Why the Nordics is an interesting context of HRM
In January 2025 an Economist feature asked the question: “Why are Nordic companies so successful” alluding to companies like IKEA, LEGO, Rovio and Novo Nordisk. Indeed, only 0,3 percent of the world population lives in the Nordics (Finland, Sweden, Iceland, Norway and Denmark) while their share of world GDP is 1%, value created by dynamic and innovative companies. As a Nordic executive in the article paraphrases Darwin: “It’s not necessarily the strongest that survives but the one that will adapt to changes”. Research indicates that the Nordic style of HRM, which is effectively nurtured by the particular Nordic brand of social welfare state, is a large part of the explanation for the question.
The DNA of Nordic HRM
HRM gained significant traction in the Nordic countries around 1990, following decades of inspiration from American management theories. Initially perceived as foreign, it gradually integrated with existing practices in Nordic Personnel Management, leadership, and labor market policies. From a high-level perspective, Nordic HRM can be said to have the following characteristics:
- HRM focuses on attracting, retaining, developing, and offboarding managerial and non-managerial staff within an organizational context.
- Employees are viewed as strategic resources because the Nordic countries have knowledge-intensive economies with intangible production, such as high tech, knowledge, know-how, and service.
- The organization's human resources have the potential to enhance the company's goal, achievements and survival if used correctly.
- Human Resource Management (HRM) is a management discipline with a strategic focus and is thus intertwined with other paradigms of strategic management.
- HRM rests on the national and institutional foundation in the Nordic countries, especially the welfare state, democracy, a large public sector, and many external stakeholders.
- The central actors in HRM are the individual employee, managers with personnel responsibility, top management, a possible professional HR function, and external actors such as the state, local government, unions, and other interest groups.
Why Does Nordic HRM Have This Unique Flavor?
HRM is deeply rooted in and reflects the pluralistic Nordic labor market model, where the parties (employers and employees) collaborate to create common overarching frameworks for the use of human resources. At the national level, this dialogue occurs within the conditions set by the state. Thus, labor market policy is negotiated and decided through a trio consisting of the state, employer, and union organizations. This explains why decisions from national legislation to HR policy and practice in individual companies often occur through negotiations between representatives of employers and employees.
The political climate is largely consensus-based and reflects a premise that united efforts can ensure both business competitiveness, welfare and good working conditions for employees. "Demand your rights and fulfill your duties" is a common saying going a long way back.
A very illustrative example is flexicurity, a "give and take" principle in Danish labor market legislation. It means that the employer has broad powers to hire and fire employees, but the welfare state provides a safety net in return. This includes both financial support during unemployment and proactive labor market policies to quickly reintegrate an unemployed individual back into the labor market.
The effect of this extremely efficient labor market model - >25% of Danish employees find a new job annually – makes it possible for companies to compete for the best employees, while the employees can safely experiment with finding new employment supporting development of their career. This creates a positive spiral in humans resource management.
Such an arrangement can be negotiated between the social partners and is based on what one might call “a Nordic high-trust”, non-legalistic Coordinated Market Economy, as reflected in the specific interactions surrounding HRM activities.
Characteristics of Specific Nordic HRM Practices
Looking more closely at the main areas within HRM, the following examples of specific HRM practices can be highlighted:
- Management of highly educated, professional specialists.
- Strong emphasis on competence development, both formal education and (perhaps especially) on-the-job learning.
- Less diversity and more homogeneous employee groups than typically found in related countries.
- Moderate use of performance management methods (especially performance appraisal).
- Extensive use of an alternative, dialogue-based system (development dialogues), where employees and their managers regularly discuss performance, job design, development opportunities, etc.
- Non-elitist talent development, which also includes specialists.
- Extensive decentralization of personnel responsibility to line managers.
Advantages and Disadvantages of Nordic HRM
From a high-level perspective, HRM is strong in the Nordic region. Private and public organizations have embraced HRM thinking, both in research and practice, the field is recognized, and the institutional and cultural frameworks are favorable for HRM thinking. However, there are notable advantages and disadvantages:
Advantages:
- HRM is a crucial management tool in knowledge economies with relatively well-educated employees who often show loyalty and engagement towards the company/employer.
- Nordic HRM is based on trust, security, responsibility, involvement, respect, and integrity (e.g., non-corruption), which is typical in the Nordic region.
- The labor market is characterized by cooperation and flexibility, both locally and centrally.
- Companies can rely on a stable "HRM context" at the societal level, including the national education and healthcare systems.
Disadvantages:
- HRM requires trust and cooperation to function optimally, which can be challenging.
- Involving and creating consensus takes time, potentially slowing decision-making.
- The labor market model aims for cooperation between equal parties. Sometimes, however, one party becomes too strong, leading to unilateral decisions.
- HRM does not work equally well in all sectors.
- Local cooperation can make some HR initiatives difficult, especially in certain professional groups.
A Concrete Example of "Nordic HRM in Action": How to Rebuild After Crises
A current Nordic research project, involving the authors of this article, analyzes how companies handle and recover from major crises such as COVID-19. What kind of resilience is observed? Do companies aim to bounce back to the status quo, are they weakened compared to before, or does the crisis instead provide learning and greater resilience, so that companies actually emerge stronger? Let's illustrate the issue with two Danish companies included in the research project: Carlsberg and ISS. Both companies chose COVID-19 as a "case" for a major crisis that hit them.
COVID-19 sent shockwaves through society and individual companies. Large areas were shut down, thousands of employees were sent home, remote work became the new normal, management had to be exercised remotely, some job functions disappeared while others emerged, employee groups were left redundant and either laid off or transferred to other, often newly emerged areas, communication became virtual, national hygiene guidelines had to be implemented, etc.
HR departments experienced massive work pressure. They were overwhelmed by urgent tasks on all fronts: requirements and guidelines to avoid the spread of infection, personnel law (furloughs, wage compensation, redeployment, etc.), psychological interventions, advising managers, stress management, etc. Additionally, there was the unexpected challenge of maintaining morale within the organization. Conversely, many development tasks, including competence development, were put on the back burner.
The HR organization played a significant but rather overarching and strategic role, while operational HR tasks were handled in the individual units with the manager at the forefront. HR, based on its close contact with top management, helped formulate guidelines for COVID-19 management, communicated these to the organization, and assisted in interpreting and understanding them. HR was also available when individual managers sought advice on specific issues that arose in the field. Therefore, HR had to find new ways to coach managers in the new, different daily life.
It was also an important task for HR to help ensure engagement and counteract the psychological strains that COVID-19 could impose on employees. There was a great awareness that COVID-19 as a whole and (perhaps especially) remote work could be experienced very differently by different employees/categories. HR, therefore, assisted with frameworks for flexible working conditions.
It is well known that it is an existential question whether HR should have a seat at the table where strategic decisions are made. The pandemic has not changed this, but the role HR played during COVID-19 was new and different. The complexity and importance of the issues HR dealt with manifested HR's significance for the organization. The influence was often significant already, but it became even greater.
An example of how the Nordic context plays together with HRM was the fact ISS has been a strong mover behind the general agreements in the manual service industry, where such agreements is traditionally weak and rare. Why would an employer support and almost create general agreements, when it could rule unilaterally? For ISS this a strong way to display their commitment to appropriate employment practices in their communication to their preferred large clients in the corporate world. And it is also a basis for the resilience we found in the study.
Not only the two Danish companies but also most other companies in the research project have actually been able to increase their resilience as a result of the very demanding, almost life-threatening events they have been exposed to (COVID-19). Experience-based learning can be anxiety-provoking and traumatic in the situation, but if one masters staying calm, exploiting the available options, and creating followership, solidarity, and engagement, it can actually lead to constructive, useful experiences, increased competence, and strengthened resilience in the long run. This is what was experienced in the companies. As Winston Churchill put it: "If you walk through Hell, keep walking."
Conclusion: The Nordic countries generally stand strong. It is a region with countries of modest size, but precisely because of this, there is an awareness of the necessity of an international mindset. Nordic HRM is well-functioning because the institutional and cultural context is compatible with the very core of HRM.
What challenges are there then? Success contains the seeds of failure. Perhaps the Nordic region is a bit too complacent and inward-looking. Because the societal structure is robust and the countries have generally performed well on a global scale, there may not have been enough incentive to open up to the surroundings, develop a global mindset, strengthen the attraction of foreign labor, learn to work in – and lead – heterogeneous employee groups, etc. Figuratively speaking, the Nordic countries can be said to sit around a campfire, facing each other and warmed by the fire, but cold on their backs and turning their backs to others.
However, this does not destroy the overall picture: The Nordic region is fertile ground for effective HRM practice. Practices that play a substantial role in the explanation of the resilience and success of Nordic companies.
Written by Frans Bévort, Associate Professor, CBS and Henrik Holt Larsen, Professor Emeritus, CBS, Copenhagen Business School
Note: The term HRM is used for the field. When HR is mentioned, it refers to the organizational unit (HR department).
