Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012

Chapter 2: Literature
Review
2.0 Introduction
This chapter discusses the
relevant literature review and
the framework for the
research questions and
research objectives which are
posted in Chapter 1. To
explore the past related
research topic, the cross-
disciplinary review of the
literature is needed in order to
seek accurate and adequate
processes, objects, activities,
and person s involvement
!llison, 1""#$. This study is
an exploratory research. The
conceptual framework has
been modified and it is based
on previous research studies
conducted in other countries.
This framework is applied to
the %alaysian context to
discuss the relationship of
human resource practices and
or&ani'ational performance of
%alaysian (%)s with company s policy
on innovation as a mediatin& factor
*feffer, 1""+$.
!ccordin&ly to Tin& ,--+$, most of
(mall and %edium )nterprises (%)s$ in
%alaysia face challen&e such as lack of
business strate&ies, human resource i.e.
people$ constraints, limited technolo&y or
inability to adopt new technolo&y (treet,
,--.$, and lack of information on
potential markets. /ith re&ard to the issue
of human resource practices, *awanchik
and (ulaiman ,-1-$ found that the
%alaysian (%)s have retained traditional
human resource practices and have not
increased their current competitive
awareness for the new and rapid chan&in&
world of &lobali'ation. !s a result, the
(%)s in %alaysia could be leapfro&&ed
by (%)s from other developin& countries
such as 0ndia, Thailand, 1ietnam, 2aos,
and 0ndonesia.
There are new development theories
which can contribute to the human
resource practices in pursuin& more
flexibility and innovation and also to
encoura&e (%)s in developin& a
creativity culture 3amanpour, 1""1$. The
full utili'ation of human
resources is essential in order
to lead and achieve
or&ani'ation &oals and
sustainability in the
competitive world in the lon&
run. !ccordin& to Chirico and (alvato
,--4$ sustainin& the company s
competitive position is not only about
adoptin& to chan&es in the environment
but the speed of chan&e in the competitive
environment is also a key
Page 13
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
driver of any company to
develop and increase the
strate&ic capabilities for better
performance.
!rmstron& 1"44$ explained
that 5uman 6esource
%ana&ement 56%$ is an
approach of how well
or&ani'ations mana&e their
resources i.e. people or human
capital in all aspects of
plannin&, desi&n and
evaluation. )fforts to build
better human resources and
competency mana&ement
must be developed by &ood
concepts and structures in
business and by bein& people-
orientated. !ccordin& to
%c7oldrick and (tewart
1""#$ emphasi'es that the
5uman 6esource
3evelopment 563$
functions to create learnin&
and education atmosphere
throu&h trainin& and
development pro&rammes in
supportin& (56% towards
or&ani'ational performance.
/ith inte&ratin& 563 process, they will
aim to match available 56%s needs to
pursue effectively and also to &ain the
competitive advanta&es with innovative
ways.
)mpirical assessment of 56% practices
are happenin& in %alaysian companies
8utler 9 2ee, ,--:$. The research by
;thman and Teh ,--:$ observed that the
importance and the created value of 56
as the competitive advanta&e has yet to be
appreciated in the %alaysian context.
!ccordin& to the studies by 7rant and
(pender 1""#$< 7rant 1""#b$, the
knowled&e, skills and abilities produced
by employees are transformation of inputs
into outputs which sustain competitive
advanta&e. The human resource practices
are correlated with people and
or&ani'ational performance throu&h
strate&ies to build assets i.e. human
capital$ and competitive advanta&e
8artlett 9 7hoshal, ,--,$. !lso, in a
study by 5enderson and Clark 1""-$, the
researcher find that knowled&e base is an
aspect of the company s asset in the lon&
run. !s we know, knowled&e is defined as
=understood information> whereby
information is bein& =translated data> or
=or&ani'ational facts>.
P
a
g
e
1
4
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
0n %alaysia, 5aslina ,--"$
conducted a study which
focused on human resource
development. !ddition,
%alaysian 0nnovation Climate
survey report done by
*awanchik and (ulaiman
,-1-$ discussed the point of
views on company s practices
and process leads innovation
way. They found that the main
barriers to be solved in terms
different of industry sector,
company si'e and a&e &roup
in the report. 5owever,
6owley and !bdul 6ahman
,--.$ have reported that
some or&ani'ations be&an to
reassess their corporate
philosophy re&ardin& =people
or human> to be less of
=costs> but as
=assets>. /ith this
transformation, the innovative
and creative ideas are closely
associated with human capital
throu&h the learnin& motive,
ready for chan&e and to
exchan&e skill and knowled&e workin&
towards innovation.
This particular study is very much focus
on how the human resource practices can
increase or&ani'ational performance
medicated by the company s policy on
innovation. ;ne aspect is to look at the
internal factors i.e. human resource
practices$ that can influence company s
policy on innovation towards
or&ani'ational performance. 0n addition,
*feffer and 1ei&a 1"""$ found that seven
human resource practices have a
si&nificant impact on innovation of
or&ani'ations. These seven 56 practices
are employment security< selective hirin&<
self-mana&ed teams< hi&h compensation
contin&ent< trainin& and development<
reduction of status differences and sharin&
information. 5owever, 8oselie et al.
,--?$ mentioned that the linka&e
between 56 *ractices and or&ani'ational
performance are throu&h trainin& and
development< contin&ent pay< reward
schemes< performance mana&ement i.e.
appraisal$< recruitment and selection
which allows in creatin& a hi&h
participation in innovative activities.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
2.1 Overview
0n 1""1 the %alaysian
&overnment has already
acknowled&ed that human
resource is the most important
element for business
development and it plays an
important role as the
backbone of the country.
5ence, the &overnment has
emphasi'ed 5uman 6esource
3evelopment 563$ in the #
th
%alaysian *lan 1""1 @ 1""?$
throu&h the introduction of
several incentive packa&es
and financial support
especially tailored for (%)s.
!s discussed earlier, (%)s is
one source for economic
contribution.
5ence, human resource is not
only one of the internal
resources of any
or&ani'ational system but it
also contributes and enhances
innovativeness. 0nnovation
can lead to the development
of key capabilities which
improves or&ani'ational performance
Teece et al., 1"".$. 0n most studies, the
researchers have mentioned mana&erial
innovativeness as the &reatest innovation
of top-mana&ement to show their
willin&ness to chan&e, commit themselves
into a new way and welcome new ideas
6ainey, 1"""$. This top-mana&ement
innovation must be done first before
product or service innovations and market
innovations can be carried out. Aor
example, Bapan used to raise investment
funds for human capital 2epak 9 (nell,
1"""$, increased manpower and observed
respect for intellectual property such as
the bottom-up mana&ement approach
%int'ber&, 1".4$ in &eneratin& the
meanin&ful innovative inputs from
workers and employees.
5owever, in %alaysia there is a lon& way
to &o to reach this bottom-up mana&ement
approach concept. 0t will be a hard task to
ensure intrinsic motivation encoura&es
innovative towards or&ani'ational
performance to appear as intrinsic
motivation which is a key driver of
creativity. There is a need for more time
and patience for each aspect to be
established. 5owever, *ervai' 1""4$ has
su&&ested that extrinsic
motivation throu&h rewards
and evaluations had directly
affected innovation in
attractin& attention from the
=experiences> instead of to obey the rules
and re&ulations to perform specific tasks.
%oreover, in order to have a &reater
impact, innovation must be throu&h an
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
or&ani'ational culture in
belief, trust, confidence and
empowerment system
1ermeulen, ,--?$.
0n order to achieve common
objective, a new structure or
administrative system and
pro&ramme need be created
and monitored by the
or&ani'ation to encoura&e
employees towards innovative
works 3amanpour, 1""1$. !
potential for creatin&
innovation amon& co-workers
or employees could be
throu&h 563 fully to
facilitate the new knowled&e
and insi&hts that encoura&e
them to raise questions on the
lon&-held routines of
or&ani'ational performance
2ope', *eon 9 ;rdas, ,--?$.
0n addition, a network allows
for promotin& social
interaction or inter-linka&e
between other parties in
&atherin& trust and
information so that knowled&e
transfer or exchan&e would allow it to
lead to innovation success. 5owever,
inter-company networkin& can facilitate
the innovation process instead of leadin&
it to innovation success 5arris, Coles 9
3ickson, ,---$. 8y fosterin&
communication, interaction amon& all
hierarchical levels to share and acquire
knowled&e about the formal plannin&
process or status would also lead to
innovation (adler-(mith et al., ,--1$.
Aor this study, the focus will be on the
internal or&ani'ational factors. (ome
researchers have ar&ued that (%)s hardly
carry out human resource practices. (%)s
do not have =proper human resource
practices,> instead they practised =part of
everyday workflow or work life> as the
informal approach to 56 practices and
innovation policies in or&ani'ational
performance Boyce, %cCulty, 9 /oods
1""?D1"$. (maller (%)s could be
different and less sophisticated than lar&er
enterprises (adler-(mith, 3own 9 Aield,
1"""D:.?$. 5owever, the %alaysian
0nnovation Climate (urvey ,--" has
shown many smaller companies rather
than lar&er or&ani'ations use innovative
solutions in the collaboration sta&e. This
was because of the lar&er
or&ani'ations innate
reluctance to interchan&e
ideas or collaborate with each other
*awanchik 9 (ulaiman, ,-1-$.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
The definition of (%)s in
%alaysia i.e. (mall and
%edium )nterprises$ is
presented in Table ,.1.1. !n
effective implementation of
5uman 6esource *ractices is
a key source of competitive
advanta&e with a positive
relationship towards
or&ani'ational performance
;rdone' de *ablos, ,--4<
Chew 9 8asu, ,--?<
Ehandekar 9 (harma, ,--?$.
5ence, the %alaysian
&overnment stresses on the
importance of
=Transformation to the Cew
)conomic %odel, ,--"F,-1->
to ensure that (%)s shall
continue with a hi&her speed
to transform their recent
business operations in order to
remain relevant and
competitive as well as to
sustain their domestic market
and to expand into the &lobal business
environment. !lso, the Cational (mall
and %edium )nterprise 3evelopment
Council C(3C$ has been allocated
6%1- million to *emban&unan (umber
%anusia 8erhad *(%8$ to or&anise and
coordinate trainin& and human resource
development as basic needs for (%)s in
all sectors. The purpose of the action is to
increase employees competence, attitude
and creativity towards innovation (%)
3evelopment %asterplan, ,-1-$. 8oth the
or&ani'ations and trainin& institutions
need to work to&ether to provide a
conducive environment for the employees
to shape their knowled&e, skills and
ability towards excellin& or&ani'ational
performance as acknowled&ed by the
Chairman of %alaysia 0nstitute of
%ana&ement, 3ato 5j %ohamed 0qbal
6awther.
;r&ani'ations could show effects throu&h
maximi'in& the employees knowled&e,
skills, and abilities of employees to obtain
the ri&htly tailored human resource
practices 8arney, 1""1< /ri&ht et. al,
1""+$.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
2.1.1 Definition of Small and
Medium nterpri!e!
"SM!# in Mala$!ia
3ifferent countries have
different definition for (%)s.
0n %alaysia, the definition of
(%)s is based on two criteriaD
1G The total sales revenue
or turnover by a
business on a yearly
basis< or
1
G
T
h
e

n
u
m
b
e
r

o
f

fu
ll-
ti
m
e
e
m
pl
oy
ee
s
by
a
bu
si
ne
ss.
8
es
id
es
,
%
a
l
a
y
s
i
a
n

(
%
)
s

a
r
e

d
i
v
id
ed
int
o
tw
o
se
ct
or
&r
ou
ps
D
,G %anufacturin& sectorD (ales
revenue of less than 6%,? million
or full-time employees of less than
1?-
:G (ervices and other sectorsD (ales
revenue of less than 6%? million
or full-time employees of less than
?-
!lso, %alaysian (%)s are cate&ori'ed
into %icro, (mall and %edium si'es.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
%a&le 2.1.1 Definition of
SM! in Mala$!ia:
Total !nnual (ales 6evenue
Si'e Manufacturin( "includin(
a(ro)&a!ed# *
manufacturin()related
!ervice!
%icro 2ess than 6%,?-,---
(mall Arom 6%,?-,--- to less
than 6%1- million
%edium Arom 6%1- million to less
than 6%,? million
i$ Total Cumber of Aull-
Time )mployees
Si'e Manufacturin( "includin(
a(ro)&a!ed# *
manufacturin()related
!ervice!
%icro 2ess than ? employees 2ess than ?
employees
(mall Arom ? to less than ?- Arom ? to less than
employees ,- employees
%edium Arom ?- to less than 1?- Arom ,- to less than
employees ?- employees
Source: +e$ Stati!tic! on SM!
"SM ,nnual Report "200-.2010#
pu&lication of Septem&er 2010#
0n addition, accordin& to 2ee and 2ee
,--:$ the terms (%)s (mall and
%edium-scale )nterprises$ and (%0s
(mall and %edium 0ndustries$ refer to
enterprises primarily involved in non-
manufacturin& industries as retail
or&ani'ations i.e (%)s$ and
manufacturin& i.e. (%0s$
Page 20
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
respectively.
2.1.2 Contri&ution of SM!
to the Mala$!ia/! econom$
(%03)C is one of the
&overnment a&encies that has
encoura&ed an environment
for (%) development in
%alaysia. 8ut it has also been
workin& very closely with
other a&encies to provide
necessary assistance such as
monetary and non-monetary
incentives for (%)s
development. (%03)C has
also conducted industrial
linka&e pro&rammes 02*$
and 7lobal (upplier
*ro&rammes 7(*$ to
constantly assist (%)s
become industry suppliers in
terms of physical and non-
physical in order to achieve a
position in hi&hly competitive
&lobal markets. !ll of these
assistances are structured into
broad-based pro&rammes
tailored to stren&then (%)s in
the areas of knowled&e, skills, ability as
well as how to retrain and retain the
existin& human capital pool.
!ccordin& to the 3epartment of (tatistics
%alaysia, 4#.#H of the total (%)s in
%alaysia are in the services sector, i.e.
+..,?,? out of total of ??,,4+" (%)s
%alaysia 3epartment of (tatistics, ,--?$.
0n ,--", (%)s in %alaysia contributed
:1.,H to the %alaysia 73*. The (%)s in
the service sector is the main contributor,
contributin& ,-.1H to the %alaysia 73*
(%) !nnual 6eport, ,--"F,-1-$. 5ence,
the services sector is the key contributor
to 73* &rowth by human resource by
providin& intan&ible and tan&ible products
for end-users in %alaysia.
2.1.0 Importance of 1uman Re!ource
2ractice!
Throu&h a well employees skill and
or&ani'ation structure, it has allowed in
shapin& human capital activities on
or&ani'ational performance. !lso, human
resources can be a primary support of a
sustainable competitive advanta&e of an
or&ani'ation and the advanta&e exists for
competitors are incapable of duplicatin&
the same work culture for the benefits and
values of a competitive advanta&e
5uselid et, al., 1""?$.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
!lthou&h the concept of
human resource practices is
wider and multifaceted,
several researchers have
developed a number of
instruments to measure and
examine them. *ferffer 1""+$
identified 1: 56 practices in
his earlier studies. 0n *feffer
and 1ei&a 1""4$, the number
was reduced to . 56 practices
which are as followsD 1$ job
security, ,$ selective hirin&,
:$ self-mana&ed teams or
team-workin&, +$ hi&h
compensation contin&ent on
or&ani'ational performance,
?$ extensive trainin&, #$
reduction of status
differences, and .$ sharin&
information. !lso 7alia and
2e&ros ,--:$, 6offe 1"""$,
%ichie and (heehan 1"""$ as
well as 5olbrook and 5u&hes
,--:$ have all presented
evidence to show that &ood
human resource practices have a
si&nificant impact on the innovation
performance of or&ani'ations throu&h
strate&ies such as trainin& and
development, sharin& skills, extensive
recruitment, selection processes,
employment security and incentive
compensation. These innovative strate&ies
are not only to produce hi&h productivity
but also to enhance innovative
involvement since they sustain the
competitive advanta&e /ri&ht et al.,
1""+$.
2.1.3 Definition &etween the
Or(ani'ational Innovation and
2erformance
The implementation of human resource
practices throu&h recruitin&, trainin& or
development pro&ramme 7arvin, 1"":<
5abbershon 9 /illiams, 1"""< *aul,
1""+$, performance evaluation and a &ood
rewardin& system have a stron&
relationship towards or&ani'ational
performance ;rdone' de *ablos 9
2ytras, ,--4< Collins, ,--.< Chew 9
8asu, ,--?< Ehandekar 9 (harma, ,--?$.
This study focuses on the or&ani'ational
innovation throu&h the implementation of
the company s policies on innovation in
seekin& facilitate the
achievement of the
or&ani'ation s objectives and
&oals as it is a vital
competitive advanta&e source.
(chumpeter 1":+D #?$ has defined
innovation as =the carryin& out of new
combinations of resources in terms of
technical innovation involvin& product
and services or process innovation as
tan&ible
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
asset>, whereas non-technical
innovation such as intan&ible
asset throu&h services,
mana&ement or system
8arney, ,--1$.
;r&ani'ational performance
can be ar&ued to be the most
important construct in any
mana&ement research
8arney, ,--.$. There is a
wide variety of definitions of
or&ani'ational performance
found in the literature review
on efficiency or effectively
utili'in& its own resources i.e
people$ in &eneratin&
economic outcomes and
business success. 5owever,
there are two major factors -
external environment and
internal or&ani'ational factors.
There is a need to be
concerned because they are
the determinants of
or&ani'ational performance
5ansen 9 /ernerfelt, 1"4"$.
2.2 ,pproache! in Strate(ic
1uman Re!ource
Mana(ement: %hree 2er!pective
%heorie!
0n today s fast-chan&in& economy,
competition is an issue of human resource
mana&ement as a strate&ic and
challen&in& task for an or&ani'ation on
how it fully utili'es the existin& human
resources *orter, 1"4?< 8arney, 1""1$.
5ence, an effective 56 strate&ic
inte&ration between the business and
human resource strate&ies is the most
important formulation Ainni&an, 1""4$. 0t
is not only human resource mana&ement
that should help or&ani'ations in movin&
forward their company &oals and
objectives set by the business strate&ies,
but also there is a need for chan&e or
innovative mana&ement approaches
throu&h inte&ration of human resources
such as 56 3evelopment, performance
evaluation, reward mana&ement system
and or&ani'ation work cultures (olis et
al., ,--1$. 5owever, some scholars have
ar&ued that not only 56% should be
driven by the top mana&ement to involve
and support their people at every different
level in the or&ani'ation but also how to
play a role or be an example of top
mana&ement commitment motivatin&
them 7ratton, 1"".$.Thus, it
is also pointed out that the
=behavioral perspective> is
the most powerful root cause
that has shaped people s work to adopt
56 practices 2ado 9 /ilson, 1""+<
/ri&ht 9 %c%ahan, 1"",$.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
! successful or&ani'ation
does not easily isolate their
human resource pro&rammes.
Throu&h mana&ement trust,
hi&h motivation and
individual commitment, these
will &enerate an unexpected
hi&h performance as well as
mana&ement returns 7uest,
1"".$. (ome studies have
found that most or&ani'ations
believe 56 rather than
financial or technolo&ical
resources allow them to &ain a
sustainable competitive
advanta&e 7ratton, 1"".<
/ri&ht et al., 1""+$. ! study
by (chuler and Backson
1"4.$ has shown a stron&
linka&e between competitive
strate&y, 56 practice and
performance. 5owever, *orter
1"4?$ has proved that
business can develop a
sustainable competitiveness
by two strate&iesD Cost
leadership strate&y and
differentiation strate&y. !ccordin& to
(chuler and Backson 1"4.$, these
strate&ies have enabled or&ani'ations to
&ain a competitive advanta&e throu&h
product and service innovation, quality
enhancement and cost reduction. 0n these
strate&ies, costs are reduced throu&h
minimal trainin& cost, cuttin& staff
numbers, minimum rewards for
employees outputs and predictable
behaviours.
5owever, accordin& to (torey s theories
1"4"$, =soft strate&ic 56%> encoura&e
human relations aspects of people
mana&ement, stressin& continuous
development, communication,
involvement, employment security, the
quality of workin& life and work-life
balance. %oreover, /ri&ht, %c%ahan
and %c/illiams 1""+$ have stated that
56 can be a part of the criteria for
achievin& a sustainable competitive
advanta&e. ;ther researchers have stated
that employees must be mana&ed more
effectively to improve or&ani'ational
performance !rmstron&, 1""?< 7uest,
1""1< 2e&&e, 1""?$. 0n addition, 3elery
and 3oty 1""#$ has demonstrated the
importance of mana&in& the 56 of
or&ani'ations effectively
throu&h the (trate&ic 5uman
6esource %ana&ement
(56%$ theory. The (56%
literature articulates on the
individual relationships amon& the three
important perspectivesD the Iniversalistic,
Contin&ency and Confi&urational
perspectives.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
2.2.1 4niver!ali!tic
2er!pective
6ecently there has been
discussion about what are the
optimum ways to ensure
human resource practices that
can be used as the main factor
throu&h the company s policy
on innovation to lead it to
or&ani'ational success.
Backson, (chuler and 6ivero
1"4"$ found that it is
essential for or&ani'ational
56 systems to consist of
individual capabilities to
acquire, develop, motivate
and retain employees towards
or&ani'ational effectiveness
with a behavioural approach.
5uman resources have
contributed to or&ani'ational
performance to &ain a
competitive advanta&e
throu&h the majority of work
from human resource
practices which have adopted
the resource-based view of the
company and human capital
enhancement 8arney, 1""1< 3elery,
1""4$. This is called the
=Iniversalistic or 8est-*ractice
!pproach>.
The research study by Jhu ,-1-$
encoura&es or&ani'ations to adopt the
universalistic approach when it asserts
that certain independent-dependent
variable relationships could exist across
the whole population of or&ani'ations
under study. (imilarly, the research work
by *feffer 1""4$ was influential in
identifyin& 56 practices that contribute
towards achievin& a sustainable
competitive advanta&e. This model
proposes that 56 strate&y and practices
will perform effective results when
inte&rated with the overall business
activities of the or&ani'ation based on the
national culture which had influenced
employees behaviour more than the
company culture 5ofstede, 1""+$.
%ost studies on the Iniversalistic
approaches were conducted in the I.(<
there are few studies carried out in the
Inited Ein&dom and )urope 7uest 9
5oque, 1""+< 5oque, 1"""$ and in !sia
5uan&, ,--1< 5uan& 9 Cullen, ,--1<
Ehatri, ,---< %ak 9 !khtar, ,--:< /an,
Eok 9 ;n&, ,--,$. C& and
%olukin ,--"$ studied the
universalistic perspective of
56 practices in the %alaysia
context. They found a
si&nificant relationship between the
variables such as trainin&, resulted-oriented
appraisals, employment security, employee
participation, job descriptions, profit
sharin& and
Page 25
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
other internal practices, and
or&ani'ational performance.
The =Iniversalistic or best-
practice approach> is an
applicable and useable
approach which can be
adopted by companies to
improve their or&ani'ational
performance. 6esearchers
such as ;sterman 1""+$,
*feffer 1""+$ and 5uselid
1""?$ have ar&ued that this
model has the perspective to
allow or&ani'ations to
produce superior performance
across all types of
or&ani'ations. !lso, the
or&ani'ational performance is
bein& measured throu&h
financial performance such as
profits or &ains, market share
and sales revenue levels
*aauwe, ,--+D?:$. Throu&h
communication, teamwork
and the utili'ation of
individual talents as part of
the soft strate&y approach, it
is more flexible than the
contin&ency model 8eardwell, 5olden 9
Claydon, ,--+$.
2.2.2 Contin(enc$ 2er!pective
!part from the Iniversalistic or best-
practice approach, the contin&ency
perspective approach can be used to
investi&ate the relationships between the
56 systems and or&ani'ational
performance. This model is more specific
with the con&ruence of fit between
various strate&ies or policies i.e.
company s policy on innovation$ and
between the 56 practices and
or&ani'ational performance to be adopted
by an or&ani'ation throu&h 56 practices
with performance evaluation,
participation and internal career
opportunities on how to attract and retain
human capital 3elery, 1""4$. 0t reviews
internally the so-called =3efender>
strate&y %iles and (now, 1"4+<
(onnenfeld 9 *eiperl, 1"44$.
)lsewhere, that relationship between the
individual independent 56 practices
variables and the dependent
or&ani'ational performance variable will
be affected or modified by other variables
such as the mediator variable i.e.
company s policy on
innovation$ or strate&y
3elery 9 3oty, 1""#D
4-.$ involvin& hi&h
innovation and bri&ht future
opportunities, which is the so-
called =*rospector>
(trate&y. ;n an international scale, it is
used to desi&n the different business
systems and the cultures of different
countries are required. 0t shows an impact
on both specific combination and
outcomes of
Page 26
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
56 practices /hitley, 1"",$.
;ther factors also allow the
si&nificance of contin&ency
such as the industry sector,
company si'e, company a&e,
de&ree of unioni'ation, capital
intensity, &eo&raphical
location, local demo&raphics
and infrastructure of
technolo&y 8oselie et al.,
,--?$.
5owever, some empirical
studies have shown that the
company is a major variable
influencin& the 56%
practices C& 9 %aki, 1"":<
/a&ar, 1""4$.
2.2.0 Confi(urational
2er!pective
The confi&urational
perspective is a study based
more on the holistic principle
of inquiry. 0t concerns about
how the pattern of multiple
independent variables are
related to a dependent
variable bundlin& to&ether
with strate&ies, structures,
cultures and processes in order to
maximi'e or&ani'ational performance
%eyer, Tsui 9 5inin&s, 1"":< %iller 9
Ariesen, 1"4+$. 5owever, !rthur 1""+$
has stated in his research findin&s that
usin& the commitment systems of human
resource practices has shown hi&her
productivity and lower turnover compared
with the control system.
!lthou&h the 56 practices are seen
affectin& not only individually of the
or&ani'ational performance, it has closely
interrelated elements internally consistent
in a bundle or system of 56 practices
%ac3uffie, 1""?$, from the view which
focuses more on the patterns of 56
practices that to&ether form an internally
consistent whole i.e. commitment or
control system$ where it allows a
correlation between those patterns and
or&ani'ational performance 3oty 9
7lick, 1""+$. Consistency in achievin&
the =syner&istic> approach within internal
fits between the 56 practices and the 56
system is to ensure that the system must
be con&ruent with other or&ani'ation
culture towards or&ani'ational
performance *aauwe, ,--+D ?+$.
The most recent and existin&
studies in )urope have
explored the linka&e between
56 practices and
or&ani'ational performance.
The successful I.( 56 practices models
were carried out in the %alaysian settin&
of the subsidiaries of %CCs i.e.
%ultinational Corporations$. %CCs
attempt this
Page 27
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
confi&urational approach
which &enerates hi&h returns
in or&ani'ational
performance, re&ardless of the
location of their subsidiaries
7ooderham 9 Cordhau&,
,--:$. This indirectly can
raise problems for the
environmental fit owin& to
operatin& in multiple
businesses in multiple
countries by ali&nin& their
internal 56 practices.
2.0 Strate(ic 1uman
Re!ource Mana(ement
"S1RM# a! a Source of
Competitive ,dvanta(e
(everal scholars have ar&ued
that it is impossible for the
best 56 practices to be
adapted across industries
5uselid, 1""?< *feffer,
1""+$. The Iniversalistic or
best practice approach has
received more empirical
support than the contin&ency
approach 5uselid, 1""?$.
Thus, this researcher has
adapted the Iniversalistic or
best practice approach for this research
study.
There are scholars from different
disciplines who have presented various
conceptual frameworks re&ardin& human
resource practices and or&ani'ational
performance. The =Iniversalistic or 8est
*ractice> approach is often associated
with both these variables. 0t is also called
the hi&h performance work system
5*/($. 0n the 1"4-s, the Bapanese
mana&ement practices have encoura&ed
companies to adopt and to create lean and
a&ile manufacturin& systems %cCurry 9
%c0vor, ,--,$. The characteristics of
these systems were linked with four core
56 practices which cover employee
development< flexible job desi&n in terms
of employee participation and teamwork<
incentive-based payment systems and
investment in recruitment and selection
8oxall 9 *urcell, ,--:< 8oseline et al.,
,--?$. 5uman resource mana&ement is
the main contributor to lead employees in
improvin& or&ani'ational performance
towards innovation and to be more
sustainable competitive business
strate&ies 8arney, 1""1$. !ll these
compositions of human resources theory
are based on employees
valuable knowled&e, skills
and abilities to foster the
better performance.
!lso, 8arney 1""1$ has
continuously expanded on this research
topic to determine the effects of 56
practices. The study for *feffer 1""4$ has
identified =seven practices> of successful
or&ani'ations.
Page 28
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
These seven practices were
reduced from his earlier
research study list of sixteen
by combinin& several
practices i$ )mployment
security< ii$ (elective hirin&<
iii$ (elf-mana&ed
teamsFteam-workin&< iv$
5i&h compensation
contin&ent on or&ani'ational
performance< v$ )xtensive
trainin&< vi$ 6eduction of
status differences and vii$
sharin& information. Inder
the Iniversalistic or best
practice approach it has been
found that it allowed
or&ani'ations to lead
consistently to a hi&her
or&ani'ational performance.
5is research findin&s and
results have shown that
human resource practices
have a positive relationship
and si&nificant influence
towards or&ani'ational
performance.
!n alternative &roup of researchers have
claimed that the =contin&ency
perspective> is more effective to &ain
or&ani'ational performance than the
Iniversalistic or best practice perspective
8utler, Aerris 9 Capier, 1""1< 3yer,
1"4?< Aombrum et al., 1"4+< 7olden 9
6amanujam, 1"4?< 7ome'-%ejia 9
8alkin, 1"",< 2en&nick-5all 9 2en&nick-
5all, 1"44< %ilkovich, 1"44< (chuler 9
Backson, 1"4.a$. 0n order to be effective,
the contin&ency theorists have attempted
to show that the 56 practices are
consistent and can relate to the different
strate&ic positions toward or&ani'ational
performance 8alkin 9 7ome'-%ejia,
1"4.< 8e&in, 1"":< 7ome'-%eija 9
8alkin, 1"",< (chuler 9 Backson, 1"4.a$.
The stron& links between 56 practices
and company performance have been
based on two approachesD the
universalistic i.e. best practice$ and the
contin&ency i.e. best fit practice$. *feffer
1""+$ has identified a set of 56 practices
in the universalistic approach to improve
or&ani'ational performance. This
approach is suitable for all types of
or&ani'ations and all employees. ;n the
other hand, the second approach @ the
contin&ency i.e. best fit$
approach has ar&ued that the
performance can be
maximi'ed when the company
adopted 56 policies are
consistent with the business
strate&y of the company
(chuler 9 Backson, 1"4.D
%iles 9 (now, 1"4+$. 5owever, some
literature on 56% practices has no
consensus on which 56% practices can
be considered appropriate or to be used
for lon&-term business operations where
the 56% practices have a si&nificant
impact throu&h
Page 29
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
employees attitudes and
behaviors that are
si&nificantly based on the
premise of social exchan&e
8lau, 1"#+$ and the norm of
reciprocity 7ouldner, 1"#-$.
(cholars such as !&arwala
,--:$, 7u''o and Coonan
1""+$, and /hitener ,--1$
have ar&ued that between the
employer s 56 practices and
the employees psycholo&ical
contract, the latter has
affected directly employees
level of commitment to
employer ultimately. To
consistently focus on the self-
developmental aspects of the
employees, the or&ani'ation
must be concerned with the
employees well-bein& and
work initiatives throu&h
ri&htly tailored 56%
practices. Aol&er and
Cropan'ano 1""4$ as well as
Eonovsky and Cropan'ano
1""1$ have discovered that
throu&h fair performance appraisal, it has
positively been associated with
employees perceptions and commitment.
(imilarly, some empirical studies have
shown that the role of trainin& can
produce beneficial individual employees
to contribute commitment 2am, 2o 9
Chan, ,--,< (aks, 1""#< Tsaur 9 2in,
,--+$. 8esides, the dynamic &lobal
environment has resulted in human
resources to be more challen&in& for the
company to mana&e in order to be
competitive.
5ence, the implementation of (56% not
only allows for the beneficial and
supportive tool to achieve the overall
business strate&ies towards desirable
outcomes but also it is essential to
develop and inte&rate its processes,
structures and activities to fit into the
strate&ic mana&ement %iles 9 (now,
1"4+$.
0n contrast, research studies in the Inited
Ein&dom 7uest 9 *eccei, 1""+< %c
Cabb 9 /hitfield, 1"".$ and in the
Cetherlands 8oselie et al., ,--1$ have
found that adoptin& a contin&ency
approach rather than usin& the
universalistic approach to
explore the relationship
between 56% and
or&ani'ational performance is
more effective. They have
pointed out that the
companies would undertake
the contin&ency or
=situationally-based> approach with the
or&ani'ations adoption in dealin& with
any different situation. 0t is considered as
a much more useful approach in order to
matchin& processes, structures and
activities to the varyin& business needs of
the or&ani'ation (tace
Page 30
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
and 3unphy, 1"":$.
!lso, 8oxall and *urcell
,---$ have concluded that
most companies have created
56 strate&ies to suit
situationally-based or
environmental contin&encies
as their =best-fit> model.
These companies adapt
certain contin&encies in the
business environment such as
by varyin& social issues,
industry si'e and other
or&ani'ational factors
includin& company a&e,
de&ree of unioni'ation, capital
intensity, &eo&raphical
locations, local demo&raphics
and technolo&ies 8oselie et
al., ,--?$. 7uest 1"""b$ has
also emphasi'ed the potential
importance of this approach in
terms of personal
characteristics such as a&e,
&ender, education level and
position in the or&ani'ation.
5owever, it does not fully
invalidate the all =best practice> or
=Iniversalistic> thinkin&.
5owever, *aauwe 1""4$ has ar&ued that
the contin&ency factors were not only
affected by the ran&e of choices of both
mana&ement and the or&ani'ation as a
complexity body but has found that the
majority of the 1# best 56 practices
identified by *feffer 1""+$ had all been
in place in almost every 3utch company
since the 1".- s. 2eaders of mana&ement
who possess or&ani'ation competencies
have become 56 innovators to overcome
those institutional obstacles and in
contrast to la&&ards who thou&ht that the
institutional mechanisms are a restraint
and threat %irvis, 1"".$.
2.0.1 %he &enefit! and wea5ne!!e! of
4niver!ali!tic ,pproach
The universalistic approach is emphases
enhancement of employees knowled&e,
skills and abilities. 7enerally, companies
adopt a set of 56 practices such as
recruitment and selective hirin&<
performance evaluation< trainin& and
development pro&rammes benefits for
employees needs. 8esides, to create the
desired behavior, companies consistently
encoura&e employees to contribute more
ideas and to participate
throu&h specially tailored
intrinsic and extrinsic
motivation system.
5owever, there are some weaknesses for
Iniversalistic approach. Aor example, it is
a challen&e to adapt a set of 56 practices
across industries sectors and the results
mi&ht not be desired due to
Page 31
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
different culture and work
environment factors. Aurther,
8oxall 1""#$ and /ri&ht et
al. 1""+$ found that 56
practices per se cannot be a
source of sustainable
competitive advanta&e.
6ather, the human resources
themselves are the source of
sustainable competitive
advanta&e.
2.0.2 %he &enefit! and
wea5ne!!e! of Contin(enc$
approach
The recent studies show that
the contin&ency approach
could assist companies to be
more competitive in the
&lobal market. That is also
called =situationally-based>
approach which allows
companies to adopt 56
practices and policies
accordin& to business strate&y
in different situations. !lso, in matchin&
processes, structures and activities are
varied accordin& to the business needs of
the or&ani'ation (tace and 3unphy,
1"":$ in order to reduce unnecessary
operational costs.
5owever, there are some of weaknesses
for contin&ency approach such as the
company mi&ht overlook for employee s
interest and needs. This approach only
emphasi'es on the ali&nment of the
competitive strate&ies which may
overlook the imbalance of incentive
compensation.
Arom the comparison of both approaches,
the universalistic approach allows
company to create a successful business
strate&y with the best 56 practices at the
initial sta&e. 5ence, the researcher
decided to use the universalistic approach
as reference and &uidance to determine
the relationship between human resource
practices and or&ani'ational performance,
mediated by the company s policy on
innovation in (%)s in Elan& 1alley.
P
a
g
e
3
2
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
2.3 Concept! and 6aria&le!
2.3.1 1uman Re!ource
2ractice! "Independent
6aria&le!#
The concept of this study is to
determine the linka&e between
56 practices towards
innovation and or&ani'ational
performance results. The
strate&ic human resource
mana&ement (56%$ refers
to the combination of the
practices, policies and
systems internally that
influence directly employees
behaviour, attitudes and
or&ani'ational performance
3e Cieri et al., ,--4$ and its
business objectives 8aird 9
%eshoulam, 1"44< 3elery 9
3oty, 1""#< 5uselid et al.,
1"".< Backson 9 (chuler,
1""?$. 0n addition, /ri&ht et
al., 1""#$ ar&ued that the 56
practices are or&ani'ational
activities which directly
influence 56% towards the
business objectives and
or&ani'ational &oals. 5ence, the
researcher has identified three dimensions
of best 56 practices as the independent
variables< the company s policy on
innovation as the mediator variable and
or&ani'ational performance as dependent
variable.
i$ 0ncentive Compensation
*ast research studies on the relationship
between (56% and or&ani'ational
performance have found that incentive
compensation has a positive effect on
many or&ani'ational performances
3elery 9 3oty, 1""#< Aey, 8jorkmen 9
*avlovskaya, ,---< *feffer, 1""4<
5uselid, 1""?$. ! study by 2owe et al.
,--,$ on monetary and non-monetary
compensation practices has shown that
appreciation of work contributed by
employees as one the best practices by
employers. 8oth types of compensation
practices are stron&ly tied with the
performance outcomes and act directly as
a motivation tool to enhance their
behaviour in participatin& in the tippin&-
point jobs 7erhart and %ilkovich, 1""-$.
)mployees become more involved in
challen&es or difficult tasks &iven by
mana&ement in achievin& the
desired or&ani'ational
performance and outcomes.
Throu&h a formal &rievance
procedure, it protects employees from
arbitrary treatment. These allow measures
by the mana&ement to motivate
Page 33
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
them to work harder and
contribute more. Their
expectations on their efforts
and contributions are to be
fairly rewarded and
compensated 0chniowski,
1"4#< 0chniowski et al., 1""+$.
)very customer s satisfaction
will be translated into
or&ani'ation profit and &ood
reputation. 5ence, /ilson
1""?$ has found that a well-
desi&ned fair reward system is
essential to satisfy
employees satisfaction who
are front liners to deal with
customers.
ii$ Trainin&
!dam (mith 1..#$ has
mentioned skills and trainin&
as an economic prosperity
factor. To &row further with
this application, it was
essentially perceived to
increase productivity *aul,
1"4"$. 5ence, trainin& and
development pro&rammes are
not only an essential instrument for an
or&ani'ation to increase their specific
knowled&e and skills of employees but
also to let the or&ani'ation improve its
current status in terms of quality, quantity
products or services with comprehensive
trainin& and development activities
3elaney 9 5uselid, 1""#< Eoch 9 %c
7rath, 1""#$. 0n addition, the /orld 8ank
,--4$ has stated that the =education and
trainin&> has to be one of the parameters
in the knowled&e economy index.
Cevertheless, most %alaysian companies
have perceived trainin& to be costly and
unnecessary for their employees more
than just the basic skills required.
5owever, on-the-job trainin& is provided
to perform daily and conceptual scope of
work is thou&ht to be &ood enou&h Kon&,
1""#< cited by Chew 9 8asu, ,--?$.
%oreover, to continue investin& in
knowled&e, skills and abilities for
employees is necessary /ri&ht et al.,
1""+$. %ana&ers must reali'e that
employees are an asset and trainin& is not
an extra expense or burden of
development. 0t is the core to improvin&
the competitive advanta&e (cherkenbach,
1"4#$. There is a case-study evidence of a
=soft> indicator to prove that
there is a positive relationship
between trainin& and
improved or&ani'ational
climate Cannon, 1""?$ and
learnin& culture %abey 9 %allory,
1""+$. 0ndirectly, the perception of
employees and trust on this subject is fair
and reasonable. They will deliver what
they have been promised in terms of
Page 34
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
or&ani'ational commitment,
job satisfaction and effort.
(%)s in %alaysia do not
seem to en&a&e a&&ressively
in trainin& and development
pro&rammes and also have
constraints in access to
technolo&y as well as a lack
of market information. These
are shown to be the key
challen&es for &rowth or
survival of an or&ani'ation
5arvie 9 2ee, ,--,$.
iii$ (election 5irin&
6ecruitment or selective
hirin& activities should not
only focus on individual
capabilities to create or share
knowled&e, value and cultural
fit but also needed for
necessary skills throu&h social
back&round and character
references as well as matchin&
the candidates knowled&e,
skills and attitudes E(!s$ to
the job specifications and
position requirements
3i8ella et al., 1""# 9 /illiams, ,--1$.
This indirectly allows the or&ani'ation to
reduce subsequent turnover and leads to
better company performance 7oodman
9 (vyantek, 1"""$ as well as to maintain
a competitive ed&e in small and
entrepreneurial companies 5eneman,
Tanksy 9 Camp, ,---$.
iv$ *erformance )valuation
*erformance evaluation is defined as a
process by a company to measure and
evaluate an individual employee s work
behaviour and performance %oen, 1"4"<
#,< Bohnson, 1""?< ,.4$. !n accurate
performance appraisal is requested as an
instrument tool and is administrated on a
mid-year or year-end basis. %ana&ers
hold the important task of coachin& and
counsellin& employees in order to ensure
that the employees perform well in their
workplace. !lso, they need to find work
reco&nition and fair performance
appraisal to be implemented %ondy,
,-1-< Cassell et al., ,--1$. 0t is an
opportunity to let mana&ement review the
employees past performance as well as
to develop plans for the future as their
yearly objective needed to be achieved in
order to increase the positive
pressure throu&h employees
motivation, hi&h commitment and hi&h
productivity Bassim 9 7aber, 1""4$.
Page 35
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
v$ ;r&ani'ation of /ork
!ccordin& to Kahya and 7oh
,--,$, companies must have
a workin& environment where
their employees work to&ether
closely to accomplish a
purpose and to achieve the
or&ani'ation objective. !
healthy system in stirrin& the
employees to pursue &reat
performance can be
encoura&ed throu&h cohesive
norms representin& their
beliefs and ideas 2im 9
Elein, ,--#$. Aurthermore, it
has been elaborated by van
den !kker ,--?$ that the
components of the spider web
model are important factors to
imitate in order to influence
the quality of work which is
contributed by employees
towards innovation.
vi$ (harin& 0nformation
5owells ,--,$ has
emphasi'ed that the
acquisition of knowled&e, skills and
abilities throu&h cooperation and active
communication amon& employees are the
main contributors in buildin& trust and
understandin& for innovation. Therefore,
workin& as teams to share information or
knowled&e amon& employees has shown
that it is a &ood communication tool to
produce unexpected and effective
outcomes %c7ill 9 (locum, 1"":< 2ei et
al., 1"""$. To provide employees with
appropriate communication tools,
techniques and systems throu&h meetin&,
reviews, updates and reportin& structure
can be effective channels to deliver
information. 0nteractions between
departments in order to exchan&e
opinions and experiences as well as to
discoura&e employees to misuse resources
for their own benefits throu&h the settin&
up of &roup or team incentive schemes in
order to pursue effectively or&ani'ational
objectives *il 9 %ac3uffie, 1""#$.
%oreover, %orishimo s research 1""1$
has found a positive association between
information sharin& and or&ani'ational
performance. 0t has allowed for increasin&
productivity and profitability. /ith this
information-sharin& activity, it not only
leads to or&ani'ation to have
more transparency with its
employees but it also
enhances employees
commitment and subsequently reduces
turnover !hmad 9 (chroeder, ,--:$.
5ence, throu&h consistency in sharin&
or&ani'ational information re&ardin&
Page 36
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
financial and non-financial
performance, business
strate&y and operational
measurement, employees have
been treated as part of the
or&ani'ation members and
that as a result they feel that
they are trusted *feffer,
1""4$.
vii$ Bob (ecurity
/hen informal and formal
pro&rammes are applied to
employment security or to
build job security for
employees, these pro&rammes
will brin& about employees
hi&h commitment, pride and
trust. Thus, the company can
create and maintain a lon&-
runnin& sustainable
competitive advanta&e which
business competitors find it
hard to reproduce that same
level of job security for their
own employees. Eline and
*eter 1""1$ have defined
commitment as the hi&h
participation by employees and a personal
obli&ation to work and contribute it.
%oreover, the use of job security as 56
practices helps to retain the most valued
and talented employees as well as creatin&
trust and pride in the individual s
workplace thus leadin& to more
cooperation *feffer, 1""4$.
viii$ (ocial !ctivities 9 (ports
0n !sia, it is impossible to work
independently and employees are
expected to work as a &roup or team in
developin& empathetic relationships with
other co-workers or peers to achieve
or&ani'ation objectives and tasks. This
could be advised throu&h inspirin& words
or leadership in order to motivate and
encoura&e them to build a stron& sense of
team spirit by usin& a lot of =/)>
statements to describe the relevant
subjects to the project and sharin&
happiness as well as success to&etherness.
%ana&ers need to use social activities and
sports to achieve this stron& sense of team
spirit. 0n %alaysia the work culture is
more based on relationships orientation
and it emphasi'es on collectivism and
workin& as a &roup rather than as an
individual !hmad 9 (eet, ,--"< !sma, 1""#$.
Page 37
Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
2.3.2 Compan$/! 2olic$ on
Innovation "Mediator
6aria&le#
%ost of us are familiar today
with the word =0nnovation>. 0t
comes from the 2atin root
Lnova meanin& Lnew>. 0t
allows or&ani'ations to pursue
a =new> approach or (56%
for chan&e throu&h thinkin&,
processes and mindset. !
combination of 56 practices
lead and create value-added
outcomes for the or&ani'ation
8arney, 1""1< /ri&ht et al.,
1""+$.
%c%ahan 1"""$ su&&ested
that hi&h or&ani'ational
performance may be achieved
if the 56 practices which are
formulated by senior
mana&ement are inte&rated
throu&h a pattern of planned
action /ri&ht 9 6oche,
1"""$. (enior mana&ement
could be effective if there is
amon& others, hi&h
commitment and capability to
mana&e innovation 8ecker, ,--1$. !
study by 8udhwar ,--1$ has found that
the improved 56 practices enhance
employee relations and business values in
drivin& towards innovation. 8ut, some of
the empirical evidence re&ards flexibility
is disappointin& probably due to the fact
that small companies often do not fully
use their flexibility potential 1olberda,
1""4< 2evy 9 *owell, 1""4< Koun& 9
Arancis, 1"":$.
(%)s that practised internal flexibility have
shown the ability to adapt the or&ani'ation
policy !nsoff, 1"#?$. The mana&ement of
or&ani'ational chan&es and co-ordination
mechanisms of the or&ani'ation towards
innovation /atson, 1"4#$ as well as for the
56 policies as a tool for businesss strate&y
were hi&hli&hted by 8eer, 1"4+< Truss 9
7ratton, 1""+< Ilrich, 1"".< 3yer 9
5olders, 1"44< 8oxall, 1"""< 7uest, 1"4.<
2en&nick-5all 9 2en&nick-5all, 1""-<
(chuler et al., 1"":. 5ence, it is crucial to
implement the ri&ht human resource
policies and practices to achieve
or&ani'ational performance %osade&hrad
et al., ,--4$. %oreover, innovation policies
play the role as a platform of intellectual
property in developin& knowled&e transfer
or creativity and innovative
processes in the companies.
This could not only be
developed with an absorptive
capacity whereby human
capital is &athered from their knowled&e
and solutions by the bottom-up practices
rather than by top-down instructions but it
is also reco&ni'ed that operational activities
are necessary for human capital to
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
identify, acquire and
transform the knowled&e
required towards innovation.
2.3.0 Or(ani'ational
2erformance "Dependent
6aria&le#
The mana&ement should trust
their employees and dele&ate
responsibilities and
challen&in& assi&nments to
them. 0n return they will
respond by hi&h motivation,
commitment and performance
7uest, 1"".$. There is a clear
link between the performance
and intrinsic or extrinsic
supports desi&ned to enhance
the competitive advanta&e in
the lon& run. ! proper performance
measurement in empirical literature is
often reco&ni'ed as the =balance>
between financial and non-financial
measures for the overall company
performance which is indicated as
innovation evaluation Chiesa, Cou&hlan
9 1oss, 1""#< 7riffin 9 *a&e, 1"":<
5udson, (mart 9 8ourne, ,--1< Eanji 9
(M, ,--,< Eaplan 9 Corton, 1""#a<
1""#b< 1erhae&he 9 Efir, ,--,$.
5owever, in a majority of I(!-based
empirical studies adoptin& and focusin&
on productivity or financial performance
indicators such as returns on investment
6;0$< returns on asset 6;!$ and returns
of equity 6;)$ as shareholders
perspective were important 5uselid,
1"".$.
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Human Resource Practices and Organizational Performance in SMEs in Klang Valley 2011/2012
2.7 Conclu!ion
This chapter discusses the
development of the
conceptual framework for this
research study. The way to
inte&ratin& variables of a
company is that it should
continuously retrain, develop
and retain their employees
and thus this would not only
increase their market value
which affects employees
commitment and motivation
productivity but also may
reduce their intensity to quit
from the company 1lachos,
,--4$.
!part from the internal
factors, awareness of external factors
from financial and non-financial advice or
&uidelines from the &overnment sector is
essential in assistin& (%)s to &ain a more
sustainable competitive advanta&e
5umphreys et al., ,--?$. 8esides, five
hypotheses will be used in this study as
the basis of the data analysis. These will
be presented in Chapter : which covers a
process of &atherin&, developin& and
implementin& the research methodolo&y
to determine the relationship between the
proven 56 practices and or&ani'ational
performance, mediated by the company s
policy on innovation. There is also
consistency to maintain the 56% and
563 with 56 mana&erial skills in (%)s
to facilitate efforts towards environmental
chan&e and consequently the sustainable
competitive advanta&e.
P
a
g
e
4
0