Building a Flexible Organization

November 24, 2017 [No.44-2017]

Shozo Inouye, Ph.D.
Former Regional Advisor, ILO Asia & the Pacific HQs.



A bureaucratic/mechanistic organization will assure employers of quantitative flexibility in manning when jobs are designed to be simple, repetitive, and low skilled. Then, the employees will be replaceable and the employers can opt for the “hire and fire” employment practice. The employers can economize on training costs. Further, they can use a simple pay system of compensating for the hours worked. Workers, on the other hand, may face unstable employment, and workers’ organizations, e.g., an industry union, will find it difficult to control its external labor market when the supply of labor is abundant. Yet, it is noteworthy that a bureaucratic/mechanistic organization is the base upon which a motivational organization can be established by developing multi-skilled team players.


Employers in a motivational organization can enjoy qualitative flexibility of manning because their employees are versatile enough to fill in vacancies of highly skilled, complex jobs from within. This organization includes such HR practices as job rotation, programmed OJT, workers’ participation in work related decisions, autonomous small group activities like quality control circles, promotion from within, and team working. Its pay system emphasizes both individual and team performances, and the pay levels are higher than competing firms. Performance evaluations of individuals and the teams will also be an important HR component. Sharing of corporate business information among stakeholders is a prerequisite to enhance employee engagement. There must be new types of management leadership, too. These HR components should be in line with corporate level management strategies, and be well organized within a HRM system as a bundle. HR/IR managers are expected to be familiar with corporate and functional level strategic perspectives.


It is more costly to establish a motivational organization because direct labor costs would be higher and the transaction costs would be also higher to manage such an organization. Would it make a sense, then, to invest in human resources and establish a motivational organization? Most Japanese companies abroad offer newly hired employees job training, but often lose them after they are ready to work. Yet, the companies keep on training employees in host countries. It appears they are wasting their money.


My study of 100 foreign companies invested in central China found that their investments in human resources resulted in higher corporate performances: The Japanese affiliates tended to transplant the above-mentioned HR components more than non-Japanese affiliates did. Investing in training of core employees was useful to establish a flexible organization. This, in turn, resulted in higher corporate growth and better achievements of financial objectives. The “making” of human resources payed off in the country with the practice of “buying” of human resources.


Employers can choose a business model being based on the quantitative flexibility or that of the qualitative flexibility. It may be worth trying the latter, innovative work practices if business environments are suitable. The competitive global markets are waiting for employers’ strategic choices to innovate HRM and IR.


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