Southern Luzon State University Republic of Philippines IMPACT OF HUMAN RESOURCE MANAGEMENT PRACTICES ON ORGANIZATIONAL PERFORMANCE IN SMALL AND MEDIUM ENTERPRISES IN THAI NGUYEN CITY
Trang 1Southern Luzon State University Republic of Philippines
IMPACT OF HUMAN RESOURCE MANAGEMENT PRACTICES
ON ORGANIZATIONAL PERFORMANCE IN SMALL AND MEDIUM ENTERPRISES IN THAI NGUYEN CITY
A Dissertation Presented to The Faculty Graduate School Southern Luzon State University
Trang 2CHAPTER I INTRODUCTION Introduction
Human Resource Management is the process of developing, applying and evaluating policies, procedures, methods and programs relating to the employment, motivation, maintenance, and management of people in the organization Human resources management include activities like strategic HRM, human capital management, corporate social responsibility, human resource planning, recruitment, selection, training and development, reward management, performance management, employee relations, health safety and employee well-being as well as provision of employee services It comprises a set of practices and policies designed to maximize organizational integration, employee commitment, flexibility and quality of work (Armstrong, 2009)
Over the years, researchers have suggested many HRM practices that have the potential to improve and sustain organizational performance These practices include emphasis on employee selection based on fit with the company’s culture, emphasis on behaviour, attitude, and necessary technical skills required by the job, compensation contingent on performance, and employee empowerment to foster team work, among others Purcell et al., (2003) pointed out that the most successful companies had 'the big idea', they had a clear vision and a set of integrated values They were concerned with sustaining performance and flexibility which reveals a clear evidence of positive attitudes towards HR policies and practices, level of satisfaction, motivation and commitment, as well as overall operational performance
Trang 3Background of the study
Small and Medium Enterprises (SMEs) have been recognized as important factor
of the economy of many countries and Vietnam is not an exception According to the data from the ministry of planning and investment of Vietnam SMEs occupied for nearly 85% of the total of enterprises in Vietnam and contribute nearly 45% of annual GDP of the nation
A significant amount of research has been conducted examining the relationship between HRM and firm performance In a recent review of the literature, Wright et al., (2005) found a total of 68 empirical studies looking at relationship between HRM and some aspect of firm performance The review focused specifically on published, empirical studies testing a relationship between an HRM system and performance Notably, all of the review studies reported at least one significant relationship between HRM system and performance Clearly from this review of the literature, there is an increasing agreement that a relationship does exist between HRM and firm performance
For all the reasons above, the researcher would like to conduct the study: “Impact
of Human Resource Management Practices on Organizational Performance in Small and Medium Enterprises in Thai Nguyen City”
Statement of problems
This study aimed to analyze the “Impact of Human Resource Management Practices on Organizational Performance in Small and Medium Enterprises in Thai Nguyen City” Specifically, it sought to answer the following questions
1 What is the profile of the enterprises, in terms of:
1.1 Types of enterprise;
1.2 Form of owner ship;
1.3 Time of operated; and
Trang 41.4 Amount of employees?
2 What are the SMEs’s HR practices as to:
2.1 Recruitment and Selection;
2.2 Training and Development;
2.3 Career Planning System;
2.4 Participation and Involvement;
2.5 Compensation and benefits; and
2.6 Performance Appraisal?
3 What are the perceptual SMEs’s managers in organizational performances?
4 What are the effects of these HR practices on the financial performance of SMEs?
Hypotheses
H1 Recruitment and Selection positively effects SME’s performance
H2 Training and Development positively effects SME’s performance
H3 Career Planning System positively effects SME’s performance
H4 Participation and Involvement positively effects SME’s performance H5 Compensation and Benefits positively effects SME’s performance H6 Performance Appraisal positively effects SME’s performance
Trang 5CHAPTER II REVIEW OF LITERATUES AND RELATED STUDIES Roles of SMEs in the economy
European Commission stated in the Recommendation 2003/361/EC in 2003 that SMEs play a central role in the European economy They are a major source of entrepreneurial skills, innovation and employment In the enlarged European Union of 25 countries, some 23 million SMEs provide around 75 million jobs and represent 99% of all enterprises SMEs are the engine of the European economy They are an essential source of jobs, create entrepreneurial spirit and innovation in the EU and are thus crucial for fostering competitiveness and employment
Measures of the Human Resource Management System
One of the long recognized limitations in the SHRM is the lack of a clear definition of the HR System construct Qualitative and meta-analytic review of the literature reveals considerable variability in how the HR System construct is defined and measured (e.g Arthur & Boyles, 2007; Boselie et al., 2006) Arthur and Boyles (2007) provide a useful discussion of this issue and propose a framework for more clearly defining HR System constructs
Human Resource Principles
HR Principles are conceptualized as organization leaders’ general view of the strategic importance of their human assets Early work by McGregor (1960) delineates two basic attitudinal orientations of managers regarding their employees and two corresponding managerial approaches The first, Theory X suggests a managerial attitude that employees are generally unmotivated and largely incapable of self-directed behavior These attitudinal assumptions imply that employees are largely disposable and interchangeable and manifest operationally in management approaches characterized by
Trang 6rigid hierarchies, narrowly defined jobs and a command and control management This
is consistent with the Tayloristic approach referenced earlier
Human Resource Programs
Objective reports of HR programs by a key organizational informant, is the most common conceptualization of the HR system construct Three general classes of items have been used to measure HR Programs: 1) simple dichotomous “yes or no” responses regarding the existence of the program (e.g Huselid, 1995); 2) Likert scale items asking the degree to which the respondent agrees that a certain practice is in place (e.g Bae & Lawler, 2000); and 3) more objective reports of raw percentages of total employees covered by the program or, in the case of training, the number of hours an employee spends in training over some period of time (e.g Huselid, 1995)
Human Resource Practices
HR Programs and HR Practices are similar in that they seek to measure the existence and use of various HR programs However, they differ in that they seek this information from different sources These source characteristics have important implications on the properties of the construct (Arthur & Boyles, 2007)
Human Resource Perceptions
Here, as with the distinction between HR Programs and HR Practices, we have another conceptually distinct measure focused specifically on employee interpretations of
HR Practices
Impact of Human Resource Management to firm performance
Recent academic research has attempted to demonstrate the impact of HRM on firm performance and the relationship between the practices and firm outcomes is discussed best in the strategic human resource management literature (Pfeffer, 1998; Rogers & White, 1998)
Trang 7Recruitment and Selection (R&S)
According to Bratton and Gold (2007, page 239), recruitment is ‘the process of generating a pool of capable people to apply to an organization for employment’ and selection is ‘the process by which managers and others use specific instruments to choose from a pool of applicants the person(s) most likely to succeed in the job(s), given management goals and legal requirements Companies using a good selectivity in the hiring process ensure getting the right skilled and qualified people for the right job (Pfeffer, 1994; Huselid, 1995) According to Koch and McGrath (1996), there exists
a positive relationship between HR recruitment and selection and labor productivity
Training and Development (T&D)
Companies intending to gain a sustained competitive advantage should help their employees raise their skills by receiving continuous training so that they can learn new things need to ensure quality improvement of the products and services of the company
In organizations the training remains a major activity of Human Resource Development (HRD) practice (Nordhaug, 1989) for employee development and their competencies building (Gritz, 1993) To perform effectively, at a managerial position, employees go through dynamic process of training and development (Baldwin &
Career Planning System (CPS)
Career Planning and Development Program, fostering organizational effectiveness, depends on the organization’s ability to transfer staff from a conventional model of expectation to one of increased responsibility for their own career growth and development (Martin, Romero, Valle & Dolan, 2001)
Trang 8Participation and Involvement
“Coming together is a beginning, Keeping together is progress, Working together
is success” Henry Ford
contribute extensively in decision making with their leaders is Participatory Management Strauss (2006) said that participation is a process that allows employees to exercise some control over their work and the conditions under which they work
Performance Appraisal
The measurement of employees’ performance allows the company to provide compensation fairly to the deserving individuals according to certain predetermined criteria like employee competency, teamwork ability, initiative, soft skills and ethics
Compensation and Benefits
Bratton and Gold (2007, page 358) state that reward refers to ‘all of the monetary, non-monetary and psychological payments that an organization provides for its employees in exchange for the work they perform’ Motivating employees through
a good reward system constitutes a difficult and challenging task for general managers as
it can positively affect employees’ behavior toward their jobs and increase their commitment and thus their performance
Perceived Organizational Performance (POP)
In literature, various indicators of organizational performance have been used, perceptual measures of organizational performance were used by Delany & Huselid
applied by Black & Lynch (2001) and Cappelli & Neumark (2001) and physical measures of organizational productivity were used by Arthur (1994)
Trang 9Financial Organizational Performance (FOP)
practices, exploring the significant relationships between the variables Huselid (1995) studied 968 US organizations to explore the use of high performance work practices and found that productivity was influenced by employee motivation; financial performance was influenced by employee skills, motivation and organizational structures Return on Asset (ROA) and Return on Equity (ROE) are frequently used to measure financial performance by different researchers i.e Delery & Doty (1996) and Snell & Youndt
Return on Equity (ROE)
Financial performance is given by the ROE (net profit / equity, in book value) This indicator is very important for shareholders However, the ROE does not permit assessment of the profitability of all invested funds Return on equity (ROE) is repeatedly used to determine financial performance by HRM researchers Delery & Doty (1996) and
earned with respect to shareholders equity
Return on Assets (ROA)
ROA is an indicator of how profitable a company is in relation to its total assets ROA gives an idea as to how efficient management is at using its assets to generate earnings Dividing a company's annual earnings by its total assets, ROA is calculated in percentage Sometimes this is referred to as "return on investment"
Trang 10+ Perceived Organizational
Performance + Organizational Finance
Trang 11CHAPTER III RESEARCH METHODOLOGY Locale of the Study
The study was conducted June 2013 in Thai Nguyen City, which is situated in the Far North-East of Vietnam and surrounded by Bac Kan Province on the north, Tuyen Quang and Vinh Phuc provinces on the west, Lang Son and Bac Giang provinces on the east, and Hanoi on the south
Population, Sample Size and Sampling Technique
The population was composed of 2040 small and medium enterprises (SMEs), local in Thai Nguyen city, Thai Nguyen Province The sample population was determined using the Slovin’s formula with a 5% margin for sampling error, the sample size derived was 334 respondents The respondents were selected using random sampling technique sourced, however only 290 questionnaire were collected
Description of Respondents
The main respondents are managers of the small and medium-sized enterprises in Thai Nguyen City
Statistical Treatment
I Profile of respondents Frequency Count, Percentage Survey
II Respondents’ perception Weighted Mean, ranking Survey
III Reliability Exploratory factor
analysis
Coefficient alpha
Trang 12CHAPTER IV PRESENTATION ANALYSIS AND INTERPRETATION OF DATA
4.1 Reliability
At initial stage coefficient alpha (Cronbach, 1951) was applied Data was analyzed to measure reliability The study computed separate and combined reliability estimates, which are similar to the normally used coefficient alpha statistics Cronbach value beyond (α = 0.7) signifies acceptable reliability (Cuieford, 1965)
Inter item consistency reliability or Cronbach’s alpha reliability coefficients of one dependent, one mediating and six independent variables were obtained, they all were above (α = 0.70) Cronbach’s alpha calculated As the coefficients get closer to (α = 1.0) the better is reliabilities and coefficients, and less than (α = 0.60) are considered poor Recruitment & selection was measured by 10 items and had a Cronbach’s alpha of (α = 0.766), training & development scale contained 10 items with (α = 0.821) Cronbach’s alpha value, Career planning system was measured through 10 items and had Cronbach’s alpha of (α = 0.808), Participation and Involvement was measured through
10 items with Cronbach’s alpha of (α = 0.848), compensation and benefit was also measured by 10 item scale with Cronbach’s alpha (α = 0.815), Performance appraisal
scale contained 10 items with (α = 0.776) Cronbach’s alpha and the dependent variable perceived organizational performance was also measured by 10 items scale with Cronbach’s alpha value of (α = 0.742)