Change Management and Human Resources, Essay Example

Summary

The case study of Human Resource Management is looked through the history of acquisition by GE Medical, North America of Companie Generale de Radiologie (CGR) Paris, France. Introduction to the case discusses the corporate culture clash between revenue focused General Electric, and the recently privatized, CGR known for its state-run, non-competitive work style.[i] The GE Medical CGR, Paris story is a model case study, in that it shows that even ‘good managers’ can create unsuccessful results in the context of globalization. The case reveals how unexamined practices within something as taken for granted as specialist knowledge in accounting or engineering, can lead to extraordinary tensions between existing employees, and new management oversight.[ii] As we see upon examination, something as small and as large as language or time expectations can lead to tremendous difficulties in motivation, and ultimately market demand and revenues. A fascinating insight into the world of work and human resource management, the GE Medical CGR case serves as a foundation for further inquiry into change management and equity incentive strategies.

Case Study: GE Medical acquisition of CGR, Paris

Expected values and practices within national business cultures are fundamental to understanding the mistake made by General Electric (GE) in its take-over acquisition of Companie Generale Radiologie (CGR). At the time that GE entered into the French market, an existing high level of specialization, low change, professional environment was resilient to U.S. business protocol.

Operating in a business community connected to socialized medicine by trade, GE found that the acquisition organization primarily dealt with parties that conduct themselves according to delimitations of a state in stasis in terms of growth. While France is a ‘large country’ in terms of GDP, population and wealth per capita, the tax based medical system promotes a certain heterogeneity within healthcare that does not exist in the United States. CGR and its partners had been responsive toward France’s medical instruments field, and its dictates such as consistency in service, and research based innovations to fit the needs of existing customers. What GE found instead of market expansion strategies and profit interests in the absolute sense, was an obscure and seemingly impenetrable network of relationships that affected every aspect of interactions within the internal operations at CGR. Other issues were merely the result of the transition of the company toward a ‘global’ market model of administrative and operational practices. GE’s North American business practices were experienced largely as a foreign intrusion into the internal sphere of CGR that was more-or-less dedicated to the low change relationship with the state, rather than a welcome shift toward growth potential on the futures market.

Specific issues that took place within the organization’s transition from CGR to GE Medical were accounting standards and human resource management policies. GE’s U.S. trained managers, while savvy in international experience, were not prepared for new standards of compliance and conduct. Risk followed incompetency, even if those mistakes were blind-sided errors rather than intentional risks. The danger of something as technical as accounting practices unobserved or analyzed prior to market entrance by GE was a transitional oversight mistake that ultimately almost destroyed the company in the process. Poor attention to change management practices, or even instruments of assessment (i.e. SWOT analysis) evolved into further bad faith relations with long-term staff, and including engineers responsible for product research and development.

Prior to GE’s entrance into the CGR workplace, the business practices at the Parisian based firm reflected France’s Sécurité Sociale system. Like other medical suppliers, most of CGR’s customer basis was drawn from a clientele state relationship that had held expectations of civil service models of productivity typical of a culture of work unchallenged by competition. Indeed from everyday aspects of employee motivation and performance on the job, to standards of regulatory adherence, and attendant rules of conduct in response to those public partnerships, CGR was run on a model of low participatory, low change management that was experienced by most employees as stasis. No change meant that little challenge to normative modes of low productivity and a national expectations of leave of absence, whether it be maternity, vacation, or merely a “mental health break” all contributed to what GE found in confrontation with U.S. models of high productivity, and low absence employee relations. CGR employees were nothing short of shocked by GE’s protocols which reinforced high change, aggressive capitalist market practice.

CGR employees also complained about communicative practices, arguing that the English introduction to GE’s new management oversight meant that it was not they, whom were being addressed. CGR employees were met characteristic literalism (i.e., plain talk “means” what is said, not inferred) by North American managers, who were equally shocked at what they thought to be unmotivated and unproductive long-term workers whom had been working under the former system at the Paris based firm. In short, globalization of the corporation really required localization of GE in the preliminary stage, in order for the corporation to assess its human resources accurately and adequately, and to foster good faith ground in order to effectively translate the company’s corporate culture and standardized expectations in a fertile context that would be receptive towards company centered ideas such as capital growth.

As corporations and workers are contracted into the global market at an accelerated pace, there is much to learn about how and why management fails in response to poor research. Feasibility studies are common amongst large corporations such as GE. However, as most analysts know, feasibility studies apply significant attention to market research and financial investment, and far less to operational and procedural concerns of the internal environments of which they are investigating. Organizational charts render visual aspects of procedural work flow and hierarchies of responsibility, but how those two systems function coherently as an organization are distinct between companies, and especially when those systems are examined in various national contexts. While acquisitions always include feasibility studies, those studies may not incorporate significant inquiry into human factors, such as cognitive mapping of work systems and management of those processes. Investment of in depth analysis of entities under negotiation is impacted by accessibility and time, as well as subject to external factors such as contract law in those contexts.

Employee and Labor Relations at GE Medical, Paris

The tension between existing organizational culture and resistance to environmental change can be measured in terms of productivity. GE Medical expected higher performance when it moved into CGR. While productivity is not demand, it is obviously a critical factor in financial outcomes for any organization. How people work has much to do with their attitude toward the company they work for. Strong organizational culture will always impact behavior, and whether that is positive or negative may not always be subject to individual preference, nor stasis achieved through vertical management styles. In short, even overt dominance is not enough of an indicator in a workplace, as attitudes are affected by external cultural orientations that can shift over time.

Organizations can best accommodate employees and optimize performance in a real sense, by conducting division and organizational systems evaluations. Evaluations enable employees to articulate detailed issues that may be percolating under the surface of organizational relations, or orientation toward processes. Organizational assessment of the organization with recommended instruments drawn from best practices models of evaluation provide the final link in the researched management strategy. All forthcoming strategy for organizational change, execution of those strategies, cultural changes, and structural outcomes should be based on this approach. By doing this, educated decisions about everything from accounting to training may be evaluated for performance.

From a change management perspective, GE’s primary oversight error was the wholesale execution of a new system of management onto an existing organizational culture, without proper analysis of planning, nor employee introduction or follow-up post application.[iii] The universal framework for change management planning includes four (4) basic factors prior to implementation: 1) strategy; 2) execution; 3) culture; and 4) structure. All factors within GE’s should have relied upon a hierarchy of application in the transition from the French to U.S. system with consideration to: 1) Processes (i.e., accounting standards), and 2) Culture.

The accounting system error was a critical oversight that was recorded by CGR’s staff. Reliance on the decision making of the new management would have been stronger if adequate analysis had taken place immediately post acquisition. Imposition the new system was inappropriate for French standards of accounting practice. So much so, that it was a serious cost to the firm, both in terms of finance and in employee confidence.[iv]

Mass layoffs were the result of poor change management at CGR. GE Medical intended to streamline the firm in order to turn its operations around resulted in personal decision to abandon the firm by essential skilled employees such as managers and engineers. Bi-lingual communications in the firm would have been an obvious measure to hedge against disloyalty, and would most likely have made the firm approach its goals more readily, as no challenge to the employees whom were French native speakers would mean clarity of communication and responsive performance.

Ultimately, GE did think globally and act locally, but the company’s final goal is to both think and act globally, while meeting the market demands of the local population. Every detail of the production process within a firm must be analyzed for comprehensive understanding, and in terms of significant details that may affect revenues. Concepts as simple as “time” must be approached gingerly in environments that are accustomed to a certain work rhythm. This was certainly the case at CGR, where employees were reliant upon conduct and practices that were inherently French, and not at all an American model of interaction. While GE introduced the transition to its Culture with the “international language” of English, French employees were resistant to this introduction as a primary mode of communication, and as an articulated priority in the context of their national location, France. In spite of American lip service to individualism and diversity as core values within professional practice, the French employees rightly observed something in that team playing “smile” that is a thin veneer for American “dominance” – a high priority in U.S. business culture. Although employees and local consumer markets always prevail in terms of on-site success, transition from thinking about what the French are accustomed to doing, and whom they traditionally serve, is imperative in order for the entity to compete and meet projected revenues.

Compensation and Benefits

If futures are the mutually dependent nexus between the interests of individuals and corporations, as observed in studies on the correlation between individual pensions, the use of Economic Value Added (EVA) compensation strategies within new economy corporations, according to Pettit & Ahmad (2000), “what gets measured gets managed – and that is not always shareholder value.”[v] Change management professionals are now faced with the challenge of addressing employee performance in an increasingly globalized labour market. In the late 1990s, human resource executives have been posing this critical question: “is the world ready for “employee-capitalism?”[vi]

Equity incentive schemes and their attendant financial tools have become crucial to executive management seeking to forge efficient links between employee retention and organizational sustainability. So much so, that standardization of EVA is now promoted across the board within the rather unique transnational labour market in the EU. Managing for value has become the ideal behind new robust compensation systems; intended to better align with the interests of between employees and owners. This is not to say that the EVA strategy does not have its draw backs. Measurement of corporations based on size – where competitive levels of compensation, performance-related pay, and significant levels of pay risk are assumed as permanent human resource policy – puts other strategic planning factors such as cost and retention factors, policies of distribution into duress during periods of volatile performance.

Proponents of the EVA argue the shift from organizational strategies, where employees are mere functionaries, to a new principle of shareholder value is good governance. The EVA and attendant benefits are essentially mechanistic, some say, because the real challenge for management in a landscape of rapid capital transformation with equally highly flexible labour market incentives is to speak to top talent with incentives that attract those employees. With compensatory strategies come immediate reinforcement of organizational interests, even in contexts where acquisitions cross cut existing cultures of professional engagement with new models of administration and production. Behavior modification is far more readily accepted in situations where financial incentive to increase wealth is a personal priority, as well as an organizational one. Equitable distribution for a “job well done” now translates into equity incentive schemes; meant to supplement employee benefits which are comparatively distinct from other forms of compensation. Equity incentive schemes are but one example of management strategy in a new economy that encourages participatory “ownership” by employees.[vii]

Options programs offer managers financial instruments for crafting employee EVA strategies, and by assumption, increased company wealth. Rather than multiple and contradictory measure of approaching value, the EVA scale offers a single solution with value based goal setting, and multi-year accountability. In short, multi-year EVA growth goals “extend the term of the contract, and thus significantly improve the alignment and leverage between owners and employees.” The result is equity-like payoffs that also guard against the treacheries of short-term volatility.

Recommendations

Questions pertaining to ethics and corporate responsiveness to employees within growth strategies, should, and must always be approached from a legal perspective. Translation of U.S. EEO and Affirmative Action policies, and related labour codes toward civil rights and regulatory responsibilities is null and void outside the United States. In GE Medical CGR Paris case, it could be said that General Electric was nor “right” or “wrong” in projection of distinctly American expectations on staff. However, the global corporation was unrealistic in its attempt to construct a synthetic organizational culture, in an existing environment just undergoing structural adjustment. Human capital, or equitable worth as it was recognized in France, was misperceived by GE’s North American operations. From the outset, GE faced near disaster in a large national market that was otherwise primed for expansion of its radiological instrument products. At CGR, where employee, and specifically the engineering staff whom were suspicious of market driven change and what they may have had important insight into in terms of foreseeable affects resulting from the existing and prior relationship to clients as a state run business, GE would have been savvy to provide a sort of “diplomatic mission” for debriefing intended changes, and articulated input desired from this essential division.

Americans tend to think of employees as ‘team players’ (read: sports thought) with a managerial attitude replete with a coaching ethic toward “winning.” In Europe and elsewhere, however, as GE management found at CGR, Paris, this type of business culture is relatively absent or at least considered alternative in a context where more established models of business practice related to interpersonal relations, and innovative expertise. CGR was ripe for acquisition despite it stogy public partnership model based on state interests. France is observing a rapid growth of entrepreneurial business that has led to a great deal of advancement in flexible models of capital wealth, decentralized and highly pliable in terms of transformation and streamlined approach to growth. None of which, however, support the literalism of personal investment in an American ‘sports team’ performance model. The barrier to trust was established early on in the transition, which made it quite a bit more difficult for GE to substantiate its ground in the Parisian site.

How Americans think about their own conduct, and what they expect from others (or do not expect) is written into code in order to objectify those issues; something that is not as necessary in the internal work environment in Europe, where expectations about what it means to behave normatively and therefore adhere “naturally” to civil society are much higher in the external environment. In some cases, ethical expectations from one environment may impinge upon or prompt consideration of ethical and legal practice in another. On assignment in another country, perhaps the most insightful point pertaining to the translation of ethics is the distinct attention to by-laws or codes of ethics as a standardized instrument within US corporations.

According to Hitt et al. (1995), 96% of US corporations incorporate codes of ethics within their employee protocol, while only 15% of European firms paralleled this practice. In short, most of the focus on ethics within US corporations is specifically on the human element of business, and misconduct such as corruption or sexual harassment is in every case subject to the risk of immediate, and costly legal action. Although there is the indication that the instrumental inclusion of codified ethics within corporate mission and procedure, and even structure in the form of social responsibility departments is consistent with US expectations about what the shape of ethical practice, the research does not reveal significant disparity between the US firms and their European counterparts in terms of actual conduct.

I would maintain that the underlying the tensions between U.S. common law (and its culture of lower court litigation as an everyday, instrumental practice by employees in the States), and the stratified, positivist legal environment in Europe’s civil law countries codification of civil and tort statute articulated strictly by legislation, rather than precedent of courtroom negotiation leaves less focus on employee complaint. Finally, in the case of GE Medical’s acquisition of CGR Paris, one could even posit a more subtle argument about what went on in the work culture, which were degrees of education (both traditional learning, and that of which is inculcated by cultural surroundings), and therefore civilized conduct as normative practice; something that is subjective and immeasurable by team coaching.

[i] See: GE Medical Co. Story: Hitt, Black & Porter, (1995). Management. Upper Saddle River: Pearson Education, Prentice Hall.

[ii] Harris, H. (2007). Globalizing Human Resource Management. Oxford: Taylor & Francis.

[iii] Drucker, P. F. (1995). The Information Executives Truly Need. Harvard Business Review, 1995.

[iv] Stewart, G.B. (2002). Accounting is Broken: Here’s How to Fix it: A Radical Manifesto. EVAluation, 5(1), September, 2002. New York: Stewart Stern & Co.

[v] Pettit, Justin & Ahmar Ahmad. Compensation Strategy for the New Economy Age. EVAulation. New York: Stern Steward & Co Research. May, 2000.

[vi] Schönburg, J. & Stern, E., (1999). The Capitalist Manifesto: The Transformation of Employee Capitalism. EVAluation, 4 (1), June, 1999. New York: Stewart Stern & Co.

[vii] Shinder, M. & McDowell, D., (1999). ABC, The Balanced Scorecard and EVA. EVAluation, 1(2) April, 1999. New York: Stewart Stern & Co.