Unit 2

HR policies:
Policies are broad guidelines as to how the objectives of a business are to be achieved.
Human resource policies lay down the decision making criteria in line with the overall
purpose of the organisation in the area of Human Resource Management.
They are developed by the HR Manager in consultation with the top management to
assist the managers at various levels to deal with the people at work. HR Policies are
continuing guidelines of the organization which are intended for adoption in managing
its people.
It represents specific guidelines to HR managers various matters concerning
employments. It states the intent of the organization about different aspects of Human
Resource management such as recruitment, promotion, compensation, training,
selections etc.
HR Policies define the conception and value of the organization on how people and
things should be treated. Therefore, it serves as a reference point when human
resources management practices are being developed or when decisions are being
made about people.
Thus, personnel policies can be interpreted as the recognised intentions of top
management with respect to efficient management of workforce.
Some examples of personnel policies are given below:
(1) The employees will not accept any gift from any supplier except for token gifts of
purely nominal or advertising value.
2) Each employee will proceed on atleast one week vacation each year.
(3) The employees will not accept any outside assignment.
HR policies cover the principles and rules of conduct governing the dealings of the
organisation with its employees, and set the tone for the administration of personnel
programs in a manner conducive to the attainment of the objectives of the
organisation.
NEED FOR HR POLICIES
The formulation of HR policies can help an organization demonstrate, both internally
and externally, that it meets requirements for diversity, ethics and training as well as
its commitments in relation to regulation and corporate governance of its employees.

They provide frameworks within which consistent decisions are made and promote
equity in the way in which people are treated. HR policies can also be very effective
at supporting and building the desired organizational culture.
The need can be highlighted by way of following points:
1. They provide clear communication between the organization and their employees
regarding their condition of employment.
2. They form a basis for treating all employees fairly and equally.
3. Policies are a set of guidelines for supervisors and managers.
4. They create a basis for developing the employee’s handbook.
5. They establish a basis for regularly reviewing possible changes affecting
employees.
6. Policies form a context for supervisor training programs and employee orientation
program.
SIGNIFICANCE OF HR POLICIES
The significance of HR policies can be highlighted with the help of the following
points:
i. Sound basis for decisions – HR policies offer a sound basis for taking decisions with
regard to HR problems. Once a policy has been laid down, any executive can take a
decision easily on the basis of that policy.
ii. Facilitate meaningful and effective HRM – Once HR policies are framed and
declared, everybody knows the course of action with regard to different HR problems.
Hence, there will be least confusion and HRM will be more effective.
iii. Restrain discrimination and undesirable behaviour towards employees – With the
declaration of HR policies, the management cannot discriminate with the employees.
It has to maintain a standard behaviour towards all.
iv. Restrain injustice – After the declaration of HR policies, practically no scope is left
for the management to exercise its discretion or sweet will. Hence, even biased
management cannot take undesirable decisions.
v. Help in decentralisation of authority – HR policies ultimately lead to
decentralisation of power and authority. As a policy matter, the middle-level or lower-
level HR staff may be delegated authority in certain spheres. This eases the job of
senior or top-level management.
vi. Distinguish policy from procedure – Although some HR executives know how to
tackle the employees, they often confuse a policy with a procedure. A policy is meant
for general guidance, whereas a procedure is the implementation of the policy on a
particular problem.
vii. Save time – As the HR policies serve as guidelines, there is no need of analysing
and discussing all problems separately and individually. The problems can be grouped
together and solved according to guidelines contained in the HR policies.
viii. Bring continuity and uniformity – Once the policies are formed, whether these
are in the field of finance, or human resources, or sales, or distribution and so on, there
will be no difficulty if the manager is replaced by a newcomer. Thus, the policies bring
continuity and uniformity which, in turn, encourage the morale and faithfulness of the
workers.
ix. Help in accomplishing the organisational goals – As the formation and declaration
of HR policies lead to the contentment among workers, they offer their willing and
effective cooperation in accomplishing the desired objectives of the organisation.

TYPES OF HR POLICIES
1. Originated Policies – These are set-up by top management intentionally with a view
to guiding executive pondering over various levels.

2. Appealed Policies – These policies are formulated to fulfill the requirements of

certain unusual situations which are riot found covered by the earlier policies. Usually,
such requests came from subordinates who fail to handle the cases on the basis of the
guidance offered by the existing policies.

3. Imposed Policies – As it is evident from the name of these policies these are formed
under imposition or pressure from external agencies like government, trade
associations, and unions.

4. General Policies – These policies manifests the philosophies and priorities of the
top management in formulating the broad plan for mapping out the organisation’s
growth chart.

5. Specific Policies – As it is evident from their name, these policies cover specific
issues such as hiring, rewarding and bargaining. Such policies, however, should be in
line with the basic framework which is offered by the general policies.
QUALITIES OF IDEAL HR POLICY:
i. HR policy should contribute to organisational objectives:
An ideal HR policy should be such that its implementation may help in the
accomplishment of the desired objectives of the organisation.
ii. HR policy should make the employees conscious of their importance and place
in the organisation:
This makes the employees feel proud that they also have got a place in the organisation
and that the organisation realises their importance.
iii. HR policy should be in writing:
An ideal policy should be in writing. Putting policies in writing is the best way of
putting them to work. Management should not feel that written policies lead to rigidity.
Written policies eliminate vagueness and inconsistency. By more precise com-
munication in writing, the difficulty of communicating intentions and desires is
reduced considerably.
iv. HR Policy should create a sense of security:
An ideal HR policy should create a sense of security among the employees. They
should feel that the management has got a policy whereby it ensures the security for
employees.
v. HR policy should encourage cooperation between the management and the
employees:
An ideal HR policy should aim at fostering the spirit of cooperation between
employees and the management. It should create an environment in which there is no
place for suspicion or doubt against each other.
vi. HR policy should be flexible:
Although policies should not change frequently, an ideal HR policy is one which has
the element of flexibility, that is, if the objectives of major plans of the organisation
change, then policies should also be reconsidered to meet the changed circumstances.
However, if an HR policy is disregarded quite often, then it shows that the policy is
not sound and it must be re-framed.
vii. HR policy should aim at creating opportunities for the development of
employees:
An ideal HR policy should aim at creating opportunities for the development of
employees. Such a policy would win the heart of the employees, and they would work
very sincerely.
viii. HR policy should be consistent:
An ideal HR policy should be consistent, otherwise it is unlikely to help in the
accomplishment of the desired objectives of the organisation. Although everybody
agrees with this contention, in practice, it is violated quite often. An HR policy should
be clear on all matters and may be suitable even in unusual situations. An ideal HR
policy should have the quality of clarity, leaving nothing to chance. It should be able
to withstand unusual situations.
ix. HR policy should be controlled:
As HR policies are likely to be misinterpreted or getting obsolete, it is necessary that
they may be controlled. The job of controlling the HR policies can best be done by the
top management. It should be controlled by a top executive who is well versed in
writing, teaching, familiar with the history and operations of the organisation and has
a lot of experience of administrative work. Harold Koontz and Cyril O’Donnell have
also favoured the control of policies.
x. HR policy should be taught:
Simply issuing a policy or statement is not enough. A policy is likely to be
misunderstood or misinterpreted, and we know the consequences of a misunderstood
policy. Hence, a policy must be explained and taught. Wherever and whenever needed,
it should be interpreted.
Thus, an ideal HR policy should have the aforesaid features to serve its desired
purpose.
FORMULATION OF HR POLICY:
1. Identifying the Need:
In case, an organisation has no appropriate HR policy, the HR manager should
convince the Chief Executive of the need of a HR policy. Policies are required in
various areas of human resource management since areas are hiring, training,
compensation, industrial relations, etc. A staff expert, a union leader, a first-line
supervisor, or a rank-and-file employee may voice the need for revision of an existing
policy.

2. Accumulating Information:
After the need for a policy has been accepted, the ensuring step is to collect requisite
facts for its formulation. A committee or a specialist may be assigned the task of
collecting the required information from inside and outside the organisation.

Facts may be gathered from any of the following sources:

(i) Earlier practice in the organisation.

(ii) Current practice among the companies in the community and throughout the nation
in the same industry.

(iii) The attitudes and philosophy of the role management.

(iv) The attitudes and philosophy of middle and lower management.

(v) The knowledge and experience gained from handling countless problems on a day-
to-day basis.

The HR department is expected to make study of the existing documents, survey

industry and community practices and interview the people within the organisation to
gather appropriate information.

Special attention should be paid to attitudes and philosophy of top management, social
customs and values, aspirations of employees, labour legislation, etc. Extensive
consultations and discussions at this stage prove to be great help later on, when it is
required to Use the policies.

3. Examining Policy Alternatives:

On the basis of data collected, alternatives are evaluated in view of their contributions
to organisational objectives. It is important to secure active participation of those who
are to use and live with the policies.

4. Putting the Policy in Writing:

After the requisite information has been gathered and the alternatives examined, the
HR department begins with the priority of formulating the written expressions of the
company’s HR policy. While writing the policy it is worthwhile to avoid emotional
phrases.
5. Getting Approval:
To seek approval the HR department should send the policy draft to the top
management. The reason is the top management is authorised to take the final decision
whether a policy is adequately represented the organisation’s objectives or not.

6. Communicating the Policy:

Once the policy has got the final approval from the top management, it should be
communicated throughout the organisation. To teach people how to handle various
personnel problems a real education programme should be set-up in the light of this
newly formulated policy.

7. Evaluating the Policy:

Evaluation of the policy is needed by the passage of time, on the basis practical
experience of those who use it and of those who are affected by it. There may be
situations when an organisation is not getting the expected output. This requires the
needed modifications in die policies.

For serious difficulty or hindrance with policy along with suggestions should be
reported to the top management. Such knowledge will help the management to decide
whether there is a need to re-state or re-formulate the policy.

ADVANTAGES OF HR POLICY

Policies are standing plans and are a “guidepost to managerial action”

The following advantages could be achieved by the set-up of HR policies:
1. Policies help the managers at various levels of decision making to take decisions
without the consulting their superiors.
2. Subordinates are more willing to accept responsibility because policies indicate
what is expected of them and they can quote a written policy to justify their action.
3. They ensure long term welfare of employees and makes for good employee
relationship as favoritism and discrimination are reduced.
4. Well-established policies ensure uniform and consistent treatment of all employees
throughout the organization.
5. They lay down the guidelines pursued in the organization and thereby minimize the
personal bias of managers.
6. They ensure prompt action for taking decisions because the policies serve as
standards to be followed.
7. They prevent the wastage of time and energy involved in repeated analyses for
solving problems of a similar nature.
8. They establish consistency in the application of the policies over a period of time
so that each one in the organization gets a fair and just treatment.
9. Employees know what action to expect in circumstances covered by the policies.
10. Policies set patterns of behavior and permit employees to work more confidently.
DIFFERNECE BETWEEN POLICIES AND PROCEDURE:

Rules and regulation of the business organization are framed in the form of policies.
These are the guiding principles of an organization. It should not be confused with
procedures, as both are are created by top level management for middle and low-level
management. Procedure implies the step by step sequence, for the performance of
activity within the organisation.
BASIS FOR
POLICIES PROCEDURES
COMPARISON

Meaning A precise statement The Procedure is a

which contains the set of systematic sequence for
principles acting as an activity or task which
guidelines for achieving is predefined by an
the goals of an organization.
organization is known as
Policy.

Nature Policies are flexible in Procedures are rigid in

nature, i.e. they allow nature.
exceptional situations.

Reflects The mission of the Practical applicability of

organization. the policies.

Best Implemented Fully acceptable by the Follow a logical process.

when people.

In support of Strategies Programs

Involves Decision Making Actions

 ROLE OF HR IN STRATEGIC MANAGEMENT

“Strategic human resource management means formulating

and executing human resource policies and practices that produce the
employee competencies and behaviors that the company needs to
achieve its strategic aims.”- Gary Dessler.

“Strategic human resource management is an approach to making

decisions on the intentions and plans of the organization concerning
the employment relationship and the organization’s recruitment,
training, development, performance management, and the
organization’s strategies, policies, and practices.” – Armstrong.

Strategic human resource management (SHRM) is defined as “the

pattern of planned human resource deployments and activities intended
to enable an organization to achieve its goals.” – Wright & McMahan.

Strategic HRM focuses on actions that differentiate the firm from its
competitors (Purcell, 1999). It is suggested by Hendry and Pettigrew
(1986) that has these meanings:

1. The use of planning,

2. A coherent approach to the design and management of personnel,
3. Systems based on an employment policy and workforce strategy
and often underpinned by a ‘philosophy,’
4. Matching HRM activities and policies to some explicit business
strategy, structure, and culture, organizational effectiveness and
 performance, matching resources to future requirements,
developing distinctive capabilities, knowledge management, and
the management of change. It is concerned with human capital
requirements and the development of process capabilities, that is,
the ability to get things done effectively. Overall, it deals with any
major people issues that affect or are affected by the
organization’s strategic plans. As Boxall (1996) remarks: The
critical concerns of HRM, such as choice of executive leadership
and formation of positive patterns of labor relations, are strategic
in any firm.’

Given the increasingly significant role of human resources in an

organization, HRM has become strategic. Strategic human resource
management (SHRM) is concerned with the relationship between
HRM and strategic management in an organization.

Strategic human resource management is an approach that relates to

decisions about the nature of employment relationships, recruitment,
training, development, performance management, reward, and
employee relations.

Wright and McMahan (1992) defined SHRM as ‘the pattern of planned

human resource deployment and activities intended to enable the firm
to achieve its goals.

4 Components of Strategic Human Resource Management

This definition implies the following four components of SHRM:

1.It focuses on an organization’s human resources (people) as the

primary source of the organization’s competitive advantage.
2. The activities highlight the HR programs, policies, and practices as
the means through which the organization’s people can be deployed to
gain a competitive advantage.
3. The pattern and plan imply a fit between HR strategy and the
organization’s business strategy (vertical fit) and between all HR
activities (horizontal fit).
4. The people, practices, and planned patterns are all purposeful,
directed towards the achievement of the organization’s goals.
 On the whole, SHRM is concerned with people’s issues and practices
that affect or are affected by the organization’s strategic plan.

The critical issues facing an organization in the contemporary

environment are mainly human issues, such as ensuring the availability
of people, retaining, motivating, and developing these resources.

To stay ahead of its competitors, an organization will continuously look

for ways to gain an edge over others. Today, an organization competes
for less on products or markets and more on people.

Traditional HRM versus SHRM

Strategic human resource management and the traditional HR function

differ from each other in several ways. The major points of differences
between the two are;

TRADITIONAL HRM
SHRM
BASIS

Line managers; all managers

Responsibility for Staff personnel in the
responsible for people are
HR programs HR department.
HR managers

Employee relations— Partnerships with internal

Focus of activities ensuring employee (employees) and external
motivation and (customers, stakeholders,
 productivity, compliance public interest groups)
with laws groups

Proactive and
Reactive and
Role of HR transformational, change
transactional
leader

Slow, piecemeal, and Fast, flexible, and systemic

fragmented, not change initiatives
Initiative for change
integrated with larger implemented in concert with
issues other HR systems

Consider various time

Time horizon Short-term frames as necessary (short,
medium, or long-term)

Organic control through

Bureaucratic control
flexibility, as few
Control through rules,
restrictions on employee
procedures, and policies
behavior as possible

Focus on scientific
management Broad job design,
Job design principles—the division flexibility, teams and
of labor, independence, groups, and cross-training
and specialization
Important Capital, products, People and their knowledge,
investments technology, and finance skills, and abilities

Accountability Cost center. Investment center.

Difference between SHRM and HR Strategies

The terms strategic human resource management and human resource

strategies are often used interchangeably. However, some distinctions
can be made between the two.

In a general sense, the difference between SHRM and HR strategies is

similar to that between strategic management and corporate business
strategies. Both SHRM and strategic management describe an approach
adopted by the management and focus on long-term issues and provide
direction.

Human resource strategies and business strategies are outcomes of this

approach, focusing on the organizational view concerning key issues
and specific functions or activities.

SHRM HR Strategies

• A general approach to the

• Outcome (manifestation) of the
strategic management of human
general SHRM approach.
resources.
• Aligned with the organizational • Focus on specific organizational
intention about its future intentions about what needs to be
direction. done.
• Focus on long-term people • Focus on specific issues that
issues. facilitate the achievement of
• Defines the areas in which corporate strategy.
specific HR strategies need to be • Human resource strategy
developed. decisions are derived from
• Focus on macro concerns such as SHRM.
structure, culture.
• Strategic HRM decisions are
built into the strategic business
plan.

Essential Features of SHRM

The key characteristic of strategic HRM is that it is integrated. HR

strategies are generally integrated vertically with the business strategy
and horizontally with one another.

The HR strategies developed by a strategic HRM approach are essential

components of the organization’s business strategy.

The fact that SHRM has emerged indicates that there is some
qualitative difference between HRM and SHRM.
SHRM is regarded as the overarching concept that links the
management and the individuals within the organization to the business
and its environment.

In this way, the essential features of SHRM can be summarized as

follows:

1. There is an explicit linkage of some kind between HR policy and

practices and the overall organizational environment.
2. There are organizing schema linking individual HR interventions
so that they are mutually supportive.
3. Much of the responsibility for the management of human
resources is cascaded down the line.

Principles of SHRM

Price (1997) mentioned ten principles of SHRM, which he claimed are

measurable in some way and can be used for ’benchmarking.’

These are given below:

1. Principle of Comprehensiveness: HRM should be closely

matched to business objectives.
2. Principle of Coherence: Allocation and activities of HR
integrated into a meaningful whole.
3. Principle of Control: Effective organizations require a control
system for cohesion and direction.
 4. Principle of Communication: Strategies understood and
accepted by all employees, open culture with no barriers.
5. Principle of Credibility: Staffs trust top management and
believe in their strategies.
6. Principle of Commitment: Employees motivated to achieve
organizational goals.
7. Principle of Change: Continuous improvement and
development essential for survival.
8. Principle of Competence: Organizations competent in
achieving their objectives- dependent on individual competence.
9. Principle of Creativity: Competitive advantage comes from
unique strategies.
10. Principle of Cost-effectiveness: Competitive, fair reward
and promotion systems.

Linking HR practices to business strategy and one another

This issue of fitting HR practices to business strategy is becoming an

increasingly important and relevant HR issue for HR staff and line
managers.

HR fit involves making sure HR activities make sense and help the
organization achieve its goals and objectives.

The three aspects of HR fit are:

 1. Vertical fit

This aspect of vertical fit concerns the coincidence between HR

practices and overall business strategy.

2. Horizontal fit

This relates to the extent to which HR activities are mutually

consistent. Consistency ensures that HR practices reinforce one
another.

3. External fit

The third aspect concerns how well HR activities match the

demands of the external environment. Ensuring these aspects of
fit requires HR practice choices. The challenge is developing
internally consistent configurations of HR practice choices that
help implement the firm’s strategy and enhance its
competitiveness.

There is a need for strategic flexibility and a strategic fit for the
firm’s long-term competitive advantage.

The fit is defined as a temporary state in an organization, whereas

flexibility is defined as the firm’s ability to meet the demands of
the dynamic environment.

The two types of flexibility identified are:

Resource Flexibility

Resource flexibility is the extent to which a firm can apply its resources
to a variety of purposes. It also involves the cost, difficulty, and time
needed to switch resources from one use to another.

Coordination flexibility

Coordination flexibility concerns the extent to which an organization

has decision making and other systems that allow it to move resources
quickly from one use to another.

This task is accomplished by having an effective partnership between

HR managers and line managers.

Basics of International Human resource management

International Human resource management is the process of procuring

allocating and effectively utilizing the human resources in a
multinational corporation. While HR Managers in these organization
have to integrate HR policies and practices across a number of
subsidiaries spread in several countries so that the organization goals
can be achieve at the same time they have to make these policies and
practices sufficiently flexible to allow significant differences in these
policies in different countries. International HRM is concerned with
identifying and understanding how the MNC‘s manage their
geographically dispersed worked force in order to leverage their HR
resources for obtaining local as well as global competitive advantage.
IHRM is concerned with HRM issues that cross national boundaries or
are conducted in locations other than the home country headquarters.
IHRM is concerned with the relationships between the HRM activities
of organisations and the foreign environments in which the
organisations operate. IHRM includes comparative HRM studies; e.g.
differences in how companies in Japan, Thailand, Austria and
Switzerland plan for upgrading of employee skills and so on.

Functions of IHRM

Globalization, the process of integrating a business's operations and

strategies across a wide array of cultures, products and ideas, is having
an impact on the role of human resource managers. Once concerned
with the impact of local issues on employees, human resources must
now consider the effects of workforce diversity, legal restrictions and
the interdependence between training and professional development on
the organization. As such, the five main functions of global human
resource management are vital concepts to the strategic operation of a
business.

Recruitment: Attracting, hiring and retaining a skilled workforce is

perhaps the most basic of the human resources functions. There are
several elements to this task including developing a job description,
interviewing candidates, making offers and negotiating salaries and
benefits. Companies that recognize the value of their people place a
significant amount of stock in the recruitment function of HR. There is
good reason for this -- having a solid team of employees can raise the
company's profile, help it to achieve profitability and keep it running
effectively and efficiently.

Training: Even when an organization hires skilled employees, there is

normally some level of on-the-job training that the human resources
department is responsible for providing. This is because every
organization performs tasks in a slightly different way. One company
might use computer software differently from another, or it may have
a different timekeeping method. Whatever the specific processes of the
organization, human resources has a main function in providing this
training to the staff. The training function is amplified when the
organization is running global operations in a number of different
locations. Having streamlined processes across those locations makes
communication and the sharing of resources a much more manageable
task.

Professional Development: Closely related to training is HR's function

in professional development. But whereas training needs are centered
around the organization's processes and procedures, professional
development is about providing employees with opportunities for
growth and education on an individual basis. Many human resource
departments offer professional development opportunities to their
employees by sponsoring them to visit conferences, external skills
training days or trade shows. The result is a win-win: it helps the
employee feel like she is a vital and cared-for part of the team and the
organization benefits from the employee's added skill set and
motivation.

Benefits and Compensation: While the management of benefits and

compensation is a given for human resources, the globalization of
companies in the twenty-first century has meant that HR must now
adapt to new ways of providing benefits to an organization's
employees. Non-traditional benefits such as flexible working hours,
paternity leave, extended vacation time and telecommuting are ways to
motivate existing employees and to attract and retain new skilled
employees. Balancing compensation and benefits for the organization's
workforce is an important HR function because it requires a sensitivity
to the wants and needs of a diverse group of people.

Ensuring Legal Compliance: The final function of human resource

management is perhaps the least glamorous but arguably of utmost
importance. Ensuring legal compliance with labor and tax law is a vital
part of ensuring the organization's continued existence. The federal
government as well as the state and local government where the
business operates impose mandates on companies regarding the
working hours of employees, tax allowances, required break times and
working hours, minimum wage amounts and policies on
discrimination. Being aware of these laws and policies and working to
keep the organization completely legal at all times is an essential role
of human resources
International human resource activities: International human
resource activities include major operative human resource functions
such as procurement, which involves human resource planning and
induction. The second major activity is allocation; it involves the plan
for using human resources among various subsidiaries or projects.
Effective utilization of human resources is the third human resource
activity and helps in maximizing the skills and efficiency of the human
resources and productivity. The activities of international human
resource activities cover all the major activities like HR planning,
recruitment, selection, orientation, placement, training & development,
remuneration, and performance evaluation.
Categorization of countries in the concept of IHRM: In the concept
international human resource management, the countries having
headquarters and subsidiaries are categorized as follows.

• Home country: Where the headquarters is located

• Host country: Where the subsidiary is located

• Third/other countries: These are the sources of finance and human

resources

Types of employees in IHRM: The name international human

resource management itself indicates that human resources are
recruited from various countries. Here nationals of various countries
contribute their skills and efficiently for the growth of the organization.
They are mainly three types, parent or home country nationals, host
country nationals, and third country nationals. These three types are
differentiated on the basis of citizens of headquarters of the company,
citizens of the subsidiaries of the company, and citizens of various
countries.

Home country or Parent Country Nationals (PCNs) Home country

nationals are the employees of the organization and these are the
citizens of the country where the headquarter is located.

Host Country Nationals (HCNs) Host country nationals are the citizens
of the country where the subsidiary is located or when any organization
recruits the nationals of the country where the subsidiary is located.
Third-country Nationals (TCNs) Third country nationals are the
citizens of the other countries, and they are neither the citizens of the
country where the headquarters is located nor the citizens of the country
where the subsidiary located.

Staffing Approaches

Depending on the recruitment of key managerial positions for

multinational companies, different approaches are explained.
Ethnocentric Approach: According to ethnocentric approach,
organizations believe that the employees of home country nationals can
perform better to fulfill the organization‘s mission, vision, and
objectives, so all the key managerial positions of the subsidiary are
filled with expatriates from the home country.

Advantages of ethnocentric Approach

• Organization‘s culture can be easily adapted to all the subsidiaries

with the help of key managerial decisions such as vision, mission, and
objectives.

• Possible to eliminate communication barriers between the

headquarters and subsidiaries.

• Proper control is possible with the ethnocentric approach.

• The parent company can monitor the operations of the subsidiaries

effectively.
• Better coordination of activities between the parent company and
subsidiary are possible.

Disadvantages

• Need to pay more for the expatriates from the home country.

• Cross-cultural variations may lead to clashes between the various

levels of the employees.

• Host country national employees may get disappointed by losing the

key managerial roles.

• The subsidiary may lose skilled and experienced employees due to

the ethnocentric approach.

• Expatriates from the home country may not aware of the local values
and beliefs, so cultural clashes may arise and may show an effect on
the business.

Polycentric Approach In polycentric approach, all the key managerial

positions are filled with the employees of the host country nationals.
Many companies are adopting this approach because they believe that
host country nationals can help in fulfilling the objectives of the
organizations with a better understanding of the local culture, beliefs,
and values. Here subsidiary is given freedom to take decisions and
formulate strategies according to the local business environment and
vision and mission of the headquarters.
Advantages

• Host country managers can analyze and understand the local markets
and local people

• Better coordination with the business environment is possible, both

internal and external.

• No difficulty arises due to cultural issues.

• It creates job satisfaction and job enrichment to the host country

nationals.

• Hiring host country nationals is less expensive than hiring expatriates.

• Local market knowledge of the host country nationals enables them

to take strategic decisions.

Disadvantages

• It may not always create a scope of better coordination between

headquarters and subsidiaries.

• Quick control of operations is not possible because of the key

managerial positions are occupied by the host country nationals.

• Though the host country managers follow the vision and mission of
the organization, then also errors may occur in the fulfillment of the
standards of organization culture.
Geocentric approach: According to geocentric approach,
organizations hire neither the home country nationals nor the host
country nationals preferably. They recruit employees on the basis of
the concept right person for the right job. Here organizations hire right
persons or suitable employees for the effective running of the business
operations, irrespective of the nationality. Geocentric approach
facilitates competitive advantage by hiring most talented and eligible
people.

Advantages

• The geocentric approach creates a scope to hire world‘s best talented

and skilled employees.

• It facilitates competitive advantage and helps in reaching the market

empire position.

• Hiring most talented and eligible people can fulfill the objectives of
the organization effectively.

• This approach helps in reducing the unfair treatments and clashes in

the organization due to the favoritism towards nationality.

Disadvantages

• Hiring according to geocentric approach is expensive.

• Chance of cross-cultural clashes become high

• It may not always facilitate better coordination and control of the
operations of the organization.

• Difficult to monitor and control the operations

• Organizations need to spend more on expatriate relocation allowance.

• High cross-cultural variations arise.

Difference between IHRM and Domestic HRM

Common activities between Domestic HRM and IHRM

Difference: Check notes