Prof. Hyo-Soo Lee1

CHANGING EMPLOYMENT RELATIONS IN A

GLOBALIZING KOREA: FROM THE PERSPECTIVE OF

PDR SYSTEMS THEORY

LEE, Hyo-Soo

Professor of Economics and Industrial Relations

Yeungnam University 712-749

KOREA

International ConferenceIndustrial Relations and Labour Policies in a Globalising World

January 9-11, 2002

Center for International Conference, Beijing University

Prof. Hyo-Soo Lee2

I. Introduction

II. The PDR Systems Theory

1) Environment, actor’s values, their power positions and strategies

2) Humanware system and the synthesis of PDR systems

3) Application of the PDR systems theory

III. Transformation of employment relations in Korea

1) Authoritarian to Paternalistic HR practices

2) Globalization and Three Options : @ Back to the authoritarian ER

@ Adopting western systems

@ Improving paternalistic ER

IV. Case study: Hankuk Electric Glass

modified paternalistic approach to enhance humanware

V. Conclusion

Contents

Prof. Hyo-Soo Lee3

※ The Main issue

The Transformation of Korean Employment Relations in Globalizing Era

⊙ Employment Relations: IR & HRM

⇒Dynamic Theory or Evolutionary Approach to deal with this issue

⇒ PDR Systems Theory

What is the PDR Systems Theory?

Why is the PDR Systems Theory?

Introduction

Prof. Hyo-Soo Lee4

The PDR systems theory

※ The Theory examined employment relations from the perspective of

synthesis of the production, distribution and rule-making systems.

The theory consists of four parts characterizing employment relations:

(see Figure 1)

1) Environment

2) Actors’ values and their power positions)

3) Contents and interactions of the PDR systems

4) Performances.

Prof. Hyo-Soo Lee5

Actors’ value &

Power Positions

PDR Systems & their Interaction

Production System

Humanware System

Employment System

Mind-set

Ability-Development System

Software System

Hardware System

Distribution System

Rule-Making System

Performance Levels

Productivity

Workers’ Quality of life

Competitive Environment

Strategic Choice

General Environment

Figure 1. PDR Systems in Employment Relations

Source: Adapted from Hyo-Soo Lee [1996]

Prof. Hyo-Soo Lee6

The Theoretical Framework of the PDR Systems Theory

※ The Theory consists of

(1) Environments (Competitive and General Environments)

(2) Actors ( Actors’ Values and their Power Positions)

(3) PDR Systems ( the Contents and Interactions of the PDR Systems)

(4) Performances

※ How are these four parts interconnected in a logical real world framework?

Actors make strategic choices for PDR systems, considering the competitive and general

environments. The contents and interactions of PDR systems determine the levels of

performance such as productivity and workers’ satisfaction.

Prof. Hyo-Soo Lee7

Environment, actor’s values, power positions and strategies

※ The environments affect actors’ values and their power positions.

@ The actors' values determine the scope of strategic choices.

@ Their relative power positions determine the effective strategic choices.

※ If actors’ values and their power positions are changed,

they will make new strategic choices for PDR systems.

Actors use two kinds of strategies that affect employment relations.

(1) to strengthen their power positions through such means as union

organization strategies or competitive environment strategies.

(2) to reconstruct or renovate PDR systems.

Prof. Hyo-Soo Lee8

Significance of the humanware system and the synthesis of

the PDR systems

※ The production system consists of three subsystems:

@ the humanware system,

@ the software system (organizations and workplace practices)

@ the hardware system.

Humanware system converts human resources into creative resources.

Human resources have intangible assets such as mindset and abilities.

Humanware system has three subsystems to develop these intangible assets:

@ employment system (hiring, staffing and discharge)

@ mindset (learning, creative and cooperative minds)

@ ability-development system (training and education)

@ The creative human resources can create the humanware system, as well as

the software and hardware systems. Software and hardware systems can be

continuously improved and used efficiently by workers who have learning,

creative and cooperative minds.

Prof. Hyo-Soo Lee9

Significance of the humanware system and the synthesis ofthe PDR systems

※ The production system is synthesized with

@ the distribution system (compensation system and working conditions)

and

@ the rule-making system

through the mindset of the humanware system (see Figure 1).

Prof. Hyo-Soo Lee10

※ The Performances of Employment Relations are determined by

@ actors’ cooperation over PDR systems

@ contents of PDR systems

@ balances of PDR systems

※ What is the balance of the PDR systems?

@ The production system is heavily influenced by the distribution and

rule-making systems through the mindset of the humanware system

(see Figure 1).

@ Mutual gains will be realized in the balance of the PDR systems.

@ Humanware does matter.

Performances of Employment Relations

Prof. Hyo-Soo Lee11

The applications of the PDR systems theory

※ The PDR systems theory will be useful for

@ the analysis of Employment Relations (science-building)

@ the diagnosis of Employment Relations (problem-solving)

※ Analysis of Employment Relations (science-building)

@ analysis of ER in union settings as well as nonunion settings

@ comparative analysis of ER between industries or countries

@ dynamic analysis of ER over times (this paper)

※ Diagnosis of Employment Relations (problem-solving)

@ Conflicts (problem): actors’ values, power position and strategic choices

@ low productivity: (1) contents of PDR systems, (2) balance of PDR Systems

(3) actors’ cooperation for PDR Systems

Prof. Hyo-Soo Lee12

The message of the PDR systems theory

The changing environments have strong effects on the actors' values and their

power positions, which in turn, cause actors to take new strategic choices

for PDR systems.

Considering the recent severe environmental changes , the actors’ values

and power positions might be changed.

Considering new environment, Korean firms had better to take ‘high road

strategies ‘ rather than ‘low road strategies

Prof. Hyo-Soo Lee13

Transformation of employment relations in Korea

The interaction of three socio-cultural factors(Confucian culture, extended family

system, and rice-agricultural society) strengthened Korea's patriarchism

including familism, collectivism and seniority-based human resource practices.

1) Until the mid-1980's, authoritarian HRM dominated the management style in

Korean companies. In the latter half of the 1980's, workers gained more of voice

and increased their labor activity in dealing with management. But ,still, employers

attempted to maintain their PDR systems in an authoritarian style

2) After the great labor dispute period from1987 and 1989, the government and

employers came to the pragmatic realization and sensible conclusion that it was

impossible to maintain an authoritarian HRM style.

The transformation began in the middle of 1987.

Authoritarian to paternalistic HR practices

Prof. Hyo-Soo Lee14

Authoritarian to paternalistic HR practices

Figure 2. Emergence of Paternalism in Employment Relations

Actors’ Actors’ Actors’

Environments Values & Power Position Strategic Choices

Authoritarian HRM

Socio-Economic Climate Imbalance

Confucian Culture

Extended Family System

Agricultural Production System

Patriarchism

Paternalistic HRM

Balance

Prof. Hyo-Soo Lee15

The paternalistic HR practices create a unique "mind stimulation" system

that cultivates paternalistic relationships between employers and employees.

There is a warm and genuine human bond, not simply the impersonal "cash"

connection that exists in most Western countries:

Paternalistic "mind stimulation" systems are different from incentive and

motivation systems that aim at a concrete target or performance.

(for example, because job demarcations are less significant in Korea, a horizontal

team spirit is likely to flourish. The resulting commitment network encourages

employees to cooperate spontaneously in their work efforts)

the PDR systems as well as the actors’ values have changed to

suit these paternalistic patterns.

Paternalistic HR Practices

Prof. Hyo-Soo Lee16

Paternalistic HRM Western HRM

• Actors’ Valuesfamilism,collectivism

and loyaltyindividualism

• employment contracts More implicit More explicit

• Job Demarcations

• Responsibility

no clear-cut job

demarcationswell-defined

• Wage System Seniority-base Job-oriented

• job transfer • working hours

• wage adjustmentsMore flexible Less flexible

• Numerical Flexibility

• Job Security

Low

High

High (layoffs)

somewhat high

Contrasts between Paternalistic HRM style and Western HRM style

Prof. Hyo-Soo Lee17

※ With the diffusion of a new liberalism and globalization and the 1997

financial crisis,

Our major concern in this study is

(1) Actors’ Power Position: whether or not these environmental changes

have shifted the actors' power positions? Shifted

(2) Actors’ Values: changed their values significantly enough to affect

paternalistic HR practices? Move on but not enough

(3) Strategic Choices: Korean firms will shift their paternalistic HR practices

to the American-style contractual HRM or some other HR practices. In

other words, the following three options are open to Korea:

1) Back to the authoritarian employment relations?

2) Adopting Western systems and similar alternatives?

3) Improving Paternalistic Employment Relations?

Globalization and Three Options

Prof. Hyo-Soo Lee18

※ Power Positions: This changing environment has shifted power from the

workers and trade unions to the government and employers.

※ Actors’ Values: Although new valuation processes have already commenced in

the workplace, the socio-cultural climate was not changed sufficiently to create new

common sense tendencies and new social norms, all of which take time.

there are still many paternalistic HR practices,

If an employer makes strategic choices about the PDR systems that are against

common sense and social norms, the strategies affect the workers’ mindset. The

strategies make weak the function of the production system because of a dysfunction

of the humanware system.

Globalization and Korean Choices

Prof. Hyo-Soo Lee19

Case study: Hankuk Electric Glass

modified paternalistic approach to enhance humanware

Case Study: Hankuk Electric Glass(HEG)

Hankuk Electric Glass(HEG) is a manufacturer of glass for cathode ray

tubes, established as an affiliate of Hankuk Glass in 1974.

HEG was faced with a crisis of bankruptcy by both the failure of competitive

environment strategies and severe conflict in industrial relations. Subsequently,

HEG was taken over by the Daewoo Group after a 77 day long strike in 1997.

Before transfer After transfer

Relationship of Labor

and managementAntagonistic Cooperative

Debt-to-equity ratio 1,114percent 37percent

Annual Sales $18 million $55million

Prof. Hyo-Soo Lee20

We have three questions about HEG:

1) why was the company faced with the crisis of bankruptcy?

2) why was the industrial relations aggravated?

3) How could such a drastic changes happen in both industrial relations and

business performance?

The PDR systems theory can give answers to those three questions.

Prof. Hyo-Soo Lee21

From the viewpoint of the PDR systems theory,

@ After Democratization (1987-9) and Labor Shortage, Power

Position Shift but Value Conflicts, Imbalance among PDR

systems

The large gap of actors’ values and imbalance among PDR systems, which led to

conflicts and mutual losses.

Management had resorted to the old authoritarian styles, although labor’s values had

moved toward democratic styles and their power position had become much stronger

since the great 1987-89 labor disputes.

The conflict between management’s authoritarian values and labor’s democratic

values. What made the matters worse, management did not share important

information with employees. This value conflict, the greater strength of labor

power, and asymmetric information generated distrust and antagonistic industrial

relations.

Why was the company faced with the crisis of bankruptcy?

Prof. Hyo-Soo Lee22

The trade union was not interested in the production system with this

serious asymmetric information, but were concerned only about distribution.

The trade union asked for wage increases and working condition improvements

without consideration of productivity or competitiveness.

The increase of wages by strike in the absence of shared values could not

stimulate the mindset of the humanware system: learning, creative and

cooperative minds. The management tried to keep exclusive rights to the

production and rule-making systems, even though they yielded to trade union in

wage negotiation.

What was worse, management’s strategic choices for production and rule making

systems were not effective because of the workers’ stronger power position and

deep distrust between management and workers.

This means that the distribution and rule-making systems were not balanced

with production system.

Prof. Hyo-Soo Lee23

The company’s competitiveness had been lost by the increase of labor cost

without the improvement of the productivity, which restricted the mprovement of

distribution, including wages and working conditions, in the next period.

Management cannot expect effective improvement of the production system

without enhancement of distribution and rule-making systems, since the PDR

systems must be balanced for their interactions to generate mutual gains.

HEG lost its competitiveness by conflicts between actors and imbalance of the

PDR systems.

Booz Allen & Hamilton, a world-renown consulting firm which undertook

consulting work for HEG, reported,

“Our conclusion is that HEG cannot survive in its current position”

The new CEO tried to make strategic choices considering with employees’ values

and, based on these strategic choices, to renovate the PDR systems.

(for example, he introduced paternalistic approach such as transparent

management techniques based on mutual understanding and consensus.

In return, the union also shed its past practice of counter-productive and

antagonistic negotiation. These changes of strategic choices led to a great

transformation of employment relations in HEG)

Prof. Hyo-Soo Lee24

@ The new CEO ended authoritarian management and began paternalistic

HR practices.

# According to Lee (2001), paternalistic HR practices are a

reciprocal, cooperative style of management in which the employer acknowledges

and considers the employees' rights and feelings. This type of relationship is

analogous to a father who does not forcibly control or direct the activities of his

child or children, but guides them in an understanding and loving way.

# Basically, the paternalistic HR leadership concept is based on the

values of reciprocity, consideration, and mutual respect. The employer gives

respect, consideration and management information to the employees and, in

response, the employees spontaneously cooperate and commit themselves

wholeheartedly to the company.

# Paternalistic strategic choices basically depend on a family or

community concept rather than contract concept. In the paternalistic HR

practices, the CEO should set a good example to employees. To enhance

trust, respect and authority, managers should serve as role models.

How could such a drastic changes happen in both industrial relations and business performance?

Prof. Hyo-Soo Lee25

@ The new CEO made strategic choices on the basis of these

principles of paternalistic HR practices.

First of all, he decided to set a good example to employees.

(1) He quit smoking and drinking and drove himself to work at 6 o’clock every

morning, encouraging workers to change themselves in similar ways.

(2) He renovated the PDR systems instead of instigating layoffs, stressing that only

changing organization can survive and that they all share a common destiny.

(3) He disclosed important information about his organization in order to restore

trust between management and labor. Thus, he very actively introduced “Open

Book Management,” going public with all kinds of financial statements and even

strategic information. In this way, he encouraged employees to participate in almost

all of the company’s decision-making in order to renovate the existing rule-making

systems.

His promise of job security in spite of the crisis of bankruptcy, the workers joined

the CEO, taking for themselves the slogan “Stay awake while other sleep; work

while others play; and study while others rest.”

Prof. Hyo-Soo Lee26

@ HEG renovated its organization and workplace practices,

the software of the production system, on the basis of shared

values and information.

The hierarchical organizational structure was renovated into a team-based one,

and workplace practices were broadly updated.

Consequently, process that had taken three days could now be finished in only

two hours. The yield rate increased as much as 90 percent, while the claim rate

recorded a zero.

The software system restructuring in the production system, with harmonious

rule-making and distribution systems, stimulated the humanware’s mindset.

Especially, workers’ cooperation in the distribution system was quite different

from Western employment relations. In return for the CEO’s promise not to

reduce the headcount, employees voluntarily decided to accept a pay freeze as

well as returning their bonuses. Employees voluntarily gave up summer vacations

and overtime pay and started to work longer hours, both of which are

characteristic of Korean paternalism. This could not have happened in Western

societies.

Prof. Hyo-Soo Lee27

@ What is more important, employees received such a freezing of wages and

return of bonuses for job security and the future, and they worked even harder to get

the past difficult time as soon as possible. While the CEO set a good example in

person, these rule-making and distribution systems stimulated humanware’s

mindset.

@ The lesson from the HEG case from the perspective of PDR systems theory is

that actors’ strategic choices were based on an implicit consensus of reciprocity

through self-sacrifice between management and labor, which made a harmonious

balance among rule-making, distribution, and production systems.

@ the balanced PDR systems generated great cooperation and high

performance. Driven by strong performance, the stock price rose up to 90,000 won

from almost zero-value. HEG had finally grown to be a high value-added company.

Workers’ Strategic Choices

Prof. Hyo-Soo Lee28

Based on a case study of Hankuk Electric Glass, the existing paternalistic HR

practices should be modified gradually in the ever-changing socio-cultural climate

rather than reverting to authoritarian employment relations or adopting American-

style contractual employment relations.

If an actor's strategy is against common sense or the fairness of the society, it is

considered to be unjust, unequal, and unfair. This causes the clash of actors’

values and strategies, and imbalance of the PDR systems that generate mutual

losses.

The balanced PDR systems can eventually generate high performance and

mutual gains by the mindset of humanware.

Lessons from the HEG Case Study

Prof. Hyo-Soo Lee29

Conclusion

We can draw two important theoretical ideas from this case study.

1) One is a theoretical framework guiding the analysis of

HR practices and industrial relations.

2) The other is an issue of convergence/divergence in

industrial relations systems.

Prof. Hyo-Soo Lee30

※The PDR systems theory is very useful in analyzing thetransformation of industrial relations.

This study shows how we should consider socio-cultural factors, locus of

actors’ power positions and evolutionary dynamics in explaining changing

patterns of industrial relations.

We cannot explain the emergence and transformation of industrial relations

patterns, such as paternalistic HR practices in Korea, without considering these

factors.

The PDR system theory includes environmental factors such as socio-cultural

factors, actors’ power positions and values, and also evolutionary dynamics, in

that actors make new strategic choices about PDR systems in light of their ever-

changing environment.

Why the PDR Systems Theory?

Prof. Hyo-Soo Lee31

@ This study predicts that convergence will go on, but that

divergence will still exist in industrial relations systems.

# According to the PDR systems theory, actors’ strategic choices about

industrial relations depend on actors’ values and their power positions which are

influenced by socio-cultural and other environmental factors.

# These factors will be influenced by frequent interchanges and severe

competition in the global market, but will not be homogeneous.

# Convergence will go on, but divergence will still exist.

Industrial relations : convergence or divergence?