HRM Practices: Difference in Practices in US and Japan

Introduction

Culture has a distinct effect on management practices and the way human resources are handled (Hofstede, 1980). As culture shapes the values and ideologies of cultures and thus their work environment, it is important to understand the different effects of culture on human resource management. A distinct style of management of human capital is observed in the American and Japanese companies (Gump, 2006 ; Paik & Teagarden, 1995; Hatvany & Pucik, 1981). Japanese companies are characterized by their insistence on high level of commitment and utilize practices like job flexibility, teamwork, and negligible status differences (Wood, 1996). Recent research in the area of Human resources management (HRM) has shown that employee participation improves a firm’s financial performance (Ichniowski & Shaw, 1999). Large Japanese manufacturing firms are renowned for their distinctive work system participatory management style that increases worker’s participation and performance. There remains a sharp contrast in the employee management practices of the US and Japanese manufacturers. Though many US manufacturers have now adopted participatory management practices, still a distinct difference in practices persists (Ichniowski & Shaw, 1999).

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Now the question arises why is a comparison necessary in regard to the automotive companies from Japan and the United States? Automotive industry globally has become extensively competitive (Bélis-Bergouignan et al, 2000). Especially the increase in the number of Japanese firms in the automotive market has affected American company’s share in the market globally. Especially the enormous trade deficit of the American automakers has spurred the debate on the competitiveness of American companies in the international market. Researchers have shown that the socio-cultural practices and greater manufacturing skills of the Japanese auto manufacturers have helped them to attain the position of industry leaders (Hatvany & Pucik, 1981; Ichniowski & Shaw, 1999; Gump, 2006 ).

Presently with the recession in the US market and the plans of GM motors to reduce its planned output (Washington Post, 22 January 2009) shows that the Japanese manufacturers have attained a passage for establishing their stronghold in the market. Even in a situation of decline in the global automobile demand, Toyota experienced just a 4 percent slid in its sales as compared to 11 percent of GM (Washington Post, 22 January 2009). But it is important to understand why the Japanese companies continue to grow while US auto companies fail to do so. The reason behind this, as had been identified earlier by researchers, is the former’s commitment to high level of performance and human resource-centric management style. The answers are clear, Japanese manufacturing companies’ performance is far better than that of the US companies. From the human resources point of view, their level of absenteeism is low and attrition is half that of the US companies, and the level of employee commitment s much higher (Hatvany & Pucik, 1981). Though one may argue that the difference in level of commitment is not due to varying management practices, due to cultural differences between Japanese and American companies, but the difference is clearly not due to cultural factors as has been demonstrated by previous researches (Hatvany & Pucik, 1981). Hatvany & Pucik (1981) actually demonstrate that Japanese firms operating in America deliver the same level of productivity and efficiency as their counterparts in Japan.

In this paper we aim to understand the difference in the human resource practices of General Motors (GM) and Toyota. The paper will concentrate on these company’s hiring, training, and employee relation and management practices in order to understand how effective the HRM practices areas compared to that of GM. The paper will first enumerate the practices of Japanese manufacturing companies as compared to their American counterparts and try to see where the elements of difference lie. Then I will provide a general overview of the automotive industry with stress on the HRM practices of Japanese automotive companies. Then we will provide a detailed comparison of the HRM practices of GM and Toyota, demarcating the underlying differences. So the aim of the paper is to do the following:

  1. Understand the difference in practices of HRM in Toyota and GM.
  2. The recruitment and training practices and their effect on organizational performance.
  3. The elements of similarity and difference.
  4. Recommend the scope for change for both the companies if required.

Given these objectives, the paper will deal with the conclude providing a holistic view as to where the differences are and why do they persist. But before we concentrate on the details of HRM practices of Toyota and GM, we must understand the difference in the overall manufacturing practices in Japanese and American companies.

Difference in Practices in US and Japan

This section will provide the difference in the HRM practices of Japanese and US manufacturing firms. This section tries to demonstrate the overview of HR practices which has been derived from a review of previous researches conducted on manufacturing companies to understand the difference in their HR practices. The methodologies used by these researches varied from extensive on-site interviews (Ichniowski & Shaw, 1999) to surveys (Pil & MacDuffie, 1999; Gump, 2006 ). First we will review the HRM practice of Japanese manufacturing companies.

Japanese Manufacturing Companies

Team Work

Previous research shows that the works in Japanese manufacturing units are characterized by extensive worker participation in problem-solving and rotation of workers across jobs. The problem-solving teams are called Vishu kanji which are the central to the working of the Japanese manufacturing firms (Ichniowski & Shaw, 1999). The work team sizes are not more than six to eight, which includes a team leader, and are a direct vehicle for practicing continuous improvement. The main aim of the teams was to reduce cost, increase productivity and efficiency, quality of the product, ensure workplace safety, and environmental improvements. Ichniowski & Shaw (1999) also found that 55 percent of the time devoted to these functions was outside the teams’ workers’ regular shift hours, for which he was compensated and the rest was in his regular shift hours.

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Job Rotation

Another practice which assumed great importance in the Japanese manufacturing practice is job rotation. An entry-level worker starts with a simple job in the process line and then in a planned manner is rotated through all the jobs in the line in accordance to their difficulty level (Ichniowski & Shaw, 1999). Here the idea is to allow the production workers to master all jobs in the line within first 10 years of their employment.

Recruitment

The employee selection process in Japanese firms is done through selection through campuses of schools with which the companies have close contact. The companies identify new candidates for their plants from high school and industrial schools in the region (Ichniowski & Shaw, 1999). The screening is done through a test of the candidate’s ability in English, Japanese, and mathematics and for the industrial school graduates the testing is on their specific skills, for instance mechanical or electrical engineering. After the selection is completed, extensive stress is laid on employee orientation. In the first year of their employment, employees undergo on-the-job training from supervisors or senior coaches, who try to make them understand the company policies and the nature and behavior of the job.

Training

Training involves teaching the technical, production, problem-solving, and communication skills (Ichniowski & Shaw, 1999). All these training are designed to improve the worker’s performance in the production process. The training is planned throughout lifetime and is designed to let the employee go through the training process as and when the requirement is according to his progression at job. New employees receive off-site training in production skills in the first year of their employment. Then they are trained on-site through job rotation process. After seven to eight years once the employees gather extensive knowledge in their production process, they are again trained in small cohorts off-site. After this as the employees are trained and promoted higher up, they are provided training on management, safety and technical skills.

Compensation system

The compensation system in Japanese manufacturing firms has four main components (Ichniowski & Shaw, 1999). First, is the wage pay which depends on the number of years a person has served in the company and on the basis of seniority. This forms a major part of the salary. Second, is to provide pay differential to employees which depend on the performance evaluation of the superior as a merit-based pay. Even though this forms a considerable share in the salary, but the major differential is through seniority-based wage pay. Third, is a bonus component is determined by semi-annual or annual profitability of the company. And fourth component is based on the assessment of the employees’ knowledge, skill, and the level of responsibility for each job.

Overall the Japanese system of HRM is based on a participative, all-around team-based production system which beliefs in job rotation, training, and maximized performance commitment from the employees. Another point is clear from the above discussion that Japanese companies believe in lifetime employability of the workers. As has been discussed by Hatvany & Pucik (1981) the Japanese management practice is based on human resources of the company and the strategies are framed on the basis of the concerns over human resources. In a nutshell they show that the HRM concerns lead to the following strategy: long-term employment of the workers, “unique company philosophy” and a participative management system (1981, 9). These strategies lead to the following HRM techniques: “slow promotion, complex appraisal system, emphasis on workgroups, open communication, consultative decision making, and concern for the employee” (Hatvany & Pucik, 1981, p.9) these unique management practices built around HRM is a distinct feature found in Japanese which is believed to be their essence for high productivity (Hatvany & Pucik, 1981).

Difference with US Companies

The US companies followed a traditional form of HRM which is characterized by narrowly defined jobs, work rules which are stringent and incentive-based pay linked to the quantity of output and not on quality. The management practice was not participative, thus was no tradition of managers sharing financial information with the employees. The approach of the management practice and strategic planning was essentially top-down. Training for workers was non-existent which usually called for on-the-job learning of the workers and supervision was done by many foremen (Ichniowski & Shaw, 1999). There was a lack of teamwork and level of communication among employees. Given these basic differences in the production processes of Japanese firms and US, I will now try to understand the HRM practices of the automotive companies, especially that of GM and Toyota.

GM vs. Toyota

This section will provide a comparison of the HRM practices of GM and Toyota. But before we start with the comparison, I would like present the strategic path that GM has followed so far. GM’s global strategy was dominated by the company’s multi-dimensional structure and a continuous effort to segregate the domestic market in the best possible manner (Bélis-Bergouignan et al, 2000). The company has followed a multi-domestic strategy with its stronghold on two major regions i.e. North America and Europe (Bélis-Bergouignan et al, 2000). But GM had previously failed to successfully enter into Asian markets like Japan (Bélis-Bergouignan et al, 2000). Toyota has followed a localized strategy of globalization. They have concentrated on extending their market globally, but have tried to develop regional dimensions in their operations (Bélis-Bergouignan et al, 2000). Their strategy lies in establishing “maximum spatial hierarchy” which is described as “pragmatic internationalization” (Bélis-Bergouignan et al, 2000, p.49). Thus, we see that there is a distinct strategic difference in the globalization approach of the two companies. Toyota vied for a global market share, whereas GM maintained a bi-regional strategy till 2000. These strategic differences explain why there is expected to be a difference in the HRM practices of the companies. Next, we discuss the differences in the HRM practices of Toyota and GM.

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Recruitment Process

The recruitment process of Toyota is similar to that of other Japanese firms. They hire mostly from campuses of undergraduate schools and college campuses. Toyota has long-term arrangements with high schools (Bishop, 1992). The arrangement is such that the company tells the schools the number of employees they need and they tells them that they require the school’s “best” students for those positions (Bishop, 1992, p.42). They hire students with the highest test scores achieved in the national examinations taken by the students. So Toyota puts stress on basic skills like on probability theory and statistical analysis rather than MBA recruitments as is followed in the US (Bishop, 1992). In American companies, the stress is on hiring MBAs or engineers who have already been taught the manufacturing basics. But Toyota believes in extensive training of the employees in the front line which helps them to gather firsthand experience unlike that in American companies. Thus, it has been argued by Takeuchi, Osono, and Shimizu that “Toyota views employees not just as pairs of hands but as knowledge workers who accumulate chie – the wisdom of experience – on the company’s front lines.” (Takeuchi et al, 2008, p.98) GM on the contrary stresses on college degree and MBA in its recruitment process like other American companies (Bishop, 1992). But at times, it makes an exception as in case of some Mexican plants, employees GM hired people in ninth grade (Rothstein, 2004). So we see that the recruitment process of GM is unlike that of Toyota where the latter follows a strict rule of recruiting employees fresh out of the schools and colleges. GM though recruits from technical colleges and management schools, at times have to hire employees who have not even finished high school (Rothstein, 2004). GM puts stress on previous experience in the employees they hire especially on previous experience in similar jobs or specific technical skills. But Toyota puts stress on the candidate’s willingness to learn (Pil & MacDuffie, 1999).

Training and Development

Toyota puts a lot of value on employees (Takeuchi et al, 2008) and so they believe in extensive training of their employees (Bishop, 1992). That is why Toyota spends huge sums on its human resource development (Takeuchi et al, 2008). Since GM had started following a lean manufacturing system, they provided extensive training to their employees in technical skills. As the company was facing very high level of absenteeism and attrition, it decided to hire employees with lower educational backgrounds and so less possibility of alternative employment prospects. As they altered their recruitment process, GM had to train these employees to meet their performance standards. That is why they employed multi-skilling, job rotation, and training (Rothstein, 2004).

Toyota on the contrary traditionally had spent extensively on employee training and development. Toyota encourages its engineers to learn the intricacies of engineering and thus insists them to “get their hands dirty” (Liker & Morgan, 2006) research has shown that Japanese automobile companies provide more training than American companies do for all employees (Pil & MacDuffie, 1999). In Toyota training is not only a process of advancing skills but also a means of socializing which ensures that employees have a homogeneous set of attitudes which embraces the organizational culture (Pil & MacDuffie, 1999). Toyota puts the company values into their employees through their continuous on-the-job training and through a process of organizational dissemination of stories, which managers tell their subsequent followers (Takeuchi et al, 2008). Further, Toyota has a preference for on-the-job training as compared to off-the-job training. The flexibility of the company is seen even in the initial training process of the employees:

During their initial training, employees are given the freedom to make judgment calls. They have to adhere to a broad set of guidelines rather than follow a strict set of rules.” (Takeuchi et al, 2008, p.102)

Apart from this Toyota lays stress on training employees on problem-solving methods by asking them to think and make decisions as if they are at two levels above their hierarchy. Another important feature of the employee development is the role of mentors:

Another feature of its people management policies is the role exemplary employees lay as mentors. They shoulder the responsibility of developing a cadre of managers who learn through experimentation, and pass on Toyota’s values by sharing personal experiences – a modern-day apprenticeship system.” (Takeuchi et al, 2008, p.102)

Teamwork

Toyota, like most other Japanese companies stresses teams. The company stresses teamwork as a guiding principle and teams are given total freedom and responsibility: “When a problem arises, each member of the team is accountable and has the authority and responsibility to find a solution.” (Takeuchi et al, 2008, p.102) This form of teams system started on the factory floors and then was extended throughout the corporation. Teamwork forms one of the core values that the company insists on (Takeuchi et al, 2008).

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GM traditionally worked with a machine bureaucracy. But only recently, they have tried to adopt Toyota style lean manufacturing. So they employ a team of six on the floor who are responsible for one process (Rothstein, 2004). They adopted Taylorism and to ensure that standardization exists between two zones and shifts, team leaders meet and update each other. GM also made the teams responsible to monitor their “productivity, safety record, training, cost of parts and scrap” (Rothstein, 2004, p.213) on the basis of their monitoring the assembly line employees provided recommendations for their development. Further, due to a standardized work process, team members could rotate between jobs at the assembly line and administrative duties. Further to make the shop floor interesting, songs are played to keep the employees happy. Further, it is the team that has the authority to decide if a problem needs the intervention of an engineer.

Here lies the difference between the practices of both the companies. Toyota insists that its engineers participate actively in the shop floor to understand the technical practicalities before designing and doing jobs that are more sophisticated. Whereas GM believes that, the workers and the engineers need to interact when the shop floor team feels that the intervention of the engineer is required. Clearly, the distinction is between the approaches and the distinction in the jobs that are performed. This also makes a distinction in the structure where Toyota is a functionally designed organization with stress on skills and functions (Liker & Morgan, 2006) GM is a process-based organization. Another contrast is that Toyota has teams throughout the organization whereas GM has just online teams.

Job Rotation

Toyota insists on job rotation of its employees as this process increases the skills gathered by the employees through gathering practical experience. This process of on-the-job training is proffered at Toyota rather than off-the-site training. GM also insists on job rotation after it has employed the lean manufacturing system. The rotation is between the jobs in the line and through certain administrative functions. But the company does not provide job rotation between different lines. Further, rotation occurs not only within teams in Toyota, but across teams, whereas at GM rotation is constricted to the groups in a particular line.

Compensation and Promotion

The compensation system at Toyota is base do seniority and is lower than that of Ford or GM (Takeuchi et al, 2008). Compensation at Toyota is based on seniority-based wage pay which forms the major portion of the employee salary in contrast to that of GM. further, employees at Toyota experience slow growth or promotions processes based on seniority (Takeuchi et al, 2008). But the promotion in GM is performance-based.

Lifetime Employment

Toyota follows the principle of lifetime employment of employees as other Japanese companies. It has a commitment to its employees and abides by it:

In August 1998, Moody’s lowered Toyota’s credit rating from AAA to AA1, citing the guarantee of lifetime employment. Even though the downgrade increased Toyota’s interest payments by $220 million a year, company executives told the rating agency that it would not abandon its commitment.” (Takeuchi et al, 2008, p.102)

This process and policy are shown to the employees through extensive spending on training and development of the employees. Further, the company provides a clear career path to the employees till the time they retire, which again indicates the company’s idea on lifetime employment. In contrast, GM does not have this opportunity. But the acclaimed GM’s retirement policy and pension plan for its employees indicates that company is willing to take care of the employees who attain lifetime employment with the company.

Participative Management Practice

GM is a bureaucratic organization, which follows a top-down approach of management style. This is evident with the company having teams at its shop-floor but not at management levels which makes the management hierarchical. But that of Toyota is a team-based structure throughout the organization. At Toyota, communication is stressed upon and employees throughout the organization are encouraged to communicate in simple language and impart their ideas to the management. Unlike GM Toyota operates like a small city organization where everybody knows everyone: “Information flows freely up and down the hierarchy and across functional and seniority levels, extending outside the organization to suppliers, customers, and dealers.” (Takeuchi et al, 2008, p.103) But GM operates like a big organization full of bureaucratic hierarchy. Further, employees at Toyota have a “freedom of voice” which a machine bureaucracy at GM does not provide: “Confronting your boss is acceptable; bringing bad news to the boss is encouraged; and ignoring the boss is often excused.” (Takeuchi et al, 2008, p.103)

Conclusion

Culture does play a vital role in the differences in the human resource practices of GM and Toyota but when we see that Toyota’s American plants are operating in a similar fashion as their Japanese counterparts with predominantly American employees, then the difference becomes even more striking. GM has tried to adopt the lean manufacturing style of Toyota and implement it in their plants, but the HRM practice in the companies still differ due to their different organizational culture and values. The core values of Toyota are “the mindset of continuous improvement (kaizen); respect for people and their capabilities; teamwork; humility; putting the customer first; and the importance of seeing things firsthand (genchi genbutsu)” (Takeuchi et al, 2008, pp.101-102) but that at GM is an emulation from Japanese companies. GM may have successfully emulated the technique and policies but the values which are abstract and are ingrained in the company’s employees cannot be emulated.

The paper provides a comprehensive review of the differences in the human resources policies of GM and that of Toyota. It also shows that these differences are common in all American and Japanese companies. The reason may be due to the cultural differences of the two countries, which leads to the differences in the organizational culture and values. But it must be stated here that there are distinct differences in human resource management practices between the two companies especially in its processes of recruitment, training, and management practices.

Reference

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