Reference no: EM131334715

Internationalization of human resources at OBI
Renowned for its orange big box stores, OBI is one of the leading DIY/home improvement retail brands in Europe. Founded in Germany in 1970, the company currently operates about 500 stores in ten European countries and boasts 40,000 employees. OBI's expansion strategy is geared towards market leadership in Central and Eastern Europe. Its share of international sales is expected to grow from one-third to one-half of the organization's total revenue within four years.

While most of the stores are owned and operated by OBI, some operate under franchise agreements. In some countries, such as Russia and Ukraine, OBI entered into joint ventures with local partners to expand its business while maintaining full operational control. Until 2006, OBI's subsidiaries operated, for the most part, independently in each country-a textbook multidomestic situation. Any coordination with the parent company headquarters depended more on an individual manager's ability and willingness to network within the informal structure than on any formal corporate policies.

As OBI expanded in the international market, its HR department realized that in order to realize economies of scale and draw upon global expertise and resources while still localizing the business in its different national markets, the company would have to change its multidomestic approach. OBI needed to create a more centralized mode of operations and become a transnational company.

Thomas Belker, managing director of HR, remembers:

No standardized HR management practices existed, and in those countries where practices had been developed, they were rarely followed. As a result, some line managers typically requested individualized guidance from headquarters as needed, and would then tailor the suggested solutions to their specific situation. In other cases, managers were accustomed to formulating their own solutions, as headquarters did not always provide the necessary support. Once faced with a potentially huge shortage of qualified employees to support its international expansion, however, OBI realized that it needed standardized recruitment procedures. "I knew that my first meeting with all the country managers would be crucial if I wanted to convince everyone to understand multi-domestic as a deadlock," Recalls Thomas Belker. "But how could I take away the fear of the dreaded centralization of processes that would cut off individual solutions by the country managers?"

Local managers were concerned that a standardized competency model would give them less control over their hiring decisions. OBI had previously developed several competency models, although none of them had been uniformly applied. While creating a standardized model would undoubtedly have the advantage of providing clear guidance, OBI was concerned that managers might not comply if the model could not address local concerns.

First and foremost, OBI realized that standardizing all of its HR practices would not necessarily lead to a well integrated organization, and that there was considerable resistance in some countries to adopting centralized HR management. Therefore, it forbade the use of the term "centralization" and instead encouraged each country's managers to help develop the core processes. While the standards would eventually become company-wide, they could be formulated at any level of the organization. Second, recognizing that each domestic operation could develop its own unique solutions to problems facing its country's operations, OBI sought to determine which country addressed which problem the most efficiently. OBI named certain countries "centers of competency" for specific core processes.

Thus, the guidelines for recruiting, training, performance management, etc., were established independently in one country and then later applied to other countries' operations. This had the added benefit of increasing interaction among HR managers and developing an international mind-set throughout the corporation. By assigning each country's operations a key function in developing HR policies, OBI was able to transform itself from a multidomestic operation to a transnational organization.

Questions

1. How did OBI capitalize on the strengths of its multi-domestic strategy when shifting the structure to a transnational organization?

2. Why did OBI create "Centers of Competency"?

3. How does shifting from a multi-domestic to a transnational model affect the organization's culture?

4. How did it affect HR?