ILO ENTERPRISE STRATEGY:

Working paper prepared by the ILO's Enterprise Task Force

International Labour Office

Geneva 1996

DG/ENT/96/1

TABLE OF CONTENTS

Executive Summary

1. Enterprises, Development and the ILO

2. The Changing Environment

3. The ILO Enterprise Strategy

4. Action Programme

4.1Framework for ILO actions to facilitate
changes in the policy environment,
institution framework, and at enterprise level

4.2Actions to enhance intemal coherence,
quality and impact of the ILO's
enterprise-related activities

ILO Enterprise Strategy

Executive Summary

This paper presents a strategy for greater involvement by the ILO in efforts to mobilize the talent and resources of enterprises in order to address important development challenges in a number of areas. including employment, human resources development (HRD) and working conditions. The strategy is based on the ILO's principles, its tripartite structure and the recognition that these efforts must concentrate on areas of converging interest and mutual gain for governments, employers, workers and other stakeholders.

The Strategy has two inter-related components. The first proposes systematic work with the ILO's constituents - i.e., governments and employers' and workers' organizations - and concerted action to raise the awareness of other key groups as to how enterprises can become the more involved in meeting development challenges in critical areas. The second proposes building of greater coherence among the ILO's different technical enterprise-related activities and the improving of its expertise to assist enterprises to meet the development challenges.

The main objective of the ILO's Enterprise Strategy is to "promote effective collaboration between the ILO and enterprises for economic and social development in such key areas as employment creation, human resources development, improved working conditions and labour-management relations, based on enterprise growth and performance as well as equity in accordance with the basic principles of the ILO.

1. Enterprises, development and the ILO

Enterprises are among the most important institutions of modem society. There are

multinational enterprises (MNES) that command resources greater than those of many national -scale enterprises, economies. Another important development is the emergence of small, including large numbers of informal sector units, as major generators of employment. Enterprises are among society's primary agents of economic, social and cultural change.

They are important repositories of resources and knowledge, as well as primary creators and distributors of wealth, value added and employment. Their economic and social significance has become even more pronounced with the current move towards deregulation, market-based reforms and the widespread privatization of enterprises and services previously run by governments.

Increasing awareness of the growing economic weight of, and human talent in private enterprises, has led development planners, senior decision-makers, and leading enterprise representatives, to ask about the ways in which enterprises could be more effectively mobilized to address a broad range of development issues. The recent Report by the Commission on Global Governance and the Social Summit (Copenhagen, 1995) considered

the need to find new ways in which enterprises could contribute to the following: employment generation. economic growth.. skills development: the protection of workers; poverty alleviation. the prevention of social exclusion; empowerment and democratization, and environmental concerns.

Through its tripartite structure the ILO has always worked closely with enterprises. Such cooperation has also been critical to the pursuit of the Organization's fundamental goal, which is to create productive, sustainable, safe and meaningful employment opportunities for all, as a basis for combating poverty and achieving social justice.

The ILO's mandate, as set out in the Declaration of Philadelphia, requires that it consider social, economic and financial measures at all levels of society. The main focus has traditionally been on national policy and international labour standards. These standards have always had. and will continue to have a bearing on enterprises. Likewise. most of the ILO's technical cooperation activities are closely linked with enterprises.

The ILO is the best-placed UN specialized agency to make a contribution to the emerging debate on the role of enterprises in addressing a range of development issues. Its tripartite structure makes it a unique forum for dialogue among governments, employers and workers, on the relationship between economic and social issues, and the role of enterprises. The Organization has a long-standing experience in addressing issues crucial to enterprises. By virtue of its tripartite structure and normative function. it is the most qualified international organization to advise enterprises and other stakeholders in development on best practice in different spheres of activity. These advisory services could be further enhanced by technical assistance in selected areas, thereby giving the ILO a catalytic role in the development of programmes that make enterprises more responsive to development challenges.

At present, many of the ILO's enterprise-related activities are scattered among different departments and this has resulted in fragmentation. The current paper proposes an ILO Enterprise Strategy that would serve to build a common vision, better coordination, higher levels of synergy and a more significant impact of ILO's enterprise-related activities.

2. The changing environment

This section reviews some major on-going changes that have altered the economic and

social organization of production, inevitably affecting enterprises. governments and labour. The purpose is to describe the background against which an ILO Enterprise Strategy must be formulated and put into effect.

A decade of deregulation has reshaped the environment in which enterprises operate. At the international level, there has been a marked evolution toward openness in trade and investment. This is reflected in the conclusion of multilateral trade agreements and the forming of new regional trade groupings, designed to progressively dismantle tariff and nontariff barriers and create a highly competitive global environment. Liberalization, deregulation and a greater reliance on market mechanisms oblige governments to look increasingly towards the private sector to provide the impetus for economic growth and social progress.

Globalization has emerged as one of the most powerful forces shaping the competitive environment. The increasing cross-border interdependence of markets and factors of production (including labour) is making national boundaries more permeable. As a result, geographical distance no longer constitutes a barrier to, or safeguard against competition. Few enterprises in the formal sector can remain exclusively oriented towards domestic markets. In fact, most enterprises are linked to complex and dynamic global networks.

Multinational enterprises are at the centre of the globalization process. They account for a significant volume of investment and trade. They play a major role in the creation of direct and indirect employment and are known to have a catalytic effect on domestic enterprises. Through the diffusion of production technologies and skills, they may stimulate the growth of modem small-scale, local enterprises that create additional jobs. The ILO's Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy with its continued tripartite support, plays an important role as a set of voluntary guidelines for these enterprises.

The important contribution of small-scale enterprises and the informal sector to employment and economic growth has been recognized. This has led to the establishment of a wide range of programmes to support the start-up and development of small enterprises. In addition to creating a supportive policy and regulatory environment, the most effective of such programmes often involve both enterprises and local government. They also frequently include mechanisms to facilitate linkages between large and small enterprises. Experience shows that such linkages are essential for the emergence of a dynamic enterprise sector and that they need to be promoted particularly in developing countries, where they are sometimes weak.

Technology is opening up unprecedented possibilities in the global organization of production, in both manufacturing and services. The commercial application of advances in micro-electronics and in information and communication technologies has accelerated crossborder transactions and made it possible to undertake value-adding activities irrespective of geographical location. These developments make it possible to have new and more organizational structures and work organization. They are major determinants of the competitiveness of enterprises, because of their impact on productivity, quality, flexibility and responsiveness to customers' demands. The flexibility provided by technology and its global

reach are bringing about a new international division of labour based as much on the availability of skills. as it is on considerations of labour cost.

Technological innovations and the use of flexible systems of production and work organization. place a high premium on a skilled, dedicated and knowledge-based workforce as critical requirements for the success of an enterprise. Employees are viewed as assets to be

invested in. Human resources development and management strategies are becoming essential to strategic planning, and are predicated on the compatibility of the profitability of enterprises with employees' need for job security, remuneration. recognition and empowerment.

These have implications for the human resources development policies of countries and there is strong evidence that the most successful economies are those which have invested heavily in a supportive policy environment and the development of human capital. It is probable that the gap between "knowledge" workers and the less skilled and educated workforce will widen, thereby adding to the existing problems of unemployment and social exclusion.

Growing global competition, communications networks, rapid investment flows and technological change are altering the rules of competition in most sectors. Increasingly, competitive advantage is based on a highly skilled and flexible workforce that can apply the latest technology and respond rapidly to market changes. New organizational structures, coupled with higher levels and wider ranges of skills are required to achieve flexibility, productivity, quality, innovation and speed for sustaining competitiveness.

Interestingly this suggests a growing convergence of interests between employers and employees. For example, most successful companies recognize human resources as an important source of competitive advantage. This brings to the fore the significance of human resources management and training as well as the need to create opportunities for involving employees and their representatives in problem-solving and decision-making related to the following: jobs and the work environment; adequate levels of employment security, equitable systems for sharing productivity gains; good safety and health conditions at the workplace and other measures for building workers' skills and commitment for sustaining long-term competitive advantage. Human resource-based competitive strategies are being adopted by multinational enterprises as well as smaller companies in both developed and developing countries.

The emphasis on competitiveness has drawn the attention of policy-makers and enterprises to the need for labour market reforms which cater to enterprises' needs for flexibility. The challenge is to provide an appropriate framework for the optimal functioning of enterprises, while guaranteeing the basic rights of workers and other groups in civil society. Enterprises are also facing an increasingly complex socioeconomic environment in which the stakeholders include not just shareholders, but also managers and workers, consumers, pressure groups and the community in which enterprises operate. This creates pressures for greater accountability and transparency as well as a wider definition of "business success". A growing number of enterprises have committed themselves to adopting a keener sense of "corporate citizenship" and socially responsible management practices.

3. The ILO enterprise strategy

From the foregoing it is clear that first, there is on the whole, a greater appreciation

of the role of enterprises in development. Second, there are potential points of convergence between profit and competitiveness on the one hand and socioeconomic goals and social concerns on the other. Third. a major challenge is to create policy and institutional environments, jointly shaped by enterprises. government, labour and civil society. based on a shared perception of stability and sustainability. Fourth. the ILO is in a unique position to make a solid contribution to mobilizing the talent and resources of enterprises, in order to address important development challenges facing the world. This section presents a strategic framework within which the ILO can pursue its basic mandate using innovative involvement of enterprises in development.

The main objective of the ILO Enterprise Strategy is to "promote effective collaboration between the ILO and enterprises for economic and social development in such key areas as employment creation, human resources development, improved working conditions and labour-management relations, based on enterprise growth and performance as well as equity in accordance with the basic principles of the ILO.

The Strategy has two inter-related components:

To work systematically with the ILO's constituents, i.e. governments and employers' and workers' organizations; to influence and raise the awareness of other key groups as to how enterprises can become more involved in meeting development challenges. The strategy will target international organizations such as the World Bank, as well as donors. educational institutions and key non-governmental organizations.

The other component is internal to the Office: to build greater coherence among the ILO's enterprise-related technical activities and to strengthen its expertise for helping enterprises to meet development challenges.

The Strategy focuses on enhancing the contribution of enterprises to development through:

(i) the creation of an enabling policy and regulatory environment;

(ii) the building of capacity among institutions and consultative bodies which support the growth of enterprises and their participation in socioeconomic development; and,

(iii) the provision of practical guides and tools which can support these activities at the enterprise level.

The Strategy will be implemented through the following types of activities:
the influencing of policy-making and strategic decision-making at the national and international levels;

promotion of normative activities including the development of new international labour standards (ILSs) related to the role of enterprises in addressing development issues, and increasing awareness of existing relevant standards;

action-oriented research on questions ranging from forward-looking topics such as "the future of the enterprise as a socioeconomic entity", to "practical strategies for the improvement of enterprise performance and their role in economic and social development". This should be done through an inter-departmental Action Programme;

consultations on these issues with the social partners, enterprises and other concerned actors through regular enterprise fora;

establishment of a clearing house for collecting. analysing and disseminating best international practice and experience to constituents and other decision-makers;

development of a portfolio of advisory services and technical assistance (for capacity building to constituents and other groups. The focus will be on innovative enterprise practices. with particular emphasis on strategies and programmes for mobilizing the resources of enterprises for socioeconomic development, particularly job creation.

The implementation of the Enterprise Strategy will be based on the ILO's principles and tripartite structure and the recognition that this effort must seek out areas of converging interest and mutual gain for employers, workers. governments. and other stakeholders in development.

For example. the increasing emphasis on human resource-based competitive strategies presents the ILO with the opportunity to work with enterprises in support of enterprise paradigms concemed with productivity and competitiveness, as well as job quality. employment security and skill formation. While such a "mutual gains" strategy is implemented at the enterprise level. it must be supported by an appropriate policy and regulatory environment that will require the involvement of governments as well as employers' and workers' organizations. Such a process can draw upon the ILO's unique position as a facilitator of tripartite consultations and dialogue among the social partners.

The close working relations with the International Organisation of Employers (IOE) and its members. and the emergence of a growing number of enterprises embarking on social initiatives, present an exceptional opportunity for the ILO to explore the strengths, weaknesses and impact of these initiatives. That would make it possible to determine the key success factors and the ways in which they may be replicated.

Likewise. the close working relations between the ILO and international. sectoral and national trade unions, place it in an advantageous posit ion. to facilitate and support increased cooperation between workers and employers at the enterprise level.

The ILO's field structure, that is the Multidisciplinary Teams (MDTs), regional and area offices, will be fully involved in the implementation of the Strategy. They will constitute the main conduits for providing information, advisory services and technical assistance to the ILO's constituents and other groups. They will also assess their needs and collect information on best practice and local experiences. Through their work, it will be possible to reflect regional differences in the detailed planning and implementation of the Strategy.

4. Action programme

The following sections provide details of the ways in which the identified activities

would be focused and coordinated in support of the Enterprise Strategy. For easy overview, a summary matrix is also provided (see Annex) .

4.1 Framework for ILO actions to facilitate changes in the policy environment, institution framewrok and at enterprise level

(a) The creation of an enabling policy environment

The development of a dynamic private sector that creates employment depends on the institutional and policy environments. The ILO's action will support the creation of an enabling envirorunent in which policies, laws and regulations are conducive to the growth of enterprises that contribute to socioeconomic development. Consequently, dialogue among the social partners as well as tripartite consultations. will be central to the implementation of the Strategy.

The areas of focus will include the following:

stabilization and adjustment programmes and liberalization measures with regard to their impact on enterprises in the short-. medium- and long-term and on the contribution of enterprises to social development;

policies. fiscal and other incentives. aimed at enhancing the employmentgenerating potential of enterprises, thus contributing to the reduction of social exclusion and poverty;

policies which facilitate the establishment and growth of small enterprises by removing policy biases and unnecessary regulatory burdens and encouraring vertical and/or horizontal linkages between enterprises; the involvement of both employers' and workers' organizations will be emphasized. In this respect it should be noted that there is. for the 1997 and 1998 International Labour Conferences, an agenda item dealing with "General conditions to stimulate job creation in small and medium-sized enterprises;

policies and incentives which encourage large enterprises to become learning organizations and high-performance workplaces; to invest in their workforce for flexibility, emplovability and profit.. and to participate actively in developing skilled manpower for the national economy, thus extending training opportunities beyond the confines of their own workforce (workers from small enterprises and subcontractors, socially excluded groups such as unemployed youths and longterm unemployed. etc.);

investment policies in developing countries which encourage the development of domestic enterprises and the systematic use of locally available human and material resources for activities such as infrastructural development and maintenance;

policy initiatives aimed at facilitating "graduation" of the informal sector into the formal economy;

policies which ensure a minimum of social protection of workers in enterprises of all sizes. including the informal sector;

government initiatives to promote enterprise responses to specific development problems, such as environmental issues;

identification of major constraints and incentives to the diffusion of innovation and "best management practices" in these areas:

research into the special situation of developing countries and transitional economies. where there is a lack of policy and legal frameworks. entrepreneurial tradition, management expertise and infrastructure.

(b) Institutional capacity-building

The ILO's action at this level will be directed at building the capacity of institutions and consultative bodies which support the growth of enterprises and their participation in socioeconomic development. Partnerships will be encouraged between enterprises, governments, and workers' and employers' organizations, in addressing issues relating to the world of work. Examples include:

Strengthening the structure and capacity of institutions which provide direct support to enterprises. These include the following:

employers' organizations to carry out policy advocacy towards government on behalf of their members; provide direct technical services to members; and facilitate the diffusion of best practice and expertise among enterprises;

workers' organizations to enable them to participate effectively in dialogue and negotiation at the enterprise level;

labour and other ministries to create a general environment and labour market structure which facilitate the activities of enterprises and their involvement in social initiatives;

local government and other structures. to provide infrastructure and support services to enterprises. in line with national policies;

business schools to include management innovation and social responsibility in their curricula;

small enterprise development organizations to provide cost-effective and sustainable services in areas such as access to credit. training, consultancy services and market information;

vocational training institutions to form partnerships with enterprises with the aim of ensuring that their activities are relevant and effective;

dispute settlement mechanisms to facilitate a constructive and collaborative work atmosphere and dialogue at national and enterprise levels;

various types of cooperatives, sectoral associations and enterprise networks to provide support and facilitate linkages between enterprises;

promote organizations which can provide the basis for "bottom-up" social protection or various collective insurance schemes.

Encourage the establishment of consultative bodies and fora which allow enterprises and their representatives to be involved in addressing wider development issues and exploring ways in which they may become involved.

Global forum. The ILO should act as a global forum for the generation and exchange of ideas, initiatives and experiences for wider use and for eventual networking between organizations actively involved in enterprise growth. Regular meetings of the global forum will be instrumental in sustaining the dissemination of information among key actors in this area. The first ILO Enterprise Forum will be held in November 1996.

A directory of organizations active in promoting the growth and development of enterprises could be initiated. It would include information on major enterprises, government organizations, NG0s active in various fields (e.g. enterprise networks and academic institutions), as well as international and regional organizations.

(c) Promotion of the growth and contribution of enterprises to development

The aim is to provide practical guides and tools for improving the performance

and growth of enterprises and enhancing their contribution to socioeconomic development, in particular job creation. These could be in the form of training programmes and packages and other resource materials for use by the ILO's field offices, Multidisciplinary Teams and the Turin Centre. They would assist enterprises in the adoption of innovative management practices and approaches. The activities will encompass the following:
analysis of best practices of enterprises in the area of social initiatives, drawing lessons from their experience with a view to developing models for widespread distribution;

development of resource packages on subjects that include:

human resources management practices which facilitate both increased productivity and quality and meaningful, sustainable and quality employment;

small enterprise development; in addition to national adaptations of the existing Improve Your Business (IYB) package, new training packages will be developed in fields such as "Start Your Business" and sectoral activities such as small-scale construction, food processing and tourism;

strategies for improving productivity particularly through such measures as better working conditions. better motivation of staff and enhanced levels of skill and organization;

approaches to "soft restructuring" of enterprises to minimize social costs through, for example, retraining to improve employability, small enterprise development and self-employment programmes;

management training programmes for worker-owned enterprises and cooperatives;

training and development for transition to high performance workplaces;

education of workers as stakeholders in the enterprise;

systems for equitable gains-sharing in support of productivity and employee commitment;

linking productivity and environmental protection;

training programmes for small enterprise start-ups and upgrading of small- scale and informal enterprises;

models, materials and training packages that can help enterprises to cope with vulnerable groups (i.e. disabled persons), a diverse workforce and in managing drug and alcohol-related problems.

In order to support the development and dissemination of these practical resource packages, the ILO should develop indicators of best enterprise-level practice with regard to socioeconomic performance. An award system for best performers (similar to the Baldridge Award for productivity and quality) could also be introduced.

4.2 Actions to enhance internal coherence, quality and impact of the ILO's enterprise-related activities

The basis for improved coordination of ILO's enterprise-related activities has been laid through the establishment of a post of Assistant Director-General responsible for enterprise activities.

It is suggested that an inter-departmental Action Programme be implemented to carry out the following activities:
Research into the emerging and future role of enterprises as socioeconomic entities. including corporate governance structures. ownership patterns (i.e. ES0Ps', etc.) and the implications of these developments for areas of key concern to the ILO.

Development of a range of finished products to provide the MDTs as well as regional and area offices with tools and guides which can be used for providing advisory services and technical assistance. The types of finished products which will be considered include: policy guidelines; case studies of best practice and training packages for building institutional support capacity, improving enterprise performance and increasing the contributions of enterprises to employment and other development issues outlined in the Strategy. Many of these finished products will be multidisciplinary in nature and necessarily involve all technical departments. the International Labour Standards Department, the Bureau for Employers' Activities and the Bureau for Workers' Activities, the Institute and the Turin Centre. These products will be elaborated in close consultation with the field structure (regional and area offices and MDTS), which will also be actively involved in the implementation phase.

An example would be a programme for "soft" enterprise restructuring for use by enterprises (managers and workers), consultants, local government and policy-makers in connection with enterprise restructuring to achieve higher levels of productivity and performance while minimizing Employee Stock Ownership Plans social costs. This could include a range of interrelated components such as: retraining of workers for employability; productivity programmes; small enterprise development programmes for displaced workers; safety and health improvement programmes and the design of retrenchment packages. There is an enormous need for such advice and assistance, particularly in transitional economies and many developing countries.

Another important initiative which would strengthen the ILO's ability to provide relevant high quality services, is the establishment of a clearing house function. This would facilitate the identification, analysis and dissemination of information on best practice in the area of innovative enterprise management. The emphasis would be on areas in which enterprises could contribute to solving wider development issues (e.g. unemployment), while continuing to fulfil their commercial objectives. Such a clearing house could become a valuable resource for individual enterprises as well as employers', workers' and other organizations involved in enterprise development activities. Savings could be made by establishing the clearing house function through Internet, building on the ILO's existing facilities (e.g. INTERMAN, which links management training institutions world-wide), and utilizing the network of employers' and workers' organizations and ministries of labour.

Finally, the implementation of a comprehensive enterprise Strategy will require increased resources and in this respect innovative resource mobilization measures, in close collaboration with the field structure, should be considered. They might be supported by interested enterprises and other partners willing to support ILO-based research and pilot programmes in the following fields: initiatives by enterprises as regards employment promotion; small enterprise development; improved working conditions; inner city and rural initiatives; employee participation schemes; human resources development and training strategies.

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