In today’s intensely competitive and global marketplace, having a highly committed or competent workforce is one of the most critical factors in maintaining a competitive advantage (Millmore et al., 2007). Therefore, in a growing number of organizations, strategic human resources management (SHRM) is now viewed as a source of competitive advantage. Strategic human resource management is designed to help companies meet the needs of their employees while promoting company goals. As an important aspect of strategic human resource management is employee development, organisations have to consider employees may want or need and what the company can reasonably supply (Baker, 2009a; Tarique and Schuler, 2010). This research paper tries to discuss how organisations achieve this mission. We will discuss about two very important aspects of SHRM, strategic international HRM (SIHRM) and employment relationship. Although these two fields will be analysed separately, we can see the link between them when we apply them to the case McDonalds’ (Goldsmith et al., 2009). In each section, we will discuss about the theories and models relating to each of those aspects and how these theories showed up in McDonalds’.
II. McDonalds’ and Strategic International HRM
II.1. Literature review of SIHRM and its frameworks
The main trend of recent studies on changes in the business environment is the growth of internalisation, for example Ferenbach and Pinney (2012); Hitt et al. (2012); and Zain and Kassim (2012). As businesses become more and more global, SIHRM plays an important role in the development and success of multi-national corporations (MNCs) (Festing et al., 2012; Smale et al., 2012; and Stahl et al., 2012). According to Briscoe (2012) international human resource management (IHRM) can be defined as set of managerial tools for managing organizational human resources at international level to achieve organizational objectives and competitive advantage over competitors, both domestic and international. IHRM, therefore, includes typical HRM functions such as recruitment, selection, training and development, performance appraisal and rewards and punishment done at international level and additional activities such as global management skills, expatriate management and so on (Millmore et al., 2007).
Milliman et al. (1991) developed a SIHRM framework based theory of “fit and flexibility”. The concept of “IHRM fit” included external and internal side. External IHRM fit indicated the MNCs’ capability to deal with the cross-national environment, which includes the social, legal, political and cultural factors of diversified foreign countries where they operate. On the other hand, internal IHRM fit stressed on the management ability to ensure appropriate control and co-ordination between corporate and foreign subsidiaries. In addition to “fit” concept, “flexible” was also important as it specified the organisational capability to smoothly implement changes and adapt to diverse circumstances. Zheng (2013) commented on the framework that in today’s open global environment in which information and knowledge is transferred freely and quickly, an integration of fit between internal HRM and external functions is required and should not be treated as two separate functions.
The SIHRM framework of Schuler et al. (1993) seems to implement this point (Figure 1). The framework constituted of two major elements: inter-unit linkages and internal operations. Inter-unit linkages showed the MNC’s ability to differentiate its operating units thorough the world while, at the same time, keep them well coordinated and controlled. Internal operations indicated the fit between each unit’s confines of its local environment, laws, politics, culture, economy and society and its own strategic objectives given by the corporation. Schuler et al. (1993) framework’s limitation is to ignore the role of human-beings (managers and staff) which is widely considered as a very important constituent of SIHRM (for example Briscoe et al., 2012; Shi and Handfield, 2012; and Sanchez-Arias et al., 2013). The SIHRM framework of Taylor et al. (1996) stressed on how smoothly top managers can transfer the parent company’s SIHRM orientation to affiliate’s HRM system, then to impart organisational values and top managers’ belief to specific employees within the affiliate (Figure 2). Although Taylor’s model (1996) can complement the limitation of Schuler’s framework (1993), we still need a more detailed and practical model to apply in the real business world. This is the point at which the framework for global talent management of Tarique and Schuler (2010) comes in handy. In the next section, we will discuss about the framework in details and in the case of Mc Donalds’ (Figure 3).
II.2. The framework for global talent management and the case of McDonald’s
a.Global Talent Challenges for McDonalds’
The major driver of global talent challenges for McDonalds’ is the globalisation. Although globalisation enables firms to employ workers in the developing economies of the world at much lower wages than is possible in the developed economies of the world (Wise and Covarrubias, 2012), it also leads to increasing competition in fast food industry (Asif et al., 2011; Gupta, 2012; and Royle, 2012). In such circumstance, global competitive advantage is only for those multinational firms that succeed in locating and relocating its workforce over the world, adapting to local differences, learn continuously, and transfer knowledge more effectively than their competitors do (Molinsky, 2013; Steers et al., 2013).
Therefore, human recourse becomes more and more important in maintaining competitive advantage at MNCs. In addition, as McDonalds’, like other MNCs, expand its business into many other countries, its consumers continue to have very different buying patterns from region to region. The organisation therefore must have a talent management strategy in place that continually assesses whether employees have the ability to address the particular needs of a diverse customer base (Podsiadlowskia et al., 2013). In 2011, Manpower Group conducted research among nearly 25,000 companies across 39 different countries and territories, which shed light on that 32% of American companies were looking for foreign workers, higher than any other area (that number of the whole world was 24%). This raises the demand for workers with competencies and motivation considerably high, especially for American companies.
While the demand was getting higher, the foreign labour supply for MNCs was not so abundant. The research of Manpower (2011) showed that 74% of American employers (among 5,820 surveyed companies) found it difficult in recruiting foreign labours. In addition, Pearson (2012) believed that high employee turnover is a threat for today’s businesses. These issues made the labor market more competitive for employers, especially operates in an industry whose the rate of employee turnover is as high as fast food industry (Harris, 2012). For McDonald’s and other fast food restaurant, there is another specific obstacle. According to Sharma and Kiran (2012), employees nowadays do not only look for organisations offering high wage but also those “whose philosophies and operating practices match with their own principles”. This might create an issue for McDonalds’ to compete in recruiting best talents as fast food restaurants usually have bad reputation of causing ethical healthy issues such as obesity (Fraser et al., 2012; Jeffery and Utter, 2012). Tarique and Schuler (2010) summarised global talent challenges as too little needed talent and too much unneeded talent, or rather “the needed talent is available in the wrong place”.
b.McDonalds’ Human Resource Actions to Address Global Talent Challenges
Talent management initiatives can only be effectively successful when linked to the strategies of the organization. Since 2005, McDonald’s global workforce strategy has been designed to be aligned with and support the execution of its business objective, which is “to become everyone’s favorite place and way to eat” (Harkins et al., 2005). Interestingly, the global talent management practice initiated by McDonalds’ nearly ten years ago was very similar to the Tarique and and Schuler’s framework (2010).
Prior to 2001, McDonald’s developed its performance assessment system comprised of six “performance drivers” (Figure 4) on which managers and staffs’ annual performance will be measured not just on the “what” of their accomplishments but also on “how” they accomplished it (Goldsmith et al., 2009). However, when it was rolled out globally in 2003, it was clear that certain elements of the new system re-design were not suited for the foreign cultures and legal structures that existed in certain countries. As a result, all of its affiliate and franchising stores were given flexible to make certain changes to adapt local requirements. This manager’s initiative reflected the “fit and flexible” concept of Milliman et al. (1991) as discussed in the last section.
In 2003, McDonalds’ introduced its Global Talent Review Process of which main purpose is to train and develop next generation of leaders and managers and in 2006, the organisation added a more in-depth analysis of who needs development moves to enhance their experience and a process that facilitates this movement (Goldsmith et al., 2009). The initiative allowed potential leaders of next generation to move more freely to various organizational departments in order to realise development job opportunities with support of their peers and develop their own talents (Brown and Lent, 2012).
With the intention of attracting and retaining high-performing talents, The McDonald’s Leadership Institute and the Global Leadership Development Program were introduced in 2006 (McDonald’s, 2013). The Institute was a virtual community that provides a culture of learning and development and to which anyone from any geographic location can accessed. The Global Leadership Development Program focused on preparing participants for broader leadership responsibilities and building a strong peer network that will support these individuals in developing their leadership path.
The qualitative impacts of these initiatives were managers and staffs became much more aware of the strengths and talent gaps in each area, so they can recognise their own development needs and develop their talents more effectively. In addition, as the number of cross-organizational movement increased, organisation had better selections for all tasks.
Schuler et al. (2010) pointed out several barriers of talent management to which McDonalds’ and other MNCs should pay attention. First, managers at all levels rather spend time on their own pressing tasks than on talent management programs. Second, organizational structures might inhibit collaboration and the sharing of knowledge across boundaries. Finally, HR departments might be short of “the respect of other executives whose cooperation is needed to implement appropriate HR actions” and might not be able to deal with the global talent challenges.
III. McDonalds’ and Employment Relationship
III.1. Literature review of employment relationship and new ERM model
In last section, we discussed how important talent management is for McDonalds’ to maintain its competitive advantage in today’s widely open business. Although McDonald’s already has a quite complete talent management program, the organisation should be noticed that its workforce strategy could not be successful without great employment relationship. Gospel and Palmer (1993:3) define employment relationship as “an economic, social and political relationship in which employees provide manual and mental labour in exchange for rewards allotted by employers.” Rose (2004) clarified that rewards can be not only economic but also social and psychological. Millmore et al. (2007) believed that psychological reward is an indispensable part in employment relationship. They went on to define two key strategic concepts that were labour – management partnership and psychological contract. According to Millmore et al. (2007), key values of a successful labour – management partnership included share of goals, culture, knowledge, effort and information.
Armstrong (1996) discussed that the labour – management partnership initiated when employees provide skill and effort to employers and the employers provide the employee with a salary in return. However, the employment relationship can also be expressed in terms of a psychological contract defined by Rousseau (1994, cited by Millmore, 2007:448) as “the understanding people have regarding the commitments made between themselves and their organisations”. Noe (1999, p. 290) states, “a psychological contract is the expectation that employers and employees have about each other”. According to CIPD (2006), psychological contract breach occurs when employees believe that the organization has failed to deliver its promises or obligations.
There were many research works about psychological contract and its importance in employment relationship, for example Robinson and Morrison (2000); Coyle-Shapiro and Kessler (2000); Guest and Conway (2002); Turnley et al. (2003); Conway and Briner (2005). These works however did not point out a model that is practical and easy to apply and measure in the workplace. In addition, because of globalisation and today’s fast changing business environment, the needs of organizations and workers’ expectations changed significantly (Burke and Ng, 2006). Therefore, the traditional psychological contract might not work as well as it had been. Besides, most of the research in the past has emphasised the employee, while it should be on both employees and employers’ perspectives (Baker, 2009a). Baker (2009a) believed that there is a need to develop a new concept of employment relationship that enables corporations to attract good staff and retaining talented employees in today’s business environment of volatility, uncertainty, and global competition.
In such a business environment the traditional perspective on employment relationship such as that of Gospel and Palmer (1993) might not work. According to Baker (2009a), the new employment relationship model must base on the workers’ needs with organisational outcomes. He then provided core attributes of the model including flexible environment, customer-focus, focus on performance, project-based work, human spirit and work, loyalty, learning and development and open information. In next section, we will discuss about these core attributes with the illustration of McDonalds’.
III.2. McDonald’s and the application of new employment relationship model
The first aspect of the relationship is flexible employment which defined by Baker (2009a) as organisation policy to encourage workers to work for other units or departments. In 2006, McDonalds’ conducted an in-depth analysis of which staffs could be potential leaders and managers, what skills and experience they needs, to which units they should be moved to get these skills and knowledge, and how to facilitate the movement (Goldsmith et al., 2009). The implementation of flexible employment strategies can create opportunities for workers to develop their career beyond the confines of their specific specialization. Kappia et al. (2007) proved these career development opportunities could be more motivating than monetary rewards. The concept of customer-focus, which becomes more and more important in business techniques (Bharadwaj et al., 2012; Idris, 2012; Kanti, 2012), is the second attributes of new employment relationship model (ERM). The concept of customer-focus places employees in the “unique position of answering to two bosses”, the organisation and the customer (Baker, 2002). Baker (2009b) believed that a successful customer-focused strategy depend on managers and workers’ good communication with external sources such as local communities and culture. Related to the case of McDonald’s, its customer-focused “Plan to Win” relies on local talent to develop a deep connection between McDonald’s and the local communities in which it operates (Goldsmith et al., 2009).
According to Baker (2009a), the concept of focus-on-performance suggests that customers should focus on the achievements of their job and the way they achieve them instead of job specifications. Organisations, on the other side, should link rewards and benefits with performance rather than organisational policies and rules. Moreover, new ERM suggests that an effective “multidimensional performance system” promotes workers to contribute beyond their regular task while organisations can utilise and reward workers for these non-job contributions (Baker, 2009b). Since 2001, McDonald’s redesign its performance measurement system with six “performance drivers” for which employees ‘be measured not just on the “what” of their accomplishments but also on “how” they accomplished it’ (Goldsmith et al., 2009).
The system also enable top managers to signal the importance of needed culture change in which employees are encouraged to be more innovative and contribute more than merely doing their regular tasks. The fourth aspect of new ERM is project-based work. As business environment is increasingly uncertain and unstable, project-based work gains more interest from both corporations and employees (Watson, 2012). This initiative includes several forms such as temporary and fixed term contracts, outsourcing, flexible time, part-time working, overtime, job rotation, or functional mobility, which provides job flexibility (Peiró et al., 2002) The project-based work is also widely applied in McDonalds’ as the senior managers often depend on peers’ assessment in providing employees development job opportunities (Goldsmith et al., 2009).
With the increase in market competition and dynamic work environment, many employees are suffering from work overload that could seriously affect the organisational performance (Altaf and Awan, 2011) and many researchers believes that workplace spirituality is one way to deal with this problem (Karakas, 2010). Baker (2009a) also mentioned human spirit and work as a function of new ERM. The effectiveness of the workplace spirituality on work performace, however, is still criticised by several researches and hypothesis tests, for example Bell et al. (2012) and Weitz (2012). There is also no evidence that this concept has ever been applied at McDonalds’. Another aspect of new ERM doubted to be effective and not applied at McDonalds’ is open information.
Loyalty and commitment, on the other hand, has no doubt to be a so important attribute of new ERM. According to Baker (2009b), these aspects should come from both sides. Employees’ loyalty is to enhance organisational outcome rather than processes, while organisational commitment is to improve employees’ personal objectives and development. McDonald’s has paid significant attention to its employees for years. McDonald’s has its Commitment Survey to assesses employee satisfaction with the support and recognition they receive, the extent to which their skills are utilized and developed, the degree of their empowerment, working condition and their compensation (Goldsmith et al., 2009).
A manager’s scores on the Commitment Survey are one of many important factors considered in assess employees’ effectiveness and potential for advancement. Much related to this aspect is learning and development. As discussed in last section, McDonalds’ initiated its The Leadership at McDonald’s Program, which aimed at identifying developing high potential talent, in 2004 (Goldsmith et al., 2009). Having been accessed as qualified candidates of the program, employees will be granted for many individual learning opportunities. First, each participant will have a coach to discuss progress against objectives and receive objective feedback and developmental coaching throughout the program. They also have opportunities to work closely with McDonald’s high potential peers throughout the program and with talented management peers from other companies/industries as part of the Thunderbird Program in order to build strong internal and external peer networks (Goldsmith et al., 2009).
The application of these attributes brought McDonalds’ several positive signs. As of mid-2006, 34% of the 104 graduates of the LAMP Program have been promoted while only 4% of the them have left the company for other opportunities. It is a key objective of the program for its participants to know they are highly regarded and that the company will continue to invest in their ongoing development. The program also made itself a strong brand identity and equity within the organization and more and more employees want to join the program (Goldsmith et al., 2009).
As SHRM becomes more and more important for organisations, it is critical for managers to understand not only its related theories and concepts but also discover and invent the most practical models for which they can apply to their organisation. As businesses become more and more global SIHRM and the model of global talent management of Tarique and Schuler (2010) plays an important role in the development and success of MNCs. Even when organisations already have a quite complete talent management program, they should notice that its workforce strategy could not be successful without good employment relationship. Baker (2009a) believed that there is a need to develop a new concept of employment relationship in today’s business environment of volatility, uncertainty, and global competition and he introduced the new ERM. The case of McDonalds’ (Goldsmith et al., 2009) has shed the light on how practically successful these models could be when appropriately and effectively applying in an organisation. This is, however, just the beginning of these relatively young models and the question of whether these models can create sustainable competitive advantage will need more academic and practical researches in the future.