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The Impact of Management Development on Perceptions of Organizational Performance in Some New Zealand Firms

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The Impact of Management Development on Perceptions of Organizational Performance in Some New Zealand Firms 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 [email protected] 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
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