How Internal Stickiness Affects
Competency Based Human Resource
Management Practice
Results from Indonesian Small Medium
Enterprises in Fashion Subsector
MSc Thesis International Business & Management
Dhira Dwijayanti Yogaswari – S2712296
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How Internal Stickiness Affects
Competency Based Human Resource
Management Practice
Results from Indonesian Small Medium
Enterprises in Fashion Subsector
MSc Thesis International Business & Management
Dhira Dwijayanti Yogaswari – S2712296
dhiradwijayanti@gmail.com
Supervisor
Prof. Dr. Luchien Karsten
Faculty of Economics and Business
Rijksuniversiteit Groningen
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Abstract
The difficulties of firm in implementing new practices internally has been the discussions in the literature (Szulanski, 1996; von Hippel, 1994). Several best practices that emphasize the role of human resource management to create a firm competitive advantage are implemented in Indonesia. One of the approach that used by organization is Competency Based Human Resource Management. However, in adopting new practices, firms might face several barriers. They might encounter the problems of internal stickiness, a difficulty in transferring knowledge (Szulanski, 1996).
Drawing from the Resource-Based View Perspective, Internal Stickiness by Szulanski (1996), and Hofstede (1991), this research would like to investigate how internal stickiness affects the Competency Based Human Resource Management practice in terms of increase in firm performance in Indonesia. Case study of five Indonesian Small Medium Enterprises in fashion subsector is applied in this research. Five owners and five HR managers of all five Small Medium Enterprises are interviewed.
The finding suggests the importance of awareness of internal stickiness. During the implementation, the five Indonesian SMEs are aware with occurrence of stickiness, and they modify the Competency Based Human Resource Management to be more suitable in the Indonesian Small Medium Enterprises context. In addition, they five SMEs acknowledge that increase in firm performance occurred in terms of customer satisfaction.
Keywords: Internal stickiness, Competency Based Human Resource Management, practice,
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Acknowledgements
I would like to express my gratitude to Allah for His blessing until now I’m successfully complete this thesis. To my parents for the countless supports during my study here in Groningen.
To my supervisor, Prof. Dr. Luchien Karsten, who introduced this topic to me, without his guidance, knowledge, and constructive feedbacks, my thesis would not have been completed. I also would like to thank to my sisters, Dhinda Vitriani and Dhika Hapsari, for the supports. In addition, to Adhi Baskoro, for the support until I finally finished my thesis. Also for Nazan, Myra, Salena, my loveliest girls in Groningen. Thank you for all the good and bad times during in Groningen.
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Table of Contents
Abstract ... 3
Acknowledgements ... 4
List of Table and Figures ... 7
Chapter 1 - Introduction ... 8 1.1 Research Questions ... 9 1.2 Limitation ... 9 1.3 Layout ... 9 Chapter 2 - Literature ... 10 2.1 Resource-Based View ... 11 2.2 Competency Definition ... 11
2.3 The scope activities of CBHRM ... 11
2.4 Internal Stickiness Definition ... 12
2.4.1 Indicators Internal Stickiness ... 12
2.5 Indonesian Cultural Context ... 15
2.6 CBHRM to Performance ... 16
2.7 Suggested Conceptual Framework ... 16
2.8 Indicators ... 17
Chapter 3 - Methodology ... 18
3.1 Research Design ... 18
Case study ... 18
3.2 Data Collection ... 20
3.2.1 Primary Data – Interview ... 20
3.2.2 Secondary Data ... 23
3.3 Data Analysis ... 23
3.4 Measuring Validity and Reliability ... 24
Validity ... 24
Reliability ... 24
Chapter 4 – Findings and Discussions ... 25
4.1 Introduction ... 25
Organizational Structure ... 25
4.2 Position of Human Resource Department in five Indonesian Small Medium Enterprises (SMEs). ... 26
4.3 Definition of CBHRM and its role from the perspective of the owner ... 28
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4.5 Challenges in Implementing CBHRM ... 36
4.6 Awareness of Stickiness ... 38
4.7 Actions to Solve the Challenges ... 40
4.8 CBHRM Implementation to Performance ... 42
Interviews Summary ... 43
Chapter 5 - Conclusion ... 46
5.1 Contributions ... 46
5.2 Limitations... 47
5.3 Further Research Recommendation ... 47
References ... 48
Appendices ... 56
Conceptual Variables – Indicators ... 56
List of Interview Questions ... 58
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List of Table and Figures
Table 1 Five SMEs Overview. Source: own ... 20
Figure 1 Conceptual Framework. Source: Own ... 17
Figure 2 Organization Structure in five Indonesian SMEs. Source: own ... 25
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Chapter 1 - Introduction
As an emerging market, Indonesia continues to grow in order to be able compete internationally. One of the focus is re-arranging the management aspect, specifically in terms of human resource management. Indonesian firms started to adopt the western approach of Competency Based Human Resource Management (CBHRM) since year 2000 (Management Research Indonesia, 2008). In implementing CBHRM, all activities related with Human Resource practices are based on competency. The purpose of CBHRM is to manage the employees effectively, since employees are one of most important assets which have an important role in organization (Fitz-enz, 2000).
Indonesian Small Medium Enterprises (SMEs) play important role in the national economic development (Rachmi, 2013). There are 55.2 million Small Medium Enterprises in Indonesia and it is the highest in ASEAN countries (Indonesian statistics, 2014). They also contribute to Gross Domestic Product by 57.9 percent and contribute 97.2 percent of total employment. Due to a significant role of the Small-Medium Enterprises toward the national economy, Indonesian Small Medium Enterprises are already demanded to focus in their human resource by increasing their competencies, they have to always deliver good qualities of products which come from the competency of its employees. Thus, with the implementation of CBHRM in Small Medium Enterprises, it is expected to develop employee competency, establish firm’s uniqueness and lead to firm’s competitive advantage among other competitors.
However, in implementing such a new practice, Indonesian firms might encounter some impediments. The difficulties of firm in implementing new practices internally has been the discussion in the literature (Szulanski 1996). In adopting new practice, organization may encounter problem of internal stickiness that means difficulty to transfer particular knowledge (Szulanski, 1996). Attitude of employees might hamper the transfer of particular knowledge in CBHRM practice. Moreover, Indonesian national culture which describes as high collectivist society and high power distance, might increases internal stickiness.
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in Indonesian Small Medium Enterprises (Habir and Larasati, 1999; Sitalaksmi and Zhu, 2010; Thoha, 2005).
This research aims to investigate how internal stickiness affects CBHRM practice. As the theoretical foundations, my research integrating Resource Based View (RBV), internal knowledge stickiness by Szulanski (1996), and Hofstede (1991) cultural dimension. As the methodology, case study of five Indonesian SMEs in fashion subsector is applied with the qualitative analysis. Lastly, the conclusion and further study recommendation will also be presented.
1.1 Research Question
The main research question is set as follows:
“How does internal stickiness affect CBHRM practice in Indonesian Small Medium Enterprises in terms of performance increased?”
1.2 Limitation
This research only covers firm’s internal stickiness aspect as the possible impediments of the Competency-Based Human Resource Management (CBHRM) in Indonesian five Small Medium Enterprises (SMEs) in fashion subsector.
1.3 Layout
This thesis consist of five chapters as follow:
Chapter 1 – Introduction: The background, research question, and limitation in this research are presented
Chapter 2 - Theoretical Framework: The conceptual framework and proposition constructed from the relevant theory are presented.
Chapter 3 – Methodology: Research method is presented in this chapter, including the description of research design, data collection method, and data analysis method.
Chapter 4 – Findings and Discussions: In the chapter four, the findings from the interview with the firm will be presented and discussed with the relevant literature.
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Chapter 2 - Literature
This research attempts to get more understanding on how internal stickiness affects CBHRM in terms of performance in Indonesian Small Medium Enterprises in fashion subsector. As the theoretical framework, this research is integrating Resource Based View (RBV) perspective, internal stickiness by Szulanski (1996), and Hofstede National Culture.
Resource Based View is used to explain internal resources in the firm as a competitive advantage. In this research, it specifically focuses on human resource as the internal resource. Moreover, the RBV perspective emphasizes that an enterprise with valuable, rare, and inimitable resources has the possibility to achieve high performance and thus generate a sustainable competitive advantage (Wiklund and Shepherd, 2003; Muniu, 2013). Thus, RBV is used in this research.
However, Szulanski (1996) found that the attitude of employees could be the barrier in implementing new practices in internal firm. Internal stickiness by Szulanski (1996) is applied to emphasize the internal factors in the organization as the impediment of CBHRM in Indonesian Small Medium Enterprises (SMEs). Thus, internal stickiness is applied as the mediator variable in this research.
Factors influencing internal stickiness to knowledge transfer in the organization can be divided in terms of personal and organisational (Schuller, 2014). This research focuses on the personal factors that can hinder the knowledge transfer within the organization. This is because this research emphasizes on the strategic role of the individual in creating a firm competitive advantage through CBHRM. However, at the same time attitude of individual could lead to internal stickiness, thus hinder the knowledge transfer of a new practice. Thus, this internal stickiness by Szulanski (1996) is applied.
Hofstede is applied as the theoretical framework to provide general analysis and understanding regarding particular national culture, in which in this research is Indonesia. There has been current discussion in the literature that Hofstede might not applied to research which focuses on individual context (Yoo et al., 2012). However, it is likely that national culture might embedded in its individual. In addition, previous international management studies apply Hofstede cultural dimension particularly in individual levels (Paul et al., 2006; Volkema, 2004). Thus, Hofstede is applied in this research.
11 2.1 Resource-Based View
Resource Based View perspective sees organizations as bundles of resources (Barney, 1991; Hunt, 1997a, 1997b; Hunt and Morgan, 1995; Lado et al., 1992). According to Resource Based View, resource heterogeneity exists among firms within a strategic group, and that such heterogeneity can be sustainable because resources are not perfectly imitable or mobile among organizations. Resources should be valuable, rare, non-substitute, imperfectly imitable (Barney, 1991). These firm resources can be categorized into three: tangible capital resource (Williamson, 1975), human capital resources (Becker, 1964), and organizational capital resources (Tomer, 1987). In this research, the focus is on the human capital resources as a source of competitive advantage.
Many researchers argue that the source of competitive advantage is the capacity to manage human capital (Coff, 1997; Kamoche, 1996; Mueller, 1996; Schuler and MacMillan, 1984; Ulrich, 1991). Competitive improvement and innovation can be achieved through human resource, thus managing people and knowledge considered to be crucial in order to have a competitive advantage (Klett,2000).
2.2 Competency Definition
Definition of competency varies across research. Most researchers define competency as a basic characteristic of individuals that determine their performance (Mitrani et. al, 1992; Spencer and Spencer, 1993). According to LOMA Competency dictionary (1998) an individual basic characteristic includes trait, values, attitude, knowledge, and skills. Setyowati (2010) defines the basic characteristic might includes individual personality, motive, capabilities, and knowledge. Thus, this research defines competency as individual personality, motive, skill, and knowledge, which determine their performance. In addition, this research will focus on individual competency. Individual competency can be cultivated through training, creating a learning environment, and regular performance feedback (Mangundjaya et al.,2009).
2.3 The scope activities of CBHRM
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In performance management activities, regular performance feedback from managers to their staffs is necessary in order to increase the productivity of employees (Kumar, 2006). In terms of employee development program, the development program needed is set based on the result of performance management. The main objective of development activities is developing individual competency that continuously increases organizational performance. In terms of employee rewards, the rewards are based on the ability of employees to achieve the desired competencies in performing their work (Itika, 2011).
2.4 Internal Stickiness Definition
Von Hippel (1994) describes the term of ‘sticky information’ as information that is difficult to transfer which is indicated in the incremental cost occurs during the transfer. While Foss (1995) define sticky as difficult to replicate. Moreover, Szulanski (1996) defines internal stickiness as the difficulty to transfer the particular knowledge within firms.
When firm adopts a new practice internally, this new practice consists of a set of knowledge. During the implementation, this new set of knowledge is transferred from the source to the recipient within the organization. Thus, it highly depends on individual who involves on it (Szulanski, 1996).
2.4.1 Indicators Internal Stickiness
Previous studies applied the four factors influencing the internal stickiness within organizations: characteristic of the knowledge transferred, characteristic of the source of the knowledge, characteristic of the recipient of the knowledge, and characteristic of the context (Szulanski, 1996; Leonard-Barton 1990). The four sets of factors are described as follows:
1) Characteristic of the knowledge transferred Causal ambiguity
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Uncertainty of the knowledge in the past experience
Knowledge that has been proven to be successful in the past also influences the level of internal stickiness within the firm. Without this evidence, it is more difficult to persuade recipient to be involved in the knowledge transfer (Rogers, 1983). With the lack of success story of CBHRM implementation in the context of Indonesian SMEs, it is likely that the employees might resist toward the CBHRM.
2) Characteristic of the source of the knowledge Lack of motivation
In implementing CBHRM, HR department as source of knowledge might reluctant to share the knowledge inside CBHRM. HR department might simply set CBHRM and leave it to all managers during the implementation, without any assistance.
3) Characteristic of the recipient of the knowledge Lack of motivation
Lack of motivation of the recipient to receive the knowledge might results in the rejection in the practice of new knowledge (cf. Zaltman, Duncan, and Holbek, 1973). Lin (2011) found that employee motivations are closely related to the success of new practices in the organization. In this research, CBHRM practice as the new knowledge with competency as the basis might affect the routine activity of the employee, for instance the managers now has to routinely give feedback to their staff in order to develop employee competency, and staffs will have to do more than they used to in order to develop competency. Furthermore, managers might reluctant to give feedback to their staff due to fear of losing superiority. Moreover, staffs might also feel unmotivated to add the routine activity because they already comfort with the current condition.
Lack of absorptive capacity
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CBHRM, there are scope of activities need to be done both by managers and staffs. For instance, managers need to give feedbacks to their subordinates and staffs need to attend to training to develop their competencies. Managers might not used to give evaluation to their staffs, as a result they will not assess properly the competencies of its staffs. Meanwhile, staffs might also find the training unfamiliar beforehand, as a result they might not get the main point of training which is used to develop their competency. With the unfamiliarity with the knowledge-related beforehand, it is unlikely that employee is able to absorb and apply the CBHRM.
Lack of retentive capacity
Moreover, the level of retentive capacity also lead to difficulty of transferring knowledge. Retentive capacity is the ability of the recipient of knowledge to use the knowledge in the routine activity (Szulanski, 1996). In CBHRM, the most important activity is employee development. During the employee development, the staffs are given training or other activities in order to increase their work-related competencies. With the lack retentive capacity of the staffs, the particular competency they get from training will lasts temporarily. Failure in retaining this work – related competency will lead CBHRM as only a set of practice implemented by HR without having a significant impact to the performance.
4) Characteristic of the context
Difficult relationship between the recipient and the source
The relationship between the recipient and source of knowledge is also important during the knowledge transfer process, especially when the knowledge is embedded in the organization activity (Nonaka, 1994). Difficult relationship might affect the knowledge transfer process becoming more complicated (Szulanski, 1996). Difficult relationship between HR department as the source of CBHRM and employees in the firm might lead to the difficulties of CBHRM to be transferred internally.
15 2.5 Indonesian Cultural Context
Culture might have an indirect impact towards the implementation of a new practice in the organization. Competency-based human resource (CBHRM) is a strategic human resource practice that focuses on utilizing the competence of employee as a center. The CBHRM emphasizes the strategic role of employee’s competences as a firm’s competitive advantage (Dubois and Rothwell, 2004). CBHRM as a western approach might have different effects when it is being implemented in the eastern country, particularly in Indonesia, considering the cultural differences.
Indonesia is known to have a high power distance index and a collectivist character (Hofstede, 1991). High power distance in organization means that the relationship between employees is affected by hierarchies, there is a distance between employees in a higher level and a lower level. A low score on individualism suggests a very collectivist society and the importance of in-group members to employees (Chandrakumara et al., 2010).
When a firm decides to implement competency-based in its human resource system, managers hold an important role in promoting it. In order to achieve employee’s desired competencies, managers need to assess their staff regarding their current competencies and give feedbacks on how to achieve to desired competencies (Wustari, 2009). With the occurrence of such a hierarchical distance between employees, it might reduce an effective communication between managers and their staff. Managers will always perceived that they are superior and have higher power, while staff feel that they are in a lower hierarchy, thus staffs will feel uncomfortable to have communication with managers.
Furthermore, in a collectivist society, a confrontation is avoided because open discussion may reduce group harmony (Hofstede, 1991). Feedback is used as an approach of performance management during CBHRM to achieve desired competencies, in which such competencies are important in increasing company performance. Feedbacks in the performance appraisal are likely to be direct and blunt, negotiation and open discussion are expected between managers and staffs (Anderson, 2001). With a collectivist nature in Indonesia, staffs might reluctant and not motivated toward feedbacks and these might lead to low effectiveness of feedbacks. Low effectiveness of feedbacks, in which such feedbacks intend to increase employee’s competency might not occur, thus increase in firm performance is unlikely to occur.
16 2.6 CBHRM to Performance
Previous studies have addressed the link between human resource management practices and competitive advantage (Schuler & Jackson, 1987; Schuler & MacMillan, 1984). From this perspective, human resource management practices can contribute to competitive advantage because they elicit and reinforce the set of role behaviors that result in reducing costs, enhancing product differentiation, or both (Schuler & Jackson, 1987).
Some evidences for the positive impact of HR management on organization performance are as follows. Recruitment has positive effect towards firm performance (Khan, 2010; Katuo and Budhwar, 2006; Ahmad and Schroeder, 2003). Moreover, training and development (Khan, 2010; Katuo and Budhwar, 2006; Ahmad & Schroeder, 2003), performance appraisal (Khan, 2010), compensation (Ahmad and Schroeder, 2003; Chiu et al., 2002) have positive influence towards firm performance. These previous studies emphasize the role of HR management as the firm competitive advantage (Jackson & Schuler, 2000).
In addition, CBHRM, as a HR management practice which emphasize the strategic role of competencies, has a significant impact toward organizational performance in terms of human resource outcome, operational outcome, and financial outcome in Philippine and Malaysian Small Medium Enterprises (Galang and Osman, 2014). In CBHRM, all related processes for instance; recruitment, employee development, training, and performance management, are based on competencies. In the Indonesian Small Medium Enterprises (SMEs) context, recruitment, selection, motivation training, welfare development, and compensation have a positive impact towards the performance (Samir and Larso, 2011; Ardiana et al., 2010).
However, this positive impact towards performance is unlikely to occur, because with the occurrence of internal stickiness, it could hamper the positive impact of CBHRM to performance. Thus, with the internal stickiness, the CBHRM might not lead to the increase in performance.
Preposition 3: As the result of stickiness and cultural context, CBHRM might not lead to increase in performance
2.7 Suggested Conceptual Framework
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Figure 1 Conceptual Framework. Source: Own
2.8 Indicators
The indicators of variables used in this thesis are explained as follows. Variables Indicator
Internal stickiness Characteristic of the knowledge: causal ambiguity, success knowledge in the past
Characteristic of the source: lack of motivation
Characteristic of the recipient: lack of motivation, low absorptive capacity
Characteristic of the context: difficult relationship between source and recipient
CBHRM Recruitment, competency development, performance management Performance Increased in net income
Culture Collectivist society and hierarchical distance
As the internal stickiness indicators, this research uses four factors defined by Szulanski (1996). As the CBHRM indicators, this research uses the scope of activities in human resource management defined by Kumar (2006). As the performance indicators, this research uses an increase in net income every year because it is most relevant to be applied in the SMEs context (Galang and Osman, 2014). Moreover, as cultural indicators, this research uses a high collectivism and hierarchical distance following Hofstede (1991).
Internal Stickiness Causal ambiguity Success Knowledge
in the past
Lack of Motivation of the Source and Recipient
Low absorptive capacity of recipient Difficult relationship between source and recipient Relationship Competency Based Human Resource Management (CBHRM) Recruitment Competency Development Performance Management Performance Increased in Net income Indonesian culture
A high power distance A Collectivist character
P3 P2
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Chapter 3 - Methodology
3.1 Research Design
Constructing an appropriate research design is crucial in conducting research (Sletthagen, 2013). Research design is the appropriate logic, which links the data collection to the research questions (Yin, 2009). This research intends to explore in detail internal how internal stickiness affects CBHRM implementation in Indonesian SMEs in terms of performance. In order to fulfil this objective, qualitative method is applied in this research. Qualitative approach is suitable to discover the process of a particular phenomenon (Eisenhardt, 1989). Moreover, qualitative approach is required when a study need to understand a particular phenomenon in-depth and detail (Zikmund et al., 2010). Thus, qualitative method is considered appropriate.
Internal stickiness and its effect on CBHRM are being investigated in this research by interviewing five owners and five managers within five Indonesian SMEs in fashion subsector. This thesis uses theory as a basis for constructing proposition within a theoretical framework, and then, interviews with owners and managers of five Indonesian SMEs will be conducted.
Case study
Research based on case studies enables for a detailed investigation of complex phenomena (Thomas, 2004). By using case study, it is also filling the gap between academia and industry (Simon et al., 1996). In this thesis, the case study strategy will be applied with the use of multiple-cases approach. Multiple-cases allow deep exploration of a research (Eisenhardt and Graebner, 2007).
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indicates significant growth and prospect to expand internationally. Thus, fashion subsector is used in this research.
Based on the size, industry can also be classified into four categories: micro, small, medium, and large enterprises. This thesis focuses on Small Medium Enterprises in Indonesia. According to Indonesian Ministry of Industry (1986) small enterprises employ five to nineteen employees and 20 – 99 employees for medium enterprises.
Moreover, Indonesian Ministry of Cooperative (2007) sets the criteria for SMEs as follows: 1) they have maximum net assets of up to 10 billion rupiah, excluding land and buildings; 2) they are owned by Indonesians; 3) they comprise independent companies not owned by a large company and directly or indirectly affiliated with a large enterprise; and 4) they are individual companies, with or without legal entity status (Diana et al., 2008) This thesis follows this definition in defining SMEs.
Five cases used in this research are all from the same subsector which is fashion and they all considered as Small Medium Enterprises. Furthermore, since the topic is related with HRM, which is CBHRM practice, each of the SMEs has HR department, which makes it more suitable for this research.
Following those criteria, the five SMEs are selected. The description of the five Small Medium Enterprises (SMEs) used as the cases in this research is summarized as follows:
Case 1 Case 2 Case 3 Case 4 Case 5 Firm size Total
employee: 100 Total stores: six Monthly net income: IDR 300 - 500 million or equals to €33,000 Total employee: 100 Total stores: five Monthly net income: IDR 300 - 400 million or equals to €27,000 Total employee: 160 Total stores: four Monthly net income: IDR 250 - 350 million or equals to €24,000 Total employee: 140 Total stores: five Monthly net income: IDR 200 - 250 million or equal to €17,000 Total employee: 150 Total stores: seven Monthly net income: equal to IDR 300 – 400 million or equal to €27,000 Location Jakarta, Indonesia Jakarta, Indonesia Jakarta, Indonesia Jakarta, Indonesia Jakarta, Indonesia Company Description This SME was established in 2000.
This SME was established in 1990.
The business
This SME was established in 1992.
The business
This SME was established in 1999. The business
This SME was established in 1990.
20 The business focuses on designing and selling clothes and accessories for moslem woman. - This SME has six stores located in the local shopping mall in Jakarta and planning to open new store in the Bandung, West Java. - CBHRM has been implemented in this SME since 2010 focuses on manufacturing and selling clothes and accessories. - This SME has four stores located in the local shopping mall in Jakarta and one store in Bandung West Java. - CBHRM has been implemented in this SME since 2009 focuses on manufacturing clothes and accessories for woman. - This SME has three stores located in the local shopping mall in Jakarta and one store located in Solo, Central Java. - CBHRM has been implemented in this SME since 2009 focuses on manufacturing clothes and accessories.
- This SME has five stores located in the local shopping mall in Jakarta. - CBHRM has been implemented in this SME since 2010 focuses on manufacturing clothes and accessories. - This SME has seven stores located in the local shopping mall in Jakarta. - CBHRM has been implemented in this SME since 2009
Table 1 Five Firms Overview. Source: own
3.2 Data Collection
3.2.1 Primary Data – Interview
Accordingly to Yin (2009), in conducting case study, six main sources to collect data are identified as follows: documents, archival records, interviews, observations, and physical artifacts. In this research, the primary data are collected through interview. Moreover, Yin (2009) emphasizes the importance of using multiple sources when collecting the data. Beside the primary data applied in this research, published articles, journals, will also be used as the secondary data.
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Conducting interview could be in different ways. It could be direct face to face interview, phone interview, online interview using internet service, for instance Skype, or other media provided by internet service (Farquhar, 2012; Sletthagen, 2013). In this research, the online interview via Skype was done due to the distance and time limitation. Some researches emphasize the limitation of indirect interview (online and phone interview) regarding the low quality of the data (Sletthagen, 2013). However, the quality of the interview was still guaranteed due to the personal network to the five firms. In addition, if there are still unclear elements, further interview will be conducted.
The interview was done using the native language since it gives the interviewee more flexibility and openness to talk regarding the topic. Thus, interviews were conducted in Indonesian language to optimize the result. The five owners were interviewed regarding the overview of CBHRM for about an hour. The five managers were interviewed for one half hours related to the CBHRM implementation. The interviews were recorded in order to be analysed further using coding. A week after the interviews, the managers and owners were shown the summary of the interview in order to confirm the interpretation. This phase is the most important since the most common problem in the qualitative is the subjectivity of the researcher in interpreting the data (Stenbacka, 2001). Thus, through this approach, this will limit subjectivity.
3.2.1.1 Sample
Sampling method used in this research is purposive sampling. Purposive sampling is a data gathering method with specific purposes (Sugiyono, 2007). The unit of analysis in this research is employee’s attitude. The owners will be asked regarding general information of the firm, overview of CBHRM, and firm performance. Moreover, as the recommendation from the owner, human resource managers are the right informants regarding this research topic. According to Yin (2009), selecting the right informant is often the key success of case study. Thus, the owners and HR managers from each five Indonesian SMEs will be interviewed. Thus, the total respondents for this research will be ten interviewees.
3.2.1.2 Interview Guide
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owner and the HR managers. The content of interview questions for the owner is more to a general discussion regarding CBHRM overview, while the questions to HR managers will be more technical regarding the CBHRM set of actions, internal stickiness, and culture.
In designing the interview guide, nine steps by Emans (2004) is adopted in this research. With the two lists of interview questions, however the interview guide will be relatively similar, the difference is only in step 1 – 3. This guidance in designing interview is applied in this research in order to optimize the information gathered from the interview. The nine steps by Emans (2004) are described as follows.
Defining the objective of the interview
The first step is defining the objective of the interview. The objective of interviewing the owner is to have an overview of CBHRM. While the objective of interviewing the HR manager is to explore the CBHRM implementation and its impediments, including the occurrence of internal stickiness and culture.
Defining the conceptual variable
After the objectives have been constructed, the second steps are defining the variables (Emans, 2004). The conceptual variables for interviewing the owners are the organizational overview, HR overview, CBHRM overview and its scope. The conceptual variables for interviewing the HR managers are challenges of CBHRM implementation, occurrence internal stickiness, culture, and firm performance.
Defining indicators
In the third step, the conceptual variables are defined into more specific indicators (Emans, 2004). The detail conceptual variables and indicators are in appendix 1.
The following steps in interview guide will be applied for both owner and HR managers.
Defining technical variables
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Formatting, constructing, and ordering questions
The fifth step is developing from technical variables to format for answers and note (Emans, 2004). The questions will be dominated by open questions and few closed questions. According to Emans (2004), open questions could increase the efficiency of the interview since it encourages the interviewee to start talking, then a series of answers could be stimulated.
Moreover, the interview is a semi-structured interview. Questions are structurally constructed beforehand, however, if during the interview there are topic-related answers that are necessary to be explored and have not covered in the list of questions, then more additional questions will be asked. After the interview questions have been constructed, the seventh step is ordering the questions (Emans, 2004). The order of the questions will follow funnel sequences, which is the questions will be begin with the general questions, then followed by more specific questions (Emans, 2004).
Finalizing and assessing the interview design
As for the eighth step is the finalization of the questions using introduction, conclusion, and layout. Lastly, the ninth step is assessing the interview design. The pilot interview will be conducted by inviting pilot interviewee, which has similar background with the real interviewee. The purpose is to check the clearness of the questions (Emans, 2004). The lists of interview questions are in appendix 2.
3.2.2 Secondary Data
The secondary data in this research is applied to get an understanding before constructing the interview guide. The data was retrieved from several sources, for instance newspaper, articles, and web pages before the interview guides will be designed. However, since researcher needs to aware with the credibility of the secondary data (Farquhar, 2012), then secondary data was used until constructing the interview guide, and was not discussed afterwards (Sletthagen, 2013).
3.3 Data Analysis
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The first step was transcribing which wrote down the interview data. All the interviews are recorded using voice recorder that makes the transcribing process more accurate. All the ten interviews of five cases were conducted in Indonesian language, thus it needs to be translated into English. The third step is categorizing the data into several categories. The category will be constructed based on conceptual variables in interview guide. After the data is categorized, the last step is interpreting. In order to provide clear interpretation, a process framework will be presented at the end of analysis. The data analysis will further discussed in the chapter 4.
3.4 Measuring Validity and Reliability
The quality of a case study could be optimal when making sure the validity and reliability of the data collection are constructed (Yin, 2009). Following that, in order to make sure the validity and reliability of this research, the validity and reliability of the primary data are discussed as follows.
Validity
Hair (2007, p. 294) defines validity as “assessing the extent to which the conclusions that have been drawn are logical, believable, justified by the data and patterns identified and supportable even when there are alternative explanations”. In order to make sure the validity of the data, several weeks after the interviews, researcher sent the interview results to the informant to verify the result.
External validity
One of the biggest concern in doing case study is that the external validity problem of knowing that the researcher findings is possible to be generalized (Yin, 2009). However, this research uses multiple cases, so the generalizability of the data is expected to increase (Miles and Huberman, 1994).
Reliability
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Chapter 4 – Findings and Discussions
In this chapter, the finding of the research and discussion are presented. The main research question in this research is “how the internal stickiness affecting the CBHRM implementation in terms of performance increase in Indonesian SMEs”. In order to answer the research question and verify the three propositions, relevant findings from data collections will be presented in this chapter with quotes and comments.
In sub-chapter 4.1, the overview of organization structure in the Indonesian SMEs is presented. Based on the data analysis, there are six points that will be discussed in this chapter: the position of HR department in each firms, the definition of CBHRM and its role, the scope activities of CBHRM, the challenges in the CBHRM, the awareness towards the internal stickiness, and the actions taken to solve the challenges, and the impact of CBHRM to the firm performance. Following that, the concluding section will be presented at the end of this chapter to summarize the interview results.
4.1 Introduction
Organizational Structure
Before discussing particular topic regarding CBHRM and internal stickiness, it is necessary to have an overview related with organization structure in five SMEs. The organization structure is presented as follows.
Figure 2 Organization Structure in five Indonesian SMEs. Source: own
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Small Medium Enterprise is identical with simple organizational structure (Diamond, 2006). From the case of five firms in this research, the organizational structure does not have many levels. On the top of the hierarchy is the owner. According to the interview with the five SMEs, the manager of each departments reported directly to the owner and followed by team leaders and team members.
Moreover, in the organization structure above, team members and team leaders are in the same level as a staff, but they have different salary. The number of team leaders in each five SMEs varies. It depends on the sub-department under each departments because each of sub-department has one team leader. For instance, they have two sub-departments in production and design, which are clothes and accessories. Therefore, they have two team leaders. In sales, the number of sub-departments depends on the number of the stores the SMEs have.
4.2 Position of Human Resource Department in five Indonesian Small Medium Enterprises (SMEs).
In this part, the explanation from the five owner of SMEs regarding the position of Human Resource (HR) department in the five SMEs is presented. Case 1
In the first case, this SME has HR department which is responsible for recruitment, employee development, and employees can also consult to HR regarding any work-related issues. HR department is also obliged to set policy regarding human resource management. Moreover, in recruitment, HR department also manages the recruitment process. However, the manager of each departments determines the final decision.
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Case 2
In the second case, the responsibility of HR department is to manage HR activities and assist employee if any work-related conflict occurs. Another role of HR department is to set HR policies. Even though the recruitment process is also managed and conducted by HR department, the hiring decision is still held by the manager of respective department which candidates are applying for.
“The role of the HR department is mainly to manage HR-related system, from recruitment to employee development. It also includes setting HR policy. HR also responsible for assisting employee when any conflict occurred.”
“HR manages the recruitment process, but the final decision to hire the employee depends on the respective department which candidates are applying for. For example, manager of Design holds the hiring decision of every applicant that apply for design department. Human resource only follows the recruitment procedure and the result is given to the manager of respective department.”
Case 3
In the third case, the HR department is mainly responsible for recruitment and training. In recruitment, the owner still holds the hiring decision.
“HR department manages recruitment, employee development, performance appraisal, and also set policy regarding HR system. We have set of competency that we are looking for and guideline for the interview process. Since we already have the guideline for employee recruitment process, including the interview questions... I personally do not involve in the process. However, the final decision lies with me. HR report to me about the prospective candidate and I decide whether to hire them or not.”
Case 4
In the fourth case, the HR department is responsible to manage any HRM practices, including recruitment, performance management, and employee development. However, the owner holds final decision on the hiring process.
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“HR department conducts the recruitment process based on the guideline. It includes the interview questions based on the required skills/abilities of each department… After the interview has been conducted, HR department send me the interview report and the final decision lies with me whether to hire or not.”
Case 5
In the fifth case, the HR department manages the process of recruitment, performance appraisal, and employee development.
“The HR department is mainly responsible for recruitment, setting performance appraisal, and creating employee development. Setting and maintaining the implementation of HRM policy are also its responsibility. ”
In addition, the manager of each departments determine the decision to hire new employees
“In the recruitment process, HR has the interview guideline including the list of interview questions. The list of questions is constructed based on the competency that we are looking for. As the final decision whether to hire the employee, it depends on manager of respective department which applicants are applying for.”
4.3 Definition of CBHRM and its role from the perspective of the owner
Case 1
In the first case, the owner defines CBHRM as a continuous process of HRM based on competency. The owner also emphasizes the alignment between employee’s knowledge, skill, attitude, and behaviour with specific task.
“I think CBHRM is continuous process of HRM based on competency, for example we recruit people based on the competency that we are looking for, and then after that we always develop their competency. The main point is how we have people whose knowledge, skill, attitude, and behaviour that align with the requirement of particular task.”
In defining the importance of CBHRM, the owner uses the terms of competent employees.
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Case 2
In second case, the CBHRM is defined as the process of recruiting competent people and developing their competencies. Employee’s knowledge, skill, and personality should be integrated with the firm’s goal.
“I think CBHRM is how we recruit competent people and develop their competency. It is important because employees are part of our business. Their knowledge, skill, and personality should be aligned with our business goals.”
Moreover, the owner emphasize the role of having competent employees in supporting business performance.
“As for fashion industry, the key point of our success is the design, the quality of our product, and sales person. We have to look for employees that fulfil the requirement, so that the design will always up to date, the quality is always good, and the service always satisfy customers. In short, the performance of our business depends on how competent our people is.”
Case 3
In the third case, the CBHRM is described as the process of integrating employee competences and organization’s objective.
“I think CBHRM is integrating employee competences and organization goals. Employee has a strategic role in supporting the business performance through their competencies.
Furthermore, the owner emphasizes the role of employees in running the business which make their competency affecting the business performance.
“It is really important because employees are running our business, so their competency impact the business performance as well. That is why we not only focus on looking for competent employees, but also develop their competency. ”
Case 4
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“It is about the alignment of individual competency with the business goals. It is really important because employees are part of our business, they involve in the business. So the competency of our employees are influencing the business performance.”
Case 5
In the fifth case, CBHRM is defined as human resource management process with using competency as the basis.
“CBHRM is relating human resource management towards competency, for example recruiting people based on the competency. Moreover, it is not only in the beginning of the recruitment, but also we continue to keep developing their competency. These have to be aligned with the company’s goal.”
Moreover, the owner realizes the important role of employee’s competency because it determines the business performance, specifically in a tight market competition.
“Competency is combination of knowledge, skill, attitude, and behaviour of the employee. It is really important because employees competency are determining the business performance. In addition, with the tough competition of the Small Medium Enterprises in Indonesia, having competent employee could form firm’s competitive advantage. ”
4.4 List of Competency and Scope Activities of CBHRM practices
In this section, the list of competency and scope activities of CBHRM in the five SMEs are discussed.
Case 1
In the first case, this SME has lists of competencies which apply to all employees and specific competency for each department.
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for different department, for instance in sales department we are looking for personnel who are active, passionate, adaptable, and able to work under pressure…”
This SME defines the scope activities of CBHRM: recruitment, performance management, employee development, and reward. This SME relies on the lists of competency that have been set during the CBHRM activities.
“…We also use it (competency) for employee development, performance management, and reward. In recruitment, we rely on the competency that we have set. For instance, for the sales person, we do some additional simulation during the interview in order to test the applicant’s competencies, we act as the customers and the applicants have to show their ability on how they will attract us to buy the products. Sometimes they have to show us how to deal with fussy customers. So through this way, we are trying to recruit competent people.”
During performance management, this SME uses rating to asses individual employee’s achievement to specific competency. Following that, the result of the assessment determines the content for development programs.
“In performance management, managers give rating to them referring to employee’s achievement to specific competencies. We use like simple form to assess them. We do this individually, so everyone is assessed. In employee development, we align the result of performance management with the development that employees need. As employees development we have training. So how this training works align with the employees need? We differentiate the content of the training based on the employee’s need. For examples, employees which still low in sales, they will have training related with sales. Employees which still need to develop their particular skills in design, will have training in design.”
The HR manager also emphasizes that they do not pay a lot of money to conduct the training because they just hire professional who is from the personal network of the owner.
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expensive compared to training which is conducted by big firms, because the trainers are the owner’s acquintance.
Moreover, this SME also implement CBHRM in rewards. They try to align bonuses with the employee’s competency.
“We also have competency-based rewards. In terms of rewards, other than basic salary, we align bonus with the desired competency. Therefore, the staffs will have bonus if they indicate growth in their competencies. The bonus is team based, because we give feedback also per team… Our staffs still have their basic salary which is not based on competency. However, we try to build their awareness regarding the competency through rewards. Because if we just simply giving feedback to them, they will not be motivated.”
Case 2
In the second case, this SME also has set lists of competencies, which apply to all employees and specific competency for each department.
“Dynamic and teamwork. Dynamic means that employees have to be ready to handle different situations in their job. Teamwork means that they have to able to work in a team… For specific department, for instance, in inventory we are looking for conscientious person with experience in quality control… Experience in quality control is necessary because before the products being delivered to the store, it has to be checked by the inventory staff. “
In order to achieve those competencies, this SME has set the scope activities of CBHRM, which includes recruitment, employee development, and performance management. During the recruitment, the firm have set some interview questions which related with the competencies which have been set.
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In terms of employee development, the SME - B uses training to develop employee’s competency. Professional who is owner’s personal references are invited to conduct the training.
“The type of training that we have is formal training… For example, for the sales staff we have training to develop their selling skill or for the productions we have training to operate specific machines…We hired external people, but don’t imagine the trainings like in the big corporations which are really expensive. It is simply like we contact people from the owner’s personal references, then they come and give the training.”
In terms of performance management, managers give ratings to the staffs according to their performance. HR department gives managers the form to assess their subordinate’s competencies. Following that, managers also have to give their feedback about their staffs competencies that still need to be developed. And at the same time, it is expected that employees should also give some inputs to the company.
“We do this (feedback) to increase their awareness in this company and also to make them innovative and critical, which align with the company’s goal. We think that this feedback is really important for all staffs, as well as the managers. “
Case 3
In the third case, this SME also has set lists of competencies, which apply to all employees and specific competency for each department.
“We have set three skills and abilities. Adaptability, teamwork, and hardworking… For specific department, for instance, in production, our employees have to be conscientious, able to operate the production machines, and able to work under pressure. Conscientious means pay attention to details, because the production staffs are producing our product so they have to be detail oriented in order to avoid any defect…”
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“…We ask questions which the answers should indicate particular competency. For instance, in sales, the questions will be like “how you attract new customers to buy our product?” or in production, the questions will be more technical, such as “have you ever operate this manufacturing machine?” or “What is the specific feed material for this machine?”
During the assessment, managers asses their staff’s performance by comparing current competencies with desired competencies. This SME also emphasizes the feedback session.
“… And we also have competency based assessment. Managers assess their staff’s performance based on their competencies, in order to compare the desired and current competencies. We have different list of competencies to be assessed to each department. Moreover, the most important is that managers have to provide feedback for employees. The feedback is done individually from the manager to the staff.”
In terms of employee development program, this SME uses training which its content is based on competencies that staffs need to be developed.
“… We set employee development program based on competency which align with the result of performance. We set training for employees twice a year, like formal training. We hire external parties to give training to our employees. The content for training will be based on what skills/abilities that employees still need to develop. For instance, there are trainings about the operation of particular machines for production operator and trainings about how to develop creativity and innovation for staffs in design department.”
Case 4
In the fourth case, this SME also has set lists of competencies, which apply to all employees and specific for each department.
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design department staffs, they have to be creative, able to make sketches and drawings.”
Aligning with the set lists of competencies, this SME has scope activities of CBHRM which covers recruitment, employee development, and performance appraisal. In recruitment, this SME applies competency-based interview questions. Moreover, in performance appraisal, the staffs are assessed by managers, by comparing current competencies to desired competencies.
“For recruitment, we set a competency-based interview question. For example we are looking for design team which should be creative in designing our new products and (the design) should be up to date, and the applicants will be asked like “what is your idea for current trend?... As for performance appraisal, managers assess the employees based on their current competencies compared to the desired competencies that employees should achieve.”
In terms of employees development, this SME uses informal coaching to develop particular competency.
“For employee development, we emphasize the role of managers in giving feedback to staffs. It is like individual informal coaching. It is done once every three months. The coaching material depends on the feedback result. Managers should give feedback to staffs on how to increase particular competencies. For instance, for sales staffs which still have low skills/abilities in attracting new customers, managers should give feedback about how to develop it. As for production, managers should give feedback on how to increase the product quality and reduce defect during production process for staffs that have problems with producing qualified products. The focus of this coaching is mainly to develop the skills/abilities which still need to be improved.”
Case 5
In the fifth case, this SME also has set lists of competencies, which apply to all employees and specific for each department.
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conscientious and innovative staff. Conscientious means accurately checking the product, including the material movement and quality checking.”
CBHRM covers recruitment, performance appraisal, and employee development. In terms of recruitment, this SME uses questions to investigate applicant’s competencies and then identify whether the competencies are align with the firm’s value.
“In recruitment, we set the recruitment process based on competency. The interview questions are constructed to investigate the applicant’s competencies whether it is related with our company values. For instance, we are asking questions related to team work. The questions will be like “do you have any team work experience? If yes, can you explain it? What was you role?”
CBHRM is also implemented in the performance assessment and employee development. The managers asses their staffs current competencies compared to desired competencies. Furthermore, as employee development, this SME uses individual feedback session from managers to staffs.
“Managers asses the team’s current competencies compared to the desired competencies and give feedback. This assessment and feedback are done from each department manager to staffs. For instance, the production staffs should work effectively by decreasing defect products. The production manager should see how the quantity of defect product that they made. If the quantity of defect products are increasing then the managers should give feedback on how to reduce it. “
4.5 Challenges in Implementing CBHRM
In this section, the challenges during the CBHRM practice are presented.
Case 1
In this SME, it is acknowledged that some barriers occurred during the implementation of CBHRM, especially during the employee development. According to the HR manager, one of the problems is the temporary effect of training.
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Case 2
In the second case, this SME acknowledges that they encounter several problems during implementation CBHRM, in terms of performance management and employee development. The HR manager emphasizes that lack motivation of the staff occurs during feedback session.
“The practice of individual feedback is not effective in our performance management. The main reason that why we chose feedback is, it acts as the opportunity for the managers and staffs to communicate about the competency which need to be improved, and also to hear input for the company from the staffs. However, we got complaint from staffs that they think the evaluation session is just wasting time and it is often that employees did not come during evaluation session… Moreover, we also ask the managers, they said that their staff was just passive and did not gives any input to the company. This kind of lack of motivation from the staff level is quite frustrating.”
Moreover, the HR manager also says that staffs also prefer to be assessed in a group together with their team, instead of individually.
“…Staffs said that they feel intimidated. They feel uncomfortable with the one on one feedback. I think this is just something strange for them because they do not used to have discussion individually with boss/managers before. They prefer to be assessed as a team.”
Case 3
In the third case, this SME encounters several barriers during the CBHRM implementation, especially in terms of performance appraisal. The HR manager emphasizes the resistance from the staffs of being assessed individually. He also admits that this resistance leads to the low motivation of the staffs.
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Case 4
In the fourth case, this SME acknowledge that several barriers occur during the CBHRM practice. The attitude of the managers in giving unclear feedback is one of the issues, in which according to the HR manager, this due to the hierarchical distance.
“The individual feedback is not really effective. Staffs think that the feedback is not really helpful. The staffs said that the feedback is not related with what they are doing. It is both managers and staffs which do not really understand. The managers are not aware that they should give input to the staffs as detail as possible. They just give general feedbacks instead. I noticed that the hierarchical distance between staffs and managers is causing this action. It is difficult for managers in giving input because of they think that they are in higher position, so they feel superior. As a result of giving unclear inputs to the staffs, then staffs will not see it as necessary.”
Case 5
In the fifth case, this SME acknowledged that the training based on competency is not really effective in the long term.
“We have trainings to develop specific competencies for staffs. We realized that the
trainings are not sustaining their performance because the skills/abilities they got from trainings are only applied temporarily.”
4.6 Awareness of Stickiness
During the implementation of CBHRM, the five SMEs are aware that there are difficulties in transferring the knowledge, or internal stickiness, as it is described as follows.
Case 1
In the first case, this SME perceives some challenges as a barrier in fully transferring the competency.
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Case 2
In the second case, this SME perceived several challenges as difficulty in transferring CBHRM to the staff. Moreover, they also realize that culture have an indirect link toward the challenges.
“Those challenges, such as lack of motivation from staffs in developing competency during evaluation and training, make us difficult in transferring these practices to the employees, specifically to staff. Those challenges also become the barrier for the success of CBHRM which supposed to increase the staff competency... Moreover, I just realized that as collectivist society this might trigger the lack of motivation… After some challenges that we face during the implementation, I was aware that culture might become barriers... For example, the collectivist nature of Indonesia or distance between staffs and managers.”
Case 3
In this case, this SME emphasizes the indirect role of culture towards lack of motivation in hampering CBHRM.
“The lack of motivation from staffs to take the feedback into account during evaluation is an example of challenges that we face. I think this is indirectly related with Indonesian collectivism culture, that makes our staffs do not comfortable during individual evaluation. Those are hampering the CBHRM to be effective in increasing employee’s competency.”
Case 4
In the fourth case, this SME defines some challenges as the barrier in transferring set of knowledge in CBHRM.
“I saw those challenges as barriers in the transferring the knowledge inside the CBHRM practice. I say this as transfer knowledge because this CBHRM is set of knowledge from HR to employees. Some barriers such as the lack of motivation from managers in giving detail feedback to staffs are slowing the transfer knowledge.”
Case 5
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“I can say that those problems, like the low retentive capacity of staffs in retaining the knowledge required for skills development during training is quite hampering the CBHRM effect which supposed to increase firm performance. As a result, we started to modify this approach to be more effective in Indonesia. “
4.7 Actions to Solve the Challenges
In response to the several challenges, the five SMEs decide to modify the CBHRM. They also admit that this new modified CBHRM are successfully reduce the previous barrier.
Case 1
In this SME, the CBHRM, in terms of employee development based on competency, the approach was modified from training to employee rotation.
“The main challenge is in the employee development. We noticed that the training was not really working. In response to that, we decided to change from training to employee rotation… For each department, employees are rotated every six months to different sub-department, but still within one department. For example, production clothes to production accessories… This rotation will make their skills/abilities developed. So this kind of “learning by doing” experience, so far it is more effective.”
Case 2
In this SME, the CBHRM, in terms of performance assessment, the approach was changed from individual feedback to group feedback. Moreover, in terms of employee development, the approach was changed from training based competency to team leader-team member.
