Strategic Industrial Relations for Competitive Advantage

[This article is based on the address delivered at the IR Conclave organised by Mahratta Chamber of Commerce and Industry Pune on March 11, 2016][1]


Industrial Relations is a very interesting subject. Actually any relationship is so intricate and involves human emotions that films get made on it. Industrial Relations is the only subject on which many feature films are made. You will remember ‘Aaghat’ which was a Govind Nihalani film made in 1985.

The subject of discussion is ‘Strategic industrial relations to ensure competitive business advantage.’ In my talk today, I will briefly discuss the two catchwords: Strategy and Competitive advantage. I will then explain the difference between Strategic HRM and Strategic IR. This is only to put all of us on a common understanding. It will help me develop the subject. As the next step, I will discuss the IR strategies of some companies.

Let us now turn to strategy. Let me explain the concept of strategy though in an oversimplified way. Strategy is choosing one out of many options to go from point A to point B. Let us take an example. I wish to go to Mahabaleshwar from Mumbai. I have two options: Option 1: I can go via Mahad, or Option 2: I can go via Pune-Vai. I choose to go via Pune-Vai. So technically my strategy is chosen. This is deliberate strategy. As I take the express highway, people warn my driver of very heavy traffic, and possible traffic jam ahead. So I move from express highway to old Bombay Pune Road at Lonavala, reach Pune and then proceed to complete journey. I have deviated from the chosen path, but not the goal. It was essential to save time. This is the ‘emergent strategy.’ It is here that ‘intentions collide with changing reality.’ The point is that a strategy is based on both, a deliberate formulation and experience. It is against this background that we have to understand the Harvard view of Strategy. It sees strategy as ‘an imaginative act of integrating numerous complex decisions.’

The deliberate and emergent strategy must be understood in the context of industrial relations, because it takes two to tango in this field of management. The success or failure of the industrial relations strategy depends heavily on the ability of management and employees both to influence each other. Strategy implementation is very often understood as a unidirectional exercise. In industrial relations emotions often run high creating huge road blocks. Building consensus is nowhere as important as in industrial relations.

Competitive Advantage
Competitive Advantage means the superiority gained by an organization when it can provide the same value as its competitors but at a lower price, or can charge higher prices by providing greater value through differentiation. Competitive advantage results from matching core competencies to the opportunities. When a firm sustains profits that exceed the average of its industry, the firm is said to possess a competitive advantage.

The difference between Strategic HRM and Strategic Industrial Relations
The subject of discussion is ‘Strategic Industrial Relations to ensure competitive business advantage.’ I thank the organisers for arranging a conclave on ‘Strategic Industrial Relations.’ We hear ‘Strategic Human Resource Management’ very often. The question is therefore in what way Strategic IR differs from Strategic HRM? I will not give you my take on it. I consulted Blackwell Online[2] and here is what I read:

Strategic industrial relations is an approach for analysing the strategic choices made by the actors – employers, workers and their organizations, and policy‐makers – in industrial relations systems and the implications of those choices for industrial relations outcomes. Strategic industrial relations is based on the premise that these actors deliberately choose the strategies and institutional structures that they believe will best facilitate attainment of their objectives. …….. Strategic industrial relations, however, differs from strategic management and strategic human resource management in a key respect. Whereas strategic management and strategic human resource management focus on the identification and implementation of choices that advance the employing organization's objectives, strategic industrial relations has a broader focus. Specifically, strategic industrial relations focuses on identifying and implementing choices that advance the individual or joint objectives of workers, worker organizations, and industrial relations policy‐makers as well as the objectives of employing organizations. 

Elaboration is not necessary, yet I am tempted to do it. Strategic Industrial Relations as defined here focuses on choices that advance individual and collective objectives of employees as well as the organisations. The inescapable conclusion is that Strategic IR stands on the sound footing of industrial democracy. In other words, both the parties must listen to each other - workers and unions must listen to the voice of management and vice versa. The legitimate aspirations of both must find a place in the Strategic IR.

No Theory Please, Is Anybody Practising Strategic Industrial Relations?
I can almost hear some in audience saying that this is all theory, such things are not practised. So I am going to begin by giving some examples where it is practised.
Here are three examples of Strategic Industrial Relations;

A.   Tata Steel:

In January 1956, Tata Steel signed an agreement with their employees union. This is a landmark agreement because it recognises clearly the mutual responsibilities and obligations of the parties. It sets the tone for the industrial relations. This settlement has had tremendous influence on the work culture of Tata Steel.

The chapters of that agreement are: Mutual Security, Closer Association of Employees with management, Productivity, Job Description, Job Evaluations and Wage Structure, Revision of Wages and Gratuity [Gratuity law was enacted 16 years later by the Government!] etc.

Tata Steel has gone through its share of business adversities. While they have modernised the plant from time and again, they had to downsize it too. There is a substantial reduction in the number of employees – from 75000 to 35000. The record of industrial relations should be seen against this backdrop. In the last 75 years, there has been not a single day lost to strike!

Have Tatas achieved competitive advantage? Go to the website of Tata Steel and look up the Awards section. And decide for yourself if they have competitive advantage. It will leave no doubt in the readers’ mind that Strategic IR has given Tata Steel a great competitive advantage.

B.    Southwest Airways

Southwest has its own approach when it comes to dealing with unions. In essence, Southwest does three key things:

a.     Southwest accepts the unions as legitimate representatives of employees and as valued partners in the organization. Doing this removes the traditional anti-union bias which is the first major hurdle to good relations. By accepting whichever unions the employees choose to align themselves with, the Southwest management team demonstrate they trust the employee’s judgement.

b.     Southwest expects the unions to have an intense loyalty to the company and a feeling of ownership. Therefore, when negotiating with the unions, there is an anticipation they will act reasonably. Due to the fact Southwest employees have chosen to belong to six different unions, there is anticipation the other unions will help ensure none of their number make excessive demands.

c.     Southwest treats the unions as full partners, not like some albatross hanging around their organization’s neck. From that perspective, Southwest supplies each union with accurate information so negotiations can move forward in the bright light of day rather than in an environment of mistrust and confusion. As a result, Southwest has exceptional labour relations. There has only ever been one six-day strike in the company’s history.

d.     Has Southwest Airline achieved competitive advantage? Take a look at their achievements:
                           i.        In a highly volatile industry, Southwest has been profitable every year except for the year in which it was established. That means by 2003, Southwest has been profitable for 31 years.
                          ii.        For most of 2002, Southwest’s $9 billion market capitalization has exceeded the combined market capitalization of every other U.S. airline.
                         iii.        Southwest rates consistently high in Fortune Magazine’s “100 Best Companies to Work For in America” and from 1992 to 1996 also won the airline industry’s “Triple Crown” – the fewest delays, complaints and mishandled bags.[3]

C.   British Petroleum

In 1988, the Singapore Shell Employees Union documented its future direction in the plan of action, "Facing the Future - Plan of Action for the 1990s".
In 1991, the Company launched their mission and vision statements to the employees. This was in response to a perceived need among the employees to know what the company's basic beliefs are and the direction the company is heading. Both the Company and Union re-affirmed their full commitment to the Shared Industrial Relations Vision at a Conference held on 24 September 1999.

Here is the Vision Document:
Shell Companies in Singapore and Singapore Shell Employees' Union are committed to the well-being of employees.
We believe that this requires a successful Company and an effective Union working together in a strategic alliance to meet challenges, seize opportunities, solve problems and enhance the quality of work life in an ever changing environment. To this end,
We will conduct industrial relations in a professional, pragmatic, consistent, consultative and enlightened manner with mutual respect, trust and openness at all levels.
We will ensure that employees are well remunerated, and rewarded in accordance with performance.
We will ensure that employees are treated fairly, with trust, respect and care.
We will promote an environment in which employees are well-informed, motivated and empowered to perform their best.
We will ensure that employees are highly trained and developed to the best of their abilities.
We will promote a safe and healthy working environment through the highest safety standards and greater awareness on issues related to health, safety and environment.
We will ensure the long term viability and growth of the Company through productivity improvement, innovation and quality improvement in products and services.
We will ensure that Union remains effective by supporting its activities and informing, consulting and involving it in matters affecting employees.
The fulfilment of this vision requires the commitment, involvement and participation of all employees

I have made two points so far: [a] that industrial democracy is the soul of strategic Industrial Relations and [b] that it has been practised around the globe. Strategic IR has given a distinct character to the organisations, and also competitive advantage.

The Three Questions
Now let me turn to the three questions suggested for discussion by the organisers of this conclave. These are:

[a] Industrial relations scenario – past, present and future. Impact of global changes. 

I intend to deal only with the ‘impact of global changes.’ To begin with let me quote from an excellent research paper published by ILO and authored by David Macdonald.[4]

[I quote] “During the 1990's, the new demands of international competition and dramatic advances in technology - the forces of globalization - have changed substantially the nature and operation of the "market place", and how production is organised, in many industries across the world. ..... There is an increasingly strategic role for industrial relations (IR) within the enterprise, as much of what has to be done involves significant changes to traditional practices in this and the related area of human resource management (HRM). The result has been that the nature of IR is changing in many enterprises. A new approach is emerging, relying on a broader concept of employment relations.
This new approach is based on a range of IR and HRM practices directed to improving the flexibility and skills of the workforce, within an environment which emphasises communication, cooperation and trust between managers, workers and their representatives.” [Unquote]

Do we see evidence of these observations? Here are three facts:

Surya Nepal P Ltd planned an intervention to build organisation culture just before their new factory was about to be commissioned. All employees including senior managers participated in the exercise. 

Similarly Tata Steel commissioned their Kalinganagar Plant recently. Before commissioning they too implemented an initiative for building the desired work culture at the plant.

Hy-Tech Engineers, a Thane based industry which also has set up factories near Pune, have been sharing their wealth with the employees. This is the fall out of a very successful implementation of the Toyota Production System. TPS creates work practices and work culture that helps the organisations meet the challenges of flexibility, skill development. You may watch the video here.

Quite obviously there are positive trends in managing employees, including the blue collar employees. The impact of globalisation on IR practices is unmistakable.

[b] Can relationship be planned or it comes from the heart?

Although labelled industrial RELATIONS there is no valentine day in Industrial Relations! Industrial relations like any other relationship can be planned as well as it must come from heart.

I have mentioned Surya Nepal and Tata Steel initiatives above. These two organisations have planned to lay foundation of positive relationship. There are of course many other ways organisation have planned industrial relations.

For planning a relationship, we must consider what view we take of the relationship is very important. There are three perspectives possible according to Alan Fox. Those are Unitarism, Pluralism and Radical. Here are those:

In ‘Unitarism,’ the organization is perceived as an integrated and harmonious whole with the ideal of "one happy family", where management and other members of the staff all share a common purpose, emphasizing mutual cooperation.

To my mind Marico and Excel industries seem to have taken ‘Unitarist’ view of the industrial relations. Marico experimented with very innovative practices when they set up a factory at Kanjikode in Kerala. No employee [blue collar employees included] was required to punch card or use access card for marking attendance. When they availed leave they were expected to apply for it, otherwise they were presumed to be present. A clear statement of trust it is. Many companies adopt this practice only for their managerial staff. In another interesting practice, Marico used ‘jury’ to decide if an employee was guilty of indiscipline. The jury comprise of equal number of managers, supervisors and blue collar employees. This is as far as an organisation can go to ensure fairness. Contrast this with the practice in organisations where a workman knows that he is on his way out if he is issued charge-sheet. So adversarial!

In ‘Pluralism,’ the organization is perceived as being made up of powerful and divergent sub-groups, each with its own legitimate loyalties and with their own set of objectives and leaders. In particular, the two predominant sub-groups in the pluralist perspective are the management and trade unions. ITC and Asian Paints seem to be practising this view.

When the workers of Patancheru plant [near Hyderabad] formed a union, the management
of Asian Paints invited the President of the union formally for a discussion, explained the policies of the company. Inviting the President, an external leader, went a long way on setting a positive tone for industrial relations.  

In his book Beyond Contract (1974) Alan Fox added a third conceptual possibility, the ‘radical’ frame of reference, from the perspective of which the employment relationship is an entirely illegitimate relationship which exists solely to satisfy the interests of the dominant party.’[5]

And there are many organisations which adopt the radical stance. Maruti Suzuki and Bajaj Auto are examples of this ‘radical’ stance. The utterances[6] of their managing Directors disclose their mind-set.[7] There are many in the Auto as well as MNC sectors.

[c] Are union partnering themselves in strategizing IR in sharpening competitiveness of business?
The answer is yes, we see this trend too. Admittedly it is a trend, not a common practice.
ITC Kamgar Sanghatana in Ranjangaon has defined its vision statement. I have blogged about it earlier. [Link] Here it is:

“Excellence in Relations for Harmony, peace, productivity and innovations to create world class organization and to achieve better economic, social and family life with the help of team work, enlightenment , analysis , learning, commitment, honesty, trust, fairness & transparency.”

And ASAL Employees Union at Bhosari created a sensation when they wrote to Management suo moto that they will increase productivity first and then seek increase in salary. At Thane HR Group we invited their CEO Mr Anil Khandekar and Union leaders to share a common platform to tell their story. There is a minor revolution in attitudes and relationship. And it is at the behest of the Union.

Let me sum up:

Firstly what view leadership takes of the relationship matters. It gives character to the relationship. Those who take Unitarist or Pluralist views will succeed in the long run. Since leadership changes not infrequently, a safe guard is provided in the policy of the organisation. Unfortunately, it is rare to find organisations declaring their ER policy upfront.

Secondly, Strategic Industrial Relations brings benefit in the long run. There is obviously evidence that it also brings competitive advantage.

Thirdly, leadership matters in all people issues, it matters in Industrial Relations. A JRD Tata or Russi Mody can create great organisation that survives the scares of the globalisation. Myopic leaders of industry can make money in the short run, but they remain vulnerable to Industrial Relations at all time.

Vivek S Patwardhan

[1] The speech was short due to short time allocated. In this version I have elaborated many points, though the basic structure remains same.
[2] Strategic Industrial Relations
[3] ‘The Southwest Airlines Way’ quoted from
[6] This is what Rajiv Bajaj said when told that the Bajaj workers union says that ‘financial hardship was a non-issue’: “Being unaware of matters internal to their organisation (Union) I can't tell how much of this bravado is for public posturing and how much of it is actually true; nevertheless, my primary concern is not whether the union lacks resources or resolve, but whether they possess the intellect and the attitude to know and to do that which is in the long-term interest of their members in these difficult times.” [Emphasis supplied]. [See Business Line July 29, 2013, ‘Prepared for the long haul, say Bajaj workers’]
[7] See The Snake and The Mongoose -  The Story of Bajaj Auto Strike

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