The Effects of TM and CM on Organizational Leadership in Foreign Entities of MNCs

The theoretical and empirical assumptions in this paper are based on two major theories: resource-based views and a situational approach. The presented approach takes into account, inter alia, human resources existing within a company and the possibilities for recruiting in chosen places and times. Hence, formal aspects and practices of TM, CM, and OL are perceived as components of the HRM subfunctions. A better understanding of the chosen approach requires presentation of their major aspects. Hence, a critical analysis of the literature is divided into three parts focusing on particular subfunctions. This way of presenting TM, CM, and OL as separate subfunctions is not surprising. What is new, is the internal arrangement of components and looking for the relationships among TM, CM, and OL. The number of factors from HRM subfunctions is not the only foundation of an organization’s success (Kaufman, 2015) because chosen practices from different subfunctions, properly analyzed by using factor analysis (FA), can show significance unattainable by using simple correlations.

A review and critical analysis of the literature show that TM and CM practices can shape OL in MNCs headquartered in Poland. The main research problem, therefore, was formulated as a question: In what ways do TM and CM practices in MNCs have a relationship to OL? And the general research question is: Are there any characteristics of TM and CM that play important roles in OL practices in MNCs? Therefore, taking into account the above aspects, we ask the following research questions:

Are there the factors (effect of FA) that consist of different TM, CM, and OL practices, and show the impact of TM and CM on OL?

In addition, the literature analysis allowed us to formulate the following hypotheses:

H,: The higher the level of individual practices of TM and the mean of this subfunction, the higher the level of OL (both individual components and a subfunction as a whole).

H₂: The higher the level of individual practices of CM and the mean of this subfunction, the higher the level of OL (both individual components and a subfunction as a whole).

H₃: The longer the company operates in the market, the higher the level of TM, CM, and OL in foreign entities.

H₄: The bigger the company, the higher the level of TM, CM, and OL in foreign entities.

H₅: The type of the business profile (industry) determinates the level of TM, CM, and OL in foreign entities.

H₆: The higher the development of countries in which foreign entities are located (e.g., Western Europe), the higher the level of TM, CM, and OL practices than those existing in less developed countries (e.g., Central Europe).

The research findings presented in this article make up a part of a bigger and more complex research project financed by the National Science Center, Poland. The population of the companies under research made nonfinancial economic entities, existing in the marketplace no less than two years, with a dominant share of the Polish capital and which possessed at least one foreign subsidiary that was an effect of FDI. The research team assumed that the reference base for the number of business entities comprising the whole researched population would be the last report on the Polish nonfinancial enterprises conducting their business activates abroad. Prepared by the Polish Central Statistical Office, the report said that there were 1760 Polish economic entities which confirmed possessing 4086 business entities in 150 countries.

The computer-assisted telephone interviewing (CATI) method was selected for this project, since it is the best method for conducting interviews with specific persons and for clarifying definitions and issues during the interview. The interviews were conducted in 200 MNCs with headquarters (HQs) in Poland and with foreign entities in 31 countries around the world. The credibility of this research is based on the quality of the ICAN Harvard Business Review database and the purposeful type of sampling. The reliability of questions in the questionnaire used is an effect of the pilot study in chosen MNCs before research began. The quality of results is based also on the type of respondents,—the people with the best knowledge on both business and HRM issues, i.e., HR managers/directors, CEOs, managing directors, and company presidents. The structure of the research sample was diverse in terms of the companies’ business profiles according to the European Classification of Business Activity (ECBA). Owing to the size of the sample and the confidence coefficient level of 0.95, the maximum measurement error amounts to 0.065.

After the first stage of data analysis, when both descriptive and correlational statistical methods were used, the results were subjected to FA because FA allowed us to sort items into sets of practices that are better than other methods and can be presented together with correlations.

The critical analysis of the literature was the basis of the approach to OL, TM, and CM treated as subfunction of HRM. Practices, or components, are presented in Table 1.

The analyzed data uncovered both correlations between TM and CM practices and OL practices (Table 2) and between means of components within whole TM, CM, and OL subfunctions (Table 3). The highest results were observed between “Talent identification” (PTM1), “Identification of leadership talents” (POL1) (0.55), and “Leadership developmental programs” (POL2) (0.51); “Measurement of employee creativity” (PTM2), “Identification of leadership talents” (POL1), “Identifying competencies of the managerial staff” (PCM1), and “Identification of leadership talents” (POL1) (0.54). The relationship between means of subfunctions achieved the level of about 0.72. These results may prove how important identification and development of leadership talents are in achieving organizational success. A similar approach was used by Ruiz-Palomino and Linuesa-Langreo (2018). A rational approach to employees’ potential as a foundation of their optimal development was also highlighted by Naqshbandi and Jasimuddin (2018). Additionally, the results confirm the discussion presented in the Background section of this article.

Thanks to FA, it can be observed that the practices are combined into five factors (the score stops at five eigenvalues), which consist of statistically significant practices of TM, CM, and OL subfunctions (Table 4).

Table 5 below shows in bold how the activities were combined into groups of practices from the three subfunctions: TM, CM, and OL.

After checking the scales according to Cronbach’s alpha, the decision was made that F4 should be removed from the analysis because of lack of reliability. This is an interesting observation because F4 refers to leadership succession.

Then the focus became finding significant differences among factors F1, F2, F3, and F5 in these categories:

duration of the MNC’s operation in the market

The significant differences were tested by using the classic analysis of variance (p-value <0.05, marked in bold). Then the means between the categories were compared for singled-out factors build from practices included in TM, CM, and OL subfunctions. Taking into account the duration of the MNC’s operation in the market, the statistical significance in Factors 3 and 5 was found (Table 6).

In the category “size of the organization measured by the number of employees,” there is a statistical significance in each of the created factors (Table 13). The same results, as presented above, in the category “type of the business profile (industry)” were observed (Table 15).

Further analysis showed that there are no significant differences in factors between the geographical regions of Western Europe and Central Europe.

According to the results, it can be confirmed that there are some patterns of TM and CM that coexist with OL practices. There are two factors (the effect of FA) that consist of different TM, CM, and OL practices: F3 (identification of talented leaders, core competencies and developmental programs); and F5 (knowledge management as inspiration to teach managers and shape proactive organizational culture). These two factors are reliable enough to prove the relationship among TM, CM, and OL, but only factor F3 represents the impact of TM and CM on OL. Factor F5 shows relationships between CM and OL. Some studies highlight the role of competencies in achieving leadership success and in the activities of project teams (Podgórska & Pichlak, 2019), or specific conditions such as the pandemic caused by COVID-19 (Stefan & Nazarov, 2020). Significance was observed also in the correlation analysis of the individual practices of TM, CM, and OL and means within subfunctions (Tables 2 and 3). As for research question 2, the significance of TM and CM to OL of foreign subsidiaries of MNCs can be seen (Tables 2 and 3). The coexistence of TM, CM, and OL as a crucial factor is possible to find in different studies (see, for example, Garavan et al., 2021; Knoll & Sternad, 2021; and Stor & Haromszeki, 2019). Thanks to past research, it is evident that the individual components interact within factors created during FA by the number of factors from each subfunction and presenting their character, which is more or less trans-subfunctional, or cross-subfunctional. These include statistically significant practices from TM and CM subfunctions (F1); only from CM subfunction (F2); each chosen subfunction from TM, CM, and OL (F3); only from OL subfunction (F4); and from CM and OL subfunction (F5) (Table 5). Problems with leadership succession is nothing new, but it has been discussed for decades, as researchers try to answer the question: Should we implement succession programs or find potential leaders outside an organization? This has become a more serious problem because of the changing character of organizations and the increasing role of remote labor (Agrawal et al., 2020; Caligiuri et al., 2020; Deters, 2018; Newman & Ford, 2021).

There are aspects of reality that have an impact on practices presented within the TM, CM, and OL subfunctions. In the chosen samples, there is a significant difference between companies due to the duration of the MNC’s operation in the market in factors F3 and F5 (Table 6), the size of the organization measured by the number of employees (F1, F2, F3, and F5) (Table 7), and the type of the business profile (industry) (F1, F2, F3, and F5) (Table 8). The assumptions based on the literature review (i.e., that there is a difference between foreign subsidiaries located in more and less developed countries), whereas here, for Central Europe and Western Europe, these assumptions have not been confirmed in the empirical research. However, differences between MNCs headquartered in more and less developed countries are a well-known phenomenon (Haudi et al., 2020).

The verification of our hypothesis brings both positive and negative results. As both correlation and FA show, the higher advancement level of talent identification (0.697) and measurement of employee creativity (0.707), the higher the level of OL (the confirmation of the H, hypothesis). Additionally, it was observed also in correlation and FA that the higher level of identifying competencies of the managerial staff (0.635), cyclical measurements of the competency state of managerial staff (0.518), regular examination of the knowledge and skills gap of employees and designing solutions to deal with this problem (0.588), and a dynamic (changing over time) competency database (0.524), the higher the level of OL (the confirmation of the H₂ hypothesis). The confirmation of the hypothesis H₃ (The longer the company operates in the market, the higher the level of TM, CM, and OL in foreign entities) is in two factors, F3 and F5. If we take into account the size of the company and type of business profile, we see the impact of TM and CM on OL in each of the reliable factors (F1, F2, and F5) (the confirmation of the H₄ and H₅ hypotheses). There is not a significant difference between developed and less developed countries, if we take into account the impact of TM and CM on OL practices. Thus, there is a falsification of hypothesis H₆ (The higher the development of countries in which foreign entities are located (Western Europe), the higher the level of TM, CM, and OL practices than in those existing in less developed countries (Central Europe)). According to presented results and comments, the question presenting the main research problem can be answered and show ways in which TM and CM practices in MNCs have a relationship with OL.

Therefore, the main aim of the paper—presentation of the results that show relations between TM and CM practices and OL practices in MNCs headquartered in Poland—has been achieved.

There are certain relations between both the advancement level of TM and CM and OL. It is visible in the correlation analysis between practices within the subfunctions presented above (Table 2), means of those subfunctions (Table 3), and factors built upon them (Table 5), especially F3 (Identification of talented leaders, core competencies and developmental programs) and F5 (Knowledge management as inspiration to teach managers and shape proactive organizational culture).

The highest scoring practices focus on those crucial for TM and CM programs (i.e., talent identification and identifying competencies of the managerial staff), which are the foundations for the first stage of formal, structural, rational, and long-term approaches toward OL development in chosen organizational conditions. Additionally, the role of contexts and a practical, situational approach to leadership emphasize the practices included in the factor that calls for “Knowledge management as inspiration to teach managers and shape proactive organizational culture.”

Interesting differences between foreign entities owned by Polish MNCs were observed due to their duration in the market, size of the organization measured by the number of employees, and the type of business (industry). An even more valuable observation is that there is not a significant difference in the effects of TM and CM on OL between foreign entities operating in more and less developed geographical regions.

There are some limitations of the research, such as the TM, CM, and OL structures and branches of the economy included in the research sample. Despite these issues, the results show certain relationships that appear between the analyzed variables in MNCs headquartered in Poland with the domination of Polish capital.

In conclusion, it should be considered that the theoretical significance of the research findings is revealed both in terms of internal and external factors of the organization, dependent on various practices included in TM, CM, and OL. The study presents an original approach to these relationships. The results may add some new prospects for HRM to the development of the management discipline.

The practical significance of the research could be useful especially for entrepreneurs, managers, and HR specialists, who would like to fill the competency gap in managerial and leadership skills and build the most optimal TM and CM programs for identification and development of talented leaders within managerial career paths. It can help achieve success of the chosen organization and its subsidiaries in different internal and external contexts. This is possible because many researchers have found that there is a strong positive correlation between leadership effectiveness and a company’s performance.

There is a chance that the presented approach could help organizations survive in difficult times and start becoming more resistant to crises in the future way by using the competencies and talents within an organization. It is important because, as the paper shows, the increasing global shortage of leadership talent with specific competences is now recognized as a key source of risk to business success. Focusing on the interactions between OL development and talent and CM within a social context may enable management in MNCs to choose the forms and styles of managing human resources that are the most appropriate for them.