Once the company has achieved external strategic alignment it has to manage its internal environment. There are two key groups of stakeholders involved – shareholders and the management who represent them, and employees. Each group has a different set of goals that it hopes to achieve.
Shareholders and management establish organizational goals that focus on outcomes including profit and sustainability, efficiency and productivity, customer satisfaction, and cost control. As discussed earlier, the external environment also imposes constraints that require the firm to set employee safety plus environmental and social responsibility, as organizational objectives.
Workers also have goals relating to their jobs as shown on the right-hand side of the channel in the internal environment. These include having a safe place of employment, a positive organizational climate and rewards for their contributions. In addition, with rising education levels, Australian workers want greater autonomy;12 that is, more involvement in decision-making within their workplace. It has also been shown that workers seek to enhance their employability. This can be described as a ‘boundaryless career’ which allows individuals to move across boundaries of different employers and also within the current employer organization.13 There is thus an increasing emphasis on skills, networks, aptitude and knowledge in both internal and external labor markets. Concurrently, there is less stress on security, status and salary as measures of success.14 Employers, therefore, face pressures to provide employees with opportunities to develop a broader range of competencies than was the case in the past.
The channel identifies the main goals currently driving businesses in western countries and the labor markets in these countries. These goals are underpinned by a set of social ideals or values, some of which are common to both employees and management, particularly in relation to
32 Productive Safety Management
OHS. The underlying values of these safety objectives include the sanctity of human life, quality of life, and the individual’s right to be respected.
These values are reinforced by the legal system and are part of the cultures of western nations.
Company cultures also depend on values. Each firm has its own set of beliefs to which it ascribes a meaning that is shared and understood by its employees. It is not possible to generalize about company values because these are to a large extent determined by the nature of the business, for instance, some organizations are service-oriented such as the public sector, whilst others are profit-oriented or private sector-driven. Companies in the same industry may have different values as described in their mission statements and enacted as they go about their business. This can be seen, for example, in the different industrial relations approaches taken by Australian mining companies with some favoring collective bargaining (negotiating work agreements with management and a group of employees) and others preferring individual contracts. Australian domestic operations are, however, subcultures of broader Australian society and consequently, social values that are integrated into Australian culture, apply as much to the firm as they do to the greater community. This same rationale will apply to the cultures of companies operating in other countries. A prerequisite for the firm to achieve internal alignment is, therefore, to define what its goals and values are.
Given that the two groups in the channel – shareholders/management and employees – have divergent goals, particularly concerning profit maximization attained through the minimization of labor costs, how can the company achieve internal alignment? The first step is to clarify the meaning of ‘alignment’. This concept has been discussed in management literature to date as if it were like a two-headed arrow stretching between the upper strategic level to the lower operational level of the firm. This is shown in Fig. 2.2 in the left-hand section. Firstly companies establish their organizational goals. From these, strategic management decisions are made, which are enacted by middle and lower management layers. In this way, the company’s goals filter down to the operational level. On the shop floor, these strategies provide the framework for the development of procedures and practices. Theoretically, as a result of this flow-down effect, strategies are reinforced by operational decision-making.
OHS management can be used to illustrate this singular concept of alignment. The management team identifies strategies, such as planned maintenance to improve the firm’s safety record. This, of course, is also fundamental to efficiency and reliability. Procedures are implemented and, for example, could include daily checks of the condition of tires, oil levels and other routine matters to maintain a mining company’s truck fleet. The supervisor decides when tires should be changed and other maintenance carried out. This singular concept of alignment assumes that employees will accept organizational goals as their own. It infers that there will be no conflict over operational issues. Corporate goals supposedly become aligned from top to bottom and employees embrace organizational goals as their own.
What happens though when there is a dispute, for instance, when the operator considers the tires of his truck to be unsafe and the supervisor
Organizational decision-making and alignment of management systems 33
In Theory
Organizational goals
Strategic management decisions
Middle and lower management layers
Organizational goals filter down
Operational Decisions
Assumed that employees accept organizational goals as their own
Employee goals = organizational goals
In Practice
Organizational goals
Strategic management decisions
Middle and lower management layers
Organizational goals
Operational Decisions Conflict Zone
Employees’ goals
Employee goals ≠ organizational goals
Nonaligned
Aligned
Figure 2.2 Single stream alignment in theory and in practice
assesses the risk as ‘acceptable’? The overseer may then apply legitimate authority to enforce the decision and justify it on the ground that additional mileage gained from continued operation reduces costs and achieves higher production output for his shift. As a consequence, where the employee stands his ground overt conflict results, or where the employee acquiesces, the conflict becomes covert. In either case, the worker has not accepted the firm’s goals as his own and alignment fails to be achieved.
In practice, firms often neglect to address the divergent goals of management and workers. This causes blocks that lead to conflict, as shown in the right-hand side of the figure. Incompatible objectives cause breakdowns in trust and communication, so in effect, alignment is seldom achieved. As an example, at an open-cut mining operation, workers requested that all light vehicles used for maintenance carry a walkie-talkie in addition to the two-way radio whilst in the mine pit. The employees believed that this would make communication easier and operations safer, given that the two-way was usually busy with truck movement instructions.
Despite the company’s ‘safety first’ policy, the request was rejected on the basis of cost. It also highlights a comment made by a number of OHS consultants. Their experience has been that where the support of top management and employees had been gained for a safety management program, implementation generally stumbled at the lower management decision-making level. This is the level where production and safety become discordant objectives as a result of the current approach to operational decision-making and OHS management.
34 Productive Safety Management
Conflicts at the operational level can also lead to industrial disputes and legal action. The case of Collins and AMWU versus Rexam Australia Pty Ltd is an example.15 Collins was a diabetic, which his employer knew prior to his employment. He had been hired on a 7.00 a.m. to 3.30 p.m.
shift and he was able to manage his treatment regime around these times.
When the company changed the shift in 1992/1993 to 9.00 a.m. to 5.30 p.m., Collins was asked to work this roster along with other employees.
He declined to do so because it would not suit his treatment program.
The company accepted this at the time after receiving a letter from the employee’s doctor. In 1995, the firm changed its position and required Collins to work the new shift system. Following numerous warnings and correspondence as a result of his refusal, Collins’ employment was terminated. The court found that the business had acted unfairly in dismissing him and had contravened S170DE (1) of the Industrial Relations Act 1988 and awarded him with damages accordingly. The case showed that firms cannot assume that employees will accept company goals or practices where their needs or goals are incompatible with them. This will increasingly become an issue for firms to address because the health needs of workers are becoming more specific. For example, the prevalence of asthma-related conditions in westernized societies is on the increase and therefore, fewer workers will be physically able to cope with work environments containing what are now considered to be ‘low’ doses of allergens and chemicals. Firms will therefore have to take into consideration individual differences when managing health and safety to minimize workplace conflict over these issues.
Clearly, if alignment is to be achieved the issue of goal compatibility needs to be addressed. For this reason, and also because effective OHS management requires employee participation, the channel identifies internal alignment as two separate issues. These are internal strategic alignment and internal goal alignment. The former relates to the allocation of human (people), financial (money) and physical (infrastructure/
equipment) capital resources, whilst the latter is concerned with identifying common goals and values jointly held by managers and employees, and using these as the basis for decision-making at all levels.
Internal strategic alignment
As explained earlier, companies are constrained by limited resources. If a decision is made to employ more human capital, then financial capital has to be spent. Using an analogy, it is like having three buckets half-full of water. If water is poured from the financial bucket into the physical capital bucket and the human capital bucket there is no impact on the total volume of water available. Raising revenue by extending borrowings or equity are the only means of increasing resources. These options too are finite, particularly in the short term.
How do companies determine their levels of use for each resource?
Once the company has evaluated the external environment and developed its business strategies, it decides what balance of resources it needs to achieve these strategies. It uses financial capital to acquire human and
Organizational decision-making and alignment of management systems 35 physical capital. This human capital is the collective knowledge, skills and abilities (KSAs) of the workforce.16 The company determines how it will use people to achieve its business strategy and the key issues are how many people are required and what capabilities they should possess.
In practice, it is not always possible for the firm to obtain all the competencies it requires. This depends on what is available in the labor market. In addition, the firm has to compete with other companies for high quality human resources. If there is a shortfall between the capabilities of the workforce and those required by the firm to operate efficiently and safely, it has to address this gap through training and development. To be justifiable, training expenditure must translate into competencies that result in better productivity, safety or quality outcomes. In other words, the financial capital expended must raise the level of human capital to maintain equilibrium in capital resource value.
Companies also have to make decisions about the physical capital that they use. For example, if the firm decides to purchase a new technology it has to spend financial resources. It will only do so if it believes that the new equipment will, likewise, contribute to the company’s productivity, safety and quality. Secondary benefits, such as reduced maintenance costs, are additional system factor quality considerations that have to be taken into account. The firm’s capital resources are shown in Fig. 2.3.
There is a flow-on effect between the external and internal environments of the firm. The channel indicates that the business has to achieve legal
Capital Resources of the Firm
Human capital Physical capital
Financial capital
Resourcing
decisions Resource
mix OHS
strategies
OHS Expenditure
Management Maintenance System factors
• Processes
• Technology
• Physical environment
• Human resources
Training
Figure 2.3 Capital resources, decisions and OHS management expenditure
Capital improvement
36 Productive Safety Management
compliance and social responsibility through its OHS strategies. Forces in the external environment drive this requirement. Once these strategies are in place, choices have to be made concerning the level of resources required to implement them. These resourcing decisions, as shown in Fig. 2.3, affect the resource mix or the balance of financial, physical and human capital. The entropy model indicates that to manage risk effectively and to shift the firm towards optimal performance and safety, resourcing should focus on the quality of the four system factors. The areas requiring expenditure in safety management, as shown in the center of the OHS expenditure wheel, are processes, technology, the physical environment and human resources.
To minimize risk, each system factor needs to be maintained at an acceptable level of quality and this maintenance determines the types of expenditure incurred by the firm. To improve the efficiency and safety of processes, for instance, requires reviews such as job safety analysis (JSA) and audits, which are management activities. Once processes have been improved, employees have to be trained to implement the changes. Training is therefore, a secondary cost of process-related risk management.
There are also expenses related to technology. These resourcing decisions are of two types – maintenance and capital improvement expenditures.
The former is a significant component of OHS costs required on a continuous basis to prevent degradation. Capital outlay is part of a longer-term strategy to reduce the firm’s susceptibility to entropy and to compress residual risk. New technology has a lead-time before it begins to degrade and this means that in the short-term entropic risk is reduced. In addition, technological improvements often result in plant and equipment that have lower levels of inherent risk and concurrently greater capacity for output.
The physical environment also has these two types of OHS expenditure.
Firstly, infrastructure and the operations site have to be maintained to minimize hazards. Examples of environmental maintenance include sound housekeeping, road repairs, rust prevention and removal of waste products.
Secondly, capital projects are also required to compress residual risks. A further cost that applies to both technology and the environment is the expense of monitoring and managing the condition of these system factors.
OHS expenditure is also directed towards addressing entropic and residual risks in the human resources system factor. The primary expenditure to prevent and manage these risks is training which is a direct cost aimed at shifting human resources towards optimal safety, performance and quality. OHS training focuses on three main areas, the first of which is the interaction of employees with technology and the physical environment. This interface involves work processes and the aim of instruction is to minimize deviations that increase entropic risk.
The second type of training focuses on hazard awareness and therefore encourages vigilance to manage inherent dangers. The final training area is the development of management skills to effectively plan, organize, lead and control the OHS management system. Overall, therefore, safety-driven expenditure is divided into management, maintenance, training and capital improvement.
Organizational decision-making and alignment of management systems 37 The channel explains that external forces influence OHS decisions, including how the system is resourced. Within this context, the firm can, however, exercise choices about the extent to which it responds to such forces and therefore, the strategic decisions taken also reflect resource availability and how much risk managers are willing to accept. For example, if companies choose the minimalist approach, then there will be fewer resources allocated to risk management. In addition, firms make choices about the time horizons on which they operate, for instance, businesses that have the resources available, but choose not to utilize them to improve safety operate on short time horizons, are quick profit-takers and are highly risk-tolerant. On the other hand, businesses that are committed to safety and are proactive, assign resources to balance them against an
‘acceptable’ level of risk. Their focus is on sustainability and practicable risk management.
Conceptually, the channel in Fig. 2.1 shows that to make effective, strategically aligned decisions requires a sound understanding of the external environment, strategy development techniques and resource availability. The channel illustrates that these issues are the prerogative of management by the proximity of internal strategic alignment to these key decision-makers. They are placed nearest the external environment where they can access the information required to make tactical choices.
The two-way arrow indicates that there is a continuous feedback process that allows for adjustment of the business strategy in response to changes in the external environment and also in the internal environment. Whilst continually scanning for information, the executive team develops its strategic management systems. When human, financial and physical capital are aligned through the development of such systems that concurrently pursue production, safety and system factor quality, the firm achieves internal strategic alignment.
Internal goal alignment
Once the firm has achieved the strategic levels of alignment how can it encourage employees to accept or buy into its OHS and other business strategies? The decision whether or not to ‘buy in’ depends on motivational factors, specifically, the match between employee expectations and the rewards offered by the company. The channel identifies these motivators as ‘employees’ goals and values’. These show that workers have expectancies beyond those defined in the employment contract. They look for benefits additional to base salary and conditions. The channel indicates that workers, like shareholders and management, derive their goals from factors in the external environment, as shown by the black arrow at the bottom of the diagram, thereby illustrating the interdependencies between the internal labor group and society as a whole.
In addition, there is a feedback cycle continuously in operation between the macro- and micro-social environment of the firm that results in employees refining their goals and values according to those of the broader society. Concurrently, feedback from within the organization affects these community mores.
38 Productive Safety Management
As shown in the channel, employees’ goals include a safe work environment, rewards for their contribution to the firm, greater autonomy, a positive organizational climate and enhanced employability. In reality, the employer is only obliged under the law to provide a safe work environment and negotiated conditions of employment. There are no legal obligations to fulfill the other expectations that employees hold.
Why would an organization consider expending limited resources to satisfy these additional employee goals? The first reason is to maximize the productivity of its workers and a second is to retain them. Retention
Why would an organization consider expending limited resources to satisfy these additional employee goals? The first reason is to maximize the productivity of its workers and a second is to retain them. Retention