(Monsen and Downs 1965). They further sought to align their mana- gerial paradigm with the dominant paradigm of portfolio investment theory as articulated by the new cadre of top managers. The increase in the use of ILMs and the decrease in the strength of unions made this possible. Most of the changes involved in the shift from human relations to human resource management were invisible to non-supervisory emplo- yees on a day-to-day basis. What did change slowly was the implied contract between managers and employees regarding their place within the larger corporation.
When viewed in historical context, the paradigmatic shift from human relations to human resource management was an attempt by firm-level managers to enhance their professional autonomy. As top managers in conglomerate corporations continued to manage using the ‘‘corporation-as- portfolio’’ model, the productivity of the workforce at the firm level became of paramount importance to firm level managers. If the productivity of a particular firm within the conglomerate began to decline, the inclination on the part of top-level managers would be either divestiture or liquidation. In order to remain in the conglomerate, firm-level managers needed a contin- ually productive workforce; this constraint affected the autonomy of firm- level managers. Human resource management supplied the analytical tool necessary for firm-level managers to obviate much of this impact and regain their autonomy. However, this new paradigm would make the employment relationship much more dynamic.
NEOENTREPRENEURIALISM: THE EMERGENCE OF
The trends that gave rise to the human resource management approach in the 1970s have continued over the past two decades, further altering the relationships among organizational constituents. Unionization now stands at roughly 9.2% of the non-governmental and the non-agricultural labor force (Baird 1990; United States Bureau of Census 2003). Investors have continued to diversify their holdings to the point where they bear almost no firm-specific risk. The existence of the ‘‘corporation-as-portfolio’’ model of managing corporate assets has tied managerial compensation to gains in stock prices at a time when investor control over specific firms has been drastically reduced (Fligstein 1990).
Global competition has altered the dependence exposure of investors, employees, and managers as well. In the 1970s, global markets were in a rather embryonic stage of development. U.S. firms were relatively unaffect- ed by international competition. Today, with the creation of the EC, NAFTA, and GATT, global markets have become much more efficient.
Investor returns are no longer tied to firms in specific countries. Further, the conditions of global competition favor factions of management who lessen their dependence on investments in high-wage labor (see Fligstein 1990).
This has had the effect of forcing US firms to adapt to global economic changes more quickly.
Financial and physical capital has not had many problems adapting to the demands of global competition. Managers can sell off units, move their products to another market, or transfer funds from one area of the world to another, all in order to achieve higher investment returns. Human capital has not adapted so easily. Employees cannot be effortlessly transferred from one area of the world to another. The response of human resource managers to globalization was to dismantle ILMs and make rapid staffing changes in response to global market competition.
Skilled Knowledge-Intensive Labor is Opting Out
In response to this uncertainty, a split is occurring in the employee ranks. In order to obviate firm-specific dependence, high-skilled employees have be- gun ‘‘opting-out’’ of traditional employment contracts (see Handy 1989).
Instead of remaining beholden to a particular firm, these workers are be- ginning to resemble independent contractors with renewable contracts, or in some cases multiple contracts with various firms. This action by high-skilled labor is an attempt to reduce their dependence on specific firms in the face of managerial staffing actions (e.g. downsizing, outsourcing). However, the
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effect this has on managerial autonomy is rather pronounced. In the present economy, managers need high-skilled labor for their firms in order to com- pete effectively; but global competition favors firms who lessen dependence on high-wage labor (seeFligstein 1990). The human resource management paradigm worked well for managers throughout the 1980s and 1990s as managers could alter staffing levels depending on the demands of the global market. But when high-skilled labor began opting out of traditional em- ployment contracts, a firm’s pool of this type of resource became less pre- dictable. This volatility served to reduce managerial freedom of action.
With the dramatic changes in the relationships among managers and significant stakeholders over the past 20 years, we believe that the U.S. is on the verge of entering into a new paradigm of employment relations. The impetus for such a movement is the change in managerial autonomy re- sulting from reduced environmental slack associated with global competi- tion and the managerial staffing actions that resulted from it. These actions permanently altered employment relationships as employment became more temporary and contingent (seeSherman and Bohlander 1992). Human re- source management is ill-equipped to handle these changes because it will only continue to exacerbate tensions between managers and high-skilled labor, causing further reductions in managerial autonomy. What managers need is a new paradigm of employment relations that grants greater auton- omy to managers in the face of environmental changes and stakeholder actions.
Enter Neoentrepreneurialism
Neoentrepreneurialism is a change in the mindset of the employment relationship where workers are viewed not as employees but as independent contractors. This new paradigm is the result of managements’ desire to attract high skilled, high-wage labor in a manner that allows managers to respond quickly to fluctuations in the global market. By constructing the employment relationship in this manner, managers are able to tap into larger pools of skilled labor, thereby making staffing more predictable. By designing employment contracts to be project and time specific, managers preserve their flexibility of action in firm-level decisions. As a result of this paradigm, growing numbers of firms, skilled workers, and investors are in networks of contractual relationships that resemble a diversified investor’s stock portfolio. Workers with different types of skilled human capital will return to their former entrepreneurial status as ‘‘inside contractors’’ with
groups of investors and small firms housed under a loosely coupled corporate umbrella (Boyett and Conn 1992; Handy 1989; Leicht and Fennell 2001).
The Implications of Neoentrepreneurialism
Neoentrepreneurialism will have profound effects on two specific actors within the organizations: mid-level managers and unskilled workers. The role of mid-level managers under neoentrepreneurialism will almost com- pletely disappear. These functions either will be outsourced like the remain- ing skilled human capital or will be eliminated entirely as supervisory requirements are reduced. The key issue for the managers that remain will be their ability to motivate and coordinate a temporary and contingent workforce whose composition may change from job to job (Handy 1989).
Neoentrepreneurialism will profoundly affect organizational culture as well. With temporary arrangements for both high- and low-skilled employ- ees (the former through contracting and the latter through turnover and termination), the existence of a distinctive corporate culture will be difficult to maintain at best. Indeed, this new paradigm leads one to question whether the cultivation of an organizational culture is even desirable. Given the flexibility that organizations require in responding to global competi- tion, notions of loyalty and commitment may only serve to impede a firm’s adaptability.
For unskilled workers, the result of this new, evolving management par- adigm will be quite different. Unskilled workers may return to their role as
‘‘assistants’’ to skilled workers, a position, a vast majority of factory work- ers occupied in the 19th century. Here, there will be little but the continued creation of temporary, unskilled work with low pay and few benefits. Under neoentrepreneurialism, only those with human or financial capital are en- franchised players in the system. Actors without human or financial capital may see little in the way of firm investment in their future and (in some cases) work will be subcontracted to offshore facilities (Boyett and Conn 1992).
This perspective also has implications for management as a professional project. The development of neoentrepreneurialism represents a definitive step in the direction of permanently professionalizing management. The rapid development of business consulting and fee-for-service compensation that is the hallmark of the subcontracting process represents the definitive step in the direction of further professionalization for management (see also
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Leicht and Lyman forthcoming). Indeed, one can see this development placing professionalized managers on par with physicians and lawyers in their ability to establish and maintain independent, fee-for-service practice delivery to corporate clients. In this sense, personnel management under neoentrepreneurialism may be headed in the same direction as auditing services in accounting.
Our explanation of the development of managerial paradigms also has implications forWilliamson’s (1975)transaction-cost perspective of the de- velopment of hierarchies within firms. In Williamson’s perspective, hierar- chies and bureaucracy develop because of the high transaction costs involved in monitoring contracts in situations where actors have incentives to act opportunistically or where the ability to negotiate favorable contracts is impaired by small numbers bargaining. From our perspective transaction costs are a form of firm-specific dependence that affects managerial auton- omy. Managers act to reduce these transaction costs by altering the makeup of the human capital they use in their firms. Attempts to lessen dependence on skilled human capital may be viewed in this light.
However, the attempt to reduce this dependence occurs at the same time as the ability to monitor transactions is drastically improving (largely through the development of computers and information technology). Given that the ability to measure individual and group performance in a timely fashion has risen drastically, and that flexible manufacturing technologies and relatively short, specialized production runs have reduced asset specificity for firms, markets can now more easily discipline deviant per- formers. In short, we envision the Williamson process of hierarchy creation
‘‘running in reverse’’ because many of the original conditions that led to the gradual creation of hierarchies are disappearing.
How does our perspective compare with prior perspectives on changes in management ideas and behavior?