A Study on the Impact of Innovative Human Resource Practices on Employee Engagement in Indian Software Industry

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1 A Study on the Impact of Innovative Human Resource Practices on Employee Engagement in Indian Software Industry Manu Melwin Joy Assistant Professor, Ilahia School of Management Studies Shiyas K J Assistant Professor, Ilahia School of Management Studies Abstract Apart from being one of the fastest growing industries in India, information technology plays a crucial role in driving the nation's economy and transforming India's image from a developing economy to a global superpower. With the market becoming highly competitive and HR managers facing a severe dearth of quality professionals, retention of talented employees has assumed prime importance and ensures the sustainability and productivity of the organization. While employee poaching is the buzz word of the industry, a small mistake can lead to the exit of creative and talented employees to the competitor and this may prove to be detrimental for the organization. Literature has categorized employee turnover into functional and dysfunctional. When a high performer leaves the firm, it is referred to as dysfunctional turnover and when the unproductive workers leave, it is called functional turnover. This study focuses on dysfunctional turnover since it is the main concern of HR managers. When an individual leaves the organization, it takes approximately seven weeks for the position to be replaced and productivity of the team is affected. In the past, most of the studies have concentrated on employee turnover and the retention aspect is highly under researched. This research focuses on clearly defining the relationship between innovative human resource practices and employee engagement. Researcher investigates the various existing definitions of the independent and dependant variables. 400 employees working in 20 software companies were included in the study and well designed questionnaires were distributed for the purpose of data collection. Results showed that there exists a strong negative impact of innovative human resource practices on employee engagement. Key words: Innovative human resource practices, Employee engagement, Information technology industry. Introduction According to the figures published by NASSCOM (NASSCOM, 2013), software industry in India is poised to touch the magical figure of $135 billion by the end of 2016 with a CAGR of 13%. With this, the annual contribution of the sector to the country's GDP will reach a whopping 7%. In the year 2014, the industry has created more than 14.2 million employment opportunities, making it the single largest job providers in the private domain. Even amidst these positive statistics, it is reported that the employee attrition rates in the sector has escalated to 55% in the year 2012, which is a 15% leap compared to the previous year. Since the software industry is very much dependant on the employees, turnover can have serious implications for the business. Studies have shown that retention is more cost effective compared to hiring because of the cost involved in turnover. According to a global survey, it was found that the cost of replacing an employee accounts to 28%(non-management) to 45%(management) of the individual's annual salary. Apart from this, expenses are incurred when the co-workers does the individual's job in the interim, leading to a domino effect on the cost of the turnover. Researchers have established a positive relationship between retention rate and a firm's performance in terms of customer satisfaction, effectiveness and productivity. Profitability of low attrition companies is 34% more than that of companies having above average retention. This is the reason why all workplaces are obsessed with employee engagement initiatives. It is a proven fact that engaged employees are more productive, motivate others, perform better and most importantly, being loyal to the organization and stay with the firm. 125 Manu Melwin Joy, Shiyas K J

2 In a recent survey, job satisfaction emerged as the main retention factor (50%) and was followed by extrinsic rewards (40%) and constituent attachments (33%). According to Dibble, retention starts from the moment the organization decides to fill a position and start finding someone to fill it (Dibble, 1999). Retention programs are effective in situations where individuals understand and work towards organizational as well as financial objectives, not just operational goals. Employees are motivated to involve in discussions of strategic goals with the understanding that everyone has a financial stake in their success (Artur, 2001). Asking for suggestions from the employees has found to enhance retention. MacLean, P. J. (2001) stated that employees feel happy to stay longer, in positions where they are involved in some level of the decision-making process. Literature Review Innovative Human Resource Practices Researchers who have done extensive research in the field of organizational change have classified innovation as any unique kind of change while referred to change as any alteration in structure, outputs or process of a firm. In short, any change that is new to a company can be considered as innovation. For the present study, innovative human resource practices are defined as new ideas, programmes or practices linked with the human resource discipline (Roger & Blenko, 2006). The competitive business environment has put great pressure on human resource function to display how it creates value to the organization's long term success. Serious critics of human resource function have questioned its relevance for the survival of the organization considering its reactive and administrative nature (Drucker, 1954; Lundy, 1994; Legge, 1978). Apart from this, a typical theoretical framework to HRM has made it difficult in the past to establish how the function could really affect strategic goals (Wright & McMahan, 1992). Past few decades have seen a substantial increase in the significance of human resource function in the organizational setting. Many studies have come up with substantial evidence stating the relationship that exist between innovative human resource practices and different indicators of firm productivity and theoretical developments based on the resource based view of the firm (Barney, 1991). It was found that apart from leading to palpable financial results, HRM innovations helps in achieving innovative solutions (Ichinowski et al., 1996).Innovative HR practices can be defined as a planned introduction and application of any new ideas or systems built to change behaviors of organizational members with an aim of improving firm performance (Mac Duffie, 1995). The current research defines innovative HR practices as the perceived degree to which the importance, introduction and satisfaction of these practices as perceived by employees of IT companies. Even though firms face a serious challenge in implementing and maintaining HRM programs, there is a lot of grey area regarding the situations where innovations in HRM practices are successful and those where it is not. Many firms have adopted innovative human resource practices but only a few of them have found the initiative successful. Most of them drop it midway since it fail to continuously evaluate the effectiveness of these programs. Even though the fundamental objective of putting in place these practices is to influence employee attitude and behaviors, they usually disappoint the top management. Employee Engagement Even though there is some consensus about the type of factors included in employee engagement, its definition and measurement is still a grey area. Robinson et al., (2004) has defined engagement as a positive attitude held by a person towards the company that employs him and its values. Awareness about the business context is the hallmark of an engaged employee and he works hand in hand with his team members to enhance the performance within the job for the betterment of the firm. Normally, the components in most engagement surveys concentrate on the aspects of engagement that are clearly linked to positive employee behaviours and cover common psychological concepts such as organizational citizenship behaviour (Organ and Paine, 1999) and organizational commitment and attachment (Meyer, 1997). Vigour, dedication adn absorption are the three factors focused by the Utrecht Work engagement survey (Schaufeli et al., 2006). The two factors considered by Gallup Workplace Audit are clarity (knowing what is expected) and control (input and opportunity). 126 Manu Melwin Joy, Shiyas K J

3 Generally, expert views of engagement consist of three core concepts: attachment, commitment and organizational citizenship. These elements reflect a focus on areas of the construct that are likely to be most directly involved in promoting employee behaviour. They reflect a focus on narrow engagement - the components that of high relevance for the employers and organizations, since they depict positive employee behaviour that is likely to lead to more productive performance and bring direct benefits on the firm. Some of the questions in the narrow engagement survey are as follows: the goal of my firm make me feel that my work is significant, i am committed to this company, my opinions are valued by my bosses at work, i am enthusiastic about the job an am involved in, I am ready to work hard even if things are not going well. A commitment/citizenship framework of engagement is highlighted in narrow engagement where commitment of employees and their citizenship behaviours are considered as of prime importance deciding the overall fate of the organization in the long run. Apart from this, many experts have included items related to employee psychological well being. Even though it is good for an employee to feel positive about the firm, long term perspective should focus on their personal psychological well being. Research Methodology Descriptive method is employed in the present study since the research tries to describe the effect that innovative human resource practices have on employee engagement of individuals working in information technology sector. 400 employees working in 20 software companies were included in the study and well designed questionnaires were distributed for the purpose of data collection. For measuring the independent variable, a scale developed by Tanuja Agarwala (2003) was used. The 12 item questionnaire introduced by Robinson et al., (2004) was used to collect data regarding engagement level of employees. An exclusion criterion was used to remove individuals with less than a year's work experience in their respective firms. Multiple regression analysis was employed for carrying out data analysis. Data Analysis Impact of innovative human resource practices on employee engagement resource practices and employee engagement. H 1 Innovative human resource practices have a positive impact on employee engagement. The null hypothesis that innovative human resource practices have no positive impact on employee engagement was tested using statistical tools. Table 1 Multiple regression analysis results on the relationship between innovative human resource practices and employee engagement IHRP * Analysis clearly shows that innovative human resource practices have a strong positive impact on employee engagement with a beta value of and value of Therefore, all the values obtained from the analysis were supporting the hypothesis that innovative human resource practices have a positive impact on employee engagement. Hence H 1 is accepted. Impact of innovative human resource practices on attachment dimension of employee engagement resource practices and attachment dimension of employee engagement. 127 Manu Melwin Joy, Shiyas K J

4 H 2 Innovative human resource practices have a positive impact on attachment dimension of employee engagement. The null hypothesis that innovative human resource practices have no positive impact on attachment dimension of employee engagement was tested using statistical tools. Table 2 Multiple regression analysis results on the relationship between innovative human resource practices and attachment dimension of employee engagement IHRP * Analysis clearly shows that innovative human resource practices have a strong positive impact on attachment dimension of employee engagement with a beta value of and value of Therefore, all the values obtained from the analysis were supporting the hypothesis that innovative human resource practices have a positive impact on attachment dimension employee engagement. Hence H 2 is accepted. Impact of innovative human resource practices on commitment dimension of employee engagement resource practices and commitment dimension of employee engagement. H 3 Innovative human resource practices have a positive impact on commitment dimension of employee engagement. The null hypothesis that innovative human resource practices have no positive impact on commitment dimension of employee engagement was tested using statistical tools. Table 3 Multiple regression analysis results on the relationship between innovative human resource practices and commitment dimension of employee engagement IHRP * Analysis clearly shows that innovative human resource practices have a strong positive impact on commitment dimension of employee engagement with a beta value of and value of Therefore, all the values obtained from the analysis were supporting the hypothesis that innovative human resource practices have a positive impact on commitment dimension employee engagement. Hence H 3 is accepted. Impact of innovative human resource practices on organizational citizenship dimension of employee engagement resource practices and organizational citizenship dimension of employee engagement. H 4 Innovative human resource practices have a positive impact on organizational citizenship dimension of employee engagement. The null hypothesis that innovative human resource practices have no positive impact on organizational citizenship dimension of employee engagement was tested using statistical tools. 128 Manu Melwin Joy, Shiyas K J

5 Table 4 Multiple regression analysis results on the relationship between innovative human resource practices and organizational citizenship dimension of employee engagement IHRP * Analysis clearly shows that innovative human resource practices have a strong positive impact on organizational citizenship dimension of employee engagement with a beta value of and value of Therefore, all the values obtained from the analysis were supporting the hypothesis that innovative human resource practices have a positive impact on organizational citizenship dimension employee engagement. Hence H 3 is accepted. Findings and Discussion Analysis of data shows that innovative human resource practices have a strong positive impact on employee engagement displayed by employees working in software industry. An in-depth analysis has shown that innovative human resource is having a positive impact on attachment, commitment and organizational citizenship dimensions of employee engagement. It was also found that innovative human resource practices is having a higher level of impact on the attachment dimension of employee engagement compared to commitment and organizational citizenship. The assumed relationship between dependent and independent variables were well supported by data analysis. Therefore, the fundamental hypothesis put forward by the researcher stating the strong impact that innovative human resource practices have on employee engagement as a whole was proved statistically. Experts have done ample research proving the fact that there exists a strong positive relationship between innovative human resource practices and employee engagement. Group cohesion theory states that individuals working in groups have an inclination to demonstrate organizational citizenship behaviour towards their team members (Becker & O Hair, 2007). Jackson and Shuler (1985) have stressed the significance of role stress experienced by individuals in their subsequent performance of extra role behaviors. According to the basic assumption of work family conflict theory, conflict pressurizes employees to struggle to carry out all their roles due to lack of availability of time and energy (Greenhaus & Beutell, 1985). Studies done by Tompson and Werner (1997) have identified that elevated levels of role conflict in work setting are associated with lower levels of employee engagement. Since all these experiences are the outcomes of innovative human resource practices introduced by the firm, it is very evident of its impact on the dependant variable. Conclusion In the current competitive environment, firms have to come up with innovative human resource strategies to ensure higher levels of employee engagement. Studies have proved that both concepts are related to acceptable firm level outcomes and it is conceptually quite feasible that the combined effect of these concepts is greater that each one alone. For practicing managers, the main take away from this study is that they have great tools like innovative human resource practices to foster employee engagement which are highly desirable for organizations. By putting in place the right kind of practices desirable for individuals and organizations, managers should make sure that all employees display enough employee engagement to ensure long term organizational success. 129 Manu Melwin Joy, Shiyas K J

6 References 1) Arthur, D. (2001). The Employee Recruitment and Retention Handbook. Broadway, Newyork: AMACOM. 2) Becker, J. A., & Dan O'Hair, H. (2007). Machiavellians motives in organizational citizenship behavior. Journal of Applied Communication Research, 35(3), ) Dibble, S. (1999). Keeping Your Valuable Employees: Retention Strategies for Your Organization. New York: John Wiley and Sons, Inc. 4) Drucker, P.F. (1954). The practice of management, Newyork: Harper & Row. 5) Greenhaus, J. H., & Beutell, N. J. (1985). Sources of conflict between work and family roles. Academy of management review, 10(1), ) Ichniowski, C. Kochan, T. Levine D. Olson, C., & Strauss, G. (1996). What works at work : Overview and assessment? Industrial relations, 35(3), ) Jackson, S. E., & Schuler, R. S. (1985). A meta-analysis and conceptual critique of research on role ambiguity and role conflict in work settings. Organizational behavior and human decision processes, 36(1), ) Legge, K. (1978). Power, innovation and problem solving in personnel management, London: McGraw - Hill. 9) Lundy, O. (1994). From personnel management to strategic human resource management. The international journal of human resource management,5, ) MacDuffe, J. (1995). Human resource bundles and manufacturing performance: Organizational logic and flexible production systems in the world auto industry. Industrial and labour relations review, 48(2), ) MacLean, P. J. (2001). Taming Turnover: Creating Strategies for Employee Retention. Silver Ckeek Press. 12) Meyer, J. (1997), Organizational commitment, in Cooper, C.L. and Robertson, I.T. (Eds), International Review of Industrial and Organizational Psychology, Vol. 12, pp ) NASSCOM (2013), BPO job potential stays high: NASSCOM, available at: sify.com/finance/fullstory.php?id_ ?headline_bpo_job_potential_sta (accessed 26 August 2013). 14) Organ, D.W. and Paine, J.B. (1999), A new kind of performance for industrial and organizational psychology: recent contribution to the study of organizational citizenship behavior, in Cooper, C.L. and Robertson, I.T. (Eds), International Review of Industrial and Organizational Psychology, Vol. 14, pp ) Robinson, D., Perryman, S. and Hayday, S. (2004), The Drivers of Employee Engagement, Report 408, Institute for Employment Studies, Brighton. 16) Roger, P., & Blenko, M. (2006). The high performance organization: making good decisions and making them happen. Handbook of business strategy, pp ) Schaufeli, W.B., Bakker, A.B. and Salanova, M. (2006), The measurement of work engagement with a short questionnaire: a cross-national study, Educational and Psychological Measurement, Vol. 66 No. 4, pp ) Tompson, H. B., & Werner, J. M. (1997). The impact of role conflict/facilitation on core and discretionary behavior: Testing a mediated model. Journal of Management, 23, ) Wright, P.M & McMahan, G.C (1992). Theoretical perspectives for strategic human resource management. Journal of management, 18: 2, Manu Melwin Joy, Shiyas K J

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