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Islamic Banking, Accounting And Finance International Conference–
The 9
thiBAF 2020
Talent Retention Practices in Global Business Services: Insights from Institutional Logic
Agoos Munalis Tahir
Faculty of Economcs and Muamalat, Universiti Sains Islam Malaysia (USIM), Bandar Baru Nilai, 71800 Nilai, Negeri Sembilan Malaysia
E-mail: [email protected]
Nurul Huda Abdul Majid
Islamic Business School, Universiti Utara Maaysia, UUM-KL, Kuala Lumpur E-mail: [email protected]
Abstract
The purpose of this paper is to provide insights on talent retention practices in global business services in Malaysia.
Despite of the advantages gained in terms of world-class infrastructure, tax incentives and competitive ICT prices, global business services (GBS) is still struggling with talent problems. Drawing on institutional logics’ perspective, the author seeks to uncover the institutional reasons for observed talent retention practices in GBS to overcome talent problems. This study uses qualitative methodology with interpretive case study design (Ryan et al., 2002).
Specifically, this study is based on two (2) GBS organizations operated in Malaysia. Data collections include interviews and focus groups. Findings suggest that the main challenge of GBS is retaining local talent. Findings illustrate how talent retention practices in the cases are influenced by Malaysian institutional orders. The cases responded differently towards particular influential institutional orders, hence indicate unalike results. This paper furthers the theoretical understanding on how local institutional orders constrain global business practices (Robertson, 1995). The paper focuses on the need for GBS to respond strategically to local institutional orders, thus gain legitimacy (Scott, 1991). It is found that the idiosyncrasy of Malaysian institutional orders, for example religion and community logics, should be recognized and understood by GBS players. By recognizing and understanding them, GBS could retain local talent and instill their global corporate logic.
Keywords: Global Business Services, institutional logics, talent retention, talent management
1. Introduction
A Global Business Services(GBS) is an internal accountable entity (Strikwerda, 2014) of multinational organization located offshore, established to provide pre-defined finance and accounting services to global business units as in internal market mechanism (Quinn et al., 2000). It has become the trend for multinational companies (MNCs) to not only reduce costs but more importantly to grasp on abundant of accounting talent dispersed all over the world. GBS functions that has been migrated to offshore locations ranging from transactional functions such as bookkeeping, general ledger accounting, account payables, to financial and management reporting (Maelah et al., 2012). Lately,
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the functions transferred has improved to higher value added finance and accounting functions such as business analytic, ad-hoc reporting and internal auditing to assist the execution of strategic operations (O’Connor et al., 2015).
In term of GBS location, India, China and Malaysia are still ranked at the top three favourable offshore SS locations since 2004 (Kearney, 2018). These locations offer various advantages such as lower labour costs, good infrastructure and information and communication technology (ICT) capability as well as tax incentives (Kearney, 2018). A. T. Kearney reports that majority of Fortune 500 companies have operated finance and accounting functions through shared services (SS) organizational form to gain competitive advantage (2014). Based on SSON survey, about half (42 per cent) of SS implementers have entered mature stage which have more than 5 years of experience (Hodge and Hood, 2014). The companies include IBM, British American Tobacco, Shell, DHL and BP where they have moved all or parts of their GBS functions to in-house SS centres (SSC) located elsewhere.
Previous studies discuss finance and accounting (GBS) function in SS, but most of the studies in GBS SS are guided by organizational rational standpoint (such as transaction cost economics (TCE) (Williamson, 2000), and control (Das and Teng, 2001). The literature (such as Amiruddin et al., 2013; Kastberg, 2014; Minnaar, 2014;
Minnaar and Vosselman, 2013) discuss more on management control, governance and organizational structure. A group of scholars at Loughborough University, under the umbrella of Centre for Global Sourcing and Services funded by CIMA, has produced papers in GBS SS (Herbert and Seal, 2012, 2014; Rothwell et al., 2011; Seal and Herbert, 2013). However the papers explain organizational changes from multi-divisional form to SS, and how the changes affect accountants’ works and responsibilities. There is a dearth of study in GBS SS that explore on how global operations in F&S SS affecting and being affected by local institutional context (except for Cohen and El- Sawad, 2007). Cohen and El-Sawad (2007) suggest that the management of SS in two different institutional contexts (the United Kingdom and India) is contingent with the on going dialogue between these two institutional settings to mitigate different work ethics, expectations and scepticisms among them.
2. Literature review
GBS functions in organizations has been redesign (Wang and Wang, 2007) from centralization to decentralization, and outsourcing. Organizations always find new ways to align structure and strategy, to achieve competitive advantage and sustainability. There are many organizations that have implemented shared services (Kearney, 2018) to redesign their GBS functions engendered by the proliferation of information and communication technology (ICT) and the accessibility of accounting talent across borders (Bhimani and Willcocks, 2014). Herbert and Seal (2012) illustrate the evolutionary change of GBS functions in organizations from conventional multi-divisional form (M-form) to shared services. Soalheira and Timbrell (2014) report that majority of Fortune 500 companies now operate GBS SS within their organizations, whereby over 85% of them have captured variety of benefits ranging from cost reductions to capability enhancements in global service delivery (Kearney, 2013).
This is mainly due to globalization, where globalization has brought digitization, standardization and automation to alter GBS functions in organizations with value proposition of increased efficiency, cost savings, transparency, security and efficient decision making (Lindvall and Iveroth, 2011). However, globalization which is described as a process of integration, internationalization and homogenization of trade, communication, immigration and transportation (from Financial Times http://lexicon.ft.com/Term?term=globalisation accessed in November 18th, 2015), does not explain the other side of the coins, glocalization. Glocalization is a way of view from both angle of global and local perspectives, which is not about homogenization only, but there is also element of heterogenization of practice (Robertson, 1995). Cruz et al. (2011) that study global management control system support the glocalization of global management practices as inevitable to achieve goal congruence between corporate and local subunits objectives.
Through utilization of ERP system and networking (Lindvall and Iveroth, 2011), organizations standardize business processes and set up their GBS SS located offshores. Standardization of accounting processes is achieved by separating finance and accounting works into modules (Keuper and Lueg, 2013). These modules are cleansed
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from any non-value added redundancy to increase efficiency through business process reengineering (Lacity and Fox, 2008). Then, modified modules are lifted and transferred to offshore GBS SS, where the modules are run by local accounting talent. Here, the processing of GBS works by SS is not done freely as in centralization form. As part of internal market mechanism in GBS SS environment, global internal customers are charged-back for every GBS services rendered. The term to illustrate the event is ‘commodification’ (Howcroft and Richardson, 2012, p.
111). The commodification of GBS works allows organizations to separate processes from people and locations, through IT enablement. Then, it becomes the major advantage for organizations to offshore their GBS functions into more economical countries (Gospel and Sako, 2010).
Howcroft and Richardson (2012) argue that standardization of support functions in SS has brought in frustration among employees in terms of limited flexibility, undermining the sense of professionalism, and boredom from monotonous and routine jobs. They also claim that because of ‘stickiness of work’ (2012, p. 122) and ‘the need for highly qualified and culturally sensitive capacities’ (2012, p. 119), conflicts surface between SS’ employees and global clients. Moreover, part of standardization process, organizations implement homogeneous rules and regulations across their global operations as part of control mechanisms and to promote consistency of practice.
This homogenization is associated with generic performance measurement across global operations, where this could intensify pressures among employees in SSC because of cultural differences. These ultimately cause high attrition rate in GBS SSC.
The standardization of GBS works and homogenization of performance measurement across global operations do not recognize the importance of local institutional orders. Meyer et al. (2010) argue that the embedded knowledge of local institutional contexts is indispensable for the success of MNCs to thrive on local resources.
Moreover, Elharidy et. al. that study global accounting outsourcing also find that ‘embedded relationships’ (2013, p.
60) between suppliers (India) and clients (the UK) of accounting services influence control between the parties involved. Elharidy et al. (2013) dissect embeddedness into structural, temporal and cultural, where these three categories of embeddedness imply the same local institutional contexts that need to be recognized and understood by the global GBS SS. Cruz et al. (2011) find that localization process of global management practices by local managers is inevitable to achieve both corporate and local subunits objectives. They define localization as ‘a process through which heterogeneous practices can emerge to facilitate the homogenizing tendencies of globalization’ (Cruz et al., 2011, p. 412). Apart from that, Sahay et al. (2003) discuss the importance to recognize the forces of local institutional contexts in managing the complexities of global relationships that work across borders.
These show the importance of local institutional orders for GBS to gain legitimacy from human capital resources, which is local accounting talent. Without recognizing and understanding local institutional orders that nurture local accounting talent, GBSC could not integrate their global objectives into local workforce. Evidently, a study done by Aman and Asmui (2012) reflect on how local accounting talent in Malaysia do not show strong interest to work in GBS. However, current literature in GBS SS has not yet rigorously explain the effect of SS organizational form on local accounting talent where the effect is perceived to be critical. We argue that changes in organizational form, infrastructure, system and processes must be followed by changes in the mind set of employees who are affected by the changes. Bergeron (2003) contends that mind set change of the workforce affected by SS organizational form is vital to its success. In GBS, local accounting talent are perceived as the most affected, because they are born and raised in local environment but at the same time work in global environment. Local accounting talent inherit and bring in different local institutional logics into global working environment, while GBS tries to inculcate global corporate logics practiced in rules and regulations, work flows, business processes and performance measurement system.
Researchers differ greatly in their understanding of what constitutes talent management. Cappelli (2008) simply states that talent management is ‘a matter of anticipating the need for human capital and then setting out a plan to meet it’ (p. 74). While Blass et al. (2007) suggests that talent management refers to ‘additional management processes and opportunities that are made available to people in the organization who are considered to be talent’ (p.
3). Whereas, Tansley and Tietze (2013) refer talent management as ‘strategies and for the systematic attraction, identification, development, and retention of individuals who are of particular value to an organisation” (p. 1799).
Lewis and Heckman (2006) critique current approaches to talent management that focus on individual’s
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development and overlook the organizations’ practices. They propose a talent management practice that devises from organizational strategy and ultimately implicates organizations’ talent pools (Lewis and Heckman 2006).
Collings and Mellahi (2009), and Dries (2013) have concluded that talent management still lacks conclusive conceptual foundation.
Talent retention studies are mostly done and written by North American scholars (Collings et al., 2011).
Even the seminal work on talent management by McKinsay Consultants in the late 1990s is based on a survey in US labour market. Even though the work from US context has advanced our understanding of talent management considerably, it is important to progress and develop insights from other context. Other countries for example Malaysia, China and India have their own institutional influences that could inform talent management literature. By studying these contexts, we could gain more and better understanding on talent management practices in these countries and how institutional orders play their roles in that particular contexts. In order to broaden talent management perspective, Collings et al. (2011) also call for studies from other contextual insights.
Institutional theory is based on the intertwined of wider societal contexts, organizational fields, organizations and individuals that cross-over each other to bring stability to social behaviour. The new institutional theory discovers that organizations are not only responding to economic forces based on rationality, but react and behave in accordance with societal pressures. Organizations which idealized as ‘rational actor’ do not necessarily conform to efficiency objective in their strategic decision making. However, organizations as part of the system in society,
‘adopt practices not for performance but legitimacy effects’ (Suddaby et al., 2013, p. 331). Legitimacy according to Scott (2008) is ‘a generalized perception or assumption that the actions of an entity are desirable, proper or appropriate within some socially constructed system of norms, values, beliefs, and definitions’ (Scott, 2008, p. 59).
The paper follows recent calls to link research on organizational practices and institutional theory (Suddaby et al., 2013). Organizations that respond to local institutional pressures choose to streamline their global practices towards achieving both organizational goals and societal legitimacy.
For the paper, we choose to explain societal institutional contexts from institutional logics perspective. The reason is that institutional logics perspective has broaden the new institutional theory limited societal insights and isomorphic organizational practices, to the enunciation of agency, heterogeneity of practices and multi-level of analysis (Thornton et al., 2012). The seminal paper on institutional logics by Friedland and Alford (1991) defines institutional logics as ‘values and beliefs that are shown in the practice of individual and organization’ (p.248), by which when certain logics are pledged, they could enable and constrain the behaviour of these actors. Institutional logics in actors’ belief system are the rules that regulate and guide organizational material practices. Material practices are understood as ‘unique events’ (Thornton et al., 2012) that articulate the translation of actors’ belief from the institutional logics that they subscribed. Here, we say that organizations have their own logics to guide operations and achieving goals, however at the same time need to consider societal logics to function in that social situations. Hence, organizations such as GBS are to recognize and understand societal logics in order to gain legitimacy from important resources.
Early studies in institutional logics concentrate on dominating logics and how they influence practices (such as Lounsbury, 2002; Thornton, 2002; Thornton and Ocasio, 1999). Co-existence of multiple logics (Greenwood et al., 2011, 2010; Reay and Hinings, 2009) in established institutional contexts is still scarce. The relationships of logics which conceptualized the arrangement of logics multiplicity (more than two logics (Goodrick and Reay, 2011;
Waldorff et al., 2013). Competitive relationships among logics suggest that one logic is dominant over the other weakened logic. Meanwhile, cooperative relationships suggest that multiple logics can influence and strengthening each other.
We recognize the interplay of four logics in the setting of our study. First, the GBS organizations bring in two logics into local contexts, which are corporate and market logics. These two logics are the base for their global operations to achieve standardization, efficiency, cost savings and effectiveness. The corporate logic provides source for standardized processes through rules and regulations, and performance measurement. Meanwhile, market logic drives the organization to seek for the most cost effective operations for example by offshoring accounting functions to Malaysia due to labour cost arbitrage. These two logics exist in parallel and have collaborative effects (Reay and Hinings, 2009). They are described as follows.
262 Table 1: Corporate and market logics (Thornton et al., 2012, p. 56)
Corporate logic Market logic
Root metaphor Hierarchy Transaction
Sources of legitimacy Market position of firm Share price
Sources of authority Top management Shareholder activism
Sources of identity Bureaucratic roles Faceless
Basis of norms Firm employment Self-interest
Basis of attention Status in hierarchy Status in market Basis of strategy Increase size of firm Increase profit Informal control mechanisms Organization culture Industry analysts
Economic system Managerial capitalism Market capitalism
Secondly, the GBS operations in Malaysia is not without the contestation of local institutional logics. The logic of religion and community are widely recognized and play important roles in Malaysian institutional contexts.
Castells (2010) expresses that ethnicity as in community logic and religion are always part of the fabrics that have considerable influence in the spheres of Malaysian economy, politic and society. Therefore, we bring forward the discussion of how these two logics influence talent retention practices of GBS.
Table 2: Community and religion logics (Thornton et al., 2012, p. 56)
Community logic Religion logic
Root metaphor Common boundary Temple as bank
Sources of legitimacy Unity of will: belief in trust &
reciprocity Importance of faith & sacredness in economy & society
Sources of authority Commitment to community values
& ideology Priesthood of charisma Sources of identity Emotional connection: Ego-
satisfaction & reputation Association with deities
Basis of norms Group membership Membership in congregation
Basis of attention Personal investment in group Relation to supernatural Basis of strategy Increase status & honour of
members Increase religious symbolism of
natural events Informal control mechanisms Visibility of actions Worship of calling Economic system Cooperative capitalism Occidental capitalism
263 3. Research setting
Malaysia is chosen as research setting because of the idiosyncrasy of its institutional contexts. For many years, Malaysia has been able to attract foreign direct investment from MNCs to establish their GBS SS functions. AMD, Shell, BP, British American Tobacco and IBM are among the MNCs that already have their own regional and global GBS SS in Malaysia. Besides MNCs, local players such as Petronas, Sime Darby and AirAsia has established GBS SS locally for their regional and global operations. Based on Multimedia Development Corporation (2013) annual report, out of RM12.41 billion export of services sales, RM8.4 billion which is more than 60 per cent comes from shared services operations. International Data Corporation (2012) reports that GBS SS are accounted for 54% of total SS sales in Malaysia, and is expected to continue maintaining similar rates through 2016. There are several reasons that makes Malaysia the preferred regional and global hub to consolidate MNCs’ GBS operations, for example government incentives and policies, access to modern infrastructure, ICT readiness and last but not least talent pool. Even though Malaysia is not competing on costs, it is still cited as offering lower cost advantages as compared to Australia, Hong Kong and Singapore (International Data Corporation, 2012).
Particularly, Malaysia has diverse ethnics population that require different attentions. The three major ethnic groups are Malays, Chinese and Indians. From the total population of 29.72 million in 2013, approximately 60 per cent is Malay background, 32 per cent is Chinese and 8 per cent is Indian (Department of Statistics, 2013). The historical and self-analysis event of race riot in May 1969, has been the critical departure that recognizes the strong influence of multi-ethnicity order in Malaysian societal landscape. The race riot was caused by inadequate efforts in rectifying socio-economic imbalances among different ethnics. At that time, of all Malays households, 65 per cent were in poverty compared to 26 per cent for Chinese households. In the case of Indian, 39 per cent had incomes below the poverty line. Since then, multi-ethnicity becomes the major social fabrics that defines economic system, education and political spheres. New Economic Plan (NEP) was established in 1970 to reorganize and restructure the differences in socio-economic system through economic redistribution. Rukunegara (the national ideology) was formulated in 1971 to express the beliefs and principles of the nation to build the foundation of national unity.
Despite of various national programmes held, racial stability is still the primary concern and one of the most influential orders in Malaysia. Recently, Najib Razak, the sixth Prime Minister of Malaysia, has recalled for national unity and ethnic harmony in his ongoing programme of 1Malaysia (pronounced as One Malaysia).
4. Research method and data collection
The paper adopts interpretive qualitative research approach by collecting empirical data from two case studies of GBS organizations, which are (1) ABC, and (2) XYZ. Case study method is applied to address accounting practices that could not be separated from their context (Yin, 2009), whereby context becomes major part of rich explanations for observed accounting practices (Scapens, 2008). Case study is mainly utilized to study organizational practices in the ‘fieldwork’ that the practices take place and offers rich explanations of the issues under investigation in their own practical setting (Ryan et al., 2002). The cases are selected based on their representation of global business operations of finance and accounting functions located in Malaysia. These cases are MNCs’ GBS organizations that render services to global internal customers. Data are collected from both cases by semi-structured interviews, focus groups, observations and document reviews. A total of 28 hours interviews were conducted with junior accountants with less than a year of experience, accounting executives, senior accountants, human resource managers and director of both GBS organizations (details are shown in the table below). Observations consist of six (6) times site visits to both organizations, attendance of operational meeting with global internal customers, staff trainings and workshops. Public reports from Malaysian Development Corporation (MDeC), companies’ annual reports, brochures and companies’ websites were all reviewed and analysed. Further interviews were conducted with MDeC officers and universities’ professors to gain more insights on local institutional contexts and local accounting talent with a total of 5 hours interviews. All interviews and focus groups were recorded and transcribed, and memos were written. Transcriptions, memos and pictures were coded into NVivo for analysis.
264 Table 3: List of interviews
Interviewees Case 1: ABC Case 2: XYZ
Director 2 hours 1 and a half hours
Human resource manager 2 hours (1 manager) 2 hours (2 managers) Senior accountants 4 hours (3 seniors) 4 hours (3 seniors) Accounting executives 3 hours (3 executives) 2 hours (3 executives) Junior accountants 5 hours (4 juniors) 3 hours (3 juniors)
Total: 16 hours 12 and a half hours
MDeC Officers 2 hours (two officers) Universities’ professors 3 hours (two professors)
Total: 33 and a half hours
5. Case description
ABC is a US-based MNC that has 15 years of operations in Malaysia since 2000. Parent company of ABC is one of the largest semi-conductor producer in the world with over 70 global sub-units. ABC serves parent company in the US and all its global sub-units from Malaysia. The planning and implementation process together with the global ERP system installation took nine months with no consultants hired. ABC started with transactional accounting works such as account payables and receivables, and catered only for Asia region. With the closure of Bangkok in 2003, all recording and reporting of accounting transactions for Asia were moved to Malaysia. The accounting functions migrated to ABC gradually move up the value chain to business analytics such as internal audit, performance reports and corporate planning. By 2008, internal customers being served from Malaysian ABC are globally dispersed to all sub-units including US, Germany, China, Japan and Korea.
The second case which is XYZ was established in 2010, and it is the second for the parent company after Chennai. The parent company of XYZ which is based in France, operates global container transportation and shipping services. XYZ started with only a small unit in the Malaysian subsidiary of the parent company. In year 2012, a company was formed as XYZ Sdn Bhd (private limited) to acquire the benefits of Malaysia Super Corridor (MSC) status. After that, the office of XYZ was moved to the Golden Triangle of Klang Valley as part of MSC status requirements. With almost 200 workforces, XYZ provides transactional and reporting accounting functions to over twenty global internal customers. Besides that, XYZ also provides business-specific shipping recording and reporting functions. Table 2 below describes the cases further.
Table 4: Cases description
Case 1: ABC Case 2: XYZ
Background US-based company French-based company
Nature of business Semi-conductor manufacturer Container transportation and shipping services
Revenue (2014) USD5.51 billion USD16.7 billion
Number of years in operation 15 years 4 years
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Global internal customers Over 70 Over 20
Number of employees 231 employees Almost 200 employees
Fraction of employees based on
ethnicity 35% Malays : 60% Chinese : 5%
Other 50% Malays : 35% Chinese :
15% Other
Director of GBS SSC Local Foreign
GBSC location Single GBSC in Kuala Lumpur Two GBSC: one in Kuala
Lumpur; the other in Chennai.
Accounting functions:
1. Bookkeeping and
transactions recording General ledger accounting;
account payables; account receivables; payroll
General ledger accounting;
account payables; account receivables; shipping documents
2. Reporting Financial and management
reports Financial and shipping reports
3. Business analytics Internal audit; ad-hoc reports;
business units performance report; dashboard
None
As we can see, the cases employ different fraction of ethnicity, where XYZ employs the same proportion of Malays and non-Malays, while ABC employs 30 per cent more non-Malays than Malays. Both director of the cases are non-Malays, where the director of ABC is local woman and XYZ is a French man. Both cases confronted by problems in managing local accounting talent, however they exercise different talent management practices.
6. Conclusion
With the availability of multiple logics to respond in local space, GBS would strategically react and align their talent retention practices in tandem with local institutional logics to gain legitimacy from local accounting talent. GBS adapt their strategies and organizational practices to local contexts, subject to constraints imposed by the resources available in the local context as well as institutional constraints imposed by their global operations. The ability for GBS to be aware, recognize and understand influential local institutional logics, creates the opportunities to reorganize and align organizational practices, ultimately gain legitimacy from local resources. The failure to understand and adapt to local contexts into global GBS talent retention practices causes problems in managing local accounting talent as they are raised and nurtured in local institutional logics.
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