DEVELOPING A FRAMEWORK FOR STRATEGIC CONTROL OF HUMAN RESOURCES MANAGEMENT IN HOLDINGS

Strategic Control As a Parenting Style in Holdings

The ultimate goal of parent companies is to create synergy for their subsidiaries concerning the condition in which they operate separately; namely sales synergy, operation synergy, investment synergy, and management synergy where HRM is a basis and a critical factor in creating and enhancing all these four types of synergies (Coyle, 2000). To fulfill the synergy, the implementation and execution of corporate strategies in subsidiaries must be ensured and at the same time, give enough autonomy to the subsidiaries (Filinov et al., 2009).

Based on the level of top-down involvement of the parent company in subsidiaries’ decisions and how the parent company responds to the results obtained in each subsidiary, the most common approaches for strategic management in holdings which are suggestive of the way the parent company interacts with subsidiaries include strategic planning, strategic control and financial control (Goold and Campbell, 1989; Hoskisson et al., 1993).

Strategic planning: This approach is the most centralistic one among other approaches in which the parent company sets extreme planning processes and, through this, provides valuable contributions to the formation of strategic thinking in businesses in this approach, the annual financial goals are of less significance compared to longer-term strategic goals.

Financial control: The parent company acts in a completely decentralized manner and believes that managers of business units ought to be unrestrained to develop their businesses because they are in a closer connection with the market and opportunities, and the parent company’s role is to renounce or approve the presented proposals. In this approach, the efficiency of the parent company on the businesses mainly applies through the budgeting process.

Strategic control: In this approach, business units put their projects and development plans forward, and the parent company utilizes the revision process to play a probing and questioning role and does not insist on its specific viewpoint on how to develop businesses. Revision also ensures that minimal standards, one of which is the framework for strategic control of HR, are met in information analysis for planning in all businesses (Chung et al., 2000).

In the strategic control approach, the equilibrium between financial objectives (short term) and the competitive advantage (long term) is essential. However, due to the complexity and difficulty of defining strategic control objectives, the control process tends to concentrate on controlling financial objectives and does not tend to control fields such as HRM due to its qualitative nature. Thus, the endeavor for strategic control of HR gains importance in the strategic control style; because one must ensure the implementation of corporate strategies in subsidiaries utilizing HRM and the connection of the actions of this field with the corporate strategy.

Strategic Control Mechanisms in Holdings

By further development of organizations, control systems play a vital role in the organization’s success; nevertheless, the role of management control systems has not been well reviewed in the strategy implementation process (Lin et al., 2017; Reimer et al., 2016), whereas the management control systems are considered essential tools for formulating and executing the strategy through steering managers’ decisions and the employee behavior (Forzelius & Lundell, 2017). In holdings, the parent company is at a higher level in the strategic hierarchy than the subsidiaries and undertakes leading and monitoring subsidiaries. Lack of focus, geographic dispersion, and discrepancies in structures increase the fundamental need for coordination and control so that the parent company ensures that subsidiaries are proceeding in line with corporate objectives (Chavoshi, 2009).

There are four different mechanisms that, through them, parent companies can ensure that subsidiaries’ actions are in line with their strategies, objectives, and standards. These mechanisms are as follows (Filinov et al., 2009):

1. Centralization of procedures: which signifies those specific processes can only be carried out within the parent company; for instance, regarding the managers, decisions must be made only in the head office.

2. Formalization of procedures signifies enforcing laws, policies, and official procedures: Of course, the parent company sometimes allows the subsidiaries to make their own decisions, but it dictates the standards to them.

3. Output control: subsidiaries have to report specific measurements to the parent company. This is different from formalization as it seeks to control procedures, and controlling the output is concentrated on results.

4. Socialization of employees in subsidiaries: encouraging all employees to share values, objectives, and the shared vision in holdings. In the long run, this will be the most effective way to ensure the integrity of actions and processes in subsidiaries, thereby removing extreme controls (Cravens et al., 2000).

Noteworthy is the fact that all strategic control mechanisms are not suited to all functions of the organization, and some are more appropriate in some fields; therefore, the issue of strategic control is complex in itself, and the complexity doubles in holdings and when this control is to take place in the HRM, this will make it even more complex.

Strategic Management of HRM in Holdings

Strategic HRM has many different definitions but generally associates business strategy with HR function and is focused on the integration of HRM with business and its environment (Holbeche, 2009). The integration of strategy, processes, and practices of HRM with the organization’s strategy at any level, including corporate, business, and function are crucial for the maximum impact of HRM on organization success; because HR procedures are not specific to the HR function and are inherent parts of management in a business. HR employees and the executive managers need to identify the organizational issues and define the ones related to HR through interacting with one another (Walker, 1994).

The strategic control of HRM seeks to execute the parent company’s strategies through activities and practices associated with HRM. Because an HR organization represents objectives and corporate strategies, it can provide value-added and strategic capabilities. The role and responsibility of HRM in multi-business organizations are divided into five categories: 1. Service centers: provision of HR activities in a centralized and standard form; 2. Corporate HR: ensuring that all HR activities are coordinated with the parent company’s objectives; 3. Embedded HR: Clarification of strategies, organizational audits, talent management, and directing HR function in subsidiaries; 4. Centers of expertise: specialized consulting companies within holdings; 5. Operational executors of HR (Ulrich et al., 2008).

Senior managers, however, are not precisely aware of how HR capabilities and behaviors improve corporate strategy implementation; therefore, a fundamental step is to design, develop and implement the measurements that enhance the organization’s ability to execute the HR strategy (Houselid et al., 2005). Hrebiniak and Joyce believe that humans are prudent creatures. As a result, one can utilize strategic control systems to impact their behavior and formulate measurements (Neely et al., 1995).

Measurements are an essential part of the services that HRM provides and in proportion to HR’s move from playing the administrative role to a strategic one, these measurements and the related reports change and move toward making use of the top-down approach, in which organizations first determine which “measurements” are of significance and support the organization and its decisions (Deloitte, 2016).

The problems of HRM in holdings are overly complex; in a way that the absence of subsidiaries’ balanced development in HR, lack of proper interaction between the parent company and its subsidiaries as well as among subsidiaries, and divergent deployment of systems and HR methods at the holding level, cost a fortune for them. Thus, the absence of an HR control system at the holding level which coordinates the decisions and activities of HRM in subsidiaries with the corporate’s strategy is one of the critical concerns of the holdings. Also, these systems should respond to questions like how do parent companies in HRM deal with subsidiaries? What kind of supports do subsidiaries require in HRM? On what factors does the intervention of the parent company in the subsidiaries’ HR management depend? How should the control measurements in HRM be designed and implemented so that the monitoring role can be played in the best way possible?

Previous Studies

As it was discussed earlier, the goal of strategic control of HRM in holdings is to ensure the development of the subsidiaries’ HRM in proportion to the objectives and corporate strategy. A review of the related literature indicates that no framework has been developed in this area; therefore, an integrative literature review was carried out, which provides a new framework or way of thinking about an emerging or immature issue (Torraco, 2005). Scopus was selected as the research database because of its comprehensiveness and diversity. Whereas our first keyword was “strategic control of HRM,” and no study was found, we used related keywords for three fields: management control, performance management, and strategy implementation. The reason why these fields were chosen will be explained in what follows.

Management control is a crucial part of the strategy process, and there is a reciprocal relationship between strategies and control systems (Bubbio, 2003; Ferreira & Otley, 2009; Kober & Paul, 2007). Performance management also was investigated as it bears a great affinity with the issue of corporate control (Anwar & Hasnu, 2016; Brignall, 2002). Its purpose is to convert the functional strategies into specific goals at the corporate level to monitor the strategies’ fulfilment (Bititci et al., 1997; Lohman et al., 2004). Finally, successful implementation of the strategy relies on strategic control systems (Pryor et al., 2007; Saunders & Smith, 2008). Since strategic control systems determine short-term targets that bring about the fulfilment of long-term goals; thus, successful implementation of strategy depends on strategic control systems (Gębczyńska, 2016; Okumus, 2003; Saunders & Smith, 2008).

In this regard, Keywords used in searching for existing research literature were: “management control framework/model,” “strategic control framework/model,” “performance management framework/model,” “strategy implementation/deployment framework,” “parenting in HRM,” in combination with “parent company,” and “holding.” Any publication that contained these words in its title, keywords, or abstract was downloaded. The search result was 93 articles that were screened for relevance. To be included in this review, a study had to provide a model/framework in the three mentioned areas, so all abstracts were read carefully to verify this. As a result, 26 articles were identified for the final review. Each of these retrieved articles was carefully studied. In Table 1, the summary of these studies is presented.

TABLE 1 Summary of the Previous Research

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In this table are some comparing items, including focus—concentration on the designation or implementation of model/framework, level—the corporate or functional level considered, context—regarding holdings’ company complexity or not, and type—the model indicates factors and their relationships, a framework is a set of processes, tasks and tools that provide general advice, and typology is about classification, in which items are organized into groups or types.

By investigating the literature according to comparing items, we can find that three main gaps were identified:

1. There needs to be a comprehensive approach to the issue of strategic control. The presented models and frameworks either have focused on the content of control—what should be controlled—and they have not paid much attention to the implementation or dealt with the manner of controlling and have disregarded the measurements and what has to be controlled (3 among 26 items).

2. Most models and frameworks have considered control systems, performance management, or strategy execution at the corporate level and have yet to enter the functional level, including HRM (2 among 26 items).

3. The existing frameworks and models need to consider the complexity and the concerns associated with the environment of holdings as a vital variable in designing and implementing the measurements (5 among 26 items).

Although some studies have identified these issues, they failed to address this problem by providing a comprehensive view. The complexity, extensiveness, subjective difficulties, and ambiguities associated with developing, designing, and implementing strategic control of HRM in holdings are probable reasons for this occurrence.

Conceptual Framework

By critical analysis of those 26 studies and getting inspired by them, however, it can be stated that the framework of holdings’ strategic control of HRM comprises three main components: 1. Designing the strategic control of measurements in HRM (what should be controlled); 2. Implementing the strategic control of HRM in holdings (How should it be controlled); 3. The parent imposes requirements on the formulation and implementation of these measurements in practice.

Regarding the design of strategic control measurements of HRM, some standard models and frameworks are helpful. For instance, the balanced scorecard (Kraus & Lind, 2010) and performance wheel (Watts & Connolly, 2012) introduce critical areas of organizations for determining the measurements or Neely’s performance prism that seeks to lead companies to identify significant and strategic points for defining control measurements (Adams & Neely, 2000). The inspirations from these models can provide companies with minimum requirements for designing HRM controlling measurements. However, the frameworks that can express how to implement and execute the designed measurements in practice are not many, whereas implementing the designed measurements is, in practice, the dark point of much research in this field. Further, existing studies have not considered the complexity and extent of holdings (Babayizakilaki et al., 2016; Proctor, 2013; Sageder & Feldbauer, 2019). So, the present paper is focused on the three dimensions above. This study aims to design a framework for strategic control of HRM in holdings to facilitate the implementation of the strategic control of the HR field.

The Design of SCHRH

In this section of the framework, providing an acceptable logic to design the strategic control measurements of HRM in holding is considered so that all holdings realize what they should control. Holdings require a guide to help them choose the right path for extracting strategic control measurements; thus, instead of determining specific measurements, the dimension for determining and designing measurements has been presented. Benchmarking in the strategic control measurements is at best misleading and at worst detrimental. The most special categories identified in this section will be briefly presented in what follows.

SCHRH’s committee: In order for the SCHRH to be practical, a team should be formed in which all stakeholders inside and outside the holding that somehow contribute to the successful implementation of SCHRH ought to be included so that on top of gaining their support and commitment as designing members of the system, their concerns and viewpoints be received in order to develop a framework based on the reality and the requirement of holdings. Those who participate in the team’s formulation ought to be acquainted with the industry and the holdings’ standards.

Designing approaches of measurements: Determining the designing or selecting approach of measurements is a prerequisite for determining the significant fields for SCHRH’s measurements. After determining the approach and accordingly, members of the design team begin to interact to formulate the measurements. Some of the most important approaches are: top-down, bottom-up, model-based, consulting, facilitation, and benchmarking.

Important axes of designing measurements: In this phase, inputs of SCHRH’s framework for designing measurements and designing axes of measurements are determined. Determining the essential dimensions of HRM that measurements are to oversee the extent of their alignment with corporate strategy and HR strategy of the parent company is almost the most significant task that the SCHRH’s Committee does. Subsidiaries’ geographical and environmental conditions, including socioeconomic pressure, parent company’s full knowledge of subsidiaries, and the holding’s future development plans, are among the essential and influential factors.

Specific fields of holdings for designing: Managing holding companies differ from ordinary ones; therefore, to design SCHRH’s measurements, in addition to specialized HR fields, other fields ought to be considered regarding the specific characteristics of holdings; such as planning to use joint venture capital, thought and knowledge transference across holdings, avoiding “re-invention of the wheel” and preventing excessive focus of subsidiaries on its short-term needs and focusing on holding company’s objectives.

Determining an optimum limit for measurements: One of the most critical steps in the formulation of SCHRH is determining clear and tangible goals for each measurement. They must be based on the industry’s standards in which holdings and the related subsidiaries are active.

Characteristic of strategic measurements of HRM: The purpose of this concept is to explore whether all required fields of controlling HRM are covered or only the ones are covered which are easier to monitor and control. To this end, the following points need to be considered: the distinction of routine control from strategic control, defining a critical limit to review the HRM strategy, formulating measurements about specific conditions of each subsidiary, a clear and operational definition of measurements, and their diversity.

Synergistic focus: The effort to realize synergy and integration of HRM with holdings’ core business and avoid sheer focus on HR process is crucial in designing SCHRH.

Development capacity of SCHRH’s framework: This concept concentrates on evaluating the measurements’ usefulness in practice. According to the changes made in corporate strategy, HRM strategy, and holdings’ environment, measurements that are no longer applicable to the organization should be omitted, and new ones should be added. Holdings sometimes require the “matricide” element, meaning the non-functional and useless measurements should not continue their organizational life.

The Implementation of SCHRH

Strong evidence suggests that designing measurements is not the most challenging part of the job. It is implementing the measurements that are the most challenging phase in practice that makes managers undergoes fear, a politicism, and a tendency toward subversion (Adams & Neely, 2000; Proctor et al., 2013). SCHRH’s design helped holdings to either design measurements or to choose them, but implementing the designed measurements is, in practice, the dark point of much research in this field. In this part of the framework, the key elements are identified in order to implement the strategic control of HRM in holdings.

Formulation of SCHRH’s conducting team: In this phase a minor team is needed to be designed based on the centrality of implementation and with the leadership of HR manager responsible for executing the framework’s design. The team should be composed of the parent company’s HR manager and the principal subsidiaries’ HR manager and have the parent company’s power and influence to operate SCHRH and provide the implementation plan. This Committee is the mastermind behind the planning and the strategy with a complete technical composition (experts of all fields and not just strategists) and this same team creates the common language. It should be noted that numerical literacy and estimation are essential skills for members of this team which should be considered in selecting them.

Facilitators/executive obstacles of SCHRH: There are different challenges in implementing the SCHRH’s framework that the team needs to pay special attention to. Among the most critical challenges obtained by analyzing the data derived from the interview are soliciting subsidiaries’ participation, raising the awareness of subsidiaries, and managing relations among subsidiaries. Subsidiaries often do not consider the parent company’s look at their problems comprehensively or feel that the parent company is unaware of their problems. In order to overcome these issues, first, we need to determine what obstacles we are facing. Then, with the participation and interaction among managers and the organizational consensus on the essential issues that need to be considered in strategic control, these barriers can be eliminated.

Mechanisms of transferring SCHRH’s framework to subsidiaries: Any system should be understood adequately by executors for a suitable implementation. The reluctance of middle managers and lower-level managers can induce problems in implementing SCHRH. Creating organizational trust is an essential element of providing a conducive environment for strategic control of HRM. There can be no reliable strategic control system in an organization with no job security or middle managers being divided into two groups of losers and winners. The output of this phase is the transfer and the dispersion of goals and SCHRH’s measurements across holdings.

Recognition of SCHRH: Since the parent company prepares the controlling principles and measurements and subsidiaries are required to execute them, the SCHRH’s framework must be recognized so that all subsidiaries progress in line with holdings’ objectives with the lowest friction and maximum companionship. Stakeholders ought to know the reason for implementing the SCHRH and how it will help implement a corporate strategy to visualize their status in implementing corporate strategy. The purpose of this step is the internalization and all stakeholders' acceptance of the SCHRH system. Four fundamental steps must be taken at this phase: clarifying how to implement SCHRH, the obligation for subsidiaries to execute, sharing knowledge to implement SCHRH, and relating the reward system with the SCHRH’s results.

Executive structure of SCHRH (a division of labor): The aim of this phase is organizing roles, teams, and responsibilities required to execute SCHRH, and the most critical issues that need to be planned in this stage are: asking for the support of organizational leaders/senior managers, planning and determining the parent company and subsidiaries’ duties in the process of SCHRH’s implementation, as well as the parent company’s interaction with and supporting for subsidiaries for an optimal implementation of SCHRH.

Supporting subsidiaries to implement SCHRH: In addition to preparing subsidiaries for the implementation of measurements, the parent company must support them to provide the necessary facilities and be careful with structural challenges that may arise in interactions between the parent company and its representatives with subsidiaries. After checking what resources and facilities are required for implementation, it would be time for subsidiaries to be examined individually regarding their resources and facilities availability (including financial facilities, HRM’s ability, infrastructure, and training, etc.).

Data collection, analysis, and the output of SCHRH’s framework: To implement SCHRH, systems and data collection procedures and analysis should be designed and executed. This requires the development of information architecture in the context of strategic control of HRM that information technology supports. The complication that arises due to the relation of subsidiaries together and with the parent company, geographic problems, and the incompatibility of different companies’ systems with one another, make data collection very difficult in a specified time. The integration and coordination between strategic control systems with information systems of holdings are crucial, and controlling HR is also one of the subcategories of management control. The information obtained from it should be a matter of consensus in the organization's intelligence systems to have the aptitude for comparability. Finally, the information obtained from the implementation of SCHRH should be collected and organized in the form of reports and be available to the audience. However, the volume of data output from SCHRH should not be so high that the main themes could not be extracted. The senior managers of holdings should not devote much effort and time to interpreting and understanding the information that comes out of SCHRH’s framework and should feel comfortable with it. Managers should not feel that by strategic control of HR, a new task is added to their workload and should instead spend time for it and feel that a tool of assistance has been handed to them to have a comprehensive view of HRM in all subsidiaries.

The quality of SCHRH’s framework: In order for the SCHRH’s framework to be capable of providing senior managers of holdings with valuable and practical tools as well as being successfully implemented, it should include characteristics such as integration, objectivity, attention to the behavioral element and system approach.

Results-based actions of SCHRH’s framework: Following the design and implementation of SCHRH’s measurements and identifying problems and deviations, based on the obtained results, attempts should be made to take proper actions and plans to solve them and make improvements in the next stage. When the cause of deviations in the measurements is known, managers will decide and engage in practice sooner. However, in cases where the cause of the problem is not simply recognizable, modification is delayed. Following the implementation of SCHRH, it is recommended that three categories of measures be taken in holdings: utilizing the SCHRH’s results in the managerial decision-making, operational results affected by SCHRH, and diagnosis of SCHRH’s execution.

Monitoring SCHRH’s implementation: What is meant by the supervision of implementation is, in fact, formal and informal mechanisms that allow for the monitoring of SCHRH’s implementation results and compare it to predetermined objectives. Key issues at this stage are formal supervisory actions during and after the implementation of SCHRH, communication and operational plans to monitor the process of SCHRH’s implementation, and providing feedback regarding the extent of progress.

SCHRH’s Requirements

Strategic control in holdings is of more complexity than individual businesses; holdings are dispersed and have an extensive geographic scope and must simultaneously consider two requirements of integration and responsiveness. In holdings, the geographic distance affects work values, negotiation patterns, sources of conflicts, and the type of control in subsidiaries. The more distant the cultural differences between the parent company and subsidiaries, the harder it is to control subsidiaries. In other words, the further the geographic and cultural distance between the parent company and subsidiaries is extended; chances of subsidiaries making proper decisions aligned with the parent company’s objectives will be decreased. This dispersion and diversity in the setting and activities of subsidiaries trigger the three main elements to be influential in designing and implementing SCHRH. These factors are: the holdings’ culture, the maturity level of the parent company and its subsidiaries, and subsidiaries’ characteristics such as their life span, their strategic fields, and their role in the holdings’ value chain and the extent of the holdings’ independence/dependence on their subsidiaries (the technology to do the job).