Impacts of human resource management practices on firms’ performance the case of machicon

Lunghwa Universityof Scienceand Technology Department of Business Administration Thesis for a Master’s Degree Impacts of human resource management practices on firms’ performance: The case of MACHICON Researcher: Le Thu Huong Supervisor 1: Assoc Prof Dr Chu, Chih-Chung Supervisor 2: Dr Mai Anh November 2018 Lunghwa University of Science and Technology Approval Certificate of Master's Degrcee Examination Board This is to certify that the Master’s Degree Examinations Board has approved the thesis Impacts of human resource management practices on firms’ performance: The case of Machicon.,JSC published by Ms Le Thu Huong in the Master Program of Graduate School of Department of Business Administration Master’s Degree Examination Board Board Members: Prof, PhD Tsan Eric Dr Nguyen Phu Hung Dr Nguyen Thi Hong Hanh Advisors：Assoc Prof Dr Chu, Chih - Chung Dr Mai Anh Chair：Prof, PhD Tsan Eric Date： 23/11/2018 ABSTRACT Thesis title: Impacts of human resource management practices on firms’ performance: The case of MACHICON Pages: 67 University：Lunghwa University of Science and Technology Graduate School：Department of Business Administration Date: December, 2018 Degree: Master Researcher: Le Thu Huong Advisors: Dr Mai Anh Assoc Prof Dr Chu, Chih-Chung Keywords: Human resource, Human resource management, firm’s performance, MACHICON Rationale Human resource management (HRM) is the most important function of managing an enterprise Reforming HRM to improve enterprises’ performance and efficiency has been a practical requirement especially for state-owned companies which have equitized This study arises from the need to manage the HR of the Vietnamese firms more effectively, especially at the state companies after their equtisation process MACHICON is a joint stock company, which has been owned 51 percent of the capital by the Vietnamese government Investigating the impacts of HRM on the firm’s performance is especially important to the MACHICON With special ownership characteristics of combining state and private owners, the HRM in the company has influenced by both the traditional and modern methods of personal management It is critical for this company to reform its HRM toward market rules Moreover, the changes in HRM of MACHICON is also able to reflect the common trend of HRM in Vietnam as the company has been transforming in to a joint stock company since 2008 Examining HRM practices in this company might provide a view of HRM practices changed toward adapting marker rules in Vietnam Research objectives i The aims of this thesis are to examine the theoretical background of the HRM and its linkages to improve firms’ performance and to investigate how HRM practices in MACHICON influence the company’s efficiency These findings from theoretical and empirical aspects will be used to provide suggestions for the Machicon to improve their HRM strategy toward improving the company’s performance To obtain these aims, the research will address three research questions: 1) What are HRM practices in MACHICON? 2) What are solutions to reforming the HRM practices in order to improve the company’s performance? To answer these research questions, the thesis will have the following targets: - To make clear about the theoretical background of HRM, firm’s performance, and the linkages between these two issues, especially for enterprises in a transitional economy - To analyze and to identify the current model of HRM practices in MACHICON - To analyses the company’s performance - To investigate influences of the current model of HRM practices on the company’s performance - To provide practical implications for HRM practices to improve the company’s performance Scope of the research The research focuses on the model of HRM practices and performance of the MACHICON since 2008 when the company started transforming into a joint stock company Research methodology This research employs qualitative research method via 36 face-to-face in-depth interviews with employees and managers in MACHICON Research findings and contributions The research has found that for MACHICON, the human resource management system is strongly influenced by the traditional management of personnel; there is a need for reforming its human resource system to help the company improve performance The research findings have contributed to reforming the company’s HRM practices and then to improving the company’s performance Furthermore, this study has ii contributed to enrich knowledge about HRM and firm’s performance in Vietnamese enterprises under their transitional context ACKNOWLEDGEMENT First and foremost, I would like to thank lecturers at International School, Vietnam National University, Hanoi and Lunghwa University of Science and Technology, Taiwan Their lectures has helped me to develop my knowledge and research skill to complete this thesis My special thanks go to managers and employees working at MACHICON for their time and help to participate in interviews in my research Their contributions to this study are countless I also would like to express my profound gratitude to Dr Mai Anh and Assoc Prof Chu Chih-Chung, my supervisors for their generous guidance and time They have helped me gradually to develop my research skill and inspired me to my best at every stage of the process I could not complete this study without their enthusiastic supervision and unconditional support My warm thanks are to my classmate for sharing happiness and difficulties with me in the memorable EMBA course Lastly, I am especially indebted to my parents and parents-in law, and my siblings, who always provided unconditional support to me throughout my EMBA course I especially want to extend my greatest thanks to my beloved husband, and my children I could not complete this thesis without their presence, love, and inspiration Thank you! Author Le Thu Huong iii TABLE OF CONTENTS ABSTRACT i ACKNOWLEDGEMENT iii TABLE OF CONTENTS iv LIST OF TABLES .vi LIST OF FIGURES AND GRAPH vii ACRONYMS viii INTRODUCTION 1.1 Rationale 1.2 Research objectives 1.3 Scope of the research 1.4 Research methods 1.5 Structure of thesis LITURATURE REVIEW 2.1 Introduction 2.2 Human resource mangement 2.2.1 Definitions 2.2.2 Functions of human resource management 2.3 Firm’s performance 10 2.4 A review of empirical research on the relationship between HRM and firm’s performance 11 2.5 Characteristics of HRM in Vietnam 13 2.5.1 Human resource management in Vietnam before 1986 14 2.5.2 Human resource management in Vietnam since Doi Moi 1986 15 2.6 Introduction to machicon company and its human resoure management system 18 2.6.1 Introduction to Machicon 18 2.6.2 The company’s management structure and human resources 22 RESEARCH METHODOLOGY 28 3.1 Research method 28 3.2 Data collection 28 3.2.1 Data sources 28 3.2.2 Interviewees 29 iv 3.2.3 Interview questions 32 3.3 Data analysis 33 3.4 Reliability and accuracy of data source 33 RESEARCH FINDINGS AND ANALYSIS 35 4.1 Impacts of HRM on the company’s performance 35 4.1.1 The company’s human resource management practices 35 4.1.2 Impacts of human resource management on the company’s performance 41 4.2 Impacts of other factors on the company’s performance 43 4.2.1 Impacts of organizational culture 43 4.2.2 Impacts of trust in leadership 44 4.3 Solutions for human resources management to increase the company’s performance 45 4.3.1 Objectives and development strategy of the company 45 4.3.2 HRM solutions to improve the company’s performance 46 CONCLUSION 51 5.1 Synthesis of the study 51 5.2 Contributions of the study 52 5.3 Research limitation and suggestions for further research 52 REFERENCES 53 APPENDIX 56 v LIST OF TABLES Table Characteristics of traditional personnel management 15 Table The main products of the Company 19 Table The Company’s business outcomes 2015, 2016, 2017 20 Table The Company’s planned business outcomes from 2015 to 2019 20 Table MACHICON’s labor force statistical report 2017 24 Table Statistical summary of direct employees by skill levels 24 Table Statistical details of direct employees by skill levels 24 Table Statistical summary of indirect employees by qualification levels 26 Table Human resource plans 2014-2017 26 Table 10 Human resource development plans until 2020 27 Table 11 Changes of the Company HR and its operation business outcomes 27 Table 12 Characteristics of interviewees 30 Table 13 HRM practices and the company’s performance 42 vi LIST OF FIGURES AND GRAPH Figure Average labor productivity 21 Figure Rate of return on equity 21 Figure Participants’ seniority 31 Figure Groups of participants 32 Figure Quality of the Company’s HRM planning 35 Figure Evaluate the effectiveness of the recruitment of the company 37 Graph The company management structure 23 vii ACRONYMS HRM Human resource management HR Human resource US United State viii 4.3 Solutions for human resources management to increase the company’s performance 4.3.1 Objectives and development strategy of the company Development objectives MACHICON Company aims to become a leading Corporation of public construction in the North of Vietnam At the same time, it aims to expand its new business areas into electric installation, auto control and automation, manufacturing and installing metal structures for civil, industrial and road construction It provides the best value for customers and partners; provides training and career development opportunities for its employees For each specific field, the objectives of the Company are as follows: - Construction: constructing traffic roads, irrigation systems are identified as the most important business areas bringing main revenue to the company until 2020 Therefore, it is necessary to have HR plans to achieve these objectives The training, selection and HR development of labor force is an urgent requirement recently Based on the practical and business strategy, the company needs to focus on recruiting, training and developing project managers to be able to carry out entire projects - Electric control, mechanic installation and automation: Focus on power and gas projects, cooperating with foreign firms to make the automation; To study and to invest on factories manufacturing and installing metal structures for civil, industrial and road construction works in Hanoi; To invest in improving the construction equipment capability such as installation and control new equipment in construction To achieve these aims, the company has to pay more attentions on developing high skill labor force on electric control, mechanic installation and automation Development principles The company's development principles are in line with the development strategy of Vietnam Automobile Industry Corporation It is to develop fast and sustainably; to consider HR as the foundation for development; reputation and trust of customers are motivation for development; efficiency and competitiveness as roots for evaluating all activities Accordingly, all the Company’s activities including human resource management must be in line with its development strategy 45 4.3.2 HRM solutions to improve the company’s performance To improve the human resource management and the company’s performance in accordance with the company’s development strategy, it is necessary to have strategic solutions and specific solutions Strategic solutions aim to improve human resource management in long-term while specific solutions help to overcome the current constraints of HRM to the company’s performance Strategic solutions In order to create positive impacts of human resource management on the company’s performance, the company must have appropriate human resource strategy By doing so, the Company should understand some of the following points: First, continuing to complete effective solutions to implement the general business strategy The company needs to effectively use all resources, strictly follow schedules of implement the strategy including HR strategy It also needs to addressing and amending issues that are not appropriate for the strategy during the implementation process Second, it is necessary to define the strategic objectives for building and developing human resources planning The ideology to create the planning is that human capital is the most precious asset, and the driving force of the business development Since then the company needs to have a long-term policy for development and investment in high skill labor force Third, from the overall strategic objective, to formulate a comprehensive strategy driving effective HRM activities The strategy of HRM is closely linked with the organization's overall strategy and objectives Fourth, the company needs to formulate appropriate policies and management mechanisms to attract and retain qualified staff in each period Fifth, it is important to design two appropriate strategies for evaluation, and management two groups of employees: direct workers and administrative staff Finally, it is necessary to have a specific and longterm strategy for building organizational culture This is to create a good working environment and encouraging employees’ loyalty to the company All organizations are operating under the market mechanism, thus it is a need to create a transparent working environment, especially for the salary and welfare policies that have the biggest concern of the company’s employees currently For managers, they need to open communicate with their employees in order to build a good relationship and to understand their expectation to the company management In addition, the company should focus on developing professional and 46 creative working environment This is necessary because of effects of the economy integration, a professional labor workforce is a requirement to help the company being successful Through interview findings, the current salary of the company is not a key factor to engage employees with the company Therefore, the company must always pay attention, creating conditions for all employees to express their thoughts, ideas to increase their satisfaction with jobs Specific solutions a Solutions on human resource planning The company needs to determine accurately its human resources needs to create human resources plan Personnel demand for each department is based on the production plan The Human Resources Department need to review and integrate personnel plans of the departments It then identifies the company's personnel needs for the following business year and proposes HR plan This proposal of HR plan needs to submit to the General Director for reviewing If the plan is approved, the company must prepare carefully recruitment plans and the HR Department carry out the recruitment If it is not necessary to recruit new positions, the company can be replaced recruitment for new position by expanding jobs of other employees, such as assigning additional tasks or retraining employees To determine accurately numbers of employees, the company should develop a complete job description for each job position The HR Office reviews whether the vacancy has a job description If not, the relevant departments should coordinate with the HR department to develop this job description The job description is also the basis for developing a performance appraisal system The job analysis, in particular task of the job description, is the basis for recruitment and needs to be done carefully This activity helps to identify qualification, knowledge, and skills requirements for new positions The job analysis should ensure a full and accurate job title, job situation, key tasks, and how to carry out those specific tasks, required tools or means to the job Job analysis helps to present clearly the employer's expectations to the worker about a particular job On the other hand, workers are more likely to grasp and perform tasks more easily if they have a detail job description If job analysis is done accurately, the company able to create systems of standard requirement for works 47 b Solutions on recruitment The company needs to balance between internal and external HR sources for its recruitment At present, the recruitment of the company only focuses mainly on internal HR sources and the people familiar with the staff and employees of the company This group has many advantages such as familiarity with company culture, working style However, this source of employment also has limitations If the recruitment process is not objective and transparent, it is easy to recruit new employees who not meet job requirements To minimize the negative impact that may occur from this HR source, the company needs to build a clear and fair recruitment process, with specific criteria to inform the result to the candidate T clear recruitment information helps the candidates who fail in the recruitment understand the problem and feel comfortable with their failure In addition, the company needs to open its recruitment to external HR sources This is because the internal source of the recruitment shows the limited number of candidates that limit chances to choose better candidates for the new positions Therefore, the company should pay attention to external sources to overcome this disadvantage In addition, the company needs to diversify the source of employment, especially when the company's production is expanding, demand for human resources increases in both quantity and quality To recruiting good staff the Company also needs to cooperate with the training institutions, which might provide a large number of trained candidates in different fields Recently, many companies cooperate with training institutions to attract potential candidates The company also finds potential candidates for new jobs in job events such as employment day organized by universities or job agencies Through the employment day, the company can advertise their vacancies and requirement for potential candidates Through these events the company also can understand the labor market to adjust its HR and recruitment plans In general, numbers of the potential candidates from outside sources are very large and the recruitment can be done globally Identifying the right source of employment helps the company to have the right candidates at the lowest cost A business that attracts laborers to recruit from outside sources should pay attention to factors such as the labor market, job selection, the government policies and the financial capability of the enterprise 48 c Reforming compensation policies A compensation package includes salaries, bonuses and career development A compensation system that makes employees happy can help the company attract and retain the talents This is because they can totally devote their efforts to contribute to the company when they realize that they are rewarded worthy The company should pay high salaries for senior management positions, experts, and skilled workers The pay rate must be higher than normal level two or more times, depending on each specific case In order to promote effectiveness, it is necessary to adjust specifically the criteria on specialists, and high productive workers to reward them The company also needs to adjust the classifying employees’ performance procedures to ensure its accuracy, transparency and fairness The company should consider paying piecework-salaries (luong khoan) to administrative staff and performance pay base for direct workers These kinds of payment might help to create motivation for employee improving their performance as they get for what they have done Employing human resources is not just about maximizing employees’ capacity, but also about other factors such as their attitude and emotion To encourage them use their full efforts to work, the company might use additional approach beside compensation such as to reduce stress, to create an excitement environment in the workplace Therefore, besides the solutions on salary, the company also needs many other solutions such as: First, the company might provide opportunities for employees to update knowledge, information through training or workshop Second, the company should provide maximum support in terms of facilities, working conditions, other services following working requirements These supports help workers feel comfortable and convenient while working Third, it is necessary to develop a fair plan for using the welfare fund, that aims to create employees ‘satisfaction with job and to increase their commitment This fund might be used for providing financial support for learning or training or organizing family holiday, vacations for employees Fourth, the effective use of reward funds in a timely and transparent manner In addition to annual rewards for excellent employees in performance, there should be rewards for outstanding individuals / groups during the month or whenever they successfully implement an important task To strengthen impacts of rewards on the employees’ performance, the 49 company must create the rewards along with many benefits such as if an employee has a high reward she/he might be approval for increasing salary or sending to free training courses to improve their skill d Reforming performance appraisal At present, the performance appraisals are still superficial and not really evaluate employees’ performance The company needs to complete the job description of each job position as a basis for developing performance evaluation forms for each type of job In addition to the specific criteria directly related to each job position, the appraisals should also take into account some general criteria for attitudes, work behavior, or professional progress To create standards for the assessment, it is necessary to include both general criteria for average level of job completion and some specific criteria for classification of employees In addition, the Company should strengthen self-assessment contents and build feedback systems on the evaluation results Feedbacks on the results of the assessment are usually made through an informal discussion between the department leader and the employee Feedbacks provide employees information on past performance and solutions to improve their performance in the future Success of appraisals also depends on communication skills of managers at all levels Managers also need to pay attention to building a good relationship with staff at the lower level, creating an open communication, friendly environment when communicate with employees to explore their views, attitudes, and expectation with jobs Based on this information, managers are able to timely solve negative behaviors of employees that affect their performance However, the appraisals are only effective when employees themselves engage in self-assessment At present, the company only has one way evaluation that management evaluates employees It lacks of evaluations made by employees themselves Selfassessment is not only necessary for the use of overall performance assessment, but also gives employees an accurate view of their works and helps to prevent evaluation bias in some cases between managers and employees have problems 50 CONCLUSION 5.1 Synthesis of the study Human resource management is an important factor affecting the success of any business The thesis, through answering the research questions has contributed to both theory and practice In theory, the thesis, by synthesizing basic theoretical issues on human resource management and business performance, has highlighted the importance of building a human resource management system In practice, for MACHICON, the human resource management system is strongly influenced by the traditional management of personnel; there is a need for reforming its human resource system to help the company improve performance The thesis has analyzed in detail the real situation of human resource management in the company its impact on the performance Based on the analysis and evaluation of the limitations and causes of the limitations of human resource management in the company, the thesis proposes a system of solutions including strategic solutions and specific solutions to reform HRM activities In order to reform human resource management, the company should focus on improving the main activities of human resource management including human resources planning, recruitment and training, evaluation and use of staff correctly and accurately A good HR plan helps the company accurately predict and prepare an effective recruitment plan Proper job descriptions help the company to create correct HR plan All these activities are linked to actual needs of the jobs and thus assessment of performance is done accurately Human resource management activities will never be complete without a fair and reasonable evaluation and reward policy for employees Job evaluations are important to know the performance of individual workers so that they can gradually improve their work A modern and intelligent human resource management system should focus on both material compensation and spirit for workers A good remuneration policy is to combine these two types of compensation to create employees’ commitment The reform of HRM model is necessary for enterprises, especially state-owned enterprises, such as MACHICON Without these innovations, they will not be able to improve their competitiveness in the market, because human resources are the key to the success of businesses 51 5.2 Contributions of the study This thesis contributes to both theoretical and practical aspects For theoretical aspect, this study contributes to the literature on HRM through providing a theoretical background of the HRM and its linkages to improve firms’ performance For practical aspects, it also contributes to HRM practices at Machicon Company The research findings identified how the company’s HRM practices influence the company’s efficiency The valuable solutions proposed for the Machicon to improve their HRM strategy toward improving the company’s performance 5.3 Research limitation and suggestions for further research Despite the considerable contributions of the thesis, this research has its limitations, which can propose to a direction for further research Due to limitations of time and funding, this thesis only pays attention on relationships between HRM practices and non-financial performance of the company at a point of time via interviewing data For further research, the examination could be extended to impacts of HRM practices on financial performance to have a broader view of the company HRM and performance Additionally, further research should employ quantitative method to measure the relationship a long with the qualitative methods By applying both quantitative method and 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(Excellent; Good; No idea; Average; Not good) What are effects of HR planning on the company’s performance? How does the company determine the need of HR? Which sources of recruitment information you know? How is the recruitment information noticed? How is your assessment on the company’s recruitment process? Does your current job match your specialisation you trained? Do you have opportunities to get extra training or learning? How you know your tasks at workplace? 10 Do you want to stay long working for this company? Why? Performance appraisal 11 How is the current performance appraisal of the company? Why? 12 Do you think the current appraisal encourage you to improve performance? Why? Compensation 13 How does the company determine employees’ salary? 14 What are criteria used to define your wage scale? 15 How many groups of salary in the company? 16 How does the company classify these groups of salary? 17 What are different between basic salary and business salary? 56 18 How you get your salary increase? 19 Can you describe how your basic salary and business salary calculated? Bonuses and allowances 20 How many types of bonuses in the company currently? 21 How does the company calculate bonuses? 22 Are there any changes in the bonuses policies in the last two years? Why? 23 If yes, how these changes impact on the employees’ performance? 24 How many types of allowances are in your company? 25 What are conditions to have those allowances? Benefits 26 How does the company pay social insurances for you? 27 Are there any changes in benefits policies in the last two years? Why? 28 If yes, how these changes impact the employees’ performance? Training and career development 29 Does the company have specific policy for the employees’ career development? If yes, what are they? 30 Does every employee have similar chance to develop their career? 31 How are your working conditions in the company? 32 How is about working environment in the company? Do you have chance to show your opinions to your managers? 33 Do you have intention to leave the company? Why? 57 INTERVIEW QUESTIONS IN VIETNAMESE BẢNG CÂU HỎI PHỎNG VẤN THÔNG TIN NGƯỜI THAM GIA PHỎNG VẤN Ngày vấn: Vị trí cơng ty: Thời gian làm việc vị trị công việc tai: Bằng cấp cao nhất: Độ tuổi: Giới tính: ĐÁNH GIÁ VỀ QUẢN TRỊ NGUỒN NHÂN LỰC VÀ TÁC ĐỘNG CỦA NĨ ĐẾN HIỆU QUẢ HOẠT ĐỘNG CỦA CƠNG TY Lập kế hoạch nguồn nhân lực, tuyển dụng sử dụng cán Ơng/ bà đánh giá cơng tác lập kế hoạch nguồn nhân lực Công ty mức độ nào? -Rất hiệu quả; Hiệu quả; Khơng có ý kiến gì; Bình thường; Khơng hiệu Ảnh hưởng việc lập kế hoạch nguồn nhân đến hoạt động Công ty? Nhu cầu nhân cơng ty tìm hiểu theo qui trình nào? Ơng/bà biết thông tin tuyển dụng công ty từ nguồn nào: Thông tin thông báo tuyển dụng Cơng ty nào? Ơng/bà có đánh giá qui trình tuyển dụng Cơng ty? Cơng việc ơng/bà làm có phù hợp với chun ngành đào tạo không? Công việc ông/bà làm đem lại nhiều hội để học hỏi nâng cao trình độ? Ơng/bà biết nhiệm vụ thơng qua: 10 Ơng/bà có muốn gắn bó lâu dài với công việc không? Tại sao? Đánh giá công việc 11 Theo ông/bà, công tác đánh giá mức độ hồn thành cơng việc Cơng ty nào? Tại sao? 12 Cách đánh giá công việc Cơng ty có khuyến khích ơng/bà nâng cao hiệu công việc không? Tại sao? Tiền lương 13 Công ty để người lao động tham gia vào trình định lương, thưởng nào? 58 14 Nhưng tiêu chí sử dụng để định mức lương người lao động? Phương pháp đánh giá hiệu lao động gì? 15 Có nhóm lương khác doanh nghiệp? 16 Công ty phân loại nhóm lương nào? 17 Sự khác lương lương kinh doanh công ty? 18 Làm để người lao động công ty tăng lương? 19 Anh/chị mơ tả sở để định lương lương kinh doanh công ty? Tiền thưởng trợ cấp 20 Có loại tiền thưởng công ty anh/ chị nay? 21 Cơng ty tính tiền thưởng dựa vào nào? 22 Có thay đổi sách thưởng công ty hai năm gần đây? Tại sao? 23 Những thay đổi ảnh hưởng đến thái độ hành vi người lao động? 24 Có lọai trợ cấp cơng ty anh chị? 25 Có cần điều kiện để nhận khoản trợ cấp này? Phúc lợi 26 Cơng ty tham gia chi trả loại phí bảo hiểm xã hội nào? 27 Có thay đổi phúc lợi công ty hai năm trở lại đây? Tại sao? 28 Những thay đổi ảnh hưởng đến quyền lợi người lao động? Chính sách đào tạo, mơi trường làm việc 29 Cơng ty anh chị có sách riêng phát triển nghề nghiệp cho nhân viên? Nếu có sách gì? 30 Cơ hội phát triển nghề nghiệp có cho người khơng? 31 Điều kiện sở vật chất để ông bà làm việc nào? 32 Khơng khí làm việc Cơng ty nào? (VD: Có cởi mở, thân thiện, hịa đồng khơng?; có khoảng cách giao tiếp lãnh đạo nhân viên khơng?) 33 Ơng bà có ý định chuyển công tác thời gian tới không? Tại sao? 59 ... similar relationships in the MACHICON 2.2 Human resource mangement 2.2.1 Definitions Human resource There are different views of human resource Broadly, human resource is the human resources of a country,... in MACHICON Research findings and contributions The research has found that for MACHICON, the human resource management system is strongly influenced by the traditional management of personnel;... practices 35 4.1.2 Impacts of human resource management on the company’s performance 41 4.2 Impacts of other factors on the company’s performance 43 4.2.1 Impacts of organizational culture