Southern Luzon State University
Republic of Philippines
IMPACT OF HUMAN RESOURCE MANAGEMENT PRACTICES
ON ORGANIZATIONAL PERFORMANCE IN SMALL AND
MEDIUM ENTERPRISES IN THAI NGUYEN CITY A Dissertation
Presented to
The Faculty
Graduate School
Southern Luzon State University
Lucban, Quezon
In Partial Fulfillment
of the Requirements for the Degree
Doctor of Business Administration

by
LE KIM ANH (MAY)

data from the ministry of planning and investment of Vietnam SMEs occupied for nearly
85% of the total of enterprises in Vietnam and contribute nearly 45% of annual GDP of
the nation.
A significant amount of research has been conducted examining the relationship
between HRM and firm performance. In a recent review of the literature, Wright et al.,
(2005) found a total of 68 empirical studies looking at relationship between HRM and
some aspect of firm performance. The review focused specifically on published,
empirical studies testing a relationship between an HRM system and performance.
Notably, all of the review studies reported at least one significant relationship between
HRM system and performance. Clearly from this review of the literature, there is an
increasing agreement that a relationship does exist between HRM and firm performance.
For all the reasons above, the researcher would like to conduct the study: “Impact
of Human Resource Management Practices on Organizational Performance in Small and
Medium Enterprises in Thai Nguyen City”
Statement of problems
This study aimed to analyze the “Impact of Human Resource Management
Practices on Organizational Performance in Small and Medium Enterprises in Thai
Nguyen City”. Specifically, it sought to answer the following questions
1. What is the profile of the enterprises, in terms of:
1.1. Types of enterprise;
1.2. Form of owner ship;
1.3. Time of operated; and
1.4. Amount of employees?
2. What are the SMEs’s HR practices as to:
2.1. Recruitment and Selection;
2.2. Training and Development;
2.3. Career Planning System;
2.4. Participation and Involvement;
2.5. Compensation and benefits; and
2.6. Performance Appraisal?

defining HR System constructs.
Human Resource Principles
HR Principles are conceptualized as organization leaders’ general view of the
strategic importance of their human assets. Early work by McGregor (1960) delineates
two basic attitudinal orientations of managers regarding their employees and two
corresponding managerial approaches. The first, Theory X suggests a managerial
attitude that employees are generally unmotivated and largely incapable of self-directed
behavior. These attitudinal assumptions imply that employees are largely disposable and
interchangeable and manifest operationally in management approaches characterized by
rigid hierarchies, narrowly defined jobs and a command and control management. This
is consistent with the Tayloristic approach referenced earlier.
Human Resource Programs
Objective reports of HR programs by a key organizational informant, is the most
common conceptualization of the HR system construct. Three general classes of items
have been used to measure HR Programs: 1) simple dichotomous “yes or no” responses
regarding the existence of the program (e.g. Huselid, 1995); 2) Likert scale items asking
the degree to which the respondent agrees that a certain practice is in place (e.g. Bae &
Lawler, 2000); and 3) more objective reports of raw percentages of total employees
covered by the program or, in the case of training, the number of hours an employee
spends in training over some period of time (e.g. Huselid, 1995).
Human Resource Practices
HR Programs and HR Practices are similar in that they seek to measure the
existence and use of various HR programs. However, they differ in that they seek this
information from different sources. These source characteristics have important
implications on the properties of the construct (Arthur & Boyles, 2007).
Human Resource Perceptions
Here, as with the distinction between HR Programs and HR Practices, we have
another conceptually distinct measure focused specifically on employee interpretations of
HR Practices.
Impact of Human Resource Management to firm performance

“Coming together is a beginning, Keeping together is progress, Working together
is success” Henry Ford
Ford & Randolph (1992) said that Management Style, where subordinates
contribute extensively in decision making with their leaders is Participatory
Management. Strauss (2006) said that participation is a process that allows employees to
exercise some control over their work and the conditions under which they work.
Performance Appraisal
The measurement of employees’ performance allows the company to provide
compensation fairly to the deserving individuals according to certain predetermined
criteria like employee competency, teamwork ability, initiative, soft skills and ethics
Compensation and Benefits
Bratton and Gold (2007, page 358) state that reward refers to ‘all of the
monetary, non-monetary and psychological payments that an organization provides
for its employees in exchange for the work they perform’. Motivating employees through
a good reward system constitutes a difficult and challenging task for general managers as
it can positively affect employees’ behavior toward their jobs and increase their
commitment and thus their performance.
Perceived Organizational Performance (POP)
In literature, various indicators of organizational performance have been used,
perceptual measures of organizational performance were used by Delany & Huselid
(1996) financial measures such as profit and financial ratios were used by Terpstra &
Rozell (1993) the value added or sales of the organization per employee were
applied by Black & Lynch (2001) and Cappelli & Neumark (2001) and physical
measures of organizational productivity were used by Arthur (1994).

Financial Organizational Performance (FOP)
Greer (2001) examined financial performance of the companies and HRM
practices, exploring the significant relationships between the variables. Huselid (1995)
studied 968 US organizations to explore the use of high performance work practices and
found that productivity was influenced by employee motivation; financial performance

benefits
+ Performance
Appraisal ANALYSIS
Dependent Variable
ORGANIZATIONAL
PERFORMANCE

+ Perceived Organizational
Performance
+ Organizational Finance

CHAPTER III
RESEARCH METHODOLOGY
Locale of the Study
The study was conducted June 2013 in Thai Nguyen City, which is situated in the
Far North-East of Vietnam and surrounded by Bac Kan Province on the north, Tuyen
Quang and Vinh Phuc provinces on the west, Lang Son and Bac Giang provinces on the
east, and Hanoi on the south.
Population, Sample Size and Sampling Technique
The population was composed of 2040 small and medium enterprises (SMEs),
local in Thai Nguyen city, Thai Nguyen Province. The sample population was
determined using the Slovin’s formula with a 5% margin for sampling error, the sample
size derived was 334 respondents. The respondents were selected using random sampling
technique sourced, however only 290 questionnaire were collected.

4.1. Reliability
At initial stage coefficient alpha (Cronbach, 1951) was applied. Data was
analyzed to measure reliability. The study computed separate and combined reliability
estimates, which are similar to the normally used coefficient alpha statistics.
Cronbach value beyond (α = 0.7) signifies acceptable reliability (Cuieford, 1965).
Inter item consistency reliability or Cronbach’s alpha reliability coefficients of
one dependent, one mediating and six independent variables were obtained, they all were
above (α = 0.70). Cronbach’s alpha calculated. As the coefficients get closer to (α = 1.0)
the better is reliabilities and coefficients, and less than (α = 0.60) are considered poor.
Recruitment & selection was measured by 10 items and had a Cronbach’s alpha of
(α = 0.766), training & development scale contained 10 items with (α = 0.821)
Cronbach’s alpha value, Career planning system was measured through 10 items and had
Cronbach’s alpha of (α = 0.808), Participation and Involvement was measured through
10 items with Cronbach’s alpha of (α = 0.848), compensation and benefit was also
measured by 10 item scale with Cronbach’s alpha (α = 0.815), Performance appraisal
scale contained 10 items with (α = 0.776) Cronbach’s alpha and the dependent variable
perceived organizational performance was also measured by 10 items scale with
Cronbach’s alpha value of (α = 0.742).
4.2. The relationship between Human Resource Management practices and
perceived organizational and financial performance
Table 4.2.1. Variables Included in Analyses
1
RS
Recruitment and Selection
2
TD
Training and Development
3
PA
Performance Appraisal

or decrease together, the correlation is said to be direct or positive. When one variable
tends to increase and the other decreases, the correlation is said to be negative or inverse.
Table 4.2.2. Descriptive Statistics

Range
Minimum
Maximum
Mean
Std. Deviation
POP
4.00
1.00
5.00
3.80
0.90
ROE
6.40
-1.94
4.46
0.26
0.59
ROA
1.63
-1.27
0.36
0.0366
0.150
RS
4.00
1.00

5.00
3.21
0.85
Valid N (list wise) 290

Standard deviation is the balancing point for the distribution. It serves as a basic
measure of variability. Smaller value of the standard deviation indicates that most of the
observations in a data set are close to the mean, while a large value implies that the
observations are scattered widely about the mean. Table (4.2.2) is showing standard
deviation and means values of different variables. For POP (Mean = 3.80, S.D =
.90), for RS (Mean = 3.20, S.D = .85), for TD (Mean = 3.32, S.D = .85), for CP (Mean =
3.05, S.D = .86), for PI (Mean = 3.10, S.D = .86) and for CB (Mean = 3.02, S.D = .83),
for PA (Mean = 3.21, S.D = .85). All these values are indicating that there is a minute
difference between answers given by HRM executives. A generic argument can be
developed on the basis of small value of standard deviation and high value of
mean are indicative of respondents, agreement with the options for all the
questions asked from respondents.
Table 4.2.3. Correlations Amongst Variables

POP
ROE
ROA
RS
TD
PA
CP
PI
CB
POP
1

.01
022
1 TD
.250(**)
003
.057
.423(**)
1

PA
.334(**)
.027
034
.331(**)
.446(**)
1
CP
.274(**)

*Correlation is significant at the 0.05 level (1-tailed).

Table (4.2.3) contains correlations for all variables and Table (4.2.2) contains
descriptive statistics comprising upon values of standard deviation, mean, median, modes,
minimum maximum values and range. There is positive correlation amongst
independent variables and dependent variable perceived organizational performance. (r =
0.351, p < 0.01) correlation of recruitment and selection with perceived organizational
performance with mean (3.2) and standard deviation (S.D =0.85) is indicating that there is
positive and significant correlation between these two variables, proving that standardized and
transparent selection system is part of organizational performance indicators. Furthermore
R&S insignificant correlation with ROE and ROA. (r = .025, p < .01) correlation of Training
and Development with perceived organizational performance showing mean (3.32) and
standard deviation (S.D = .85) indicates that training will be beneficial for individuals and
organizations when conducted after training needs analysis. Training conducted in this
fashion will ultimately increase the efficiency of the organization. Secondly it indicates
that training should focus on what the present job demands are in terms of desired Attitude,
Skill, and Knowledge (ASK) rather than on those (ASK) that are somewhat connected
to the current job. While (r = .423, p < .01) is the highest value of correlation of Training
and Development with Recruitment and Selection indicating that whenever there is a highly
scientific and rigorous selection system, where line managers and HRM managers both
participate in selection, valid and standardized tests are used for the selection of those who
have desired knowledge, skills and attitudes, then training creates a more positive effect,
otherwise training may not be a productive activity.
Performance appraisal is showing correlation (r = .334, p < .01, mean = 3.21 and
S.D = .85) with perceived organizational performance indicating that performance of those
employees will be good who have been selected through standardized procedures with the
right caliber and combined opinion of different concerned managers. Correlation (r = .446,
p < .01) between performance appraisal and training is the highest proving that training
based on the needs identified through appraisal has a better fit. Training needs identified
from performance evaluation process, considering the opinion of all concerned stakeholders

also a very important factor which leads the organizations to a relatively high
performance. It also indicates that the employees in the organizations are allowed
to make decisions related to cost and quality matters. They are asked by their supervisors to
participate in operation related decisions. Finally they are provided with an opportunity to
suggest improvements in the way things are being done.
Highest mean of Training & Development (3.32) is indicating that majority of the
managers think that T&D is the most important factor in organizational performance,
but compensation benefit is showing the lowest mean (3.02), indicating that the
compensation system already prevailing in the organizations is not as much of a focused
factor as compared to other HRM practices. There are some correlation values that are
positively correlated with ROE and ROA but none of them is significant.
CHAPTER V
SUMMARY, FINDINGS, CONCLUSIONS AND RECOMMENDATIONS
From the output presented in the preceding chapter, the Researcher presents the
summary, findings, conclusions and recommendations sought in this study.
5.1. Summary
The study was conducted to assess impact of human resource management practices
on the organizational performance of the small and medium enterprises in Thai Nguyen
Province. A total of 290 managers and staffs of the small and medium-sized enterprises in
Thai Nguyen City were selected to be the respondents of the study. It specifically explored on
the profile of the respondents in terms of Types of enterprise; Form of owner ship; Time of
operated; Number of employees. The study was limited to determine the perception of the
respondents on the human resource practices of the small and medium enterprises in Thai
Nguyen City which are classified in aspects namely: Recruitment and Selection; Training and
development; Career planning System; Participation and Involvement; Compensation and
Benefit; and Performance appraisal.
The 290 selected respondents were given a questionnaire designed by the researcher
and complete the questionnaires after being explained and instructed by the researcher. The
researcher floated the questionnaire to the respondents after it had been validated by her
advisor in June 2013.

That meaning that Training and development programs in organizations based on
training need assessment, performance appraisal, customization and practically applicable
with skills imparting capability because T&D positive correlation and Perceived
Organizational Performance.
With respect to Career Planning System
For assessed Career Planning System, most of respondents aware about their career
ladder at each level in our organization (3.64 – SA). However Employees at each level in their
organization have not always clear career ladder (2.43 – DA), that mean most of the SMEs
not had clear career ladder.
A perception that the Career Planning System (CPS) is significantly correlated with
Perceived Organizational Performance (r = 0.274, at level 0.001) is true if, the Career
Planning System is based on clear career ladder, aligned goals with organizational vision,
used for succession planning, transparent internal hiring, and equal unambiguous employment
opportunity.
With respect to Participation and Involvement
In SMEs most of respondents had liberty to organize their job tasks as per their
convenience so that they could produce more output (3.29 – N) while employee indicated that
they had culture that promotes employee involvement in our organization and always are
asked by superiors to participate in related decisions, however employee of at level not always
gave a change to take part decision making process up to an extent. (2.85 – N).
Employee participation related to decision-making process based on opportunities to
make company and self-related decisions, suggestion collection for the betterment of
organization and employee wellbeing as also on appreciation strategy has significant positive
correlation with perceived organizational performance.
With respect to Compensation and Benefits
Compensation offered by SMEs matches the expectancy of employees (3.59 – SA)
and salary and other benefits are comparable to the market (3.24 – A) and in very important
that the compensation for all employees is directly linked to their performance. The data
showed compensation and benefits is positively correlated with perceived organizational
performance.

competitiveness. Organizational performance needs appropriate employee handling so that
they stay in the company. It needs a suitable career planning system.
Compensation is the reward for which majority of the people work. If it is paid on time,
on merit and comparable with market packages, then it makes employees feel happier and
they contribute more.
The study indicated that the organizations that make use of effective HRM practices on
a wider scale generate higher performance.
SMEs in Thai Nguyen City should establish a process of identifying Return on
Recruitment & Selection System (RORS), Return on Training & Development system
(ROTD), Return on Career Planning System (ROCP), Return on Performance Appraisal
System (ROPA), Return on Employee Participation system (ROEP), and Return on
Compensation system (ROC).
SMEs in Thai Nguyen City should think about launching a proper procedure for
monitoring the implementation of HRM practices to gain higher performance.
SMEs in Thai Nguyen City should also consider designing HRM practices with focus
on employee performance.