Italian firms made massive organizational changes during the 1980s with great success. American business scholars have attributed these successes to the propitious conjunction of technological and market factors, the virtues of flexible specialization, and the peculiarities of Italian industrial organization.1 However, less attention has been paid to the role played by human resource management (HRM). How did HRM contribute to successful strategies? Was strategic change supported by innovative employment systems?
Consider Fiat, the automobile manufacturer, which is probably the most celebrated and studied case of successful strategic change achieved in Italy during the 1980s.2 In the 1970s, Fiat faced net losses, a continuous decrease of market share in Italy and Europe, an outdated product line, manufacturing inefficiency, strikes, and absenteeism. A number of factors contributed to Fiat’s turnaround, including layoffs, employee retraining, concessions from unions, intensive investment in flexible automation technologies, and development of an entirely new product line based on innovative design criteria. New HRM policies played a significant role. In October of 1980, shop stewards, professionals, and middle managers staged what came to be called the “March of the 40,000,” in which they protested the strike that had shut down the firm for five weeks. At that point, the company began to develop new personnel policies for these employees, including merit-based promotions and career paths, incentive pay, and increased autonomy and responsibility for management teams. These new personnel policies not only satisfied the needs and expectations of professional and managerial employees, they also strengthened and unified management and built consensus about work organization, compensation, and mobility within the internal labor market. These changes were an integral part of the new strategy.
The Fiat case illustrates our argument: innovative HRM practices have played a major role in developing and implementing some firms’ strategic objectives. These new practices concern not only the traditional HRM issues, such as labor cost budgeting and control, absenteeism and turnover reduction, recruiting, training, and compensation; they may also take more radical forms, actually changing the objects and focus of HRM policies.
In this article, we will describe the relationship of HRM to strategy and give examples of innovative HRM practices in Italian companies (see Table 1).