Course Project:

New Frontier: HR Strategy in the Czech Republic

Anne-Marie Russo

HR584

International Human Resources

Danielle Camacho

12/23/06

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Table of Contents

Description of New Frontier…………………………………………..page 3

Why Move to Prague………………………………………………….page 3, 4

History…………………………………………………………………page 4

Czech Work Culture……………………………………………… …page 5

HR Strategy……………………………………………………………page 8

Style: Integration vs. Domination……………………………………..page 9

The Plan……………………………………………………………….page 9

Conclusion……………………………………………………………page 13

References……………………………………………………………page 15

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New Frontier: An Executive Relocation Company

New Frontier is a U.S. Executive Relocation company headquartered in San Francisco.

The company employs about 50 people and plan to expand to Prague in the Czech

Republic. New Frontier offers services to company expatriates, training and development

of expatriates and host-country nationals, and human resource consulting. This paper will

attempt to outline the International Human resource strategy in Prague based on previous

case studies and company research. Most important is the extensive research of the

Czech management culture pre and post communism and the unique dynamic of this

transitional economy and its effect on Czech employee mentality, expectation and,

ultimately human resource strategy design. Also examined is the nature of the U.S.

company entering a transitional economy as a super-power and the effect of

"globalization" on the psyches of the Czech people. Special emphasis is put on the

importance of sensitivity to and integration of local culture and values when designing a

human resources plan.

Why move to Prague:

Hlavni mesto Praha (Prague) is the capital city of the Czech Republic and represents 11%

of the country's population at 1,166,000. It generates over 25% of the country's entire

GDP. It is a cultural and financial mecca of Central Eastern Europe (CEE.) As the center

during the transition into a market economy, Prague offers the biggest regional labor

market in the Czech Republic. Foreign investment has attracted permanent or long-term

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residence by foreign workers. As a new member of the EU, Czech labor is considerably

less costly than in member EU countries but provides a richly educated, eager and skilled

labor force that was dumped into the marketplace from the state institutions that

employed them during the totalitarian era. There is an accessible pool of talent from 8

internationally renowned universities in Prague, such as Charles University and which

makes this city an active recruiting ground for foreign companies. New Frontier decided

on Prague for all of these socio-economic factors, but also because of the predicted

demand for relocation services due to the influx of foreign company expatriates and the

need to integrate host country national management.

History:

The Czech Republic, mainly Prague, stands out among the CEE countries as the leader in

the ongoing transition from centralized government command economics to market

driven demand economics. CR has laid the foundation for a private sector economy and

"has acted as a host country for free market capitalists worldwide." 1 The Velvet

Revolution in 1989 was the beginning of political and economic reform. In 1993,

Czechoslovakia split into the Czech Republic and Slovakia, and the constitution of the

Czech Republic went into effect. The government officially shed its communist skin to

become a parliamentary democracy. On May 2004, CR became the first CEE country to

join the European Union. The country is still considered by economists as "in transition."

1 “The Czech Republic: An in-depth look at its Global Posture.” J Kim DeDee, Lynda DeDee. The Business Review, Cambridge. Hollywood: Summer 2005. Vol. 3, Iss.2: p.1.

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Czech Work Culture: past and present

In order to create a workable HR plan in Prague, New Frontier's HR department with the

help of consultants from Prague must first understand the past and present culture of the

Czech employee: what aspects of the socialist system have they carried with them? What

innate characteristics affect their response to change, to the market economy, to a U.S.

delivery system? Through understanding, New Frontier will not "impose" an HR

management style but create one which honors both the New Frontier vision and the

Czech work style.

The "transition" is from a centralized, hierarchical-dominated socialist system. The

Czech manager was an administrator of state institutions with clearly established roles.

Deliverers of top-down decision-making, he had little autonomy or capability to plan.

Staff members were subordinate and dealt with via authoritative action. Employees

performed routine tasks and rarely were required to acquire new skills sets. A passive,

almost ritualistic behavior was the norm. The most classical studies of Czech leadership

behavior were done by Geert Hofstede between 1967 and 1973 and clarify "basic values"

that he viewed as being at the deepest level of a culture. Hofstede differentiated five

dimensions of national cultures: 1) Power Distance 2) Individualism verses Collectivism

3) Masculinity verses Femininity 4) Uncertainty Avoidance and 5) Short-Term verses

Long-Term Orientation. He was convinced that these dimensions make up a behavior of

strong inertia and thus high resistance to change. He concluded that "Nations whose

managers score high on hierarchy are those in which power differences are accepted,

paternalism is expected, job appointments are likely to be on the basis of ascribed

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qualities, and preferential treatment is given to one's immediate associates." 2 He,

however, found a striking feature "the former communist nations of the Central Europe

are all characterized by combinations of hierarchy and autonomy as opposed to western

cultures that are characterized by the combination of equality and involvement.” 3 Other

theorists, however, conducted studies from foreigners' reports of critical incidents that go

against their expectations of the aforementioned qualities. Theorists Novy and Scrhroll-

Machl describe the Czech cultural standards: downplaying of formal structures

(flexibility and improvisation, simultaneousness, person centered control, conflict

avoidance and unsteady self-confidence."4 Based on this analysis, the fierce market

economy is not enough to shake up competition against inefficient companies, and

protected industries. Managers are characterized by a lack of entrepreneurial spirit and a

strong aversion to responsibility. The Czech passive resistance becomes a major

stumbling block towards organizational change. There is a deep-seated and long-lasting

tradition of bribery and informal exchange of favors which should not be underestimated.

However, a culture that instigated revolution has many attributes to be taken advantage

when creating a management style. "The new breed of young managers who are

professionally-oriented are entrepreneurial, risk-takers, flexible and open minded. (They)

possess a specific talent for improvising and 'surviving' "5 due to the unpredictability of

the business environment during the transition. Our understanding is that there are

entrenched work habits that can be eventually overcome with the power of innate

individualistic personality traits. New Frontier must take full advantage of these latter

2 “The Behavior of managers in Austria and the Czech Republic: An intercultural comparison based on the Vroom/Yetton Model of Leadership and decision making. Gehrard REber, Werner Auer-Rizzi, Milan Maly. Journal for the East European Management Studies. Chemnitz: 2004. Vol. 9, Iss. 4. pg. 414.3 Ibid, p. 414.4 Ibid, p. 414.5 Ibid, p. 426.

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traits, while at the same time, respecting the socialistic norms that have characterized

their work environment for ages.

Czechs have had to undergo a grueling process of transformation from a socialist to a

market system and almost simultaneously have had to cope with the globalization as well.

Undoubtedly, western companies are a major influence on the development of CEE

enterprise and represent a major source of innovation via new methods and, thus, the

transfer of knowledge. Yet, as opposed to China, where the transition into a market

economy was gradual, the Czech Republic "ventured on a radical form of transformation,

even a sort of 'shock therapy'.. …Demonopolization, liberalization of prices and

privatization plunged enterprises into a completely new situation."6 During this time,

business practices were in a "new frontier" with no real plan or direction or regulations.

"Business Cowboys" did business in a context of institutional and political uncertainty.

This is where the new manager was born, in a world of uncertainty, risk and opportunity.

They are thus in conflict between the aspirations of the new market and their own

culturally bound ways of doing things. New Frontier must form an atmosphere of trust, a

principle of equivalence and treat Czech staff as true partners. In this way, the pervasive

defensive walls will eventually disintegrate. New Frontier must take advantage of "the

reservoir of knowledge, the traditions and knowhow existing in a society which can serve

as the basis for creating something new."7

HR Strategy6 Globalization, transformation and the diffusion of management innovations. Gertraude Miki-Horke. Jornal for East European Management. Chemintz: 2004, vol. 9, Iss. 2. pg.2.7 Ibid, p. 3.

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After extensive research of this kind, New Frontier must establish an HR Plan which

respects the Czech attitude within the context of the vision and objectives of the

company. This is accomplished through constant involvement of local ideals into every

stage of development. New Frontier is considered a small company whose infrastructure

is horizontal in nature and cross disciplinary. The goal is to create a Prague office that is

integrated into the whole of the company but able to function at a local level. Without

this independence to some extent, cultural integration would be a more difficult task. The

Matrix organizational structure would allow all areas of management to be involved and

maintain communication. Since the company is quite small, the complexities and costs

assigned to a matrix structure will be less.

Style: Integration vs. Domination

U.S. managers will mentor or shadow Prague managers and exchange knowledge.

Although local staff is embracing of the new market, a total "americanization" shows a

lack of respect or inclusion which is most important for operational independence. As in

the management style used in the Volkswagen and Skoda Case in our course, we will

adopt the tandem approach to knowledge transfer and exchange. New Frontier will be a

Learning Organization (Integration verses Domination) to enable a gradual shift to local

management. Communication will be face to face instead of via memo or email. We

integrate our vision with constant dialogue about how competitiveness should be

achieved. U.S. will transfer a style of direct supervision and involvement of staff where

they can feel part of the organization on a daily basis. Because of their history of

motivational slogans from communism, Czechs are wary of rhetoric; and, therefore,

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managers must back up talk with action. We must also establish clear job goals and

emphasize the need for change, integration of tasks and the importance of learning new

things. Management must reinforce the "learning atmosphere". Risk-taking is a new

element for the Czech, and they need to know they will not be punished for making

mistakes. Feedback is essential on a day-to-day level.

Moving from Person-based to Performance based

No longer will Czechs be rewarded on their person, but on their performance. This will

be integrated with performance-reward not only via compensation but with promotional

opportunities and other benefits. Feeling part of a good company over the long-term is

essential. Given the volatile and transitional nature of this period in Czech history,

mangers tend to seek short-term results. Therefore, we must create a notion of long-term

planning and feeling a sense of belonging. New Frontier must integrate and take

advantage of characteristics that are most important to Czechs for personal success: 1)

Ablility to solve problems 2) Concern for the well-being of the group 3) Being Flexible

4) Persistence and 5) Being organized.

The Plan

In 2004, Deloitte and Touche researched 83 organizations in the Czech Republic about

typical HR practices. Petr Kimlyka, Central European Leader for Human Capital

Advisory Services of Deloitte Touche Central Europe, declares “I believe the HR

function has a pivotal role to play in the development, deployment and connection of all

employees in the organization. Central Europe is on its way to becoming a meaningful

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partner for the organization….we still have to work to do in implementing useful and

effective HR processes and tools and involving the organization (top management, line

management and employees in HR related issues.” 8 New Frontier pulled from this

research to understand what to use and improve upon. We discovered that the span of

control of HR management is rather small and it seems that organization could benefit

from making administrative processes more effective and efficient.

1) Recruitment and Selection

First and foremost, a local manager must be selected as Operations Manager for the

Prague team. Selection criteria: 1) Bilingual in Czech and English 2) technical skills 3)

international work experience 4) MBA education 5) Resourcefulness

6) Flexibility 7) understanding of old socialist working norms. The selected manager

will be part of a team of HR professionals to select future staff in Prague. All staff,

because of the nature of the service New Frontier provides, must be bilingual

(English/Czech) and have a third European language. Recruitment will primarily come

from the 8 universities in Prague to ensure high-caliber talent. There is not an emphasis

on all staff being local. However, all staff must have the aforementioned language skills

and experience working abroad. Host Country Nationals with experience working

abroad prevents the creation of a cultural vacuum which could slow the intergrative,

cross-disciplinary learning process. We eliminate the "us against them" mentality.

8 “The State of HR in Central Europe: Do you measure up?” Deloitte Czech Republic, B.V. 2005. http://www.deloitte.com/dtt/research/0,1015,cid%253D95089,00.html.pP.8.

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2) Performance Management

According to the D&T research, performance management metrics are limited in the CR,

so both quality and quantity performance metrics must be put in place, being sure to use

local standards. Because New Frontier crosses boarders, performance standards must be

negotiated with local and U.S. HR management teams to ensure they meet all

expectations fairly. As noted earlier, Czechs come from a person not performance based

reward system, and this must be addressed immediately in training. New Frontier

embraces a performance-based system for equality and continuity purposes.

3) Compensation and Benefits

HR links compensation to motivation, employee needs and financial forecasts. Czechs

are abandoning traditional work patterns to becoming more flexible. However, there is a

decrease in overtime and shift work or part-time. Fixed term contracts are given to

maintain productivity standards and prevent fear of becoming redundant to the company.

Compensation will match the standard of living but will be higher than average to attract

and keep talent. Pay, however, is still more restrictive because of national anti-inflation

policies. Therefore, benefits must compensate the employee as an incentive. Also,

unemployment is the lowest in Prague, and talent is very difficult to find. Therefore, pay

standards must be higher than average. Incentives are: profit sharing at all levels,

education and development, merit/performance bonuses, grants for family/child

recreation (holiday camps) and workplace chidcare. These benefits are reflective of the

communist system that is still present in society. Because trade unions reflect the old

communist regime, Czech employees see unions as a formality. Therefore, presently,

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Labor unions do not pose a threat to the company. However, it is important to keep up

with the climate. HR management, in cooperation with HQ will partake in collective

bargaining when needed.

4) Training and Development

Training and Development is the most important element in HR strategy. Continuous

feedback, progress checks, and skills based learning tools should continue throughout the

employee’s career. Not only for productivity purposes, but training creates opportunities

for the San Francisco office to communicate with Prague employees throughout the year,

understand what is working and what is not and to constantly adjust practices based on

employee feedback. Essential is Pre-departure training for all PCN's and TCN's which

includes cultural sensitivity, work culture, and language. HCN's should also come to the

U.S. to learn company standards and vision. Occasionally, throughout the year, training

and conferences with the entire company staff will alternate between Prague and San

Francisco to maintain the idea of "joint-venture" or knowledge sharing.

Prague On-site training and communications of company strategies and future plans take

place quarterly and in the Czech language.

HR representatives from both the U.S. and Prague will undergo intense cross-cultural and

IHR training. Both area managers are at the same level and report to the CEO in the U.S.

5) HRIS

Because the use of HRIS is not widely present in the Czech Republic, it is crucial to use a

common database (since the company is not large) to keep everyone on the same page.

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All functions will be in English and from a main server in San Francisco. All systems

will be identical down to the hardware to, again, keep maintenance issues at a minimum.

Because only two types of compensation data will need to be processed, a uniform

system will not be too complicated to handle. It also allows top management to have

access to all areas of the company.

Conclusion

The unique qualities of the Czech employee create many challenges to creating an HR

strategy. However, the challenges are not obstacles. New Frontier because of its size and

horizontal structure will be able to integrate and be flexible to meet Czech standards. The

mentality behind this structure is not one of typical U.S. domination but of joint-venture.

Importance must be placed primarily on Training and Development of all employees and

top management to deal with cultural differences and management practices that come

up. The horizontal structure is conducive to open and immediate communication of ideas

and must be taken full advantage of. In my research, I have noted a recurrent theme of

U.S. imposing practices on foreign workplaces. It can be done, but not to the benefit of

the company in the long run. What must be established first is expectation: is it profit-

driven, performance-driven, idea-driven? What can both countries mutually agree upon to

increase productivity over the long-term? The main challenge I noted was the

willingness and impetuousness of the Czech employee to get on board with American

capitalistic methods. The rapidity of change forced them to get on board with the new

changes or miss the boat entirely. What must be examined is how much is the U.S.

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business method a fad (because short-term results are notable in this transition economy),

and how much will contribute to long-term growth and sustainability? Many U.S.

business methods have been copied in haste because there was no other blueprint to

follow, and the rapidity of change required some type of plan for companies to follow.

Because the U.S. is a major player in globalization, adopting U.S. practices sight unseen

is typical. New Frontier sees beyond this cookie-cutter mentality and instead chooses to

take advantage of the Czech's inherent characteristics and extensive knowledge that they

can bring to the table. This integration may not garner short-term results, yet will

undoubtedly contribute the company's longevity and growth.

References

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Czech Statistical Office, 2006: “Characteristics of the Capital City of Prague.” http://www.czso.cs

DeDee, J. Kim, Lynda S. DeDee. “The Czech Republic: An in-depth look at its Global Posture.” The Business Review, Cambridge. Hollywood: Summer 2005. Vol. 3, Iss. 2; pg. 232. http://proquest/umi.com

Deloitte Czech Republic. “The State of HR in Central Europe.” 2005. 112 pgs. http://www.deloitte.com/dtt/research/0,1015,cid%253D95089,00.html

Lawrence, Paul R., Charlalambos A. Vlachoutsicos and Snejina Michailova. “From West-East knowledge transfer to effective working relationships: Lessons from Commercial Capital S.A.” Journal for East European Management Studies. Chemnitz: 2005 Vol. 10, Iss. 4; pg. 293. http://proquest.umi.com

Reber, Gerhard, Werner Auer-Rizzi, Milan Malay. “The behavior of managers in Austria and the Czech Republic: An intercultural comparison based on the Vroom/Yetton Model of leadership and decision making.” Journal for East European Management Studies. Chemnitz: 2004. Vol. 9, Iss. 4 pg. 411. http://proquest.umi.com

Mendenhall, Mark and Gary Oddou. Case 7.2: Organizational Transformation at Skoda in the Czech Republic: an HRM Perspective. Readings and Cases in International Human Resource Management. South-Western College Publishing, Canada: 2000. .

Miki-Horke, Gertraud. “Globalization, transformation and the diffusion of management Innovations.” Journal for East European Management Studies. Chemnitz: 2004, Vol. 9. Iss. 2. pg. 98. http://proquest.umi.com

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