Comparision of the US and European Management Practice

Seminar paper for Management Seminar

Comparison of European and American Management

Michal Šárnik
HR and Organization Management, Strategic Management
Faculty of Management, Comenius University, Bratislava
Contents

Underlying Factors of Differences 3
Differences across Europe 4
Broad comparison of US and European Management 5
1. Managerial discretion 5
2. Pay differences 6
3. Employment management 7
4. Short-term perspective 7
Comparison of German and US Management 8
1. Cultural differences 8
2. Management Conceptions and Practice 9
3. Labor Legislation 9
4. Industrial Relations 10
5. Organization 10

References......................................................................................................... 12





Underlying Factors of Differences

Although the numerous trends in managerial theory and practice take place in international scope, there is number of factors determining the differences in practice in particular regional conditions. These differences are most obvious between European, American and Japanese styles of management (3). Even that there are clear differences between individual European regions, there is a set of common underlying tendencies to observe and thus we speak about European style of management (6). Especially nowadays, in the time of international mergers and acquisitions, it is important to thing of these differences and to be aware of the conflict and repulsion potential these differences bear in them.(2)
The existing differences in human resource management and organization are rooted in cultural, socio-economic and legislative particularities of specific countries (3). More accurately, they are given by differences in national culture, labor legislation, industrial relations and even historical development. In case of culture, we can trace the differences, for example, around four dimension of national culture defined by Hofstede (Power distance, Uncertainty avoidance, Individualism, Masculinity) (4). Further, political orientation of state administration determines substantially, whether the state sets legal frame for employment relationships or the legal position of trade unions. Such shift happened under Thatcherist government in Great Britain, where during the liberalization of the economy the position of trade unions were substantially reduced. Similarly, in France, the traditionally socialist governments rooted most of the employer duties in the legislative.

Alike, such influence can also be observed in the US, where previous democratic government showed initiative in introducing obligatory health insurance system.
Some authors seek the origins of prevailing management practice in the history of the country. American individualism, competition, mobility and experimentation is considered to be laid down during the period of colonization, pioneering, first by protestants, prone to relative open-mindness, then by people of adventurous character.(3) On the contrary, Europe of the past featured hierarchy and privileges, formalization, adherence to traditions and limited mobility.(2)
The main value system in the various countries may thus create management habits and specific work methods. Differences across Europe (3)

There is hardly a unique European way of management. The differences in practice among individual countries are so extensive that we can find in some areas as significant differences between individual European countries as between the US and Europe. This variance relates in some cases rather to whole regions, than to individual national states, mostly related to north or south of Europe, or to put differently, between Latin-Catholic and Germano-Protestant. In the area of labor legislation, for instance, state plays a major role in France. The principal functions of human resource management, are governed by basic lows: staffing, remuneration, working hours, breach of employment contract, annual holidays and even training and profit sharing are object of state regulations. Collective agreement closed by representatives of part of the tripartite takes force of law. On the other hand, in the United Kingdom certain absence of state intervention can be noted, while the weight is shifted to the importance of individual agreement. The other countries vary freely between these two approaches. However, the rate of unionization is not a determining factor behind the nature of industrial relations. Thus in some countries relations may be based more on cooperation and concert, as in the countries Germany, Sweden or Holland, rather than on a dispute and confrontation as in Italy and France. The use of strikes, in particular, seems to be a good indication of the different approaches. In Germany and Holland, a strike symbolizes a least resort to be used when all else has failed (Holland as the lowest strike rate in Europe), whereas in Latin countries it is often a preamble to negotiations. Similarly, the nature of industrial relations is different. Whereas in Germany the relations are based on co-determinations, in France the involved parties perceive each other as adversaries. Differences exist also in workforce mobility.

While in Latin countries stability and loyalty to the firm plays an important role (Spain is the European country with the highest proportion of couples owning their own homes – 60%), in Holland is the workforce mobility considerably higher. In Germany is executive mobility basic precondition for career development. National culture determines the perceived role of management. In such a strongly paternalistic society as in Italy, a manager is expected to provide answer for all questions of her subordinates. This is in contrary with countries of the northern Europe, especially Sweden, where the manager would conduct group discussions in view to reach a common solution. Another culturally determined aspect is the perception of time and its influence upon work organization. While Latin nations are considered to be polychromatic, Germans and Nations of northern Europe are strictly monochromatic. That means, Germans are unlikely to perform more activities simultaneously, rather reserving undisturbed period of time to completion of more demanding tasks and respect agreed upon program strictly. On the other hand, in the south of Europe it is considered desirable to be able to switch between more activities, to be latitudinal with regard to time delays and appointments. . Broad comparison of US and European Management
1. Managerial discretion
In Europe the liberty of choice with regard to managerial issues is generally more limited compared to US. Cultural values, legislature and industrial relations are underlying factors to this constraint. American culture scores high on the individualism dimension, as defined by Hofstede.(4)
In the US, the weakness of obligations and legal protection concerning professional life together with mobility oriented workforce leads to relatively quick and frequent recruitment or dismissal decisions. Departure can take place only few days after giving the notice of dismissal. On the other hand in Europe a significant transition period is required in case of leaving the company or explicit serious grounds in case of dismissal. (3)
Management enjoys autonomous decision-making position in the US. In Europe, managers are more constraint by legislation in various areas, employee participation systems (as is co-determination in Germany) and trade unions. In some European countries there is legislation stipulating in which decisions workforce committees or trade unions bodies should be involved (France, Germany, Italy, Netherlands, etc.).

Nevertheless, American managers run the risk of being drawn in to an expensive lawsuit, if they break any of the sensitive personal or minority rights.
2. Pay differences
US economy is well-known for huge differences in remuneration among positions, jobs and industries. As an example, an average investment banker earns 10 times more than an average teacher does. Some statistics say managers earn in average 90 times more than blue-collar workers, incomes of top managers soaring each year to dazing heights. On the other hand in Europe emphases was always put on internal consistency and industry-wide wage bargaining. As an example, in Germany that is known for its balanced remuneration system, average non-worker (or white-collar) wage is only 20% over the average worker`s wage. Even that the stated indicators are not comparable, it is evident there are huge pay differences in both regions. (2)
In additions, especially in European countries with coordinated wage bargaining systems, companies can not use wages to poach skilled workers from other companies, what slows down wage increase especially in the export oriented industries. (3)

3. Employment management
Workforce mobility is a significant factor distinguishing employment management in the US from the one in Europe. While Americans regularly change firms and their place of living, inclined towards constant search of something “new” and “better”, the European are rather attached to their firm and region. They do not seek change, unless they are sure of notable improvement.(5)
Consequently the attitude of an American and European company differs. As the American firm would be concerned with the loyalty of its best workers, the European firm would seek to encourage mobility within the subsidiaries of the company. While in Europe, especially Germany, mobility is basic precondition for career development, in the US loyalty to the company is expected for the sake of human resource development. Nevertheless, loyalty to the profession is more common than loyalty to the company on the US. (3)
The term “investment in human resources” has different connotation in the two areas. In the United States, when it exists, it is a deliberate choice and is shown through selectivity and targeting of the “best people” whom the firm wants to retain. In Europe it is almost inevitable and extensive HR activity, since the personnel forms one of the most stable resources of the organization. (3)
4. Short-term perspective
The major concerns of the American firm are based on the Stock Exchange (Wall Street) performance and external development.

This orientation develops pressure towards regular notable improvements and short term-results, being even more reinforced by the regulation requiring publication of the balance sheet every three months. Firms are subsequently under pressure for short-term business to attract and keep investors, leading to quick operations: decisions, changes in direction, departures and replacement of staff have to be quick. In opposite, in European companies the connection to stock price change is not felt intensively. There is the decision-making model characterized more by deliberate search for information, stress on consensus and long-term perspective. (1)
Comparison of German and US Management

To illustrate the differences between American and European management, I have decided to focus on the management conception and practice in Germany. This choice was influenced both by certain distinction of German management and my personal experience while doing an internship in Germany. 1. Cultural differences
According the four cultural dimensions defined by Hofstede, American and German cultures differ significantly only in the dimension of individualism/collectivism and uncertainty avoidance. While American culture is strongly individualistic and German culture is considered to be rather collectivist, in Germany there are strong interpersonal distances and highly developed sense of privacy. Compared to Germany, the collectivist nature reflects in the socially oriented market economy system, characterized by high degree of solidarity. In the US, people are rather expected to take care for themselves by means of plenty insurance systems. (4)
Germans are known to have low uncertainty avoidance. In reality it means, they have tendency to formalization, expression of rules and procedures. In relations at the workplace, they require clear role and responsibility definition, declared skills confirmed by appropriate education and experience. Nevertheless, such cultural value does not lead to centralization and bureaucracy (formalization is only one of features of bureaucracy). As a matter of fact, German companies are less centralized, with shorter hierarchical lines and smaller proportion of functional people than other countries, with smaller formalization tendency (e.g. France). (2)
On the other hand, US culture is known to be rather risk embracing. American managers put much emphasis on speed and promptness, expressing things in the simplest manner possible. Doing a decision, speed matters more than certitude that all necessary information and parties had been involved.

Every decision is considered to be adjustable, as soon as new facts emerge or situation changes. (3)
2. Management Conceptions and Practice
It is recognized that the competitive strength of Germany lies in its only natural resource – the people – and on their ability to utilize technology. In the last 50 years, a strong emphasis was put on training and developing the staff.(2) Further, perhaps due to the negative experience of Nazi regime, employee involvement and consent in decision-making is omnipresent in the German system. The need for unity and consensus that developed in the early post-war period binding the whole nation in rebuilding its country and suppressing inequalities still reflects in relatively small wage differences and solidarity social system. This background is reflected in German organizational structures and managerial practice. Management does not act independently to that extent as in the US. Under the extensive system of co-determination, management has to consult many issues with employees` representatives, as are work councils and employees` representatives in the supervisory boards. Law reserves one third of supervisory board places for employee representatives. (2)
3. Labor Legislation
Important differences between the US and Europe lies in the legal system. While Europe adheres to statutory law, the US system is based on common law, with emphasis on court decision taking power of precedence. This difference reflects also in the nature of labor relations. Also not to the extent as in the other European countries, in Germany are the basic conditions of work relations stipulated by law. The judiciary power over labor related issues is rendered to the so called work courts (Arbeitsgericht). The most essential rules in regard to work and pay conditions stem from collective negotiations between industrial partners. However, in the atmosphere of cooperation, parties seldom resort to the courts in labor related issues. (3)
On the other hand in the US, except some statutory laws, e.g. to prohibit child work or assure equal employment opportunities, are missing. Since Americans are very sensitive to their personal rights and discrimination, what applies also to labor relations, in case of conflict they tend to resort to the court. However, since the legal expenses are high, pre-court negotiation plays an important role in labor related disputes. Consequently, employment conditions tend to have diverse character. 4. Industrial Relations
Unionization of German industry is traditionally high.

Unlike US, where the unionization rate declined substantially during the 80-ties, in Germany the unionization rate soared after the German unification. In present the share of German employees taking part in unions doubles that of the American. (2)
Although the employees’ representatives, who interfere substantially in the day-to-day operations, are generally unionized, they do act directly on behalf of employees and are voted by all employees, regardless of their union membership. (3)
Neither German nor American unions interfere on the political level. They primary role is negotiation of employment and pay condition on the industry and state level (not federal level). Nevertheless, German unions act on this issue coordinated and cooperative with employers´ representatives and pay attention to overall cost competitiveness of the economy, especially in export oriented industries. Consequently, wage is not used to poach qualified employees, leading to relative small pay difference within the economy and small annual inflation. 5. Organization
German management is considered to score high on formalization. But contrary to preconceived ideas, formalism does not necessarily mean centralization and bureaucracy as the German firm is more and more decentralized with each unit made to feel responsible for its results. With developed sense of order, clear job description and role definition matter at the workplace, but due to very low power distance and worker participation, such shared values do not prevent feedback and criticism and so do not lead to stiffness and long-term inefficiency. If the decision-making system is slow, it is due to perceived necessity to gather as much information as possible before coming to a decision. (3)
US management is known for deeply rooted sense of competitiveness and experimentation at all hierarchies, leading to increased actionability and propensity to implement change. Ignoring the hierarchy in search of improved efficiency is considered to be justified procedure. No wonder, managerial concepts of networked structures or flat organizations have they origin in US practice. In general, underlying factor in US way of organizing is getting closer to customer. On the other hand, German companies traditionally put more stress on technical perfection of solutions, leaving customer orientation behind. This attitude reflects organizing aimed primarily at cooperation, information flow within the company and optimal resource utilization. German, similarly as other European firms, are far less customer-oriented than U.S. firms.

Further, they have closer relationships with governmental and other stakeholders, so that efforts geared at satisfying all the different stakeholders may distract them from entrepreneurial or bottom-line success.(7)
Given the dissimilar conditions, the attitude towards Human Resource Management and its function in the company differs. In Germany, in conditions of relatively low inter-company mobility, stress is put on proper selection and development at the workplace of the whole personnel. German managers are much interested in personnel organization and training.(2) HRM as centralized function is weak, putting emphasis on personnel administration and legal labor issues. The personnel development function takes on importance only in the recent years, as well as activities aimed to improve intra-company mobility. (5)
In the US, much stress is put on centralized HRM function. Nevertheless, attraction, selection and development of the top talent is emphasized. In conditions of high inter-company mobility, stress is put on proper development and retention of top employees. Much emphasis is put on pay policies, seeking to distinguish the company through unique added value in the companies pay strategies.(3)


References
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