of vested interests, historical myopia and an inability to manage change, a form of

organisational sclerosis. Surprisingly given the nature of our sample, some of our

research companies showed these inadequacies.

But there were also those firms where the influence of the network in which the firm

operates was more visible: there was less freedom to develop an appropriate HR

strategy for the organisation, at least in the classic sense of deciding how to manage

themselves. They had relatively little capacity to buffer themselves. What HR

advantage they gained, and what organisational process advantage they achieved was

much more at the behest of others than themselves. This led us to look much more

carefully at the nature of the external environment within which the firm operates:

9

why did some of our firms have relatively high degrees of control over their choice of

HR system, while others seemed to be much more constrained? How did this degree

of choice affect the ability to achieve HR advantage? In particular we wanted to look

at the characteristics of the network of relationships within which our firms operated.

It is these questions we wish to explore here using classic European case description

of two organisations that illustrate quite different network characteristics, or abilities

to have influence over their HR practices. In one the internal management of HR is

affected by the firm being part of a collaborative network where competitive

advantage is gained by increasing co-operation between member firms. In the other

the choice of HR system is much more constrained by the often coercive nature of

client relations such that competitive advantage is found more at the team level within

the focal organisation. Prior to this case analysis we review previous research on

network characteristics and influences and construct a conceptual framework.

Network Theory The conduct and performance of firms can be more fully understood by examining the

network of relationships in which they are embedded (Gulati, et al., 2000, p. 203).

This approach is more widely referred to as the relational approach and is often

contrasted with the atomistic approach, which focus mainly on ‘within firm variables’

to explain various outcomes. The relational approach considers the social context

within which firms operate in order to understand between-firm-differences. This

research (Gulati, et al., 2000; Uzzi, 1997) categorizes the social context according to

the structural, institutional, political and cultural domains. The latter three domains

are considered primarily to reflect social constructionist perspectives whereas the

structural element considers how the network architecture influences strategic

activities (Uzzi, 1997, p. 36).

Our research over the past five years indicates that if we want to understand the

HRM-performance relationship we need to pay attention to the networks within which

the firms operate. That is, the choice of HR practices is influenced, and sometimes

controlled, by relationships with organisations in the networks within which the firms

operate. Where firms have fewer and more long-term B2B relationships we need to

10

consider how suppliers, partners, clients and customers influence the way in which

people are managed in the focal firm3. In other words networks influence strategic

choice (Uzzi, 1997; Wetsphal et al., 2001; Powell, et al, 1996) and strategic choice

influences performance (Gulati, et al., 2000). We therefore focus on the structural

domain of the social context in the discussion that follows. Here we pay attention to

previous research on networks and focus specifically on network characteristics that

may have an influence on how the focal firm makes strategic choices concerning its

HR architecture.

Research into inter-firm networks originated from joint-venture studies but has

developed considerably during the last decade, with attention being paid to learning

and knowledge sharing (Dyer & Nobeoka, 2000, Powell, et al., 2000), the pooling of

resources (Oliver, 1997), imitation and innovation (Brusoni, et al., 2001).

Considerably less research is conducted into the dark side of networks, i.e. the

constraints placed upon individual firms who operate in the network. In a sense, most

network research focus mainly on what happens in the network and how this is ‘good’

for everyone involved in the network.

In cases where both intra- and inter-firm influences are examined, this is mainly done

from the position of the dominant firm (e.g. the Toyoto case, Dyer & Nobeoka, 2000).

What this research does not do is analyse how the network characteristics influence

what happens within each of the firms, including the SMEs, in the network. With the

exception of the latest research into the adoption of technology (Powell & Harland,

2003) by SMEs in networks, we find very few answers to the questions regarding the

constraints of network relationships.

This review of previous research, as inspired by challenges that our research

organizations faced, aims to:

(i) Understand how networks can constrain strategic choice, by

(ii) Examining the various static and dynamic characteristics of networks

3 The focal firm is the firm in the network that we had access to and researched in.

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(iii) From the experience of a firm other than the dominant firm as the focal

firm.

We begin to understand these influences by developing a framework of characteristics

according to which we analyse the network. This framework is divided into three

main sections: firstly we ask how the network looks (network structure), then we seek

to understand how it works (network relationships) and finally we consider how it

changes (network dynamics). In the first part of the framework we take a snapshot of

the network and ask why it was set up, who is part of it and how do products and

services flow through the network. The second section of network functioning takes a

closer look at the tie modality and here we try to understand relationships between

firms in the network, e.g. are they cooperative or coercive. We ask how they are

governed, i.e. contractual or trust-based. Furthermore, we take into account

relationships between and within the firm, i.e. with employees. Finally, we look at

the pressures within the network for change (see Table 1).

[Insert Table 1 here]

Network structure:

Previous research indicates that inter-organizational networks often provide the

advantage of a shared division of labour where various firms specialize in the value-

creation activity supported by their particular skill-set (Park, 1996). Here the purpose

of establishment of the network is the advantage that stems from complimentary

skill-sets within the network.

This may, however, not always be the case. Literature often overlooks outsourcing

arrangements brought about by delayering and cost saving drives. For instance, firms

may outsource activities previously conducted by them. In these instances the network

is more characteristic of a re-configuration of skills, or a ‘farming out of skills’ (Park,

1996) than a true integration of complimentary skill-sets (Dyer & Nobeoka, 2000;

Powell, et al., 1996). We differentiate between two extreme purposes of

establishment: the first being the farming out model, where skills previously

developed internally is outsourced to save costs and the second is the innovation

model where investment is made in combining unique skill-sets in order to gain

competitive advantage as a network.

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The purpose of establishment will be directly related to the membership of the

network. If a network aims to innovate then it will attract firms with diverse skill-sets

and will engage in knowledge sharing and collaborative product and process

development. These forms of membership are often found in the biotechnology

industry (Powell, et al., 1997). In other words, barriers to entry and firm position are a

function of the raison d'être of the network.

Membership will also have an important influence on the competitive ability of the

focal firm. For instance, Afuah (2000) found that the suppliers’ capabilities influence

the performance of the focal firm to a great extent. A resource-rich partner therefore

enables the focal firm to be more successful. If a key firm, such as Tesco in the retail

industry, is part of the focal firm’s network then all the firms may benefit from the

key firm’s knowledge (Powell, et al., 1997), operational processes and customer base.

These dominant firms may also have a high degree of power over smaller firms in the

network and may severely constrain intra-firm relationships (with employees) as well

as strategic choice. In a similar way the effect of non-membership or exit of a major

firm (Oliver & Ebers, 1998) may cause negative effects to ripple through the network

and may even lead to the destruction of some of the smaller firms. The existing

choices of partner firms can therefore both restrict and enlarge the opportunity set of

future relationships available to the focal firm (Gulati, 1995). In summary, network

membership can influence strongly what each of the members can and cannot do as

well as how successful they will be.

Dominant and influential members can also determine how the network will be

configured, i.e. which members will be up-stream and down-stream, where direct and

in-direct connections will be and how the various products and services will flow

through the network. We do acknowledge that these more dominant firms are

embedded (Uzzi, 1997) in a larger industry network but for the purposes of our

research focus on a ‘within-industry’ level of analysis. We therefore consider network

configuration as a characteristic that is influenced by dominant firms in the network

and define it as the overall pattern of relationships (Gulati, et al., 2000) within the

network.

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Network configuration comprises both structural density as well as structural holes,

which refer to the extent to which firms are connected in the network. Literature on

network structures often couple the concepts of structural density and social capital in

order to explain how cohesive ties foster cooperation and innovation (Gargiulo &

Benassi, 2000). Social capital in this context relates to network resources (Gulati, et

al., 2000) and is defined as the sum of the resources that accrue to [a group] by virtue

of possessing a durable network (Bourdieu & Wacquant, 1992, p. 119). According to

the structural density view, tight social ties facilitate the establishment of social

norms, sanctions and trust. This may, however, be associated with coercive

relationships and attempts by the dominant firm to control (and constrain) the free

choice of the focal firm.

These characteristics represent a snapshot of how the network looks and we view this

as a fundamental building block in understanding how the network functions. The

following set of characteristics that we review is the network relationships because

these are at the heart of the network processes (Powell & Brantley, 1992).

Network relationships

As firms enter and become part of a network they develop sets of institutionalized

rules and norms through their interaction with other organisations in the network. The

nature of these relationships is often influenced by the structural network

characteristics. For example the position of the firm in the network as well as its

brokerage opportunities created by its skill-set may influence the degree of power it

has over other firms or whether truly cooperative relationships are fostered. We refer

to the nature of the inter-firm relationship as tie modality and are mindful of both

cooperative and coercive relationships.

The modality of the ties that a firm creates and maintains, whether cooperative or

opportunistic, strong or weak, multiplex or single, has clear implications for a firm’s

strategic behaviour and performance (Gulati, et al., 2000, p. 208). The majority of

research indicates that strong ties in supplier networks can benefit both the dominant

firm and the member firms in the network. It is also the nature of the relationship that

is regarded as the unique advantage of the network, i.e. an inimitable resources.

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However, overly strong ties may put strain on the focal firm as they are restricted in

their strategic choice. Uzzi (1997) warns of the implication of overly embedded

networks for stifling economic action and releasing intense negative emotions (p. 59).

Similarly, Dore (1983) found that embedded actors will focus more on exploiting

dependency to cultivate long-term cooperative ties than maximizing rents for

resources.

When considering tie modality it is important to classify the various relationships in

the network. Here we differentiate between the suppliers, customers, clients, the

parent organization and the employees. Previous research considers mainly the nature

of the relationships between firms in the network but we consider it important to

include intra-firm relationships when we analyse tie modality. This links directly to

the management of human capital and specifies how network relationships influence

employment relationships.

Both inter-and intra-firm relationships have informal/personal (Oliver, 1997) as well

as formal/contractual dimensions to them. Research conducted in the Japanese auto

and Italian knitwear industries (Uzzi, 1997) indicates that relationships in these

networks are mainly governed by trust and personal ties rather than explicit contracts.

Here ‘thick information exchange’ and the flow of tacit knowledge are facilitated by

the strong ties in social communities that cut across various firm boundaries (Dyer &

Nobeoka, 2000).

These informal relationships and socially constructed expectations are also influenced

by more formal processes. Sobrero and Schrader (1998) differentiate between two

aspects of network governance, i.e. the contractual coordination and the procedural

coordination. A contractual relationship refers to the mutual exchange of rights

between parties to govern the combination of resources to deliver a product or a

service. Procedural governance refers to the mutual exchange of information for the

combination of resources for the production process. Contractual and procedural

governance determine how coordination can occur and can be considered as the

vehicles for mutual benefit within the network. The governance of as well as the

nature of the relationship between various firms in the network influence the extent to

which the focal firms’ strategic choices are constrained.

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Firms often compete through their informal ties to gain more beneficial positions in

the network as far as procedural coordination is concerned. This is more widely

referred to as ‘being locked-in’ or occupying a central position in the network. Under

these conditions the focal firm will have central access to information, procedural

feedback and operational alignment. Where firms are not positioned at the heart of

procedural information exchange they can become ‘locked-out’. Westney (1993, as

quoted in Gulati, 2000) has shown that R&D subsidiaries of U.S. companies located

in Japan were often ineffective because they were locked-out of the local networks

that tied Japanese R&D labs to suppliers and customers.

We argue here that firms in a network continually attempt to move to a central

position in the network where they are locked-in and benefit from information

exchange and mutual skills development. This ‘movement in the network’ is

considered to be a dynamic characteristic of the network.

Network dynamics

Both the above sections (network structure and network relationships) are merely

snapshot views of complex networks and relationships and we feel that it is important

to include the network dynamics (how firms try to move around in the network over

time) into our analysis. The key feature that we have seen in our own research is the

attempts of a smaller firm to occupy a central position in the network. It wants to be

included in skill development and important information feedback loops. This is often

because our focal firms have very few B2B clients and rely upon the larger firms for

their survival. Our observation is supported by Powell, et al. (1996) who identified the

significance of network position for R&D alliances, investment ties and total

collaboration. We use the concept of centrality to illustrate the desire of firms to be

located at the centre of the network and regard this as the dynamic element of the

network (looking at movements over time).

Here we draw on the knowledge intensive firm literature to understand how the

management of human capital can enable a firm to occupy a central position in the

network. In other words, how should skills be developed, work be designed and teams

16

be resourced to ensure that the focal firms’ products and services remain important to

the network.

Firms focus on the development of and control over these characteristics to manage

the influence of a dominant firm over their strategic choice. There is some evidence in

the biotechnology industry that unique and very specific skill sets give individual,

often very small firms, the opportunity and freedom to manage research projects and

core staff members without much interference of other member organizations.

Alvesson (2001) also found that in software technology firms, there is a high degree

of ambiguity relating to client demands. In other words, a client may know what they

want a specific piece of software to do but they have no or limited knowledge of how

the software code should be written to achieve this outcome. This is often coupled

with highly skilled knowledge workers (Swart, et al., 2003) who develop high-trust

relationships with their clients. Under these conditions the client organization has

little influence over how employees are managed in the focal organization.

Research in the auto industry (Dyer & Nobeoka, 2000) in particular show that

networks are often dominated by a resource-rich firm, such as Toyota, who have

highly specified demands and who partners with firms who have well developed but

not necessarily unique skills. Here the dominant firm has the opportunity to influence

the management of human capital within some of the member firms. This is often

accomplished through consulting teams, voluntary learning teams, inter-firm

employee transfers and the supplier association known as kyohokai that has three

stated purposes

(i) information exchange between member companies

(ii) mutual development and training among members

(iii) socializing events (Dyer & Nobeoka, 2000, p., 352).

This joint management of human capital is often seen in a positive light and related to

network learning and knowledge sharing that leads to innovation and high quality

production. We argue, however, that these ‘positive influences’ often result in severe

constraints over strategic choice and smaller members of the network have to ‘put up

with’ the dominant influence of the resource-rich organization in order to firstly,

17

remain part of the network and secondly, given themselves the opportunity to

eventually occupy a more central position in the network.

A focal firm may naturally be in an advantageous more central position due to the

distribution of expertise in the network. This refers to homogeneity of professional

expertise in the network. From our own research (Swart et al., 2003) it is evident that

in research and technology organizations where skill sets are shared, a common

language is developed. For example, a life science research organization that

employed mainly PhD chemists worked closely with universities and pharmaceutical

organizations that were staffed by similar professionals. The competence of these

employees were also governed by professional associations and a high degree of

respect and shared language or ‘one of us’ was evident across the various

organizations. Where professional skills are dispersed among several firms there tends

to be less interference with the management of employees in the focal firm and

therefore a higher degree of strategic choice that can be enacted by the firm.

Analysis of the cases Having established our framework for analysis we will now apply this to our two

cases, Contact 24 and Tocris Cookson4. We will examine first how the network

looks, then consider how it operates and then examine how it changes.

Network structure Contact 24 is a Telebureau company which operates in a network whose purpose is to

allow the purchase and provision of marketing and contact centre services. Their

clients are seeking to purchase outsourced services in a more efficient and effective

way than they could provide these internally. New business is won either on a

competitive basis following an invitation to tender or as part of an extension of an

existing contract. Contact 24 is owned by Havas, one of the largest media and

advertising groups in the world who set targets and monitor performance against these

on a regular basis. The company employs staff who are organised into client oriented

project teams and are in direct contact with the customers of the client. The local

4 Brief details of these cases are included in the appendix.

18

labour market is very competitive with over 40 call and contact centres operating in

the same city. There are few barriers to employee movement, call centres skills are

reasonably generic and training for employees would last a maximum of two weeks in

most cases. Contact 24 is supplied with IT hardware and software by outside

contractors, it uses employment agencies for the recruitment of some staff and draws

to a limited extent on consultants in the field.

Tocris Cookson (henceforth Tocris) focuses on the development of life science

research chemicals. It synthesizes chemical compounds and sells them either on a

bespoke or catalogue basis to research institutes of large pharmaceutical companies or

university departments who use them for research. It also has a small and innovative

radiochemistry suite that supplies both contract and catalogue research. Their

employees are nearly all specialist chemists educated to doctoral level, often with

extensive experience. These chemists, like the Contact 24 employees, can often work

for their clients. The labour market boundaries are very fluid and retention is a key

issue. Tocris’ main emphasis is on innovation and being able to ‘spot the cool

chemicals’ and they work with their clients and with research departments of

Universities to achieve this. They often need to negotiate the permission of the

pharmaceutical companies to use patented compounds in their research. This means

that patent lawyers as well as the large Pharmaceutical are also part of the network.

Once the compounds have been synthesized, they need to be distributed to their

clients across the world. Distribution organisations are therefore included in the

network and their efficiency often influences how successful Tocris can compete in

the market place.

Network relationships Some of the relationships in Tocris are governed by formal commercial contracts, but

the majority are informal and co-operative. Formal contracts exist with clients when

carrying out bespoke research and with their distributors. However, around half the

chemicals are produced to be sold from a catalogue and there is more of a customer

relationship here. Relationships with the large pharmaceutical companies tend to be

much more informal. Tocris seeks to develop and maintain long term relationships

which encourage the sharing of knowledge with these organisations. This might lead

19

them, for example, to give chemicals away to these companies for free as part of their

attempts to develop a trusting relationship. They also collaborate with the research

departments of Universities who can be both a source of business as well as possible

contributors directly to their own stock of knowledge, for example by allowing

academic staff to visit.

The University culture extends to the way of managing employees. There is a strong

emphasis on guiding and coaching with new employees welcoming the opportunity to

learn from more experienced staff. The firm is well known in its field and they often

employ students on placement and then will offer some of them employment after

they graduate. In this way new employees get used to the ways of working and

develop commercial experience while they are at work.

The Contact 24 network operates in a quite different way. Contact 24 negotiates

contracts for services with their clients which vary in length from 2-3 years to a week

based on either a fixed fee per employee or linked to the number of transactions.

Performance is regulated by a service level agreement (SLA) and there will be close

monitoring against these agreed targets. In extreme cases a client would terminate an

agreements if targets were not met. Contact with the client is usually frequent and

takes various forms. Formal meetings will be held with managers typically on a

fortnightly basis to review progress and to make changes. In addition the client might

be physically present on the Contact 24 site. As one senior manager said, ‘We are in

partnership with (this client). It has its advantages because they can see the problems

we face on a day-to-day basis, but it also has its drawbacks. It’s very transparent, we

can’t hide, it’s very visible.’

The nature of these client relations has an indirect effect on the management of HR

because they set the contractual boundaries within which the work takes places. This

will affect the internal organisational structure which will change with the ebb and

flow of contracts and the type of work involved, for example in-bound service work

and outbound sales. Clients also influence HR practices more directly because the

client wants the employees to identify strongly with their brand. They become

involved in the recruitment, selection, training, promotion and payment of both

managers and shop floor employees. This creates a variety of problems for Contact

20

24 including trying to protect the integrity of their HR policies and coping with low

levels of employee commitment and high labour turnover.

The work for CSRs in Contact 24 varies from the relatively mundane, data collection

from brochure requests, to the provision of more sophisticated advice on financial

services. The aim is to create the impression that the customer is speaking directly to

the representative of the client. This requires employees to display high levels of

identification with the client and this is often encouraged by surrounding the

workplace with visible signs of the client branding, sometimes extending as far as the

office wear of the employees.

Contact 24 has been part of the Havas group since 2000. The approach taken is

relatively ‘hands off’ but there are a series of constraints which affect the company.

Perhaps the most obvious is the need to achieve various performance, principally

financial, targets which are set for them. This can influence the type of work which is

taken on to balance the books. Although Contact 24 would ideally like to have a

series of long term stable relationships this can sometimes lead to shortfalls of income

if a contract is terminated. Consequently, they sometimes have to take on work which

is low level and unsuitable to the skills of their employees in order to achieve their

internal targets. This can lead to dissatisfaction among more highly skilled employees

who are very aware of the highly competitive local labour market and may leave.

Contact 24 relies on suppliers in three areas. First the provision of IT and systems

infra-structure which is essential for the operation of the organisation. Second, it uses

employment agencies at times to recruit employees and to provide staff at short

notice. Finally it uses consultants very sparingly when they seek specialist advice.

Network dynamics There are three key factors which affect the way in which these networks change:

uniqueness of the focal firms skills, the extent to which the demand can be precisely

defined and the way in which expertise is distributed throughout the network.

21

In Contact 24 the uniqueness of the focal firm’s skills varies between the contracts

and overtime. Some contracts have very basic requirements which are readily

available from a range of providers so this is effectively a commodity market which

can become very competitive driving down rates and margins. Potential clients will

define their requirements quite precisely specifying the price and service level

standards that wish to achieve. Even here though Contact 24 will try to develop some

expertise of its own by arguing that their CSRs have the necessary experience (for

instance of the car industry) to add value to a call.

Alternatively they will seek to develop their expertise over the life of a contract so

they develop skills which the client does not have. In this way they try to make the

client dependent on them as a source of expertise and hence increase their power and

centrality within the network. At the beginning of a contract Contact 24 may know

less about the business than the client, however, as the contract proceeds they gain

experience and eventually know more about the market than the client. Ideally the

client then looks to Contact 24 when it comes time for renegotiation or extension of

the contract. Usually, there is a fairly high level of IS integration by this point so the

client has increased exit costs. Even at this point though the client demands will still

be well specified. However, as Contact 24 develops its knowledge they will seek to

educate the client and shape their requirements in a way which suits them. In this way

they are trying to move towards a more central, irreplaceable position in the

relationship with the client.

There is some sharing of expertise with the client, but in the main expertise remains

distributed throughout the network. The client and Contact 24 representatives may

develop a close working relationship because they both have an interest in making the

relationship work. However, the contractual relationship is always in the background

and both parties need to achieve their set targets. There are virtually no attempts to

share information with competitors, apart from salary surveys. Expertise of this kind

is seen as commercially confidential and is generated internally rather than shared

throughout the network.

The situation in the Tocris network is quite different. There is a high degree of

uniqueness in the contributions made by the various members and the network is

22

therefore essentially co-operative and complementary. The skill levels that are

employed by the various network members are exceptionally high, with a doctorate

level as a necessary entrance level. It is essentially professionally qualified chemists

who interact with other professionals within the network. This configuration of skills

gives Tocris a high degree of freedom in the management of their employees. Their

HR policies and practices are not dictated by a resource-rich firm and are often

developed at the team leader level. One such example in our case material is the

performance management system that was designed, sanctioned and implemented by

the research chemists themselves. The reason for this degree of freedom is the nature

of the research skills, the shared language and trust amongst chemists. They felt that

only fellow chemists would understand the language used and the standards set for

judging the performance in the synthesis process. Their concerns and preferences

were shared by chemists in other parts of the network. In our data we see a pattern of

shared language develop across the network and where that pattern prevails there

tends to be less control over practices within the individual firms.

The importance of sharing knowledge throughout the network was well illustrated by

the Business Development Director who said:

‘Our core competence used to be chemistry, but now I’d say it’s licensing

and networking activities.’

Similarly the Business Development Manager voiced that

‘building relationships with the big drug companies is critical, these

processes can never be taught but it comes with years of experience in

making compounds, reading journals and knowing how the big drug

companies work.’

The extent to which demands can be specified varies. For a contract involving

bespoke research then the demands are highly ambiguous, thereby strengthening

Tocris’ position within the network. For other chemicals which are sold via the

catalogue then the demands by clients are much more precisely specified. Expertise is

shared throughout the network, in fact the members realise that they can only jointly

gain an advantage by co-operating. This co-operation is encouraged by the common

language involved when chemists speak to chemists.

23

Discussion

Our two organisations, from the point of view of the firm, are part of quite different

networks. Although there are elements of collaboration and coercion in both we

believe that the network to which Tocris belongs is generally collaborative where

knowledge and expertise is generated and shared both within and between the

member organisations. The emphasis in this network is on the generation of expertise

by sharing knowledge between members of the network. This in turn has implications

for the achievement of a human resource advantage in terms of both human capital

advantage and organisational process advantage.

Tocris, as we have seen, has high levels of unique skill compared with Contact 24 and

expertise is shared throughout the members of the network. This gives them more

control over the development of their own HR policies. There is no need for the

members of the network to intervene in the internal HR affairs of others. On the

contrary, where expertise is distributed throughout the network there is a shared

understanding of management within each of the firms.

Here the autonomy of professionals is respected and reflected in the nature of the HR

practices. This freedom to manage and joint understanding of how research chemists

work is at the heart of human capital advantage in the firm. In particular the HR

practices to designed to encourage the sharing of knowledge within and between

firms. For example, the attendance of conferences, the establishment of professional

networks and the provision for pharmaceutical staff to visit Tocris. The organisational

process advantage is also influenced by the purpose and the nature of the relationships

between the firms in the network.

The most important aspect of this network is the ability to share expert knowledge

between its members. In this cooperative network, individual firms collaborate to

develop new ideas, processes and finally, chemicals. Continual participation is

established throughout the network and the firms are therefore locked-in to a learning

cycle. This sense of security is reflected in the organisational process advantage.

Research chemists are included in key management decisions and they are aware of

how the network operates. Often junior chemist will have contact with universities or

fellow-researchers in the network. This transparency and collaborative innovation

24

leads to both a human capital and an organisational process advantage on a network

level.

Contact 24 on the other hand has much lower level of unique skill and even if they are

able to generate this the demands of clients are still quite clearly specified. They are

part of a network which is much more coercive or exploitative where knowledge and

experience tends to be generated within the firms. Knowledge may be shared

between the client and Contact 24, but the contractual arrangements, largely absent

from the Tocris network, are always lurking in the background. Indeed, this process

of internal knowledge creation is essential to the success of the firms. HR advantage,

if it is to be generated, will be mostly within Contact 24 in terms of the human capital

(the skills of the CSRs and the contract managers) and the way these CSRs are

managed and how they share their knowledge within the client teams (organisational

process advantage).

Clients want to be confident that the employees of Contact 24 who are representing

them are sufficiently skilled to deal with their customers. It should come as no

surprise therefore that the clients seek to intervene, either directly or indirectly, in the

HR systems of Contact 24. They are trying to intervene in the way HR advantage is

generated by affecting the way the CSRs are managed and reducing their choice. In

fact the clients are not particularly concerned with the generation of an HR advantage

through the whole of Contact 24 – their emphasis will be with the performance of

‘their team.’

This, quite understandable, narrow concern with their own interests threatens to pull

apart the HR policies of our focal firm. Contact 24 find it difficult to generate HR

advantage within the firm because of the resulting segregation of the workforce and

fragmentation of HR policies. They also have little incentive to share knowledge

between non-contractual members because clients feel that to do this might threaten a

competitive advantage which has been painstakingly developed perhaps over years.

Thus the characteristics of the network influence the ability of our focal firms to

choice over their HR system and consequently affects the way in which HR advantage

might be achieved. The collaborative nature of the Tocris network gives it more

25

control over its own internal HR system, while the coercive characteristics of the

Contact 24 constraints its choice.

Implications for theory and method We have seen the insights into the influences on the choice of HR system which can

be gained from the network perspective. In particular we recognise that in some

networks HR advantage is created between members of the network, where members

will have relatively high degrees of control over their HR systems. In others HR

advantage is created, if at all, inside the focal firms leading to clients’ attempts to

influence their HR systems and hence constrain their choice. This constraint on

choice is important in understanding the links between HR policies and organisational

performance. The characteristics of the network will, in some cases, constrain

managers’ choice and lead to the adoption of HR policies which are not optimal in

terms of organisational performance.

This has both theoretical and methodological implications if we are to understand the

influences on the choice of HR system. At the HRM theory level we call for the

inclusion of the relational approach to further our understanding of the link between

HR practices and performance. The study of human capital and organisational process

advantage needs to take account of the structural element of the social context.

Furthermore, we need to be mindful of the type of network which a firm operates in,

when generating models and frameworks for understanding the behaviour of firms.

The inclusion of network characteristics and network dynamics improves our

understanding of the freedom of strategic choice. This analysis adds to the our

knowledge of more familiar networks which firms operate within such as participation

in industry and regional multi-employer bargaining and membership of employers’

associations and trade associations. Finally, it is theoretically important to incorporate

the experience of the smaller and less-dominant firm in the network if we are to

understand how firms try to influence HR practices to move into a central position

where they will be locked into the network.

26

At the empirical level we need to collect data from all the members of the network –

focal firm, clients, customers, (if appropriate) suppliers and owners. Ideally this data

needs to be both qualitative and quantitative and collected over a period of time

sufficient to capture the volatility and dynamism of these relationships, revealing the

pattern of action, reaction, counter-reaction between the members of the network.

27

Table 1 Network characteristics

Network structure

Purpose of the

network

Is it about ‘farming out skills’ or ‘combining different skill

sets, i.e. innovation’

Network

membership

Composition of the network

Who are the members

Is there s dominant firm that is resource-rich

Network

configuration

Overall pattern of relationships

Structural density and structural holes

Position of focal firm in network

Network relationships

Network governance Contract or procedural

Tie modality

Institutionalized rules and norms that govern relationships

Cooperative or opportunistic, strong or weak, multiplex or

single.

Network dynamics

Degree of

uniqueness of the

focal firm’s skill

Skill specificity: how different and specialized are the focal

firm’s skill sets

Extend to which the

demand of is defined

The dominant firm as well as end-users knowing what they

want

Distribution of

expertise in the

network

Is there a homogeneity of membership or shared language?

28

Table 2: Network characteristics

Network structure

Contact 24 Tocris Cookson

Purpose Provision of call and contact centre services to organisations seeking to outsource some activities either to become more efficient or to bring in expertise

Development of life-science research chemicals. Mainly an innovation purpose with a strong emphasis on being able to ‘spot the cool chemicals’ and working within the network to make the eventual production of life-science medicines possible

Membership focal firm and differing contracts with clients client and alternative providers/competitors parent and subsidiary relationships employees and external labour market competitors, retail customers and alternative providers, suppliers to the focal firm

Focal firm Large established Pharmaceutical firms Universities Patent lawyers Distributors Employees

Configuration Focal firm sells services to clients looking to purchase services; focal firm employees staff to provide services directly to retail customers of the client; parent setting performance targets for subsidiary suppliers provide services to focal firm

Focal firm makes (synthesizes) life-science chemicals (mainly neurochemicals) and sells these to research institutes that will use them to make medicine. Often they need permission of the Large Pharma’s because of patents on some compounds – this is where negotiation within the network is prominent

29

Network relationships Contact 24 Tocris Cookson

Governance Formal commercial and employment contracts between the parties – mixture of coercive and some developing co-operative relationships

Some formal/commercial and governed by patent laws but predominantly informal and cooperative

Tie modality/type of relationship

Client: formal contracts vary in length and terms; new contracts, renegotiation of existing contracts and changes in client strategy create instability; direct influences over the HR system affecting managers and employees Employment: unstable, mobile workforce in a highly competitive labour market; flexible employment model designed to match client contracts; HR practices modified to regain control over employment relationship Customer: believe they are speaking to client employees and have corresponding expectations of service level; Parental: setting of performance targets and use of monitoring procedures Supplier: relatively small role providing IT/IS, employees and low level consultancy

Clients: Contracts exist for bespoke research – with catalogue research it is more of a customer relationship Employment: Highly specialized, mobile – young, HR model – professionals, university culture and way of managing people. Distributors: Contractual Large Pharma’s: Informal – customer relationship management Universities: Can be clients or sources of development of skills – visiting professors who work at TC

Network dynamics Contact 24 Tocris Cookson

Degree of uniqueness of the focal firm’s skill

Low degree of uniqueness although some attempts to generate this over time as relationship matures and expertise is developed

High degree of uniqueness ‘We are in a good niche: chemistry, medicine, they are all good business opportunities’ (#3)

Extent to which demand can be specified

Demand is always tightly specified even when expertise is developed

Demand less specified for contract research but van be more specified with catalogue research

Distribution of expertise in the network

Distributed throughout the network, few attempts at sharing – some disincentive to do this

Shared expertise and language – chemists talking to chemists

30

Appendix

Contact 24

Contact 24 is a call and contact centre based in Bristol which, since September 2000,

has been owned by Havas, a large French based advertising and communication

organisation. Contact 24 provides contact and call centre services to a wide range of

clients including supermarkets, car manufacturers and financial services

organisations. It employs around 950 employees (excluding temporary employees) on

two sites and they also provide a managed service activity on two other sites for

outside clients.

Contact 24 provides a variety of services to its clients. Dedicated contracts have been

increasing recently and involves teams of customer service representatives (CSRs)

working exclusively for one client. With the exception of the small bureau which

carries out tactical work for a range of clients, the call centres are organized into client

teams, ranging from 200 to 20 employees. The organisation works closely with many

clients to ensure that the CSRs who work on dedicated project teams are those most

suitable for the particular service or product offered. Customer demand varies in

often unpredictable ways creating pressure on managing appropriate staffing levels.

Tocris Cookson

Tocris Cookson originated in 1994 from a merger between Cookson Chemicals, a

Southampton based research company and Tocris, a Bristol based life science

research outfit. Both these organisations started by research chemists within university

chemistry departments where a key scientist noticed a commercial opportunity to

produce chemical compounds. In order to integrate the two businesses Tocris

Cookson bought new premises in Bristol (UK) and built state of the art laboratories.

All 60 UK employees work form this site and compounds are dispatched

internationally. The company specializes in the synthesis of a wide variety of

compounds which are often complex biologically active molecules.

Before the new Bristol site was opened, Tocris Cookson started a micro-venture in St

Louis (USA), this was due to the delays experienced in getting chemicals past

31

customs and it was decided that it would be best to have a US site in order to get the

compounds to the clients as fast as their American competitors. The business is cash

rich with no funds owing to venture capitalists.

Most employees are recruited during a post-doctoral placement at the company. This

is often their first full-time employment. This is regarded as a threat by the

management of the company because of the majority of their workforce is young,

highly qualified and mobile (single). The threat is managed through the strong

organisational culture, which employees describe as a family or home away from

home. Given that most employees join the organisation straight from university and

that strong university ties are maintained in order to develop skills and attract suitable

employees, this KIF has a very distinctive ‘university’ feel to it.

This firm is largely organised around the production of compounds: the key structural

groupings are the catalogue and custom synthesis research teams. The teams are

divided further into radiochemistry and chemistry. In both these groups compounds

are made at ‘bays’ in a laboratory. A bay is a workbench with equipment that is large

enough to accommodate 4 chemists. Our interviews indicated that these 4 chemists

would then be identified as a team, however, the team boundaries appeared to be

unclear and during our visits to the company, involved conversations were normally

held across ‘bays’. Given the similar age and background of the research chemists

they would normally engage in lively debates over lunch, gather socially after work

and describe themselves as colleagues and friends.

Tocris Cookson’s key clients are life science researchers at universities or other

research institutes. In order to build these clients relationships and indeed make the

compounds this KIF needs to maintain very strong ties with large pharmaceutical

companies, patent lawyers and academics in the field. The reason for this is that

pharmaceutical firms often have patents on some of the chemicals that need to be

synthesised, however these could lapse in an 8-10 year period. If a ‘cool chemical is

spotted’ then the patent rights need to be negotiated with the relevant firm.

32

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