ENHANCING ORGANIZATIONAL PERFORMANCE OF MALAYSIAN SMEs THROUGH HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES AND ORGANIZATIONAL INNOVATIVE CAPABILITY: The organizational performanceIn SMEs, the practice of reward system or compensation policy is believed to be a major influence on organizational performance. In their study, Carlson, Upton and Seaman found that compensation is one of the most critical practices of business performance. It can be a powerful message to the employees in seeking and maintaining certain required behaviors in organizations (Jassim, 2007). The behaviors indeed can enhance the organizational performance, as organizations will support the values and behaviors that are beneficial to the organization. Lo, Mohamad and La have found that incentives have a significant relationship on the organizational performance. They concluded that the results had been expected, as the incentives are important remuneration that can practically increase the organizational performance. Similarly, Carlson, Upton, and Seaman found a positive significant impact of the use of competitive compensation for family-owned SME performance. They discovered that those firms that apply more cash incentive compensation are significantly related to sales growth performance at every level in the organization. In addition, Vlachos conducted a study on the effect of HRM practices on five different measures of firm performance, classified as firm-specific, market-related and overall firm performance. He discovered that the compensation policy has a significant effect on all performance variables, in which it improved the perceived product quality, perceived cost, perceived market share, perceived sales, and perceived overall performance.
Furthermore Mohamad, Lo and La found that the performance appraisal is correlated to achieve better organizational performance. Jassim mentioned that the performance evaluations are important and critical decisions as the managers or supervisors need to evaluate their employees’ behaviors in order to achieve organizations’ goals, which are the increase of performance and success. Indirectly, the performance management can encourage the employees to enhance their performance. The adoption of the performance appraisal will enable organizations and employees to review the past performance and set up planning and strategies to enhance the organizational performance in the future.
In addition staffing is also a major influence on the organizational performance. Carlson et al. found that the recruitment, staffing or selection is one of the most important critical practices to business performance. Stavrou-Costea added that the appropriate selection employees enable organizations to flourish, produce greater productivity, quality and gain higher profitability. In spite of the recruitment or staffing practices are different between large and SME firms such as large organizations adopt more formalized recruitment compared to the SMEs, the practices’ adoption remains crucial for both. Ahmad and Schroeder also emphasized the importance of the recruitment practices as they believed that the improvement of performance and organizations’ success is depended on the selection of the employees. They mentioned that the selection process is one of the basic principles of strategic management, and as a ‘prevention is better than a cure’ process.
Besides, previous empirical studies have also revealed the positive relationship between communication and information sharing and organizational performance. For instance, Morishima asserted that Japanese consultation committees disclosed that sharing of information has a positive correlation with the performance of an organization in terms of productivity and profitability, while a negative relation to labor costs. This is similar to Vlachos, where he proved that information sharing improves market share and sales, but there is no significant relationship between information sharing and product quality or product cost. Information sharing can also affect organizational performance through synergistic working relationships that exist between employees. Whenever employees exchange information and work together, they will establish a conducive organizational climate that encourages employees to give full commitment to the organization, and this could reduce the turnover rate among employees. Thus, synergistic working relationships and the decreased turnover rate will lead to the better performance of organizations. Moreover, Subramaniam, Shamsudin and Ibrahim conducted a study in the context of Malaysian SMEs; they demonstrated that information sharing relates to organizational performance. They discovered that SMEs facilitate their employees to share information, and trust will be developed among workers and employers, which enables SMEs to accumulate all the significant input in order to make decisions that are critical to organizational success. Hence, this conceptual paper proposes:
P1: HRM practices (training and development, reward system, performance appraisal, staffing and communication and information sharing) will have a positive relationship with organizational performance of SMEs. electronic-loan.com