Imapct factor(SJIF): 6.56
Competency based Human Resource Practices and Organisational Productivity - An Empirical Evidence from Indian Companies.
Author 1 Name:Sateesh.V.Shet
University/Institution:Visvesvaraya Technological University
Author 2 Name:Dr.S.V.Patil
Department: School of Management Studies & Research
University/Institution: KLE Technological University
Author 3 Name:Dr.Meena.R.Chandawarkar
University/Institution: Karnataka State Women’s University
Purpose - This paper reports the findings of a study examining the relationship between “Competency Based Human Resources Practices” and “Organisational Productivity”.
Design / Methodology / Approach - Competency Based HR Practices, Organisational Productivity were assessed in an empirical study based on a sample of 161 respondents in companies based in India having Leadership Competency practices.
Findings - The findings from Structural Equation Modelling (SEM) reveal that the competency models are influencing Human Resource Practices in Succession Planning, Capability Building, Superior Performance, Better Selection, and Assessment Centre. The direct relationship between competency Based HR practices and Organisational Productivity and Adaptability was found.
Practical Implications - The framework provided in this paper helps practicing managers using leadership competencies to effectively apply in Human Resource practices for specific strategic needs of the organisation. The paper also highlights the significance of Organisational productivity from competency based HR perspective.
Originality / Value – The relationship between “Competency based HR Practices” and “Organisational Productivity” were explored theoretically and tested empirically in an Indian context.
Key Words: Competency Model, Leadership Competencies, Organisational Productivity, Competency Based HR Practices.
In a business world driven by knowledge economy, the human resources takes the main stage for growth and development of the enterprise. Organizations face acute problems of persistence and proficiency. In current scenario, building competency to human resources is the need of the hour. In order to improve the competence in managing and utilizing human resource, organizations implement a competency based management system. Few organisations use competency model or competencies for employee assessment and development (such as identification of High Potential employee) using Competency Based Assessment Centre and the others use competency based training in Learning & Development practices and so on in different people practices. The integration of competencies in HR practices depend on the organisation’s strategic needs, resources constraints, and capability of HR personnel. The competency based management thus assumes importance as organisations having these practices essentially require an assessment of their measures. Organisation having competency based practices are not measuring the impact of competency model on HR practices and on the organisational indices. This study explores the relationship between “Competency based HR practices” as independent variable with “Organisational Productivity” as dependant variable. The research gap identified was to explore the relationship on the competency model and Human Resources Practices. A scale was developed to measure the competency based HR Practices. The theoretical model (figure 1) is subjected to empirical test of relationship between these two variable. The study contributes in the conceptualisation and development of competency based HR measuring concept. The result will inform HR, Academic and Consulting practioners on ways to accelerate the competency based HR initiatives In Indian context. Hence the objectives of this research are
- To analyse the impact of Leadership Competency Model (LCM) on HR practices
- To establish the correlation between competency based HR practices (CHR) and Organisational Productivity(OP)
H1 : LCM has significant influence on a) Succession Planning, b)Assessment/Development Centre, c) Leadership Development, d) Training & Development, e) Performance Management, f) Recruitment & Selection
H2 : Competency based HR Practices significantly influence on Organisational Productivity.
Leadership competency is one of the contemporary topics in the human resource discipline. There have been many woks on leadership competency across the globe and the differences in their findings are noteworthy. The significance and contributions of leadership competency models are important in high performing organisations. Literature reveals there is wide range of approaches in using competencies in organisations. Thus a review of extant works on leadership is necessary before we discuss the effect of competency on HR practices and organisational productivity.
David McClelland (1973) proposed the idea of competency as a word to challenge traditional criteria of assessment which emphasized intelligence as an evaluation in the higher education system. His idea provided a conceptual framework that led to many subsequent studies in other fields such as Education, Business Management, and Human Resource Management (Spencer & Spencer, 1993). The term “competency” was first used in the managerial context in the research conducted by Boyatzis (1982) in USA to identify the characteristics which distinguish superior from average managerial performance. The study concluded that there was no single factor but a range of factors that differentiated superior from average performers. These included personal characteristics, experience, motives and other attributes. Competency is the capability of applying or using knowledge, skills, abilities, behaviours, and personal characteristics to successfully perform critical work tasks, specific functions, or operate in a given role or position. Competency can be treated as a mediating factor between the requirements of a job and the potential capacity of an individual as competence-in-use.
"A competency model is a detailed, behaviourally specific description of the skills and traits that employees need to be effective in a job (Mansfield, 1996)." Fogg (1999) says it is a "descriptive tool that identifies the competencies needed to operate in a specific role within a job, occupation, organization, or industry. In other words a competency model is a behavioral job description that must be defined by each occupational function and each job." A study by Whetzel et. al., (1998) focussed on developing a leadership competency model at the U.S Postal Service to describe the competencies needed for successful performance.
Competencies in Organisation Perspective
Antonacopoulou and FitzGerald (1996) said role of leadership competencies are important in organizations to develop leaders, managers and employees. Heinsman, et al. (2008) described competency management as “an important human resource tool that is often used within organizations to guide human resource practices such as selection, assessment, career management, employee development, and performance appraisal”. Lawler (1994) comments competency-based organizations are organizational systems in which the capabilities of individuals are the primary focus to provide competitive advantage. Vertically, competency framework is a tool to delineate individual and organizational competencies from the mission and strategy of the organization. Horizontally, competency framework can be used for different purposes in human resource management including selection, management development, career and succession planning, and performance management (Rothwell and Lindholm (1999), Schippmann et al., 2000). Therefore, competencies are the common language, which enable an organization to match its human resources against the resources it needs (Antonacopoulou & FitzGerald, (1996)
Competency models have been widely used to classify different jobs in Leadership, Managerial or Technical jobs in both the private and public sectors. The organisations use Leadership Competency Models during Succession Planning to fill the leadership role from competent potential employees. In organisations where competency culture is matured, each job has competencies identified with behavioural descriptions. In such organization, the human resources, training, management and employee are working together to meet the goals of the organization. The behavioural descriptors in Competencies does bring a common vocabulary and perspective to those operating within an organization or system thus ensuring larger success to organisation. A consistency of expectations is understood by each employee in a organizational team. This systematic framework facilitate to convey the desirable behaviours and thinking as one develops individually and professionally, within an organization or across industries. While a leadership competency model may benefit various phases of the human resources experience or practice, in isolation, the value of a competency model is not fully realized. To be used successfully in an organization or other professional network, competencies must be inclusive or integrated in the human resources practices (Fulmer & Conger, 2004; Rodriguez, et al., 2002; Rowe, C (1995) clarified the use of competence and competency models in recruitment, assessment and staff development.
Lucia & Lepsinger, (1999); and Montier, Alai, & Kramer, (2006) said when an organization integrates leadership competency model throughout their human resources practices (i.e., learning and development, recruitment & selection, and performance management and employee assessment activities), the effectiveness of the competency model increases with developmental opportunities for managers and other employees. The employee participation in development of a competency model provides awareness of the model as well as create acceptance. By ensuring the entire organisation participates in the development of competency models and defining what specific competencies mean for that particular organization, there will be an organizational expectation of what makes the company succeed. Nath and Raheja (2001) refers the applications of competencies in different HR Processes such as Performance Management, Succession & Career Planning, Compensation, Training and Selection. Zingheim, Ledford, & Schuster, (1996) expanded their studies to build linkage of Competencies and Competency Models to Competency Based Pay with theoretical approach. Le Deist & Winterton (2005) said Competency models are used in the areas of people management practices to align the goals of an organization and talents of its employees. Dubois, (1993) said the job competencies are held by both average and exemplary employees, but there are also competencies held by only the exemplary employee. This ensures aligning employee and their performance to corporate goals, organizational strategy and success, business competitiveness, and profit. Competency models also are being used to organize the business strategy, communicate values and mission of the organisations, and reward those employees who learn and demonstrate the identified organizational competencies (Fogg, 1999; Lucia & Lepsinger, 1999; and Zingheim, Ledford, & Schuster, 1996).
The leadership competency model are integrated to Human Resources Management in traditional practices such as Employee Selection, Training and Performance Management and in strategic human resources practices such as Leadership Development, Compensation Management, and Succession Planning. The application of Leadership Competencies depends on the organizational need and Human Resources Practioners capability to implement the Leadership Competency Model in each of the Human Resources Process for the desired outcomes. We propose application of leadership competencies in Recruitment & Selection, Performance Management, Learning & Development, Assessment Centre, Succession Planning and Leadership Development.
Table 1: Benefits of Leadership Competency Model in Human Resources Practices
Competency Based Succession Planning
Leadership competency model communicates the required competencies and expectations to potential employees during Career & Succession Planning process. The competency gaps are identified during career & succession planning which assists both the employee and organisation to fulfill those gaps. The organisations lay down both functional and leadership career paths. The Competency Model provides roadmap for employees on the available career paths for most of the roles in the organization. Charan, Drotter, & Noel (2001) Ssuggested leadership pipeline approach to improve succession system for leadership development using Competencies. Thus we hypothesise the following
H1 a : Leadership Competency Model has significant influence on Succession Planning.
Competency Based Assessment Centre
The leadership competency model is used in identifying High Potential employees during Assessment Centre. The participants of Assessment Centre may or may not be briefed on the competencies to be observed by the assessors. The assessors use relevant tools to observe and measure the competencies in Assessment Centre. These tools include Case Study, In Basket, and Simulation etc. Assessment Centre based approach itself provides self-learning to individual on their personal competencies and thereby creating impact on them to focus on their leadership development. Assessment Centre provides talent inventory of the employees, which competencies are strong amongst the individuals and which competencies the organisations should focus. A predominant workplace can be developed using competency-based feedback and assessment as an organizational development tool (Garavan, & McGuire (2001) Thus we hypothesise the following
H1 b : Leadership Competency Model has significant influence on Assessment Centre.
Competency Based Leadership Development
Leadership Competency Model assists in creating Internal Leaders at all levels. Employees at respective leadership levels (Leading Self, Leading Team, Leading Unit etc) strive to be effective and move to next levels as they are clear with their competencies and behavioural descriptors at each level. 360 Degree Feedback, Assessment/Development Centre, Competency Based Performance etc provide enough inputs on the potential of employees having leadership capabilities. Intagliata et al., (2000) advocated competencies in respect of leadership development and evaluation strategy of leader in different situations and organizational philosophy. Thus we hypothesise the following
H1 c : Leadership Competency Model has significant influence on Leadership Development.
Competency Based Training & Development
Competency based Training ensures employees receiving right training which reinforces knowledge, skill and attitude in the job. It helps both manager and subordinate to be in same platform for giving feedback for development. Competency based training modules will help in driving specific competencies in the organisations. Wherever organisations lacks certain competencies, employees are encouraged for developing such competencies either though self-learning or attending external training programme. Leadership competencies assist individual to know which competencies are to be developed that will help the organisations to build capability. Rodriguez et al (2002) affirmed that in each organizational strategic planning like retention and development, competencies are being utilized extensively with the HR system. Thus we hypothesise the following
H1 d: Leadership Competency Model has significant influence on Learning & Development.
Competency Based Performance Management
Leadership competencies are integrated in Performance Management Process in Organisations. The role holders expected job requirements from the competencies are used during Goal setting process. It helps in measuring the potential of the employee based on the competencies than the past performance. Competencies helps in aligning individual behavior with the business requirements. Competencies provide common understanding of ‘what’ is monitored and ‘how’ it is measured. The impact is not only on the results but the behaviour and manner in which such results are achieved leading to superior sustainable performance. It facilitates coaching by giving feedback to employee on the desired behaviours. Competency Model assists in raising the performance bar of the employee as he is clear with next level performance behaviours expected by him. According to Martone (2003) a competency based performance management system is an official way of creating the expertise and conduct that employees require to be successful in their job. Thus we hypothesise the following
H1 e: Leadership Competency Model has significant influence on Performance Management
Competency Based Recruitment & Selection
The competency based interviewing using Behavioral Event Interviewing (BEI) assists in identifying the right fit of candidates meeting the required job competencies of that position. The interviewers are trained in BEI to assess the desired level of behavioral descriptors of each competency by Critical Incident Technique. This ensures that no wrong candidate is hired as the candidate and interviewer have common understanding on the job and its requirements. The Behavioural Event Interviewing are extended using simulation for competencies which cannot be assessed through interview. Overall leadership competency model once integrated brings uniformity amongst the interviewers on the consistency by using leadership competency model as a base guide for selection. McClelland, (1998) advocated that utilization of competency models for developing behaviourally-based interview criteria and assessment tools can lead to appropriate fit of a person while selecting for a position. Thus we hypothesise the following
H1 f : Leadership Competency Model has significant influence on Recruitment & Selection.
To measure Organisational Productivity, we used the construct “Organisational Productivity” from Paul Mott’s (1970) Organisational Effectiveness (OE) Scale. This OE scale is used in literature and has been considered as valid and reliable tool. Paul Mott’s describes Productivity is measured using the quantity and quality of the output produced and the organisation’s efficiency to produce with the resources. A few crucial steps are involved in influencing the organisation’s power centre relating to production. Output quality and quantity are very significant for an organisation’s survival. Efficiency—attaining the maximum output using the least input—is an important criterion affecting organisational health. These criteria quantity, quality and efficiency weigh in a very complicated equation that also includes the exchange of resources. Due to differences in situations, the weigh allocated to a criterion fluctuates from one organisation to another. However, the main theoretical question is how should organisation’s power centre be managed to attain all objectives of production? Are the proper organisational styles similar or dissimilar for every objective?. The criteria for Productivity are summarized as, the quantity produced, product’s quality and the efficiency with which it is produced. Thus we hypothesize
H2: Competency based HR Practices significantly influence on Organisational Productivity.
The data were gathered from Human Resources practioners from the companies based in India. The survey link were sent to these professionals using both online platform ( Email) and pen and paper method. An invitation email with the survey instrument was sent to target respondents. Popular methods such as Linkedin Invitation, Local HR & National HR Forums were used to connect the target participants as connecting right person of the right company is essential for the success of this survey. The survey didn’t mention about the respondents name and organisation’s identity. Respondents were guaranteed confidentiality in the invitation email. This study adopted a non-probabilistic sampling strategy. Purposive sampling was combined with the snowball sampling method to select respondents for the study. To be included in the sampling procedure respondents had to meet the following criteria
· Sector of Business : the authors sought to include only organisations having Leadership Competency Model practices
· Respondents : While in each organisation within human resources there are many designate members, only professionals who are directly involved in the implementation of Leadership Competency Models such as Talent Development Manager, Human Resources Manager etc were included while Compensation & Benefits Manager, Employee Relations Managers etc were excluded from the study
· Target organisations were medium to large scale organisations located in India.
Demographics - Response Profile
A response of 161 has been collected for this study by eliminating the missing or partly filled survey forms. Highlights of the demographics are; Information Technology / Information Technology Enabled Services dominant the participants profile to an extent of 24.5%. It is evident that knowledge intensive industry have Leadership Competency Models more than other sectors in India. This is followed by Manufacturing /Capital goods / Engineering which accounts for 12.8 % and Automobile / Auto Ancillaries which is 12.4%. It has been observed over 82% depend on creating Leadership Competency Model externally with the assistance of consultants in India. Companies having turnover over rupees 500 crores dominate the presence of Leadership Competency Models. Over 77% of the companies participated had turnover over Rs.500 crores. Over 67% of the companies had leadership competency model being practiced for more than 5 years. 72% of the Indian companies had Leadership Competency Models while 28% represent from Multi-National Companies based in India from those who responded to the survey.
To measure the Competency Based HR practices 6 items are used. The items were like “In this organisation we use defined process of Assessment / Development Centre based on Competencies”. To measure dependent variable “Organisational Productivity”, Paul Mott’s construct from Organisational Effectiveness scale is used with 3 items. The items were like “Taking overall organisational scenario, Productivity of employees is perceived to be generally high here. The instrument had rating 5 point Likert scale from 5 (Always true), 4 (Usually True), 3 (Often True) 2 (Occasionally True) and 1 (Not true)
For the content validity, 10 Items for Competency Based HR Practices construct and 3 items on Organisational Productivity were sent to 15 Subject Matter Experts (Academic, Industry & Consulting) for Expert Opinion. These experts were informed to give feedback on the instrument using Lawshe’s Content Validity Formula comprising - Useful, Relevant and Average. Few changes were done based on their suggestions. The “Internal Consistency” has been used to determine the reliability of instruments using SPSS 20.0 software. The coefficient alpha has been calculated ranging from 0.871 to 0.925, hence it can be evidenced that the developed scales are consistent or reliable. Since the data for Competency Based HR Practices and Organisational Productivity were collected from the same survey, a common method prejudice may be occurred (Podsakoff, MacKenzie, Lee, & Podsakoff, 2003. In this test, all study variables entered concurrently into an exploratory factor testing. Two factors have been taken out that accounted 82.03% of the cumulative variance and one factor was accounted for 58.17% of the variance. No single factor emerged which accounted for most of the variance.
For Exploratory Factory Analysis, Principal Component Analysis with Varimax rotation was applied for both constructs using SPSS 20.0 software. For the item removal, the least cut off limit of factor loadings (<0.50) was considered ( Karatepe et al., (2005) or as per Hair et al. (2010 ) was communalities ( 0.30). The Kaiser-Meyer-Olkin and Bartlett’s test of sphere city determined the data appropriateness of sampling adequacy. KMO Value of 0.761 was found to be significant. Two factors were emerged with Eigen value of more than 1. The confirmatory factor model (CFA) was applied with the help of AMOS 22.0 on 9 items evaluating 2 factors. The measurement model was created on all set of items with maximum likelihood procedure. The indices of the model emerged as ( X2/df =2.008, CFI=0.977, TLI=0.966, IFI=.960, RMSEA=0.051 and P=0.000). This calculation shows that the indexes are acceptable and fall under the threshold levels of significance. CFA asserts the complete fit of the measurement model as good. (Maruyama (1997) Hair et al., (2010)
Hypothesis have been tested using Structural equation modelling with Maximum Likelihood procedure (Hair et al., 2010, Maruyama, 1997). The overall model fit is calculated by analyzing CMIN/df = 2.343, IFI=0.942, TLI=0.916, CFI=0.42, RMR=0.044, GFI=0.908, p=0.000, RMSEA=0.06). thus, these examination indicates that the model presents a good overall fit.
Al-Hawari et al. (2005) revealed Convergent validity is shown with the association between the construct and items to be significant. The CFA loadings were greater than the least threshold limit of 0.50 for all items. thus, convergent validity for all calculations can be said evident. In this research, the method of Fornell and Larcker (1981) has been used to calculate average variance extracted and composite reliability. It is suggested that all CR measures should be more than 0.70. in the current study, all the measures exceeded the threshold limits. The results indicate high level of convergence with the items and their related constructs. Additionally, CR > AVE and AVE to exceed 0.50 as per Hair et al ( 2010). As described in the table, all CHR (Competency Based HR Practices) and OP factors have AVE values 0.50. According to Fornell and Larcker (1981), the discriminant validity may be calculated by doing comparison of shared variance between measures with the AVEs of the individual measures. For computation of discriminant validity, it should be( MSV<AVE) AVE should be greater than maximum shared variance and average shared variance. Hair et al (2010) The results demonstrate that the shared variance between the computations were less than the AVEs of the CB and OD individual measures. This confirms discriminant validity. Hence, all items give contribution to their pertinent scales and indicate good construct validity
As per Bollen (1989) and Gerbing and Anderson (1988), in the above table the computations are unidimensional with every item and reflects one and only one fundamental constructs. Fornell and Larcker (1981) and Nunnally (1994) explained that the coefficients alpha that ranges from 0.846 to 0.905 and the estimates of CR that ranges from 0.820 to 0.907 believe to be acceptable. The Item to total correlations also coming from 0.178 To 0.792.
By analysing the relation between the CHR and OP, the researcher has calculated the nomological validity. The correlation computations for the validation were measured (Arnold and Reynolds, 2003; Zhang et al., 2014). It reveals that CHR is correlated with OP positively thus affirming the nomological validity.
This study contributes to the competency-based human resources literature by adopting LCM theory to Organisational Productivity perspective. A positive relationship between competency-based HR practices and Organisational Productivity was empirically confirmed using SEM. Specifically, this positive relationship is strengthened when an LCM is implemented using competency-based practices in Recruitment & Selection, Learning & Development, Performance Management, Leadership Development, Assessment Centre and Succession Planning as evidenced in Hypotheses Table 1. As a result, this study offers valuable insight in integrating Leadership Competency Models in people practices in organisation. The results of the hypothesis among Indian employees are in line with the previous studies conducted in Australia. (O'Neill and Doig (1997)). This study also contributes in the scale development of competency-based HR Practices in organisations.
The objective of this research was to explore the relationship between competency-based HR Practices and Organisational Productivity in Indian organisations that have LCM. SEM was applied to 161 responses, and a systematic scale development methodology was selected. The theoretical structure showed a fit to real data with a large portion of the variance being described by the constructs utilized in the structural model; this is indicative of high significance. The results thus support a positive relationship between competency-based HR practices and Organisational Productivity. Our developed model will serve as a reference in making proper strategies for competitive gain by allowing organisations to build competency based culture. The findings demonstrate that the organisations using LCM in Human Resources practices are more likely to contribute to Organisational Productivity.
The results of this research provide crucial implications for managers. A scale was developed to measure competency-based HR practices and can be used by managers while using LCM. Managers can check what aspects of the LCM are influencing HR practices in their organisations and accordingly change the strategies if required. This model helps HR managers to create awareness amongst the larger stakeholders regarding the needed managerial intervention. Given that most organisations have to limit the usage of LCMs to the assessment/development stage, this study is helpful in that it allows LCM to be applied in different facets of Human Resources practices. To the best of our knowledge, this is the unique attempt to empirically study the relationship between competency-based HR practices and Organisational Productivity, and thus our research can be deemed to have furthered the understanding on how competency-based HR practices influence the organisational indices such as Organisational Productivity.
Our results demonstrate that competency-based practices such as competency based interviewing, competency based assessment and development centre, competency based High Potential Identification for Succession Planning, Competency Based Leering & Development, Competency Based Performance Management Competency based Leadership Development, are positively related to competency-based HR Practices. These findings yield that for an organisation to develop its capability using competencies, it needs to incorporate competency-based approaches in all aspects of Human Resources to ensure sustainable, long-run capacity development. We argue that the organisations should enhance the initiatives based on competencies to ensure its human resources are linked to organisational productivity. The LCM act as instrument to penetrate the competency development initiatives in HR processes. OD Practioners are always questioned the implementation of specific HR initiatives and its impact on Organisational Development. While this study confirms the role of LCM in HR practices in influencing the employee productivity.
The research’s theoretical contribution is that it adds to the competency-based literature. It has expanded the theoretical understanding on integrating competency-based Human Resources into Organisational Productivity. It has developed a scale to measure competency-based HR Practices, which was tested using face validity, EFA, CFA, reliability, and construct validity. This study is also unique in that it is the first to empirically assess the correlation between competency-based HR Practices and Organisational Productivity. Use of SEM for hypothesis validation too is novel, and helpful in that understanding the interactions between competency-based HR practices and Organisational Productivity advances current knowledge.
Limitations & Future Research.
This study limits competency-based practices in organisations with focus on competency based learning & development, performance management, succession planning, assessment/development centre, leadership development and recruitment & selection and its correlation with Organisational Productivity. Further research can explore other areas of competency based HR practices in the areas of compensation management, rewards & recognition, Change management, Career Planning, Workforce Planning etc. Another limitation in this study is approach on data collection. The study collected one time data for the current research, while longitudinal analysis will draw more consistent and valid explanations to the causal influence of the constructs and to see whether this hypothesised model would change over time. We recommend future studies to improve our proposed model by including mediator ( e.g. capability of HR personnel) or moderator (e.g. implementation tenure of LCM, CEO support etc) that might provide more rigour to model. The inclusion of additional variables should help to build a more comprehensive model. It could provide managers with critical information to develop new strategies to influence and enhance the competency maturity in the organisations. The findings of this study need to be verified in more general settings: for example, over larger geography, more heterogeneous samples. (for e.g same company having employees in different countries). Finally in depth case studies need to be conducted to gain deeper insights, may be industrywide or specific variable wise to study the best practices amongst the organisations.
Table 1, Hypothesis Testing
SP - Competency Based Succession Planning, ADC - Competency Based Assessment/Development Centre, LD - Competency Based Leadership Development, TD - Competency Based Training & Development, PMS - Competency Based Performance Management, RS - Competency Based Recruitment & Selection.
Control Variable – are not shown for ease of presentation.
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