This chapter introduces the research background, problem statement, research
purposes, research questions, significance of the study, limitation, delimitation and definition of terms in this study.
Background of the Study
As the competition between rivals in the global business environment heats up, and issues on how to provide tangible, measureable results for enterprises and creating new corporate values, are drawing more attention than ever as more leaders and managers have come to realize that if they want to attain competitive advantages these days, they need to work on the center of gravity, the people ( , 2008). More and more enterprises have come to recognize the importance and significance of measuring the effectiveness of HR systems or practices (Fitz-enz, 1995) for the facts that they serve as drivers in increasing the value of intellectual capital and helping enterprises boost organizational performance. As Dr. Fitz-enz suggested, the effectiveness of HR systems and HR practices are actually the same, therefore theses two terms will be used interchangeably in the following text.
Many studies suggest that managers want HR to be more involved, provided them with business management and change management capabilities, and also more competent in technical, strategic, and financial areas. Modern HRM should be constantly monitored and measured for its impacts on the people and the organization. Peter Drucker, perhaps the top management philosopher of our times, spoke of about the issue of measurement in several of his writings and emphasized how vital it was to measure HR effectiveness as measurement is the weakest area in management today (Fitz-enz, 1995). In addition, there are also outstanding figures in both academic and practical fields such as Robert Kaplan, David Norton, Hugh Bucknull who are in favor of HR effectiveness measurement and show their
2 support through writings and discourses.
Even with this overwhelming evidence, there are still people who insist on the notion that they can survive without performance measurement. They blame their customers for not understanding that their function is somewhat different from all the other organizational entities, who depend on quantitative data analysis. To them, it’s a radical change which takes much more time to get accustomed to or never. Hence, it’s HR managers’ mission to change the landscape; they have to show CEOs that by measuring HR effectiveness, HR function can serve as a value-adding people-management function which are critical to organizational performance.
Past literatures suggest that there is actually a positive relationship between job satisfaction and organizational performance: the higher the job satisfaction, the better the organizational performance. Besides from HR effectiveness, job satisfaction also serves a critical factor to bettering organizational performance, it is important for companies to monitor the job satisfaction of employees as it truly matters to the outcome of the company.
Today, many companies tend to underestimate the importance of HR effectiveness and focus more on improving job satisfaction, which is insensible for the long term performance of the companies. In the light of such mentality, this research study embarks on examing the influences of HR effectiveness and job satisfaction at the same time, to see whether these two variables are predictive of organizational performance. Hopefully, through this study, the employers can learn to place equal emphasis on both HR effectiveness and job satisfaction, for which serve as vital elements to the success of the companies.
Moreover, for the CEOs, any business activity which can contribute to the financial growth of the company is considered to be value-adding. And unfortunately, in the general perception, HR has had been regarded as more of a supportive function in a company in most occasions because its contribution to the financial outcome of the company is more indirect and less visible. This is why the CEOs are usually less concerned about the development of
3
HR departments in comparison to other departments such as sales department. In regard to this dilemma that HR professionals are facing today, the researcher intends to look at organizational performance from the financial perspective, to exam the influence of HR effectiveness and job satisfaction on the financial performance of the company, in hope to show the management level a more visible link between HR and financial organizational performance.
Purpose of the Study
Based on the statement mentioned above, the purposes of this study are as follows:
1. To investigate whether there is any significant difference in HR effectiveness and job satisfaction based on the perceptions of employees of different companies.
2. To investigate whether employees’ perceptions of HR effectiveness have any influence on job satisfaction and organizational performance.
3. To investigate whether employees’ perceptions of job satisfaction have any influence on organizational performance.
Statement of the Problem
The myth that one cannot measure human resources values has been refuted for so many years that it is a wonder that there is anyone who still accepts it. People seem reluctant to change and become accountable to this idea. In today’s market that is simply impossible.
From the systemic point of view, human resource serves as the role of a sub-system within a system. Everything that happens within HR, to one extent or another, affects the larger system. HR department does have an effect on the output of the organization through the service it provides, but it is just not as evident as the business development department or the finance department in the general perceptions.
Positioning is critical to the development of a business unit because it is a way to show
4
top executives who you are and what direction you are heading. For HR professionals, they need to position HR as a value-adding partner rather than as a supporting unit. More importantly, HR professionals have to earn partnership by demonstrating to the top executives that they truly have something of value for them. Therefore, they have to build visible links between HR practices and the outcome of the company through the means of measuring HR effectiveness from a strategic perspective.
Moreover, lots of literatures suggest that job satisfaction is an important factor that contributes to the performance of an organization and there is a variety of models that consist of interesting dimensions, discussing what really composes of job satisfaction. Thus, the researcher is intrigued to examine whether job satisfaction has actual influence on organizational performance as numerous scholars point out.
Questions of the Study
In this study, the researcher attempts to answer the following questions:
1. Is there any significant difference in HR effectiveness and job satisfaction based on the perceptions of employees among different companies?
2. Does HR effectiveness affect employees’ perceptions of job satisfaction and also organizational performance?
3. Does job satisfaction affect organizational performance?
Significance of the Study
As the firms face aggravating environmental turbulences worldwide, it is crucial for manager and HR professionals to acknowledge the fact that in a time like this, the importance of defining and calculating the values of human resources contributing to the outcomes of the company is becoming more vital and appreciated. This way, HR professionals are able to monitor the effectiveness of HR systems or practices and see how the systems contribute to
5
the level of employee job satisfaction and organizational performance.
HR professionals have to take on the responsibility to show managers that how effective the HR systems or practices can add values to the organization and give the organization a competitive advantage in an increasingly competitive corporate environment.
The focal point of this study is to establish links among HR effectiveness, job satisfaction and organizational performance by providing insight into how HR effectiveness and job satisfaction have influence on organizational performance. More importantly, the research results imply that HR effectiveness and job satisfaction can be considered as indicators, and HR professionals are able to predict or monitor organizational performance with these indicators. This way, HR professionals can help the organizations to identify and formulate more comprehensive HR strategies for the future.
Delimitations
Firstly, this research study is delimited to the investigation of the influence of HR effectiveness and job satisfaction on organizational performance.
Secondly, the sample of study is delimited to the general employees (non-managerial positions) working in manufacture, service and finance industries.
Limitations
There are some limitations identified in this research study.
Firstly, because of the independent variables and dependent variable(s) are all evaluated by the perceptions of the employees and the use of self-report scales, which might invoke the problem of Common Method Variance (CMV), implying that the source of data is single, not various (Peng et al., 2006). This could compromise the quality of research work. This is the first limitation of this study. Moreover, due to time and resource constraints, the researcher was unable to fully prevent the problem of CMV by collecting data from different specified
6
sources regarding the three variables: HR effectiveness, job satisfaction and organizational performance. Instead, the researcher intended to rely on employees’ perceptions for the measurement of HR effectiveness and job satisfaction, meaning the source of data was single.
This might not be the best solution for avoiding CMV, but to some degrees, it is still a viable solution nonetheless.
Secondly, the sample size of this study is clearly not large enough to make such generalization that the research results could be representative of the entire population across all kinds of industries. Also, the sample size may not be ideal for conducting one-way ANOVA analysis which may potentially undermine the accuracy and quality of this research study. Fortunately, the research results do show significant influences of HR effectiveness and job satisfaction on organizational performance, the researcher believes that the research results are still of some pragmatic values.
Thirdly, all variables in this study are evaluated from individual perspective, while HR effectiveness falls under the category of organizational-level variables, unlike job satisfaction as an individual-level variable. Hence, the third limitation of this research study is that, the organizational-level variable is measured by individuals, which might not be able to reflect the actuality.
In spite of the fact that this study regards HR effectiveness as an individual-level variable with the acknowledgement of HR effectiveness being an organizational-level variable, it still has its values. The reason being, even when HR practices implemented on each employee are very similar, individuals will inevitably have different perceptions of the effectiveness of HR systems or practices due to different personal attributes and experiences, which will eventually affect their attitudes and behaviors toward their work and result in different level of job satisfaction.
7
Definition of Terms
HR effectiveness
HR effectiveness can be defined as how much HR activities or HR systems contribute to the outcomes of an organization in terms of both individual level outcomes (job performance, job satisfaction, motivation, etc) and firm level outcomes (scrap rate, sales growth, ROA, ROI.
etc). The researcher will use a 5 point Likert scale to measure HR effectiveness as an independent variable. The Strategic HRM Functional Tasks will be adopted as the instrument for measuring HR effectiveness in this research study, developed by Gomez-Mejia et al.
(2001). This instrument contains nine dimensions including work flows, staffing, employee separations, performance appraisal, training development, compensation, employee relations, employee rights, and international management.
Job satisfaction
As Balzer (2000) pointed out that job satisfaction is defined as the feelings a worker has for his or her job experiences in relation to previous experiences, current expectations, or available alternatives. The researcher will use a 5 point Likert scale to measure job satisfaction as an independent variable. The JDI (Job Descriptive Index) will be adopted as the instrument for measuring employee job satisfaction which contains the following dimensions:
(1) work on present job, (2) pay,
(3) opportunities for promotion, (4) supervision,
(5) people on your present job, (6) job in general.
For the purpose of keeping the questionnaire brief and neat instructed by the professor, the
8
short version of JDI will be adapted in this study which contains only two dimensions: work on present job and pay.
Organizational performance
Performance is the output of an organization’s operations which is crucial to the survival of a business because manager can identify what is to be improved through the process of performance evaluation (Arthur, 1992; Delaney & Huselid, 1996; Huselid, Jackson & Schuler, 1997;
Miler, 1990; Nkomo, 1987; Venkatraman & Ramnujam, 1986). The measuring of organizational performance can be done by referring to both financial and non-financial index.
The researcher will measure organizational performance by collecting, comparing and analyzing the published financial information in the Common Wealth magazine in terms of financial indicators including Sales Growth Rate (SGR), Profit Growth Rate (PGR) and Return on Equity (ROE) to see how the financial performances of the chosen companies relate to HR effectiveness and employee job satisfaction.
9