Contextualising KM

April 29 & 30, 2006

Outline
Introduction
Assessment
The Challenging Nature of Global Economy –
globalisation and free trade
National differences in the political Economy
Strategy, Structure, and Process
Cultural Variance- recruitment and staffing;
- culture, commitment and trust
 World GDP 2004
(Ranking Economy US dollars millions)
1 United States 11,667,515
2 Japan 4,623,398
3 Germany 2,714,418
4 United Kingdom 2,140,898
5 France 2,002,582 a
6 Italy 1,672,302
7 China 1,649,329
8 Spain 991,442
9 Canada 979,764
10 India 691,876
11 Korea, Rep. 679,674
12 Mexico 676,497
13 Australia 631,256
14 Brazil 604,855
15 Russian Federation 582,395
16 Netherlands 577,260
17 Switzerland 359,465
18 Belgium 349,830
19 Sweden 346,404
20 Turkey 301,950

World Development Indicators database, World Bank, 15 July

2005
Implications for small home market
• Reliance of MNC on its home-country
market.
For many firms, a small home market is one of
the major motives for “going international”

UNTD conference published its annual survey

on FDI “index of Transnationality”- foreign asset
to total asset, foreign sales to total sales and
foreign employment to total employment.
 The ‘top ten’ multinationals
1. Rio Tinto 6. Electrolux (Sweden)
(UK/Australia) 7. Interbrew (Belgium)
2. Thomson
Corporation 8. Anglo American (UK)
(Canada) 9. AstraZeneca (UK)
3. ABB (Switzerland) 10. Philips Electronics
4. Nestlé (Switzerland) (The Netherlands)
5. British American
Tobacco (UK)
UNCTAD Index of Transnationality
 Worlds Largest Companies

• http://
www.finfacts.com/Private/curency/fortune.htm
 THE 2005 GLOBAL 500
• RankCompanyRevenues ($ millions)Profits ($millions)
1 Wal-Mart Stores 287,989.010,267.02
2 BP 285,059.015,371.03
3 Exxon Mobil 270,772.025,330.04
3 Royal Dutch/Shell Group 268,690.018,183.05
4 General Motors 193,517.02,805.06
5 DaimlerChrysler 176,687.53,067.17
6 Toyota Motor 172,616.310,898.28
7 Ford Motor 172,233.03,487.09
8 General Electric 152,866.016,819.010
9 Total 152,609.511,955.011
10 Chevron 147,967.013,328.012
11 ConocoPhillips 121,663.08,129.013
12 AXA 121,606.33,133.014
13 Allianz 118,937.22,735.015
14 Volkswagen 110,648.7842.016
15 Citigroup 108,276.017,046.017
16 ING Group 105,886.47,422.818
17 Nippon Telegraph & Telephone 100,545.36,608.019
18 American Intl. Group 97,987.09,731.020
19 Intl. Business Machines 96,293.08,430.021
20 Siemens 91,493.24,144.622
21 Carrefour 90,381.71,724.823
22 Hitachi 83,993.9479.224
23 Assicurazioni Generali 83,267.61,635.125
24 Matsushita Electric Industrial 81,077.7544.1
 HISTORY OF WORLD TRADE

• International business dates back to early

civilisations such as the Egyptians and Greeks
with evidence of extensive trade as early as
3000BC.
• The basis of that trade remains virtually
unchanged: product and skill differentials.
• The 1400s and 1500s was the period of the birth
of modern world trade with exploration of the
“New World”.
 PUNNETT AND RICKS’ ERAS
Commercial Era (1500-1850)
• Trade in exotic goods.
• Joint ventures between entrepreneurs and European royalty.
• The first company to be anything approaching a multinational
company (MNC) was the British East India Company founded in
1600.

Explorative Era (1850-1914)

• Shift to trade in industrial products FDI emerged in this period with
transfers of skills and emerging technologies.

Concessionary Era (1914-1945)

• Serious FDI with “paternalistic responsibility” by Western firms and
concessions from host countries. This era also saw many nations
erect formidable barriers to international trade and investment with
high tariff on import of manufactured goods. This lead to retaliatory
trade policies which ultimately depressed world demand and
contributed to the great depression in world economy in 1930.
National Era (1945-1970)
Emergence of hostility towards Western firms and emergence of
sovereignty and self-government.
However, this did not impede growth of multinationals and the modern MNC
emerged in this period boosted by technological developments in WW2.
US dominance in the world economy and world trade.
US dominance in the world FDI (66.3%, 1960).
The early part of this period dominated by US firms with non-US competing
as major MNCs in the later part.
1970 Japanese and European firms begin to shift labour-intensive
manufacturing operations to developing nations where labour costs were
lower

Post 1970 Era

Emergence of Japan as a major global player
Increasing hostility towards USA.
Shifts in ownership from purely domestic to the emergence of the “global
firm”
 Why Invest Overseas?
• Dunning’s (1979) eclectic theory is a commonly
used explanation of why firms move overseas.
Firms should possess:
• Ownership-specific advantages (OSAs), ie their source
of competitive advantage such as size, position in the
world market, credit rating etc.
• An incentive to internalise these advantages
• Location specific advantages (LSAs) not directly related
to the firm but to the environment e.g. access to sources
of supply not available to domestic producers.
• When all three are present the opportunity
exists for a firm to exploit the market.
 Competing for the future- Video
• Two of the worlds most renowned professors:
Prof. Gary Hamel- (London School of
Economics)
Prof. C. K Prahalad (Michigan University)

• Discuss the nature of competition, particularly

focusing on the Japanese assault on US lead
export for 30 plus years.
 The History and
Development of
Organisations – Pioneering
Ideas
 Lecture outline
• Early management ideas
• Classical theorists
• Behavioural theorists
• Quantitative approach
• Contemporary ideas
• Innovation & management theory
• Org. culture as an evolving process
Early management ideas
• Robert Owen (1771–1858)
Identified the importance of working and
social conditions for employees.
• Charles Babbage (1792–1871)
Ideas on work specialisation, production
efficiency, incentive and profit-sharing
plans.
• Henry R. Towne (1844–1924)
Called for a ‘management science’ that
would establish ‘principles’ of
management.
Early management ideas
Assessing the early contributions:
• Uncoordinated efforts.
• Contributions tended to relate to specific
problems.
• Did not see ‘management’ as a separate
field or skill (until Towne).
 Classical theorists
‘This viewpoint emphasises
managing work and organisations
more efficiently.
It comprises three different
management approaches: scientific,
administrative and bureaucratic.’
 Classical theorists
• Scientific management
F. W. Taylor, F. & L. Gilbreth, H. Gantt
• Bureaucratic management
M. Weber
• Administrative management
H. Fayol
 Scientific management
‘Scientific management is an approach
within classical management theory
emphasising the scientific study of work
methods to improve worker efficiency.’
 Scientific management
Frederick W. Taylor
Four principles of ‘scientific
management’:
• Select & train the best.
• Determine the most efficient work
methods.
• Co-operate with workers to ensure
best method is used.
• Divide work/responsibility between
workers & managers.
 Scientific management
• Frank & Lillian Gilbreth
– Time & motion studies
– Human implications of Scientific
Management
• Henry Gantt
– Pay incentives
– Gantt chart
 Bureaucratic management
‘Approach emphasising the need for
organisations to operate in a rational
manner rather than relying on owner’s and
manager’s arbitrary whims.’
 Bureaucratic management
Weber’s Ideal Bureaucracy
• Specialisation of labour
• Formal rules & procedures
• Impersonality
• Well-defined hierarchy
• Advancement on merit
Bureaucratic management
Hierarchy Advancement
of on merit
positions
Specialisation
of labour
Max Weber
Formal rules &
procedures
 Administrative management
‘Approach focusing on principles used by
managers to co-ordinate the
organisation’s internal activities.’
Administrative management
Henri Fayol’s Principles of
• Division of work management
• Authority • Centralisation
• Discipline • Scalar chain
• Unity of
• Order
command/direction
• Primacy of general • Equity
interest • Low turnover
• Remuneration • Initiative
• Esprit de corps
Administrative management
Organising
Planning

Commanding

Henri Fayol
Co-ordinating
Controlling
 Behavioural theorists
‘Perspective on management emphasising
the importance of attempting to
understand various factors affecting
human behaviour in organisations.’
 Behavioural theorists
Early theorists:
• Hugo Munsterberg
Creating optimal psychological conditions, behaviour
shaping
• Mary Parker Follett
Importance of group functioning
• Hawthorne studies
Importance of supervisory style
 Behavioural theorists
Human relations movement
• Abraham Maslow
Hierarchy of Needs
• Douglas McGregor
Theory X & Y
Maslow’s Hierarchy of Needs
Self-actualisation

Esteem

Social

Safety

Physiological
 McGregor’s Theory X & Y
Theory X Theory Y

Work avoiding Work is natural

Need to control Capable of self-direction

Avoid responsibility Seek responsibility

Workers seek security Can make good decisions

 Quantitative management
viewpoint
‘Focuses on mathematics, statistics and
information aids to support managerial
decision making and organisational
effectiveness.’
Quantitative management
viewpoint
• Management science
‘Approach aimed at increasing decision effectiveness
through use of sophisticated mathematical models &
statistical methods.’
• Operations management
‘Function or field of expertise primarily responsible for
managing production & delivery of an organisation’s
products and services.’
• Management information systems
‘Field of management focused on designing &
implementing computer-based information systems for
use by management.’
Contemporary viewpoints
• Systems theory
‘Approach based on the idea that
organisations can be viewed as systems.’
• Contingency theory
‘Viewpoint arguing that appropriate
managerial action depends on the
particular parameters of the situation.’
Contemporary viewpoints
• Theory Z
‘Concept combining positive aspects of
American and Japanese management into
a modified approach aimed at increasing
managerial effectiveness while remaining
compatible with the norms and values of
American society and culture.’
• Total Quality approach
‘Approach highlighting collective
responsibility for product and service
quality, and encouraging individuals to
work together to improve quality.’
 Promoting innovation
Each management viewpoint
provides a contribution to managing
innovation:
• Classical
• Behavioural
• Quantitative
• Contemporary
 summary
• Early management ideas
Generation of ideas leading to
identification of management as a
significant field of inquiry.
• Classical theorists
Emphasised finding ways to more
efficiently manage work and organisations.
• Behavioural theorists
Emphasised the importance of trying to
understand factors affecting human
behaviour in organisations.
 Summary cont..
• Quantitative approach
Focuses on mathematics, statistics and
information aids supporting managerial decision
making and effectiveness.

• Contemporary ideas
Views of organisations as systems, importance of
contingency factors & amalgamating Japanese &
American management practices.
• Innovation & management theory
Each approach provides insights, knowledge &
practice regarding the management of innovation
in organisations.
The enduring context of
International HRM
Writing in 1980’s on the state of the field
IHRM, Laurent (1986) concluded that:

“the challenge faced by the infant field of

IHRM is to solve a multi-dimensional puzzle
located at the crossroad of national and
international cultures” (p.101)
 Approaches to IHRM
The field of IHRM has been characterized
by three broad approaches:

1. Early work emphasized a cross-cultural

management. This approach examines
human behavior within organizations from
international perspectives
• Developed from the comparative IR and HR literature.
This approach seeks to describe, compare and
analyze HRM systems in various countries.
3. Seeks to focus on aspects of IHRM in multinational
firm.

Definition of IHRM
Difficult to underpin- it depends on which approach the
researcher takes.
We will focus on the third approach- broad in nature.
Inter-relationships between approaches in the field
 Defining IHRM
The general field of HRM
• Typically HRM refers to those activities undertaken by an
organisation to effectively utilize its human resources
which at least include:

-HR planning
-staffing
-performance management
-Compensation and benefits
-Labour relations

From the above list, which activities change when HRM

goes international?
 Three dimensional model of HRM
(Morgan, 1986)

1. Three broad HR activities of procurement, allocation, and

utilization can easily be expanded into the six HR
activities above

2. The three national or country categories involved in

IHRM are:
-the host country where a subsidiary may be located
-the home country where the firm is headquarter
-”other” countries that may be the source of labour
or finance

-
 Three dimensional model Cont….

3. The three types of employees of an international firm

are:
-the host-country national (HCN’s)
-the parent –country nationals (PCN’s)
-the third-country nationals (TCN’s)
For example,
IBM employees Mauritian citizens (HCN) in its Mauritian operations,
often sends US citizens (PCN) to Mauritius on assignment and may
send some of its South African employees on a assignment to its
Trinidad operations (as TCN).
A model of IHRM
 What is an expatriate?
• An employee who is working and
temporarily residing in a foreign country
• Some firms prefer to use the term
‘international assignees’
• Expatriates are PCNs from the parent
country operations, TCNs transferred to
either HQ or another subsidiary, and
HCNs transferred into the parent country
International assignments create expatriates
•Thus, Morgan defines IHRM as the interplay among
these three dimensions- human resource activities,
types of employees, and country of operation.

•In broad terms, IHRM involves same activities as

domestic HRM (e.g., procurement refers to HR planning
and staffing), however, domestic HRM only involves the
national boundary.
•The complexities involved in operating in a different
countries and employing different national categories of
workers is a key variable that differentiates domestic and
international HRM.
 Differences between domestic
and international HRM
• More HR activities (int. tax, relocation & orientation)
• The need for a broader perspective (multiple
polices e.g compensation, tax)
• More involvement in employees’ personal
lives
• Changes in emphasis as the workforce
mix of expatriates and locals varies
• Risk exposure (financial consequences of failure)
• Broader external influences (government regulations,
ethical concerns etc)
•Increasingly, domestic HRM is taking on
some of the activities of IHRM flavour as it
deals with more and more with
multicultural workforce.

•Domestic HRM issues on managing

workforce diversity may prove to be
beneficial to the practice of IHRM.
 Variables between domestic and
IHRM

• In addition to complexity, four other

variables moderate (that is either diminish or accentuate)
differences between domestic and IHRM
Variables that moderate differences between domestic and
international HRM
 Variables defined
• Cultural environment- complex issue
convergence V divergence- two assumptions
1.That there were sound principles of management that
held regardless of national environment
2. That the universality of sound management practices
would lead to societies becoming more and more alike in
future- in other words, we will converge and we will all
become like Americans.
Theses assumptions took a macro-level view (structure and
technology used by firms across cultures).
This became an established paradigm for researchers-
methodological problems.
 Variables defined Cont…
• Industry
Porter’ model of competitive advantage (value
chain)- ie industries in which a MNC is involved
is of considerable importance because patterns
of Int. competition vary from one industry to
another.
HRM is one of four support activities of the five
primary and support activities. HRM cuts across
the entire value chain of the firm
 Variables defined Cont…
• Reliance of MNC on its home-country
market.
For many firms, a small home market is one of
the major motives for “going international”

UNTD conference published its annual survey

on FDI “index of Transnationality”- foreign asset
to total asset, foreign sales to total sales and
foreign employment to total employment.
 The ‘top ten’ multinationals
1. Rio Tinto 6. Electrolux (Sweden)
(UK/Australia) 7. Interbrew (Belgium)
2. Thomson
Corporation 8. Anglo American (UK)
(Canada) 9. AstraZeneca (UK)
3. ABB (Switzerland) 10. Philips Electronics
4. Nestlé (Switzerland) (The Netherlands)
5. British American
Tobacco (UK)
UNCTAD Index of Transnationality
 Variables defined Cont…
• International mindset- need to make a
clear distinction between domestic issues
and international environment.
Factors influencing the global work environment
 summary
• Defined international HRM and the term ‘expatriate’.
• Discussed the differences between domestic and
international HRM – looking at six factors: more HR
activities, the need for a broader perspective, more
involvement in employees’ personal lives, changes in
emphasis as the workforce mix of expatriates and
locals varies, risk exposure and more external
influences.
(cont.)
 summary (cont.)

• Examined what we have called the enduring context of

IHRM. The focus is on the current global work
environment, looking at the forces for change that have
prompted managerial responses that have implications
for the way in which people are being managed in
multinationals at the turn of the 21st century. However,
we have made a brief comparison with the situation that
confronted a 14th-century merchant as a way of drawing
out some of the constants in international business.
Strategy, Structure and Process
Strategic management process- in broad terms all MNC’s continuously
develop their strategy given from the macro-micro analysis.
This in turn develops the structure and process of MNC either in HCN,
PCN & TCN.

The most difficult task is implementation of strategies as polices,

procedures & process can never be the same in all country:
Religion
Language
Education levels
Practices of management
Power & politics
Organized employee associations
Global, National, & Local Practices
The National business system (NBS) approach
argues that within the same business system we
will tend to see similar strategic and political
practices.

We will try uncover how local managers

influence and interpret the rules of the game and
develop local sources of power within MNC
itself.
 Opposing arguments
• Global enterprise- a topic of mainstream international
management literature.
• Divergent capitalism- a debate predominantly led by
European scholars.

However, both see economic organizations as mainly

structurally determined despite their different focus on
either global or national influences and both give little
consideration to the influence of key local managers and
employee representatives.
 Key arguments of NBS
Globalisation, ‘best practices’ and the ‘global
enterprise’
• Recent approach stress that globalization (apart from economic &
Technological change) is also driven by a convergence of business culture
and policies.
• Claimed that MNC are becoming “placeless” –national identity is replaced
GC by the commitment to a single unified global mission.
• Research in strategic management stresses that the organisational
structure will inevitably follow Anglo-Saxon business model of capitalism
with a multidimensional organisational structure with the key focus on
shareholder value.
• Continental European firms “lost out” to Anglo-Saxon model. Thus MNC use
shareholder value as a key performance measure- use similar restructure.
The globalization debate has influenced the debate about HRM as an
organizational strategy.

•Earlier focus on Japanization and its implication for the management of

employee resources, particularly in UK gave way to Anglo-Saxon, chiefly
US approaches to HRM in the wake of Japanese financial crises.

•Dominance of US HRM perspectives – focus on market-led

convergence and the direct transfer of US HRM practices by US MNCs.
•Question is: what US-style HRM actually is in practice.

•The prediction is not only of homogenous structures but a global

corporate culture and the development of “global mindset”

•Divergent interest and local power resources of key subsidiary

managers and employee representative bodies are played down or are
ignored.
NBS and societal practices in MNC
• European research raises real doubts in economic, cultural and
institutional forces will lead to greater convergence.
• Evidence from 20 years research show that economic organizations
are not just shaped by one type of capitalism- the Anglo-Saxon
model.
• In comparative cross-national research, NBS, national specific
‘industrial orders’ and ‘societal effects’ create alternative paths of
organizing business and management.

• The key thesis of this approach is that historically grown national

institutions such as the financial, educational, industrial relations
systems of a country are interdependently linked with the
characteristics of business organisations in that and exert an
influence on e.g. their strategy, structure, technologies and
employment relations.
A key finding- the degree of “embeddedness” ie interdependency, cohesion
and integration in Anglo-Saxon model of capitalism is much lower than other
capitalist nations.

Thus, the implementation of global best practice and the ability to change local
practices in subsidiaries situated in highly integrated NBS will be more
restricted and less radical than in less integrated systems. E.g. specific
national systems of IR – managers have more influence on decision making.
IHRM and Cultural Variance
 Case Analysis
Two Questions:

3. How does the overall strategy of the MNC as well as

the institutional environment of NBS at subsidiary level
influence the power and politics of local managers to
enhance or deplete their charter responsibilities?

2. What we want to consider is whether local

management and employee representatives have the
power resources and strategic choice to influence,
resist and negotiate the process of globalization.
 Case 1
The influence of MNC strategies on local management’s
ability to shape implementation of MNC global strategies.

1a. The Finish MNC -centralized, imposed global strategy.

A centralized, imposed strategic decision-making
approach is applied.
The company bought customized escalator
manufacturing business in Germany as a business
learning organization.
Finish HQ- attempts to impose company model.
 Case 1 cont…
1b. The German MNC- a negotiated decentralised strategy

The German MNC operates in its home country. This

case illustrates the characteristics of German
manufacturing based on diversified quality production.

Its subsidiaries across the world have a local focus and

therefore less subject to centralised control.

“Knowledge acquisition” is of central importance.

 Case 2
The influence of the subsidiary’s strategic position and its
performance within the MNC on local management and
employee representatives’ ability to shape the
implementation of MNC global strategies.

2a. The strategic position of the subsidiary.

The strategic position of the subsidiaries within MNC can
give power to protect local practices. Germany is an
example.
 Case 2 cont…
2b. Subsidiary performance.

Performance-related ‘tract record’ are also power

resources. Poor performance will significantly weaken
the political influences of local management.

e.g. British subsidiaries who did not have the power

resources to argue the case for the retention of
manufacturing units.
 Case 3
The influence of the degree of institutional
embeddedness of the subsidiary in HCN on the ability of
local management to shape the implementation of MNC
global strategies.

3a. Subsidiary operating in a highly integrated NBS.

The German system- marked departure from the neo-
classical free-market model.
Operates on the basis of institutional and organizational
linkages which promotes the negotiation of issues
between the major stakeholders.
 Case 3 cont….
The principle of ‘strategic interaction’ in German system,
is reflected both macro and micro levels with ‘dense in
network linking the managers and technical personnel
inside a company to their counterparts in other firms and
an internal structure based on collaborative and
cooperative modes of action.

Thus, the firms competitive strategies, are closely

connected to internal structures, and external
relationships.
Firms are run as portfolio of separate units, bought and
sold as financial performance dictates.
 Case 3 cont….
3b. Subsidiary operating in a weakly integrated NBS.

High level of compartmentalization of British business

units.
-low levels of commitment and cooperation between
firms and between employees and high level of mobility
of operations.
-weak rights of employee representative bodies, means
that it is easy to close down their British manufacturing
operations.
Cultural Variance

Recruitment and Staffing

 Cultural variance
Scholars have never been able to agree on a simple
definition of culture- tacit

Edward Taylor (1870) an anthropologist defined culture as:

That complex whole which includes knowledge, belief, art,
Morals, law, custom, and other capabilities acquired by man
as a member of society.

Hofsede (1980) an expert on cross-cultural management defines

culture as: the collective programming of the mind which distinguishes
the members of one human being to from another…….culture in this
sense, includes systems of value, and values are among the building
blocks of culture.
 Cultural variance cont…
• Values- are abstract ideas about what a group
believes to be good, right, and desirable ie values are
shared assumptions about how things ought to be.

• Norms- social rules and guidelines that prescribe

appropriate behavior appropriate behavior in particular
setting.

• Society- refer to a group of people who share a

common set of values and norms.
 Cultural variance cont…..
• The concept of organisational culture broadly defined by
Denison (1996) refers to the deep structure, rooted in the
relatively stable values, beliefs and assumptions held by
organisational members. Subsequently, organisational
members attach and identify themselves with the values and
beliefs of the organisation. This in turn influences their
behaviour and attitude towards the organisation.

• Commitment and trust.

 Organisational Commitment
• Definition:

"Organizational commitment is the strength of an

individual's identification with and involvement in a
particular organization. It can be characterised by
at least three factors: 1) a strong belief in and
acceptance of the organization's goals and values.
2) a willingness to exert considerable effort on
behalf of the organization. 3) a strong desire to
maintain membership in the organization."
(Mowday et al., (1979, p. 226)
 Models of Commitment
Commitment Literature
• Meyer and Allen’s Three Component Model of
Commitment :
Affective commitment (want to), Continuance
commitment (have to) & Normative commitment (need to)

• Becker and Billing’s Model of Commitment :

Foci of commitment- individuals, groups, departments
and organization.
Bases of commitment- compliance, identification and
internalization
 Bases of Commitment
Compliance (Continuance)
• Becker (1992) defines compliance as the attitudes and behaviours adopted
to obtain rewards, or avoid punishment (p.233). Turo (2000) defines
compliance as obligation and argues that obligation is “related mostly to
rules that a person consents to or is not able to avoid” (p.347).
Identification (Affective)
• According to Kelman (1958), identification occurs when attitudes and
behaviours are adopted in order to be associated with satisfying a self-
defining relationship with another person or group.
Internalisation (Affective)
• According to Kelman (1958), internalisation occurs when attitudes and
behaviours are adopted because the content of the attitude or behaviour is
congruent with the individual’s value system. In other words, commitment
based on internalisation is predicted on congruence between individual and
organisational values (Turo, 2000).
 Organisational Trust
Trust has many dimensions
• Specifically, it relates to the expectation that the actions of another
will be beneficial rather than detrimental. At a more general level, it
relates to the assumption that we can rely upon aspects of social
order as a means of protection (Creed and Miles, 1996).

• Creed and Miles (1996) argue that “Within organisations, managers

obviously play a central role in determining both the overall level of
trust and the specific expectations within given units” (p.19). The
concept of organisational trust therefore is largely concern with
manager/employee relationships.

• At a broader level, trust represents the degree of confidence

members of a team have in the goodwill of its leaders, specifically
the extent to which they believe that the leaders are honest, sincere,
and unbiased in taking their positions into account.
 Procedural Justice Theory –
organisational climate

• Procedural justice theory is concerned with the impact of

the fairness of decision-making procedures on the
attitudes and behaviour of those involved in, and affected
by, those decisions.
• The basic premise of justice theory is that fair treatment
is central to decision making and a major determinant of
reactions to decisions (Adams, 1965).
 Procedural Fairness
• Fair procedures are symbolic and help to strengthen an
individual’s relationships with a group, leader and
organisation.

• They also serve as a sign to individuals that they are

valued and respected members of the organisation and
promote harmony and trust with others (Korsgaard,
Schweiger, and Sapienza, 1995).
 Procedural Fairness cont…
• Fairness is rooted in philosophy, political science and
religion (Konovsky, 2000). Within organisations, fairness
appeals to both managers and employees who see it as
a unifying value providing “fundamental principles that
can bind together conflicting parties and create stable
social structures” (Konovsky, 2000, p.490).

• Fairness can be seen as a core value of the organisation

to which members are attached. Effective leadership is
fundamental in gaining members’ trust by truth telling,
promise keeping, fairness and respect for individuals
(Clawson, 1999).
 Communication
• Open communication- refers to the free flow of
information up, down and across the organisational structure.

• Information Transparency- relates to the clarity

with which that information is conveyed. Implicit in the
concept of transparency is the notion that the
communication is not intended to conceal, misinform or
in any other way mislead the recipient.
• Transparent communication involves information on
moral, legal, economic and political concerns of the
organisation.
 Managerial Communication
• Managerial communication is only credible,
ethical and effective when the communication is
open and honest- this increases employees’
perceptions of procedural justice and future
levels of trust and commitment

• It is a binding force behind trust and

commitment.
Communication and Information Transparency as a Link
Between Commitment and Trust

Transparency in
Organisational Organisational
Communication
Trust Commitment
& Information

Source: Naughton, S. (2005)

 An Integrated Model of Organisational Change, Commitment
and Trust

R4 R3

Organisational Organisational
Trust Climate R2 *R1

Communication Coordination Effective

Involvement in & Competency Change
& Information
Decision Making Development Implementation
Transparency

Organisational Organisational
Commitment Culture

Source: Naughton, S. (2005)