Strategic Industrial Relations

Lecture slides for Chapter 14

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 Objectives
• The objectives of this chapter to understand
the difference between human resource
management and industrial relations and
how collective bargaining could be used for
creating competitive advantage.

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 Human resource management vs
Industrial Relations
• Human Resource Management:
– Deals with design and delivery of human resource services to suit the
needs and expectations of each of the employees as individual.
– This assume that every employee is unique and has unique needs and is
willing to present their persona need to the management.
• Industrial Relations:
– There are employment situations where there may be a lot of employees
who do very similar jobs with same type of tools, work in the same
physical environment and have very similar expertise. These employees
also have very limited income and education to be able to present there
unique needs to the management.
– There is economy of scale in the design and delivery of employment
relations of such employees.
– The technology of getting this economy of scale in design and delivery of
employment relations of such employees is through collective bargaining
method.
• The range of issues that may cover under IR are
– Negotiation for hourly or daily wage and or benefits;
– Procedures for union certification
– Work place discipline issue
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 Trade unions and Prevalence of
Industrial Disputes in India
• In 2006, 430 industrial disputes were reported
which involved the employment of 1.82 million
workers.
• 56% of the industrial disputes were strikes and the
rest were lock-outs.
• Industrial disputes led to loss of 20.32 million man
days of workers services.
• Private sector accounted for 80% of the industrial
disputes.

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 A few recent examples of trade
union activism
• Trade union opposition to merger plan: In 2006, Lord Krishna Bank
wanted to merge with Centurion Bank of Punjab but United Forum of
Bank unions opposed this merger move. Instead they wanted its
merger with a public sector bank.
• Bank Employee threatened indefinite strike for their pension
benefits: In 2006, State bank of India officers and employee union
went on strike because their pension rate had a ceiling of Rs4250/-
which was set in 1992-93.
• Employees threatened strike against privatization: Airport
Authority of India employees joint forum threatened to go on strike if
Govt. went ahead for privatization of Delhi and Mumbai.
• Trade union opposed cancellation of wage contract: Faced with
imminent bankruptcy, Delphi of Detroit wanted to reset the wage
contract with hourly workers from $27 an hour to $16.5 an hour.

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 Prospects from Union Involvement In
Company Business Strategy Plan
• Transaction cost: Presence of a collective body could bring down
transaction cost substantially.
• Cost control through productivity bargaining: Labour cost as a
percentage of total revenue could be brought down by productivity
bargaining with trade unions. Example: M&M agreement for 10
minutes overstay for shift workers.
• Ease in strategy implementation: Strategy can be communicated
better through union.
• Credibility to strategy information:Because of high acceptability
strategy can be passed easily through union.
• Can bring new strategy: Considering union as a strategic partner may
provide new strategic options e.g. alternative to closure or
retrenchment payment. Example: VRS scheme.
• Governance advantage: Company works with physical assets owned
by share holders and human capital owned by employees. The
managers are appointed by the share-holders and they ensure that their
interest is well protected. Who protect the interest of the employees
whose human capital the company uses.

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 Potential Problems from Union
Involvement in Company Strategic plan
• Time lost in information transfer:
– Union’s lack of expertise could be a constraint in making them
appreciate the strategy;
• Bureaucratic Union and communication barrier:
– Even with union acceptance of strategy information transfer
through union could be a time consuming process;
• Legal Barrier in Union involvement:
– Merger and acquisition issues cannot be discussed before it is
approved by Financial institutions who are the institutional share-
holders.
• Vulnerability to source of competitive advantage:
– In the presence of trade unions most issues get high visibility
which may allow a competitor to duplicate a policy and may
duplicate the process also.
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 Trade Union Concerns in becoming
part of Company Strategy
• Justification of union can be at stake:
– Company looks for cost efficiency while union
is expected to work for welfare of employees
• Wrong Perception of Union:
– Union may be viewed as a tool for management
and may loose their legitimacy among workers

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 Collective Bargaining as a source
of competitive advantage
• Collective bargaining method in wage
negotiation creates visible agreements that
are easy to duplicate by competitors. This
means cost based competitive advantage is
likely to be lost within a short time.

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Collective bargaining and process
advantage
• Workers sensitivity to wage inequity:
– In most manufacturing industries the worker wage bill
is just 2% or 3% of total operating cost.
• Workers faith on trade union leaders: Lack of
trust affect workers perception of fairness in wage
when its done unilaterally by managers.
• Managerial or plant level productivity:
– is enhanced from uninterrupted supply of goods and
services from workers.

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 Development of Better Industrial
Relations
• Invest in Developing Trade Union Leaders;
• Invest in Developing Line Manager’s skills in collective
bargaining;
• Lobby at national level for better regulation of trade
union formation and management;
• Institutionalize access to company information to trade
union leaders:
– Company cost structure, market position.
• Institutionalize collective bargaining structure:
– What issues could be decided by collective bargaining, who are
eligible to participate, at what frequency the members would meet,
clause for dissolution etc.

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 Negotiated Flexibility
• Employment contract:
• Generally worker level employment
contracts are very standardized with very
little flexibility of employment location or
occupation change
• Now new contracts are coming with more
flexibility in skill, department or business
location

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 Negotiated flexibility…
• Wage flexibility:
• Asian Paints Ltd, signed an agreements
which read as this:
• “Wages agreed upon in this settlement are
for standard output as detailed in the
annexture and any persistent shortfall in
output will attract proportionate reduction in
wages payable for the period”

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 Negotiated flexibility…
• Two Tier Wage Agreement:
• At the expiry of existing agreement many
companies create a new grade which start at a
lower rate than the existing one. Because it affects
team work many companies make agreements that
over time the difference would disappear.
• This is done to ensure that wage rate reflect the
learning curve of the workers.

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 Negotiated flexibility…
• Linking DA with Productivity Rather than with CPI:
• Chronically sick companies sometimes tie DA with
productivity rather than with price index. Example: TI
Cycles of Madras during early 70’s. But ones company
statrted making profit they agreed to switch to cpi linked
DA.

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 Negotiated flexibility…
• Flexibility in working hours:
• Mahindra & Mahindra signed an agreement in mid
nineties that working hours would be 10 minutes
more per shift per person. During this time they
were expected to do minor maintenance of their
work bench.
• L & T, Mumbai plant made agreement with their
daily rated workmen to reduce working hours
from 48 hrs per week to 45 hrs per week.
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 Negotiated flexibility…
• Downsizing and redeployment agreements:
– VRS schemes of most companies are negotiated agreements
between management and employee unions.
– In 1995 Hindustan Insecticide made an agreement with their trade
union which read as follows:
• “It is further agreed by the union that there would be
reduction in the manpower to the extent of 20% by way of
redeployment of existing manpower for new projects and
wherever it is not possible the management would grant
vrs to the required extent during the operation of the
agreement.”

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 Key Learning
• HRM deals with individual employees and is suitable in those areas
where employees are sufficiently different and do different jobs.
• Negotiated employment contract are more suitable in those areas
where employees are very similar and do very similar types of jobs.
• There are certain managerial concerns in involving trade unions in
strategic plans.
• Trade unions also have certain concern to be seen very close to
management.
• A better industrial relation is necessary for maintaining a human
resource based competitive advantage.
• It is possible to build various types of flexibility in wage agreements to
gain and maintain such competitive advantage.

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