Strategic Human Resource Management and Organizational Performance: A Study of Thai Enterprises October 5, 2009Posted by Bima Hermastho in HRM Domain.
The focus of this research is on how human resource strategies of Asian firms, particularly Thai enterprises, can influence business performances. All Thai firms listed in the stock market of Thailand are investigated in order to represent the overall picture of Thai business. Regarding the relationship between human resource strategies and the firms’ performances, the analysis results indicate that the extra pay and profit sharing scheme significantly influences the non-financial performances. The extra pay and profit sharing scheme lead to lead to sense of belonging and greater commitment of staff because their wealth will be directly linked to firms’ financial performances. For the non-financial performances, the only influential group of variables is positive inner characters, consisting positive attitudes and politeness. The employees with these characters tend to be dedicated, faithful and committed to firms and customers. This results in better image, reputation, and satisfaction of customers.
The fundamental idea of this research is human resource management strategies, focusing on the strategies applied by Thai executives. The study has been, therefore, conducted by collecting information from all leading Thai enterprises listed in the stock market of Thailand in order to gain more understanding of how human resource strategies can influence business performances and result in competitiveness. The overall framework is shown in figure i.
Figure 1: Framework of the Study
At present, there are only a few in-depth studies on this subject in Asian enterprises and almost none in Thailand. Besides, there is no obvious correlation analysis tha has unveiled the link between the studies and operating outcomes as well as no up-to-date database on related subjects that can be further studied for academic purposes and be applied to the operation of Thai enterprises. As a result, this research is an exploratory research, aiming to create databases and develop new ideas for the strategic management of Thai enterprises. In addition, this also helps determine the direction of modern human resource strategies for Asian and Thai organizations in the future.
Objectives of the Study
* To understand the important human resources strategies deployed in Thai enterprises
* To explore the relationships between human resources strategies and the performance of Thai enterprises which lead to the firms’ competitive advantages
* To develop an updated database on the human resources strategies of Thai enterprises in order to benefit Thai business and academic circles in the future
The data collected for this research laid emphasis on primary data by using surveys as the main tool to gather information. The surveys were developed from theory analysis and management principles approved and practiced by public in general. The developed questionnaires then were pre-tested in a pilot study in order to examine the understanding, the correctness and the reliability of the study. The study population was enterprises listed on the Stock Exchange of Thailand. Since they are the leading companies of the country, they are able to represent the overall perspective of managing formats and styles especially in business organizations, which have to adjust constantly to keep pace with the changing circumstances. Moreover, the listed enterprises have been transformed into public limited companies with shareholders from many fields. The data, thus, is more openly revelatory being the result of more collaboration in providing information, which consequently become more accurate, s mentioned above, the given population were registered companies which numbered 480 in total. The researchers used census data, not random samplings, because accurate information was needed to demonstrate the whole image of leading Thai firms. The questionnaires were sent to the executives of each company by addressing thin to the CEO/Human Resources Department and contained an explanation the executive who provided the data of the objectives, the boundaries and the benefits expected to be obtained from the study. The response rate of the study was 25.8% (124 out of 480)
Brief Review of Literature
Human resource management has played an essential role in business’ operations. Most studies on HRM focus mainly on personnel development, including training techniques that encourage the employees to have better skills, be more knowledgeable and have higher competencies. Furthermore, it is also common to do a research on work satisfaction. Several scholars have conducted studies on this subject to be able to comprehend and identify the factors that cause a pleasing attitude. In addition, employee motivation concepts and techniques have been widely studied, as well as topics on other HRM strategies. Recently, it has been stated that HR is the most critical resource in an organization because it can either bring about the ultimate success or the worst failure. It is, therefore, the company’s responsibility to regulate human resources so as to achieve a firm’s target. This requires the organized and strategic planning of human resource management.
Certo (2003) once mentioned that the primary purposes of human resource management is to recruit the right person for the right job, to utilize human resources to the utmost benefit, to develop the individual’s skills and to retain competent staff to work for the company for as long as possible. To meet these objectives, it is necessary to have a systematic and flexibility in strategic human resource management (Tsui, 1987; Wright and Snell, 1998). The process consists of a few principle steps, namely, human resource planning, recruitment, selection, orientation, training and development, career development, performance appraisal and compensation management (Griffin, 2005). The process creates highly committed and competent human resources who are capable of completing the tasks as planned (Bartol et. Al, 1998; Flamholthz, 1995). Employees in such workforces must have the qualifications the companies look for, must develop more skills through constant training (Arthur, 1994) and must receive adequate compensation from contributing to the enterprises’ success. Therefore, these concepts should be formulated and included in human resource strategies in terms of selecting people that are suitable for the work, implementing the personnel’ skills and encouraging staff to put all their efforts on their works in order to gain higher earnings. Consequently, it is crucial to concentrate on examining strategic human resource management from these important aspects and the impact has on the operating outcomes and a company’s competitiveness (See Figure 2 on next page).
Figure 2: Relationship between Human Resources Strategies and Organizational Performance
Regarding firms’ performances, this can be categorized into two main groups which are financial performance and non-financial performance. Financial performance is, for example, profitability, liquidity and financial risk, which are earnings, related to enterprises’ efficiency per operation. Non-financial performance is usually associated with customer base, brand loyalty, image and reputation, technology and innovation development as well as quality of human resources (Kaplan and Norton, 2000). For this reason, the study and the evaluation have been conducted in two groups with the intention of investigating the concepts as a whole and to analyze the evaluation results in each group in order to locate the correlation probability in many aspects of human resource management strategies. It has led to a summary of the association between the analysis results and the overall operating outcomes of the enterprises.
Empirical Results of the Study
Regarding background of the respondents, the following are the proportions of respondents of which 48.4% were male, 51.6% were female; aged over 50 years 18%, aged between 41-50 years 26.2%, aged between 31-40 years 29.5%. The majority of respondents had remained in service over 10 years 42.9%. As far as education is concerned, almost all of them had tertiary education upward, in which there were 61.3% with Bachelor’s degrees, 33.9% higher than Bachelor’s degrees, only 4.8% lower than Bachelor’s degree reflecting the higher level of education in Thai management when compared with their past qualifications. Regarding their job positions, 30% of them were in top management, 26.7% in middle management, and 25.0% at lower management level.
With regard to human resources strategies, which focus on three aspects consisting of required workforce characteristics, skills from training and development programs and compensation management. As for the workforce characteristics, the most significant one was a positive attitude and 69.4% of respondents viewed this as the most important requirement (See Table 1 – next page). By having positive attitudes, it is likely that employees will be proud of the company, resulting in the urge to devote all their energies to produce more profit for the enterprise.
The following traits, which are team working skills, enthusiastic characters and kindness were viewed as equally important. The reason why team working skills are necessary is because they generate smooth cooperation in the company. Principally, the business operation requires collaboration from different parts in order to succeed. In addition, being enthusiastic and compassionate helps, boost the work efficiency. Next, intelligence, industriousness and innovativeness were evenly rated. Intelligence demonstrates the ability to think, to analyze and to contemplate holistically various aspects. It might correspond to IQ, which indicates cleverness. It is considered as a vital element of valuable employees. Concerning industriousness and innovativeness, they are also crucial personalities of human resources in bringing success to the firms. Also, there are other important qualifications such as an openminded attitude, “Doer” rather than “Talker”, high ambition and visionary thinking. However, politeness was viewed as being as substantial as other traits in this research but still have relatively high scores.
Table 1: Required Workforce Characteristics
Table 2 Skills from Training and Development Programs
Table 2 shows the skills from training and development programs. It can be seen that efficiency development skills were the most expected skills. The skills are expected to help develop a company’s operating capability in the future. The following skils are basic technical skills, advanced technical skills, quality control skills and human skills which all of these were estimated to be similarly important. Foreign language skills and stress management skills were the least demanded from the company’s training and development programs since they are not particularly related to the job. It can be inferred that Thai enterprises focus more on skills associated directly with work, showing that they expect to obtain immediate return from their training programs.
In terms of compensation strategy (Table 3), it is suggested by the data that besides using salary as a means to motivate workers, healthcare benefits and accident claims are the most popular methods. These reveals the fact that employees have become aware of health condition and expect a company to be more responsible on this issue. The idea conforms to the population’s increasing concerns about healthcare. Subsequently, this type of compensation is an effective approach to encourage the individuals to stay longer with the firms.
Next, other forms of compensation such as overtime pay, retirement benefits, life assurance benefits and profit sharing scheme have about the same points. These assure employees in terms of work security and stimulate each individual to take part in the business since they are rewarded more when the enterprise earns more. The types of compensation that received the lowest scores are special reductions on firm’s products/services and stock option scheme. They are considered fairly new for Thai businesses especially stock option plans since it contrasts with the culture of several Thai companies. The concept of the “family business” is still prominent and it is more likely for Thai enterprises to maintain the business regulation within the family members, therefore, it is not common to allow external people to hold the shares. Nevertheless, new generation executives are inclining to be more opened to new managing ideas.
According to the study, the executives found the operating results desirable. As the mean score for both financial and non-financial performances are relatively high. The enterprises’ performance have been examined by Cronbach’s Alpha index. The Cronbach’s Alpha indexes of the two groups are higher than 0.7, which is reliable for further analysis (Nunnally, 1967).
The Relationship between Human Resources Strategies and Organizational Performances
The study project on human resource management emphasizes three primary points which are required workforce characteristics, skills from training and development programs and compensation strategies (See Figure 2). Since each aspect consists of many factors, to make the study more reliable and effective, the factor analysis technique was used to reduce the number of those variables for further investigation. The factors analysis was performed by using of Principle Component Analysis and Varimax Rotation with Kaiser Normalization. The results of the factors grouping are shown in Table 5.
Table 3: Compensation Strategies
Regarding the Required Workforce Characteristics, the first group, Spirits of Teamwork, consists of teamwork spirits, innovativeness and open-minded attitudes. This factor underlies the ideas of team collaborating and raising the group’s competency. The members of the group have coordinated responsibilities.
The second group is Positive Inner Characters consisted of positive attitude and politeness. It stresses on the positive feeling of employees towards the companies and the smooth relationship within the organizations. The third group is Industriousness and Visionary consisted of “Doer” rather than “Thinker”, high ambition, industriousness and visionary thinking, which bring theories into practice. The fourth group is Intellectual Ability consisted of intelligence and enthusiastic characters. This group focuses on intelligence quotient, analytical thinking and eagerness in work.
Table 5: Variables Grouped by Factor Analysis
With regard to the Skills from Training and Development Programs, group one is Spe- cialization Skills consisted of information tech- nology skills, leadership skills, analytical skills and foreign language skills. Group two is Human and Personal Management Skills consisted of human skills, problem-solving skills, time man- agement skills and stress management skills. Group three is Advanced Task-Related Skills consisted of decision-making skills, advanced technical skills and negotiation skills. Group four is Efficiency and Quality Management Skills consisted of efficiency improvement skills, basic technical skills, and quality control skills. The factors that cannot be grouped are conceptual skills and communication skills.
Regarding Compensation Strategies, group one: Pay on Leave consisted of leisure leave with pay, religious leave with pay and sick leave with pay. This factor stressed paying during absence period to encourage employees. Group two: Extra Compensation on Irregular Work consisted of extra pay for irregular shifts, extra pay for high risk task, extra pay for overtime and non-life assurance benefits. It aims at giving extra amounts of payment that is worth the extra workforces and endeavor to stimulate the individuals to work harder. Group three: Health-Related Benefits consisted of health benefits, life assurance benefits and accident claims. This group concerns on providing benefits of heath care and protection for workers which correspond to the trend of society. Group four: Extra Pay and Profit Sharing consisted of extra pay for operational workers, extra pay for executives, stock option scheme and profit sharing scheme. It is an attempt to encourage the feeling of ownership and to share profits with employees in accordance with the companies’ profit margins. Group five: Reduction and Recreation for Staff consisted of special reduction on firm’s products/services and recreation activity supports.
Table 8: Regression analysis between Human Resources Strategies and Non-Financial Performance
Regression Analysis between Human Resources Strategies and Non-Financial Performance
Multiple regression analysis is deployed here to investigate the relationship between the human resource strategies and the non-financial performances. The analysis results reveal that there is only one factor group that has statistical significance in a firm’s performances. The group is Positive Inner Characters which have significant influence in a non-financial performance, consisting of image, loyalty and customer satisfaction. The results of multiple regression analysis are demonstrated in Table 8.
The analysis results indicate that posi- tive inner characters, consisting positive atti- tudes and politeness, play an important role in generating higher non-financial performances. The positive attitude, which is considered the basic qualification that each person must have, results in affection and loyally to the company. By having this positive point of view, more effort is automatically put into work. In addition, po- liteness, which is important for serving and con- tacting customers, will lead to higher customers’ satisfactions, loyalty, image and reputation. All of these contribute to better non-financial performances. To summarize, the individuals with a positive inner attitudes are more likely to be dedicated, faithful and hard-working for the companies. As a result, customers are likely to be more satisfied and more loyal to the brands. The enterprises’ images are more recognized due to the valuable services and products offered to the public. It also shows the customers the higher competitive abilities of the companies.
Regression Analysis between “Human Resources Strategies” and “Financial Performances”
Multiple regression analysis was applied to find the connections between human resource strategies and financial performances. The analysis results demonstrate that only one group, extra pay and profit sharing scheme, has a significant relationship with the financial performances. The multiple regression analysis results are described in Table 9.
Table 9: Regression Analysis between Human Resources Strategies and Financial Performances
The extra pay and profit sharing scheme group is composed of extra rewards for executives, extra pay for workers, stock option plan, and profit sharing techniques. The executive’s extra pay, such as company cars, well-equipped offices and elite club, is designed to upgrade status, prides and convenience in works for each individual. When the employees are more satisfied with working environment, it’s likely that they will devote more and be more loyal to the company. Likewise, the extra pay for workers, which can increase morale and loyalty of staff, is likely to result in higher firms’ financial performances. Regarding employee stock ownership plan and various profit sharing techniques, these measures lead to sense of belonging and greater commitment of staff at all levels. Their wealth will be directly linked to firms’ financial performances. Therefore, the compensation strategies are likely to generate higher financial performances.
Regarding the relationship between human resource strategies and non-financial performance, the analysis results indicate that only one factor group, positive inner characters, has a statistically significant influence on the firms’ non-financial performances. The positive inner characters include positive attitudes towards organizations and politeness of staff. Regarding the relationship between human resource strategies and financial performance, the analysis results disclose that the extra pay and profit sharing group is the only group that has a statistically important correlation with the companies’ financial performances such as sales, profits and liquidities. This variable group consists of extra pay for operational workers, extra pay for executives, stock option plan and profit sharing scheme. All of these can lead to higher motivation, resulting from both money and non-money benefits, and increase financial performance of firms.
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Teerayout Wattanasupa choke, Chulalongkorn University, Thailand
Associate Professor Teerayout Wattanasupachoke holds a doctoral degree from Warwick Business School, the University of Warwick, the United Kingdom. His educational backgrounds are in the areas of accounting and strategic management. He has published in many international academic and business -oriented journals. His researc interests focus on strategy, organization management and innovation. Prior to taking part in academia, he had worked as an internal auditor and investment banker. Recently, he has been appointed the Associate Dean for Planning and Development at the Faculty of Commerce and Accountancy, Chulalogkorn University, Thailand. In addition, he has carried out a number of consulting projects and executive training programs. He is also a columnist for various business newspapers and journals in Thailand.