Data collected from fifty manufacturing firms in Bangladesh shows that HR practices have significant association with organizational performance. Out of HR practices, only performance appraisal is found to have significant impact on organizational performance. Keywords: HR Practices, Organizational Performance, Manufacturing Firms JEC Classification: M12, D24 Balasundaram Nimalathasan2 Munshi Muhammad Abdul Kader Jilani3 1. IntroductIon Impact of human resource management practices on organizational performance has been a widely researched area for years.
Results of studies, from developed countries to developing countries, have been time and again showing that HR practices have significant impact on organizational performance (Delaney & Huselid, 1996; Katou & Budhwar, 2007; Sing, 2004; Tzafrir, 2006). But unfortunately, very insufficient number of studies have been conducted in this area context of Bangladesh and other developing countries. To augment the contemporary knowledge base of HR practices of developing countries, this study has been undertaken. 2. esearch QuestIons Specifically, this study was undertaken to explore the answer to the following research questions (RQ): RQ1: Is there any association between HR practices and Organizational Performance? RQ2: Do HR practices have any impact on Organizational Performance? resource(HR)’ aspects of a management position including human resource planning, job analysis, recruitment, selection, orientation, compensation, performance appraisal, training and development, and labour relations (Dessler, 2007, p. ). HRM is composed of the policies, practices, and systems that influence employees’ behaviour, attitude, and performance (Noe, Hollenbeck, Gerhart, & Wright, 2007, p. 5). There are four top models of HRM such as the Fombrun, Tichy, and Devana Model of HRM, the Harvard Model of HRM, the Guest Model of HRM, and the Warwick Model of HRM (Bratton & Gold, 1999, pp. 17-24). Out of these models, the Fombrun, Tichy, and Devana Model of HRM are considered to be the first one (Aswathappa, 2008, p. 18).
The present study selected the HR practices such as recruitment and selection, training and development, performance appraisal, and compensation which were incorporated by the Fombrun, Tichy, and Devana Model of HRM. The model assumed that these four key HR practices have significant impact on organizational performance. 4. 2 Organizational Performance 3. objectIves The main purpose of the study was to identity the impact of HR practices on organizational performance. In order to materialize this objective, the following specific objectives were considered. • To address the linkage between HR practices and organizational performance. To indentify the impact of HR practices on organizational performance. • To offer some measures in order to enhance the organizational performance of the selected manufacturing firms in Bangladesh and other similar countries. 4. hr PractIces and organIzatIonal Performance: concePtual and emPIrIcal overvIew 4. 1 hr Practices Human resource management (HRM) refers to the policies and practices involved in carrying out the ‘human 1 2 The ultimate goal of a business organization is higher financial performance or maximisation of wealth for stake holders (Becker & Huselid, 1998; Horngren, Foster, & Datar, 2000).
Nonetheless, attaining the organization’s goals depends upon the extent to which its organizational performance is reached (Katou & Budhwar, 2007). Organizational performance is generally indicated by effectiveness (whether an organization can achieve its objectives), efficiency (whether an organization uses resources properly), satisfaction of employees and customers, innovation, quality of products or services, and ability to maintain a unique human pool (Delaney & Huselid, 1996; Dyer & Reeves, 1995; Guest, 2001; Katou & Budhwar, 2007).
The organizational performance variables of the present study included features such as product quality, customer satisfaction, new product development, ability to attract employees, ability to retain employees, and relationship between management and employees. According to the earlier studies (Delaney & Huselid, 1996; Harel & Tzafrir, 1999; Singh, 2004), the respondents were asked to assess their organizations’ performance in comparison to the performance of their competitors.
Mir Mohammed Nurul Absar, Assistant Professor, East Delta University, Agrabad, Chittagong, Bangladesh. Balasundaram Nimalathasan, Faculty, Department of Commerce, University of Jaffna, Sri Lanka. 3 Munshi Muhammad Abdul Kader Jilani, Faculty, University of Information Technology & Sciences Bangladesh. IJBIT/Volume 3/Issue 2/April - September 10 | 15 Mir Mohammed Nurul Absar et al. Impact of HR Practices on Organizational Performance in Bangladesh 4. 3. Relationship between Organizational Performance HR Practices and
Though most of the studies have been conducted in the western world, it is now well established that HR practices have significant impact on productivity, corporate financial performance, and employee turnover (Arthur, 1994; Huselid, 1995; Ichniowski, Shaw, & Prennushi, 1997; Katou & Budhwar, 2007). Pollitt (2004) found that the HRM practices of Nokia played vital role in helping the company in reaching its 40% percent share of the global handset market, and industry leading profit margins of 20%-25% at a time of unmatched change and competition.
Katou and Budhwar (2007) through an in-depth study on 178 manufacturing firms of Greece found that HR practices such as recruitment, training, promotion, incentives, benefits, involvement, and safety and health were positively related with the elements of organizational performance such as innovation and satisfaction of stakeholders. Singh (2004) in a study on 82 Indian firms observed that HR practices such as training and compensation had significant impact on perceived organizational performance.
Two recent studies (Billah & Islam, 2009; Billah, Prince, & Islam, 2009) in context of Bangladesh also found that HR practices have significant association with employee turnover and organizational commitment. Hypothesis 1: HR practices have significant association with organizational performance Hypothesis 2: HR practices have significant impact on organizational performance: The Recruitment and selection process determines the decisions as to which candidates will get employment offers.
The aim of this practice is to improve the fit between employees, the organization, teams, and work requirements, and thus, to create a better work environment (Tzafrir, 2006). Sophisticated recruitment and selection system can ensure a better fit between the individual’s abilities and the organization’s requirement (Fernandez, 1992). Hunter and Schmidt (1982) concluded that employment stability can be achieved through a selection procedure based on ability.
Katou and Budhwar (2007) also found that recruitment and selection was positively related to all organizational performance variables such as effectiveness, efficiency, innovation, and quality. Hypothesis 3: Recruitment and selection positively influences on organizational performance: Training and development is considered to be the most common HR practice (Tzafrir, 2006). Training and development refers to any effort to improve current of future employees’ skills, abilities, and knowledge (Aswathappa, 2008).
Thang and Buyens (2008) through reviewing 66 studies conducted in different parts of the world opined that training and development leads to superior knowledge, skills, abilities, attitudes, and behaviour of employees that eventually enhance organizational performance. Hoque (1994) unearthed that training and development had positive impact on organizational effectiveness in Bangladeshi context. Hypothesis 4: Training and development positively influences on organizational performance: Performance appraisal is a systematic process to evaluate the performance of an employee after certain period (Schuler, 1981, p. 11). Performance appraisal also influences other HR practices such as recruitment and selection, training and development, compensation, and employee relations. IJBIT/Volume 3/Issue 2/April - September 10 |16 As performance appraisal leads to pay raise, promotion, and training; it is assumed that better performance appraisal can have impact on organizational performance. Hypothesis 5: Performance appraisal positively influences on organizational performance: Compensation refers to all types of pay or rewards going to employees and arising from their employment (Dessler, 2007, p. 90). Compensation is very much important for employees because it is one of the main reasons for which people work. Employees’ living status in the society, satisfaction, loyalty, and productivity are also influenced by the compensation (Aswathappa, 2008). Delaney & Huselid (1996) found that incentive compensation was associated with perceived market performance in USA. Employee compensation, particularly the performance based compensation system, resulted in better organizational performance in Indian firms (Singh, 2004).
Hypothesis 6: Compensation positively influences on organizational performance: Moyeen and Huq (2001) studied HRM practices of 92 medium and large business enterprises (public and private sector) located in Dhaka, Bangladesh. They found that only 62% of surveyed organizations had an HR/Industrial Relations (IR) department. HRM practices of ten local private manufacturing enterprises listed under Dhaka Stock Exchange (DSE) were examined by Akhter (2002). She measured correlation between employees’ opinions regarding HRM practices in their enterprises, their age, education, and experience.
Mahmood (2004) observed that other than organizational contingencies, the institutional context such as national education and training system, national industrial relations system, regulatory frameworks, and overall societal context had significant influence on the development of HR practices in Bangladesh. Furthermore, HR practices were found to have significant impact on affective commitment in context to Bangladesh (Haque & Azim, 2008) Thus, the above review of literature shows that there have been several studies around the globe focusing on HR practices and organizational performance.
However, very limited numbers of studies have been conducted on the impact of HR Practices on organizational performance in context of Bangladesh and other developing countries. This study has been undertaken to fill this obvious research gap. 5. research frameworK ( Figure 1 ) 6. research methodology Research methodologies of the present study were outlined below. 6. 1 Sample A directory of 85 manufacturing firms listed under Chittagong Stock Exchange (CSE) was prepared (Chittagong Stock Exchange, 2010). The structured questionnaire was sent to the HR managers of the all 85 manufacturing firms.
Finally 50 useable questionnaires were found for the study (63% response rate). 6. 2 Data Sources and Instrumentation The study was complied with the help of primary data and secondary data. Questionnaire survey method was used to gather primary data in the present study. A 23-item and a 05- Impact of HR Practices on Organizational Performance in Bangladesh Mir Mohammed Nurul Absar et al. Training and Development Recruitment and Selection Performance Appraisal Compensation Positive Negative No Impact Organizational Performance source: Modified from Fomburn, C. J. , Tichy, N. M. , & Devanna, M.
A. (1984) Figure-1: Research Framework item Likert type questionnaire (where1=strongly disagree to 5 = strongly agree) were developed with some modifications from earlier studies (Delaney & Huselid, 1996; Harel & Tzafrir, 1999; Singh, 2004) to measure the HR practices and organizational performance of manufacturing firms in Bangladesh respectively. As HR managers are the most reliable persons to provide data related to HR practices and overall organizations (Huselid & Becker, 1996; Tzafrir, 2006), the structured questionnaire was sent to the HR managers of the surveyed manufacturing firms.
Moreover, the desk study covered various published and unpublished materials on the subject. From the table-1, it is seen that reliability value was estimated to be ? =. 726 to . 818, if we compare reliability value of the scale used in the present study with the standard value alpha of 0. 6 advocated by Cronbach (1951), Nunnally and Bernstein (1994), and Bagozzi and Yi’s (1988); it is observed that the scale of the present study was highly reliable for data analysis. Validation procedures involved initial consultation of the questionnaires.
The experts also judged the face and content validity of the questionnaires as adequate. Hence, researchers satisfied reliability and validity of the scale. 7. data analysIs and fIndIngs 6. 3 variables Independent Variables: According to Fomburn, Tichy, and Devanna, (1984), the following four (04) HR practices were selected as independent variables. RNS : Recruitment and Selection. TND : Training and Development. PA : Performance Appraisal. COM : Compensation. Dependent Variable: Organizational Performance (Perceived)
In the present study, we analysed our data by an enter wise method in a multiple regression analysis. In this context, a multiple regression was performed, by making use of all the discrete variables (i. e. , dependent and independent variables) available in the dataset. The estimation process was based on Ordinary Least Squares (OLS) [i. e. ,Y= a + bx]. For this, purpose, we consider the following model specifications, by taking as dependent variable i. e. , organizational performance by making HR practices as independent variables. OP=? O+? 1(RNS)+? (TND)+? 3(PA)+? 4(COM)+e... Model (1) Where ? 0 , ? 1, ? 2, ? 3, and ? 4, are the regression co-efficient OP : Organizational Performance RNS : Recruitment and Selection TND : Training and Development PA : Performance Appraisal COM : Compensation e : error term To test how well the mode-1 fit the data and findings, correlation (r), R, R2 (Coefficient of determination), variance, analysis of variance (ANOVA) and the t statistic were used. Correlation analysis was performed to find out the pair wise relationship between variables; RNS, TND, PA, COM, and OP.
Hence, the results are summarised in table-2. Table 2: Correlations Matrix for HR Practices and POP variables RNS TND PA COM OP rns 1 0. 497** (0. 000) 0. 569** (0. 000) 0. 509** (0. 000) 0. 557** (0. 000) 1 0. 635** (0. 000) 0. 404** (0. 000) 0. 508** (0. 000) 1 0. 660** (0. 000) 0. 723** (0. 000) 1 0. 595** (0. 000) 1 tnd Pa com oP 6. 4 Reliability and Validity Before applying statistical tools, testing of the reliability of the scale is very much important as its shows the extent to which a scale produces consistent result if measurements were made repeatedly.
This is done by determining the association in between scores obtained from different administrations of the scales. If the association is high, the scale yields consistent result, thus is reliable. Cronbach’s alpha is most widely used method. It may be mentioned that its value varies from 0 to 1 but satisfactory value is required to be more than 0. 6 for the scale to be reliable (Malhotra, 2002; Cronbach, 1951). In the present study, we, therefore, used Cronbach’s alpha scale as a measure of reliability. Table 1: Reliability value of the Scale scale 1. Recruitment and Selection 2.
Training and Development 3. Performance Appraisal 4. Compensation 5. Organizational Performance source: survey data No. of Items 05 06 07 05 05 Cronbach’s Alpha (? ) . 780 . 774 . 818 . 726 . 799 IJBIT/Volume 3/Issue 2/April - September 10 | 17 Mir Mohammed Nurul Absar et al. Impact of HR Practices on Organizational Performance in Bangladesh Mean Standard deviation 3. 584 . 840 3. 643 . 844 3. 760 . 750 3. 448 . 856 4. 032 . 722 Table 5: Coefficients for Predictors of JS models 1 Constant RNS TND PA COM Unstandardized Standardized Coefficients Coefficients ? 1. 114 . 148 . 039 . 467 . 142 Std. Effor . 92 . 107 . 111 . 151 . 113 . 172 . 046 . 485 . 168 Beta 2. 845 1. 380 . 354 3. 081 1. 258 . 007 . 174 . 725 . 004 . 215 t sig Source: Survey data; **Correlation is significant at the 0. 01 level (2-tailed) Table-2 shows that the factors RNS, TND, PA, and COM are independently positively correlated with OP and also highly significant at 1% levels. Therefore, Hypothesis 1 of the present study was accepted. Here it is obvious that the maximum correlation (r =0. 723) is existed between PA and OP, followed by the association (r =0. 595) between COM and OP; RNS and OP(r= 0. 557); and TND and OP (r =0. 08). It should be needed to give the highest emphasis on PA for superb OP. Compensation is also crucial for wonderful perceived organizational performance followed by other HR practices (i. e. , RNS and TND). HR practices are pair-wise positively correlated with one to another and also statistically significant at P-value 0. 000. Among the four HR practices, the relationship (r =0. 660) between PA and COM is the highest, followed by the link (r =0. 635) between TND and PA. Further, a multiple regression analysis was performed to identify the predictors of OP as conceptualized in the model.
An enter-wise variable selection was used in the regression analysis and table-3 and table-4 show the summary measure and analysis of variance (ANOVA) of the model. Table 3: Predictors of JS - Model summary a. Predictors: (Constant), RNS; TND; PA; and COM. model 1 r 0. 755a r2 0. 570 adjusted r2 0. 532 Source: Survey data The table-5 shows that PA is positively influencing on OP. For PA, the value of t is 3. 081(p=0. 004). Thus we accept Hypothesis 5 But for RNS, TND, and COM which fall in the area of rejection. Thus, we do not accept the Hypothesis 3, 4, and 6.
Hence, it can be concluded that PA has significant impact on OP. Therefore, hypothesis-2 is also partially accepted. 8. conclusIon From the correlation matrix, the highest positive value of correlation between PA and OP clarifies that the authorities of selected manufacturing firms are required to give main focus on PA for getting fabulous organizational performance. In addition, the maximum average point (3. 760) of PA also discloses the identical conclusion followed by COM; RNS and TND (For details please see table-2). It is also found that PA has significant impact on POP. . lImItatIons and dIrectIons for the future researches tables 4: anova model 1 Sum of squares Regression Residual Total df 14. 568 10. 981 25. 549 Mean square 4 45 49 The study used only perceptual measure of HR practices and organizational performance. Only single source (HR managers) was also used to collect data. Future studies may be conducted in context of the service sector enterprises with larger sample size. Case studies, focus groups, and longitudinal studies may also be undertaken. references 1. 2. 3. 4. Predictors: (Constant), RNS; TND; PA; and COM.
Dependent Variable: OP The HR practices (RNS; TND; PA; and COM) in the above model revealed the ability to predict OP (R2 = 0. 570). In this model value of R2 denotes that 57. 0 percent of the observed variability in OP can be explained by the HR practices namely RNS; TND; PA and COM. The remaining 43. 0 percent is not explained which means that the rest 43. 0 percent of the variation of OP is related to other variables which are not depicted in the model. This variance is highly significant as indicated by the F value (F=14. 926 and P = 0. 000) [For details please see table-4].
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