An institutional theory perspective on e-HRM’s strategic potential in MNC subsidiaries

https://doi.org/10.1016/j.jsis.2013.07.003Get rights and content

Highlights

  • E-HRM practices are influenced by a number of local institutional pressures.

  • Few empirical studies take into account the institutional factors.

  • Chinese legislation, mindset, language, guanxi and Confucian values influence e-HRM.

  • Findings present how institutional factors create positive and negative consequences.

  • Some responses to pressures enabled the transposition of a new strategic IS practices.

Abstract

This paper extends the application of institutional theory to electronic human resource management (e-HRM), and strategic information systems (IS) more generally, in a multinational corporation (MNC) subsidiary setting. By adopting Scott’s (2001) institutional theory perspective, this paper explores the effects of host-country institutional factors on strategic e-HRM practices in foreign subsidiaries. More specifically, the aims of this paper were, first, to shed light on how regulative, cognitive and normative institutional dimensions affect Western-based e-HRM practices in MNC subsidiaries in China, and second, to examine how these institutional factors influence the strategic potential of e-HRM in this setting. Based on interview data collected from key informants in 10 MNC subsidiaries from Beijing and Shanghai, the findings illustrate how institutional pressures create both positive transformational and negative dysfunctional consequences for subsidiaries, and that subsidiary responses to these pressures can substantially affect the ability of IS to achieve its strategic potential. Although observed local adaptations were seen to restrict the strategic potential of IS, in some cases responses seem to have enabled the transposition of a new set of strategic IS practices to this non-Western setting.

Introduction

Information systems (IS) are increasingly influencing human resource management (HRM) in multinational corporations (MNCs) as electronic human resource management (e-HRM) systems become more widely used. Previous research suggests that e-HRM, defined as the “application of IS for both networking and supporting at least two individual or collective actors in their shared performing of HR activities” (Strohmeier, 2007, p. 20), typically increases the efficiency of HR and IS processes, reduces costs, and decreases transaction times. By doing so it has the potential to liberate the HR function to focus more on strategic issues (Marler, 2009, Bondarouk and Ruël, 2009a).

Such positive consequences are also amongst the drivers of e-HRM adoption in MNC subsidiaries. However, there is a lack of empirical research on the effectiveness of e-HRM in MNC settings (Strohmeier, 2007), and only mixed results on e-HRM’s strategic potential (Bondarouk and Ruël, 2009a; Marler, 2009, Parry and Tyson, 2011, Ruël et al., 2004, Ruta, 2005). One reason for this may be the historically low levels of e-HRM penetration in certain parts of the world until recently. For instance, Smale (2008) found that during 2006/2007 only a handful of Finnish MNCs were using e-HRM systems in China, although there were many indications that this was a growing area of interest. However, there are good reasons to view China as a fruitful location in which to study e-HRM today. First, many Western MNCs are typically intent on transferring e-HRM (and models of HRM) to units in China; second, there are significant institutional differences between China and the EU and USA; and third, the institutional context for e-HRM in China is undergoing significant change.

There is still a need to address issues arising from the MNC context in international IS research (Leonardi, 2008), and this is currently a topic of increasing interest. However, Currie (2009) argues that institutional theory has not been sufficiently applied in IS research and Weerakkody et al. (2009) conclude that the use of institutional theory is still comparatively narrow and limited in the IS domain, especially when considering its wider use in organizational studies of HRM. In the HRM field, institutional theory has been used to shed light on HRM practices in MNC subsidiaries, and the factors that influence them (e.g., Björkman et al., 2008, Myloni et al., 2004). Sumelius (2009) suggests that this theoretical approach still has the potential to increase our understanding of various aspects of subsidiary HRM.

Reviews of the extant e-HRM literature (Bondarouk and Ruël, 2009b; Burbach and Royle, 2010, Strohmeier, 2007) underscore a dearth of research in the investigation of institutional factors affecting e-HRM practices in MNCs. The only study by Burbach and Royle (2010) focuses on the factors affecting the diffusion of e-HRM practices between the parent and its foreign subsidiaries. This found that an MNC subsidiary’s e-HRM practices, like its HRM practices, are influenced by a broad range of external institutional factors as well as pressure from the MNC headquarters. The study did not, however, shed light on the outcomes of institutional pressures on the effectiveness or strategic impact of e-HRM practices. This paper addresses this gap and investigates the effects of institutional factors on e-HRM practices and the consequences these have for e-HRM realizing its strategic potential.

More specifically, this paper explores national host-country institutional pressures on e-HRM practices in foreign subsidiaries in China. Accordingly, it seeks to contribute to the IS and e-HRM strategy literature on two main fronts. First, this paper sheds light on how institutional pressures affect Western-based e-HRM practices in MNC subsidiaries in China. Second, this paper examines how responses to these pressures influence e-HRM’s strategic potential in this setting. By using e-HRM as the empirical focus of analysis, this paper contributes theoretically and empirically to our understanding of factors affecting the strategic potential of IS in an MNC subsidiary setting.

The next sections introduce the subject of e-HRM’s strategic potential and e-HRM in MNCs. The subsequent sections present Scott’s (2001) institutional theory dimensions, review the work from the IS field that applies an institutional approach, and conclude with a discussion of China’s institutional setting that draws on work from the HRM and enterprise resource planning (ERP) literatures. Following a description of the study’s method, the findings are presented and discussed. The paper is concluded with a discussion of the study’s theoretical and practical implications.

Section snippets

Strategic potential of e-HRM

A number of labels have been proposed regarding the phenomenon that is now commonly referred to as e-HRM. In broader terms, e-HRM has also been referred to HR Information Systems (HRIS) (Ngai and Wat, 2006), web-based HRM (Ruël et al., 2004), intranet-based HRM (Bondarouk and Ruël, 2009a) and HRIT (Florkowski and Olivas-Luján, 2006). The concept of e-HRM in this paper is different from HRIS. HRIS refers to the automation of systems for the sole benefit of the HR function, while e-HRM is

Institutional theory and the MNC

Institutional theory postulates that the decisions of companies are not only the result of a rational decision-making process aiming to maximize effectiveness, but also that they are influenced by the institutional context in which they operate (Kostova, 1999). As applied to MNCs, this means that MNC subsidiaries are considered to exist in conditions of institutional duality, in that they experience pressures to obtain both internal legitimacy from the MNC and external legitimacy from their

Method

This research is exploratory in nature, and the use of this research approach is favored in fields within HRM such as information technology that are in their relative infancy (Strohmeier, 2007, Yin, 2009). The use of the qualitative method is justified by the need to contextualize the research and draw on individuals’ personal experiences of e-HRM and a range of institutional pressures. In terms of external validity, and given its exploratory nature, the purpose of this study is not to

Findings

A summary of the institutional factors, how they influenced e-HRM practices in the Chinese units, and their implications (positive or negative) for the realization of e-HRM’s strategic potential are presented in Table 2.

All subsidiaries had adopted some form of ‘hybrid’ e-HRM approach that was a combination of global and local systems. More precisely, standardized Western-based e-HRM practices such as talent and performance management systems and local Chinese systems used for recruiting and

Discussion

The main objectives of this study were, first, to shed light on how institutional pressures affect Western-based e-HRM practices in MNC subsidiaries in China, and second, to investigate how these pressures influence the strategic potential of e-HRM in this setting. Regarding the first objective, this study provides evidence that e-HRM practices are subject to similar pressures for local adaptation as other business practices, since host-country institutions seem to present a clear counterforce

Conclusion

Through its empirical focus on e-HRM in MNC subsidiaries, this study contributes to the discourse on international strategic IS by illustrating how the local adaptation of IS, while necessary in order to confer legitimacy and increase user acceptance, has also been responsible for increases in costs, time consuming administrative tasks, and in some cases a decrease in the perceived quality of system service delivery. This should alert us to the possibility that too much IS adaptation may reduce

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