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1 MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY NGUYEN THI HONG THAM THE INFLUENCE OF ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS IN VIETNAMESE ENTERPRISES SPECIALTY: BUSINESS MANAGEMENT CODE: 62.34.01.02 ADMINISTRATION AND BUSINESS DISSERTATION SUMMARY HANOI, 2014 INTRODUCTION next to Hanoi The survey was implemented from November, 2012 to April, 2013 a The rationale for studying Researches into the relationship between cultures and incentives have exposed a significant gap and there are not many studies considering directly this relationship Studies that focus on the impact of cultures on incentive systems mostly examines the influence of national culture on the difference in incentives of organizations in different countries and mainly study of the value perspective Therefore, this dissertation will test the influence of organizational culture, specially department cultures on incentive systems applied for these sections in Vietnamese enterprises This is an issue not answered clearly in previous studies d New findings in the dissertation Different from many previous researches, this research investigates differences in the relationship between organizational culture and incentive system within one country, Vietnam The findings in this thesis reveals that organizational culture has significant influence on incentive system, including the incentive frequency, the principle, the base and the way to allocate bonus These are new findings that are not answered clearly in previous studies In particularly, in employee – oriented organization, the frequency of bonus is higher, the parity allocation principle and the group – based bonus is used more largely while in less employee – b The purpose of this study oriented organization, individual – based bonus is used more highly The general purpose of this dissertation is to research of the To the tight or loose control dimension, the investigation results relationship between the organizational culture and the incentive indicate that in tight control units, the equity allocation principle and system The study will answer the questions whether the individual – based bonus is used more largely Another new finding, organizational culture has significant influences on the incentive contrast with the result of Western researches and the qualitative system, including frequency of incentive use, parity or equity study, is that in less employee – oriented units, bonus is paid secretly allocation principle, the base to allocate and the way to pay is more popularly incentives or not On the practical perspective, firstly, the findings in this study help predict reward system applied in an organization when c The research subject and scope understanding its culture Secondly, the findings also help managers The research issue is the effect of the organizational culture comprehend the relationship between organizational culture and the (specially the section culture) on the incentive system applied in the incentive system Therefore, they are able to design, fulfill and department in enterprises change incentive plans to have better results Study scope: Enterprises in Hanoi and provinces that are CHAPTER 1: THEORETICAL BASIS AND LITERATURE REVIEW in the middle of two above viewpoints Researchers also not have agreement about the dimension 1.1 Theoretical basis 1.1.1 Culture and organizational culture to assess organizational culture According to the findings of Hofstede et al (1990), the difference in organizational cultures among companies mainly to be observed and evaluated by 1.1.1.1 Culture Culture is specially difficult to define Asif (2011) indicated dimensions, organizational including culture, process employee versus versus result orientation job orientation that “culture is one of two or three words that is the most organizational culture, parochial versus professional organizational complicated in English” Generally, researchers have agreed that culture, open or closed system organizational culture, loose control culture refers to belief and value, expressed in practice, in behavior versus tight control organizational culture and normative versus and other things, shared by the members of an organization or a pragmatic organizational culture nation However, besides the common agreement, authors shows a lot of different opinion about culture 1.1.1.3 The departmental culture Hofstede et al (1990) found that organizational culture could 1.1.1.2 Organizational culture be studied at whole organizational level or lower levels, such as the According to Hofstede et al (1990), organizational culture department or unit level depends on its cultural homogeneity These appeared in academic studies in the United State in 1979 and it is authors found that many organizations included sections that have quite recent appearance Up to now, organizational culture definition different cultures and jobs with different culture become a controversial definition in both theory and practice It This is confirmed in some researches of Hofstede after that continuously shows different development trends in academics and In addition, Martin (2002) found that the subculture in enterprises new definitions to understand this concept develop endlessly appeared because of difference in the jobs and functions Moreover, Although there are various views, scholars are becoming according to Schein (2004), if an organization become successful, it more consensus While most researchers have agreed that was sure that it would create lower units and start creating their organizational culture includes artifacts, shared value, belief and culture basing on their own leaders Besides, other authors also underlying assumptions, their viewpoints about each part are clearly supplied evidences on difference in culture among departments and different Some authors emphasize the value perspective of units In addition, Reiman et al (2005) studied organizational culture organizational culture On the contrast, other scholars highlight the of the maintenance units in two nuclear power factories and Kunda artifact aspect of organizational culture Many remaining authors are (2006) researched into the culture of the engineering unit in an advanced technology company These are evidences of using Pheysey (1993) found that organizational culture had department level to be a research unit in organizational culture relationship with various perspectives of enterprise management In studies Therefore, the author decides to choose examination units particularly, this author indicated clearly the relationship between are department in enterprises organizational culture and the management aspects, such as change, control, organizational design, job design, motivation, decision 1.1.2 Compensation system and incentive 1.1.2.1 Compensation system Many researchers on compensation have agreed that making, group behavior, leadership and management, and organization development Culture is emphasized because it impacts on many other things that is showed in the dissertation compensation oftend includes salary, benefits and bonus, share 1.2.2 The influence of organizational cultures on incentive systems options in enterprises 1.1.2.2 Incentives 1.2.2.1 Domestic literature review Incentives is an important tool to promote managers to reach In Vietnam, researches of the impact of culture on the objectives of organization Anthony and Govindarajan (2003) management in generally and on salary, reward in particularly are indicated that incentive plans include two parts: short term plans and quite new There are few studies that considered this issue Most long term incentive plans The short term incentive plans include the studies focused on considering each subject separately, such as the total bonus pool, carryovers and deferred compensation Long term culture or the organizational culture or salary or reward Some incentive plans comprise stock options, phantom share, stock authors investigated the effect of culture on compensation issue in appreciation right, performance shares and performance units our country For example, Thuc Anh (2010) found that although Incentive can be based on the contribution or the working Vietnamese culture stressed power distance, the Vietnamese wanted time It also can be based on the individual result or the group result the “equality” in compensation The too big difference in Moreover, it is allocated equally or equitably compensation is unacceptable to Vietnamese staffs Huy and Thang 1.2 Literature review on the effect of organizational cultures on incentive systems in enterprises (2012) examined the effect of national culture (Vietnam) on compensation practices applied in enterprises, then they proposed some hints to help Vietnamese enterprises to design a suitable reward 1.2.1 The influence of the organizational culture on management system to culture value of Vietnamese labor, therefore it helps in enterprises strengthen the effectiveness of paying salary in enterprises 9 10 1.2.2.2 International literature review Figure 1.5: The theoretical model (Source: The author synthesized and proposed) Recently, there is an increasing interest in testing the Some hypotheses are proposed from literature review: relationship between culture and parts of the management control H1: In result-oriented units, incentives is more likely to used system, such as performance measure system or incentives The most remarkable research on the influence of organizational culture on highly than in process-oriented units H2a: In employee-oriented units, incentive frequency is incentives system is made by Bento and Ferreira (1990) These authors used the qualitative method, explored the influence of likely to be higher than in job-oriented units H2b: In employee-oriented units, the parity principle for organizational culture on incentive system at an university in the United State Researches on the effect of organizational culture on incentive system only examined the impact of the value aspect (not allocating incentives is more likely to be used broadly than in joboriented units H2c: In employee-oriented units, group-based incentives are practice perspective) organizational culture on incentive system However, the practice side is more important and effective to more likely to be used largely than in job-oriented units H2d: In job-oriented units, individual-based incentive is investigate organizational culture Therefore, the dissertation will examine the impact of the practice aspect of organizational culture more likely to be used largely than in employee-oriented units H2e: In employee-oriented units, the secret payment is more on the incentive system likely to be used popularly than in job-oriented units 1.3 The research model H3a: In tight control units, the equity rule for allocating incentive is more likely to be used commonly than in loose control units Organizational culture H3b: In tight control units, individual-based incentive is Incentive system Process versus result orientation Employee versus job orientation Level of incentives Parochial versus professional Incentive allocation principles Open or closed system Group-based or individual-based Loose control versus tight control The way to pay incentive Normative versus pragmatic more likely to be used universally than in loose control units Three other practice dimensions, including parochial versus professional, open or closed system, and normative versus pragmatic organizational culture have not been considered to produce hypotheses because the author have not found any relationship between these variables and various aspects of incentive system from literature review Control variables Demographics of respondents: Job title, age, sex, number of year working for the company, education level Firm characteristics: working unit, business sector, legal form of organization, company size, company age and ownership 11 12 CHAPTER 2: CASE STUDY OF THE INFLUENCE OF Conclusion of chapter ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS Chapter has systematized various different views of IN DEPARTMENTS OF TWO ENTERPRISES researchers about organizational culture and incentive Then, the dissertation has given the accepted definition of two concepts In addition, chapter has introduced literature review, proposed the research model and hypotheses on the influence of organizational cultures on incentive systems in Vietnam enterprises Studying organizational culture is not an easy job Bento and Ferreira (1990) found that understanding how culture affect on compensation policies requires “a period of immersion in that culture and intensive use of the insider information” So the author has chosen to study insightly two enterprises producing carton package in the northern region to see whether enterprises in the same industry has differently organizational culture or not and their incentive system are significantly different or not The author had chosen two cases that are two enterprises in the same industry to eliminate the influence of the outside factors on the incentive system In addition, based on the results of previous researches, enterprises that belongs to different legal forms has not similar organizational culture Therefore, two enterprises were chosen One of them was a private company (An Duy company) and the another had been a state – owned company that is equitized recently (Ban Mai enterprise) So two cases are anticipated to be significantly different in organizational culture, then the author will examine whether incentive practices in two enterprises are different following the predictions given basing literature review or not At An Duy company, the author interviewed the chief accountant, the vice manager and the assistant of the business division At Ban Mai enterprise, the vice manager of business division and the chief accountant were interviewed The interviews were planned about time, place and were direct contacts Each 13 interview lasts from 1.5 to hours The information of interviews 14 Table 2.1: The comparison of organizational cultures and incentive systems at two enterprises was taken note and was typed within 24 hours The interviews were An Duy company Ban Mai enterprise - Result-oriented culture - Process-oriented culture - Quite clear - Job-oriented culture - Employee-oriented culture - Quite clear - Professional culture - Parochial culture - Little - Open system culture - Open system culture - Quite similar Saatcioglu(2011) The interview guide and the detail information of - Loose control culture - Tight control culture - Quite clear interviewees are showed in the appendix of the dissertation - Pragmatic culture - Pragmatic culture, less clearly - Little - Revenue bonus monthly for each individual who has completed his duty The percentage of bonus per compensation was dramatically higher than other divisions in the company - Revenue bonus monthly with the same percentage for all indirect staffs (working in office) if the enterprise get the bigger revenue than planed The difference in the percentage of bonus per compensation among divisions that work in office was lower - Significantly different in th parity or equity allocatio principles - Publicly - Secretly - Process-oriented culture -Process-oriented culture clearly - Little - Employee-oriented culture - Employee-oriented culture - Little - Parochial culture - Parochial culture - Quite similar - Open system culture - Open system culture - Similar - Tight control culture - Tight control culture - Similar - Pragmatic culture - Little - Bonus monthly with the same percentage for all indirect staffs (working in office) if the enterprise get the bigger revenue than planed Having incentive based on the result of a year and on holiday occasions - Significantly different in th incentive frequency implemented with an interview guide including open questions developed basing organizational culture scales of Hofstede et al (1990) and incentive system scales borrowed from the research of Segalla et al (2006), Mahoney and Thorn (2006) and Goktan and 2.1 Case A: An Duy corporation This part presents the general information of the company, the divisional culture and the incentive system applied in the The business department –The culture The business department –The incentive system divisions of the company 2.2 Case B: Ban Mai enterprise This part presents the general information of the enterprise, the divisional culture and the incentive system applied in the Accounting department –The culture divisions of the enterprise 2.3 Some hypotheses were supported - Pragmatic strongly H’1: In result-oriented units, incentives is more likely to used highly than in process-oriented units H’2: In result-oriented units, the equity rule for allocating incentive is more likely to be used commonly than in loose control units H’3: In employee-oriented units, the parity principle for The accounting department -The incentive system culture more - Only be rewarded once per year before Tet holiday if the company made profit in the previous year Each staff received a bonus that was equal to his monthly salary The manager got 1.5 monthly salary - Difference in the allocatio basis: individual/ enterpri results - Differently - Difference in the percenta of bonus per compensation - Secretly - Different in the way to pay - Publicly allocating incentives is more likely to be used broadly than in joboriented units Difference note (Source: the author synthesized) 15 H’4: In employee-oriented units, the secret payment is more likely to be used popularly than in job-oriented units H’5: In employee-oriented units, group-based incentives are 16 CHAPTER 3: THE SURVEY STUDY OF THE INFLUENCE OF ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS IN VIETNAMESE ENTERPRISES more likely to be used largely than in job-oriented units H’6: In loose control orientation units, incentives is more likely to used highly than in tight control orientation units For other hypotheses on the influence of organizational 3.1 The research method The study sample was chosen from enterprises that belonged to all legal forms in Hanoi and neighboring provinces The questionnaires were culture on incentive system, that are indicated in the chapter 1, the used to explore 150 enterprises that were chosen following different result of the qualitative research has not provided evidence to standards to try assure the representative requirement The scales were support borrowed from the previous researches 3.2 The study result CONCLUSION OF CHAPTER The coding and data entering were implemented following This chapter has reported the result of the qualitative study the instruction of using SPSS software The data was checked by carried out at two enterprises that producing carton packages in the using the frequency table After that, analyzing factor and checking northern region of Vietnam The result reveals that some hypotheses scale reliability were applied EFA model was used to check scale shown in the chapter were supported Therefore, the quantitative reliability When the scales were found reliable, the regression study stage using questionnaires with bigger sample was followed analysis were done to examine hypotheses 3.2.1 Sample description statistics The sample size was 150 enterprises This meant the research could collect 300 answer sheets However, in fact, only 230 answer sheets were collected After excluding the answer sheets lacking the important information or the respondents were not suitable, 216 answer sheets were used to analyze data 3.2.2 Checking the scale reliability The primary statistical techniques used to analyze data in 17 18 this study included factor analysis, checking scale reliability and significantly positive relationship with group-based incentives (.217, multivariate hierarchical regression analysis The eigenvalue-based p 1” were kept The result of factor analysis 064, F: 1.973, p