The Impact of Management Development on Perceptions of Organizational Performance in some New Zealand firms
Dr Damian Ruth & Associate Professor Andrea McIlroy
Department of Management and Enterprise Development Massey University Wellington
Ruth01 Page 1 of 19 The Impact of Management Development on Perceptions of Organizational Performance in some New Zealand firms
ABSTRACT
This paper explores the impact of management development (MD) on perceived organizational performance in some New Zealand-owned or controlled firms. Paired interviews were conducted with Human Resource Managers (HRMs) and Line Managers (LMs) from 86 firms (172 interviews in total) in manufacturing/processing, distribution/transport, and services, varying in size from 20 to more than 500 EFTs. The findings indicate there is a positive correlation between both organizational fit and LMs’ perceived importance of MD and established criteria of firm performance; they do not support a positive correlation between strategic fit and firm performance. Whilst turnover, size, and sector may explain some variance in perceptions of organizational performance, the way management development is organizationally integrated appears to be crucial.
Keywords: management development, HRM, firm performance, New Zealand
INTRODUCTION
In the face of globalisation and increasingly competitive economies, the Ministry of Economic
Development of New Zealand (Massey et al, 2004) and the New Zealand Department of Labour
(2004), as well as The New Zealand Institute of Management (2001; 2003) and the Human Resources
Institute of New Zealand, have directed more and more attention to management development (MD).
There has been much growth in business education and in management development area, and research on MD in New Zealand continues to seek refinement, especially in terms of evidence of positive impact on firm performance.
This paper employs Mabey and Gooderham’s (2005) definition of management development as including all on-the-job and off-the-job activities, structured and unstructured, formal and informal, undertaken to improve management expertise. This study used the constructs and rationales used by
Mabey and Gooderham, but is more limited in scope and analysis. It does not offer international comparisons, nor causal analysis derived through Moderated Multiple Regression and Structural
Equation Modelling. The use of this model entails accepting that the discussion does not address some important issues such as the link between management development and individual identity, and only indirectly addresses the contextualisation of management development practices in organizational culture. The next section briefly links this study to work on management development in New
Ruth, Damian MED-20.doc Page 2 of 19 Zealand. The following section provides the rationale for the model underpinning the research, the methodology and sample. Concerns about limitations to the methodology are addressed in the discussion, where, finally, the authors conclude that certain management development activities can be linked to improved firm performance.
NEW ZEALAND RESEARCH ON MANAGEMENT DEVELOPMENT
Twenty years ago a study (Inkson and Campbell, 1985) came to uncomplimentary conclusions about management education in New Zealand:A ‘sausage machine’ approach to education was marked by a lack of useful research. Five years later, Hooley and Franko (1990) noted that when New Zealand firms were exposed to international competition in the 1980s, the inadequacy of a short-term financial orientation to survival was exposed. They pointed out a lack of strategic planning and leadership skills and underdeveloped or non-existent HR planning. They also offered 23 recommendations to achieve international levels of management education, a marketing orientation, an increase in inter-personal skills, multi-skilling, and visionary leadership.
The effect in the 1990s of the transformations of the New Zealand economy in the 1980s provoked the
New Zealand Ministry of Commerce to commission research into management competencies (Page,
Wilson and Kolb, 1994). The findings indicated that New Zealand managers, like their overseas counterparts, felt buffeted by uncertain times and rapidly changing environments. They felt pressured into acquiring a specific set of demonstrable and measurable skills, and there were hundreds of skills an effective manager was supposed to have. These lists seldom included the ‘softer’, less demonstrable skills such as credibility, valuing others and leadership qualities.
Another seam of work that indirectly addresses management development is exemplified in Islands of
Excellence (Campbell-Hunt et al., 1993), Leading the Way (Australian Manufacturing Council, 1994),
A Season of Excellence (Campbell-Hunt and Corbett, 1996), Gearing Up (Knuckey et al., 1999),
World Famous in New Zealand (Campbell-Hunt/CANZ, 2001), and Firm Foundations (Knuckey and
Ruth, Damian MED-20.doc Page 3 of 19 Johnston, 2002). This body of work represents a range of concerns. World Famous in New Zealand, a close study of 12 firms engaged in export, indicated that agility was central to successful New Zealand firms. Another finding was that long-term staffing was important, with selection based on personal competencies such as problem solving, inter-personal skills, and commitment to organisational values.
In the Firm Foundations report about 85% of businesses indicate they conduct in-house training with at least some of their employees, but it is not specified what portion of this constitutes management development (p. 13). Other reports raise questions about the sources of management development and responsibility for management development and, indeed, what it should comprise. Kennedy (2000) reports that middle managers are looking for leaders with confidence and conviction, who could arouse passions, demonstrate and impart strong positive views of work, stimulate people to exceptional efforts, and inspire enthusiasm and generate commitment. New Zealand Leadership surveys (Parry, 2002; Parry and Proctor-Thomson, 2002) revealed that chief executives had a more positive view of their organisations than many employees, and top managers thought that only 51% of their immediate subordinates had the capability to move into senior positions. Furthermore, 42% of middle and senior managers did not consider the development of subordinate leaders to be the organisation's responsibility. Another study found improvements in the quality of HRM practices in
New Zealand, but these were restricted to the operational level (NZIM, 2001). This was the context in which it was thought that a more precise investigation of MD practices in NZ exploring links between practice and firm performance would be useful.
Some of this work addresses the contextualisation of management development practices in organizational culture. There does not appear to be research in New Zealand that addresses the link between management development and individual identity.
THE MODEL
The model for this research is as per Mabey and Gooderham (2005). The restricted description offered here does not indicate the thorough grounding in the literature that Mabey and Gooderham supply. The
Ruth, Damian MED-20.doc Page 4 of 19 model, briefly, relates elements of an open systems model (Garavan et al., 1995; Tamkin and Hillage,
1998; Mabey, 2002) to Delaney and Huselid’s (1996) index of organizational performance and choice of respondent, but focuses only on management development (MD), excluding other HRM practices such as recruitment, selection procedures and compensation (Becker et al., 1997). The theoretical basis is drawn from Wood’s (1999) best practice/contingency theory dichotomy.
According to Wood (1999), the arguments that human resource management (HRM) systems are strategic assets that enhance organizational performance and therefore value creation, fall into two categories: the “best-practice” perspective, which disregards firm circumstances (e.g., Pfeffer, 1994), and the perspective that emphasises contingencies such as the degree to which the firm has aligned its
HRM practices with its competitive strategy. This universalistic approach to HRM policies and practices can be contrasted with the alternative, contingency approach of Huselid and Becker (1995), which infers that it is not just the number of best practices that influences the market value of a firm, but also the degree to which those practices are integrated into an internally coherent system that fits with the firm’s individual situation and business priorities. As such, a properly aligned HRM system constitutes a core capability (Becker and Gerhart, 1996). According to Mabey and Gooderham (2005) studies designed to assess the specific impact of management development on organizational outcomes are few in number, and generally adopt a best-practice approach.
DETERMINANTS OF PERFORMANCE
In this study the constructs of strategic fit, organizational fit and perceived importance are the independent variables related to the dependent variable of perceived organizational performance.
The Degree of Strategic Fit
Strategic fit concerns the need to align HRM policies to the business or strategic priorities of the organisation concerned, and for the HR manager to play an active role in terms of strategy development (Fombrun et al., 1984; Schuler and Jackson, 1987). Mabey and Gooderham note some
Ruth, Damian MED-20.doc Page 5 of 19 empirical support for the value of integrating business objectives and human resource policies,
(Becker et al., 1997; Gratton et al., 1999), but also more equivocal results (Raghuram and Arvey,
1994; Guest and Hoque, 1994).
The Degree of Organizational Fit
Mabey and Gooderham identify six indicators, listed here without the references that they supply to the supporting literature:
organizational responsibility for the training and development of managers, competency-based management development, long-term development of managers, using management development as a means to develop individual potential (rather than just as a means to meet immediate skills gaps), promoting from within wherever possible in order to cultivate an internal labour market of managerial talent; and, finally, seeking to retain managers over the long term.
The Perceived Importance of Management Development
Studies of HRM that rely on the views of HR managers and/or the senior management team can be faulted because they neglect the psychological processes that mediate or moderate the link between
HR practices and organizational performance (Wood, 1999). Research that has solicited the views of those on the experiencing end of management development points to the importance of at least three contributors to favourable performance outcomes. First, strategic relevance (Mabey and Thompson,
1999); second, the perception of being measured against a set of organizationally specific skills or competency frameworks (Winterton and Winterton, 1999); and third, the perceived priority accorded to management development (Mabey and Thomson, 2000; Thomson et al., 2001).
On the basis of the preceding discussion we may hypothethize that there will be a positive relationship between, on the one hand the degree to which management development is aimed at achieving strategic fit, the degree to which management development is aimed at achieving organizational fit,
Ruth, Damian MED-20.doc Page 6 of 19 and the degree to which line managers perceive training and development to be important for their organizations, and, on the other hand, perceived organizational performance.
METHOD AND SAMPLE
Method
The initial sample was obtained by purchasing a commercial data base with parameters specifying firms that
. employ more than 20 people, . had an HR-dedicated person and at least one line manager somewhere in the company, . were New Zealand-based or -owned, or . if part of an MNC, could report on activities exclusively within the national border, and . were not national subsidiaries of international firms based elsewhere, and, ideally, . had some form of organizational performance assessment, and finally . were not public, government or non-profit organizations.
Direct telephone contact was made with the human resource manager (HRM) or equivalent of 238 firms. Each HRM was asked to identify a line manager (LM) in their organization willing to participate in the study. Those unable or unwilling to do so were dropped from the sample. This procedure was followed for as long as time and funding allowed. Finally, 95 firms agreed to respond.
For various reasons (e.g., untrustworthy data, inappropriate respondents), nine interviews were discarded. Data was finally generated from telephone interviews with both HRMs and LMs in 86 firms, giving us a response rate of 36%. The questionnaires were the same as those used by Mabey and Gooderham (2005), which was in turn based on that used in earlier studies of management development in the UK (Thomson et al., 2001; Mabey, 2002).
Sample
An attempt was made to balance the sample across a frame of size and type to relate to the European sample. The sample was drawn from across the country and it comprised 29.1% respondents from the manufacturing/process industries, 22.1% from the distribution/transport sector, and 48.8% from the services sector. The size categories we used were 20-99 (29.4% of the sample), 100-249 (17.7%), 250-
499 (24.7%) and more than 500 (28.2%). In terms of annual sales turnover, the sample was evenly
Ruth, Damian MED-20.doc Page 7 of 19 spread between the categories of $1m–20m, $21–54, $55–200, $201m–30billion. Of the respondents
3.5% expected turnover in the next 3 years to decrease, 12.9% expected it to remain the same, and
83.5% expected it to increase. In terms of the number of managers in the next 3 years, 4.8% of respondents expected it to decrease, 60.7% expected it to remain the same, and 34.5% expected it to increase. The high expectation of growth and a prevalent view that the number of managers will not increase suggests a confidence about managing future performance and that there might be more investment in management development. However, these figures must be assessed in the context of a growing economy with low unemployment.
RESULTS
Paired HRM and LM in a company were presented with 5-point Likert scales where 1 = strongly disagree and 5 = strongly agree. Table 1 presents the independent variables (IVs) of strategic fit, organizational fit and perceived importance. Note that to correlate the variables of strategic fit and organizational fit, only the responses of the HRM are taken into account. For the variable of perceived importance, it is of course only the LMs’ responses that are taken into account. Not all questions were asked of both HRMs and LMs, hence the n/a entry. It can be noted from Table 1 that there are differences between HRMs and LMs. In some cases these were significant, and raise questions about the LMs’ awareness of the management development in their organizations.
Table 1 about here
The seven-item index for Organizational Performance is the one developed by Delaney and Huselid
(1996), and results are presented in Table 2 (overleaf). The reliabilities for the items of this construct are higher than 0.70 (Nunnally, 1978). Like Delaney and Huselid, we asked the person responsible for
HRD (but we include LMs’ ratings) about their firm’s quality of products/services and customer relations, their ability to recruit and retain essential staff, and the quality of relationships between staff.
Table 2 about here
In all cases respondents rated their organization’s outcomes over the past 3 years compared with competitors in their sector. Although financial indicators such as return on equity/assets (Park, 2003;
King et al., 2004), employee productivity (Youndt et al., 1996), market value (Becker and Huselid,
Ruth, Damian MED-20.doc Page 8 of 19 1998) or sales per employee (Lawler et al., 1998) are increasingly more common, self-report measure of outcomes should have currency. Besides the fact that such more objective measures of performance are often socially constructed and therefore distorted (Machin and Stewart, 1996), it is the perceived view of corporate outcomes that actually influences the way managers act and the way decisions are made (Guest, 2001; Mayo, 2000). Furthermore, a comparison between the validity of objective and self-report measures of company performance found, in all the cases examined, convergent, discriminant and construct validity between the two measures (Wall et al., 2004). Bivariate relationships between the constructs are reported as Pearson Product Moment correlation values in
Table 4. Evidence of correlation between the independent variables and organizational performance is mixed. Strategic Fit is not correlated with Organizational Performance, but there is a positive correlation between the other two IVs of Organizational Fit and LMs’ Perceived Importance, and the
DV of Organizational Performance.
Table 3 about here
Finally, we note a sharp difference in opinion between HRMs and LMs when it comes to a general assessment of the impact of management development (Table 4).
Table 4 about here
Although both groups are more positive than negative, LMs are significantly less so than HRMs. This corroborates some significant differences between HRMs and LMs previously noted.
DISCUSSION
Unlike Mabey and Gooderham (2005), we find there are no significant effects for Strategic Fit on the dependent variable of Organizational Performance. This may be attributable to differences in sampling and statistical analysis, and we would await refinements in both respects before drawing conclusions.
However, our data, like theirs, indicate a significant relationship between Organizational Fit and
Organizational Performance. More specifically, the data suggest that when firms take responsibility for management development, link their training and development to a competency framework, focus
Ruth, Damian MED-20.doc Page 9 of 19 on long-term development, focus on developing an individual’s potential, promote from within and expect to retain managers, they can expect a contribution to improved firm performance.
There is a correlation, although not as strong, between Perceived Importance by LMs and the dependent variable of Organizational Performance. This would suggest LMs must believe that top management is actually “walking the talk” in regard to management development. This resonates with the results of other studies. Purcell et al. (2003) identified employee commitment and motivation to be important mediators between people practices (including training), and the engagement of discretionary behaviors to help the firm be successful and Truss (2001) is among many to find LM perceptions highly influential in determining HR outcomes. We acknowledge that this study leaves open the questions of over-determination and synergy with other factors that may affect high performance (Barney, 1995).
Our findings suggest that sole reliance on the more systemic mechanics related to the management development, such as appraisals, career planning, selective intensive development or evaluation of courses, would not be sufficient to secure high firm performance. It is in fact possible, as Mabey and
Gooderham point out, that non-integrated management development activity could actually be construed as counter-productive. For example, LMs may feel encumbered, poorly equipped and/or rewarded for devoting time to appraising, planning and assessing the development of their team. For their part, top managers may form the view that such activities are costly and divert time and effort away from immediate business concerns; and HR specialists may lament the frequent changes in strategic priorities that undermine successive attempts to embed learning into organizational routines as a way of life.
There is a significant difference between the views of HRMs and LMs on whether or not management development activities are successful in developing managers that meet the needs of the organization, and whether, over the past 3 years, management development has had a positive impact on the organization. This is in line with the consistently lower rating by LMs of indices of strategic fit,
Ruth, Damian MED-20.doc Page 10 of 19 organizational fit, and perceived importance. This vindicates the view that the usual practice of relying on a single respondent in an organization, usually the person with a vested interest in HRM, is questionable.
Further research will increase our sample size, enabling more sophisticated statistical analysis, and we intend developing comparisons between the private sector, not-for-profit sector, and government/local authority sector. Findings will also be integrated with the international study that we have, in part, emulated. We would also hope to consider alternative methodologies such as focal and clustered interviews.
Ruth, Damian MED-20.doc Page 11 of 19 TABLE 1: Independent variables (mean of 1-5)
Variable Question posed HRM LM Strategic Fit 1. We link HR to business strategy 3.71 3.38 (0.75)# 2. HR plays active role in formulating business strategy 3.65 1. The responsibility for MD is taken by the organization 3.72 3.00 2. We are developing managers against a specific set of Organization Fit skills/competences 3.77 3.40 (0.68)# 3. We are primarily concerned with the long-term development of managers 3.97 n/a 4. The emphasis of training in this organization is to develop individual potential 4.14 n/a 5. When filling management vacancies we promote from within wherever possible 4.13 n/a 6. We expect to retain managers for 5 years or more 3.93 n/a Perceived 1. My organization’s MD policy reflects businessstrategy n/a 3.41 Importance 2. My organization is developing managers against a (Line Managers) specific set of skills/competences 3.77 3.40 (0.74)# 3. My organization gives a high priority to developing its managers 3.47 3.22 # indicates Cronbach Alpha value
Ruth, Damian MED-20.doc Page 12 of 19 TABLE 2: Dependent variable (mean of 1-5)
Organizational How would you compare your organization’s performance HRM LM Performance over the past 3 years with that of other competitors in your (0.75)# sector 4.04 3.95 . Quality of products/services 3.86 3.67 . Development of new products/services 3.62 3.56 . Ability to recruit essential employees 3.74 3.53 . Ability to retain essential employees 3.93 3.80 . Customer/client satisfaction 3.81 3.73 . Manager-employee relations 3.78 3.74 . General employee relations
Ruth, Damian MED-20.doc Page 13 of 19 TABLE 3: Pearson correlations
Strategic Fit Organizational Fit Perceived Importance Organizational Fit .521* .000 Perceived .275* .300* Importance .010 .005 Organizational .097** .378* .189* Performance .376 .000 .082 *p <.10 & ** not significant
Ruth, Damian MED-20.doc Page 14 of 19 TABLE 4: Assessing the impact of management development on the organisation
HRM LM Sig The organization’s current management development activities are 3.64 3.21 .003* successful in developing managers that meet our needs Over the last 3 years management development has had a positive 3.81 3.41 .009* impact in my organization *p<0.05
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