The Impact of Culture on Human Resource Management Practices

Abstract

The objective of the study is to investigate and analyze the influence of culture on human resource management practices. The research is expected to answer the importance question: Are HRM practices influenced by national culture or not? It is generally accepted that the practices of management is considered to be universal until Hofstede (1980:42) published the seminal work: Culture’s Consequences: International Differences in Work Related Value in 1980. Hofstede’s work is the most popular in cross culture management studies so that his framework in national culture will be used in this research.

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The research was done by using the survey method. The respondents were 108 managers of HRM from the listed companies of Jakarta Stock Exchange 2007. Structural equation model (SEM) with Two Step Model Building Approach is used to test structural theory. It is used to test the hypotheses model statistically to determine the extent to which the proposed model is consistent with the sample data. SEM incorporates both confirmatory factor analysis and multiple regressions to estimate a series of interdependent relationship simultaneously.

The results of descriptive analysis indicate that the national culture dimensions tend high for collectivism, power distance, masculinity and uncertainty avoidance, quite different from Hofstede (1980) findings that Indonesia has high collectivism, high power distance, moderate in masculinity and low in uncertainty avoidance. While in Second Order Confirmatory Factor Analysis, collectivism, power distance and uncertainty avoidance are confirmed as a dimension of national culture but masculinity are not.

In structural testing, it indicates that two hypotheses i.e. the influence of national culture on career development and compensation are supported but the influence of national culture on staffing and participative management are not supported. Organizational culture also shows influence on staffing and participative management. One of human resource management practices i.e. career development influence on organizational performance but others such as staffing, participative management, and compensation does not.

This study shows that national culture and organizational culture influence on some of human resource management practices. Therefore, this research supports the divergence theory that human resource management practices are culture-bound.

Introduction

Since more than two decades ago, a number distingusihed management and social scientists questioned the applicability of Western, especially American managemenet theory abroad (Hofstede, 1980, Laurent, 1986). Hofstede, for example, argued that American management theories reflect the cultural environment in which they were written. Therefore, it can be concluded that American management can not be separated from American cuture.

Meanwhile, Laurent (1986:91) stated that:”a comparative analysis across national culture brings the startling evidence that there is no such thing as Management with a capital M. The art of managing and organizing has no homeland. In additions, Laurent (1986:92) said that every culture has developed through its own history some specific and unique insight into the managing of organization and their human resources. Every culture has also developed specific and unique blindspots in the art of managing and organizing. The lie the still largely undiscoverd opportunities and threats of international management.

By using Hofstede’s framework of national culture, the objective of research is to investigates and analyzes the impact of national culture on human resource practice. Besides, this research aimes at discerning the impact of Indonesian culture on the organizational performance.

Research Framework and Hypotheses

Impact of National Culture on Human Resource Practices

The notion that human resource pratice is universal has been questioned. A number of human resources policy that successfully practiced in a certain country, may not successfully applied in another country. For example, pay for performance schemes which is very popular dan effective in the United States and United Kingdom, it cannot successfully be a practiced in another country. The same goes for quality circle program, it has practice widely and successfully in Japan, however quality circle has not successfully been implemented in the United States (Newman & Nollen, 1996:759).

National culture also influenced on the strategic decision making dan leadership style (Schneider & DeMeyer, 1991:308), and human resoure management practices such as performance appraisal (Luthans, Welsh & Rosenkrantz, 1993:743).

In culture with high power distance, loyalty and obedience to superior is required. Therefore, management usually used performance appraisal based on the behavioral criteria rather than results criteria. Employees or subordinates have a minimal risk when they follow the established procedure rather than make a new breakthrough which may cause failure. Basically, performance appraisal can be differentiated based on its orientation i.e. behaviour orientation or results orientation (Schuler & Jackson, 1990:125).

A number of human resource practices have specific characteristic related to specific country. For example, life-time employment policy is very popular in Japan, however, it is uncommon practice in USA. On general, Japanese companies spend more money for social activites and recreational facilities than that of American companies (Pascale & Maguire, 1980:433).

A cross cultural research involved 277 respodents in American companies, 291 Japanese companies, dan 50 European companies by oleh Kagono et al., (1985) in Smith (1992:39) concluded that Japaness companies have shorther hierarchical structure, flexible job description, control systems upon self-dicipline and more promotion from within.

Laurent (1983:75) found that in Germany, decision making is more centralized than in United Kingdom. Besides, it is common for top positions in organization occupied by outsider. Meanwhile, companies in UK tended to have promotion form within policy, and spend more money for emoloyee well-being and middle management development program. Jaeger (1986:186) conducted reserach on the applicability of human resource parctiuces in developing countries asserted that although there is strong will to replicate western human resource policies, those policies cannot be implemented successfully. Besides, it is required that to be successfully practiced, those policies must fit with the assumptions of local cultural context. For example, planning activities does not work well in the countries with low uncertainty avoidance such as in Indonesia and most African countries.

The Impact of Organizational Culture on the Human Resources Management Practices.

Organizational culture and its environment factors in which organization exist determines the way of managing the organization (Saffold, 1988:547). The relationship between organizational culture dan human resources practices can be explained as follows. When the member of organization i.e. employees, understand and internalized the organzationanl culture which can be said as the way things are done around here, it will enable for employee to choose strategy, and behavior that fit with their personality as well as with the main routines of organization activities.

Since Indonesia is belong to country with high power distance and low uncertainty avoidance, it is likely that organizational culture that fit with this condition is parochial type. Parochial culture is characterized by the tendecy to give much attention to some factor such as family relationship, social relation, and personal backgroud, and less attention to capability and competency needed to perform the task.

Basically, parochial culture is just like a family culture, where the superior-subordinates relation is imbalance. In this culture, hierarchy is not just division of responsibility and duty, but it symbolized power and authority. The main power is on the one hand, a powerful person such as the owner or the founder of the company, where “the destiny” of an employee depends on the hand of the most powerfull person (the boss). There is a division of work, the boss is the planner, the other are the doer. In the high power distance society, good leader or good manager in the eye of the employees, is someone who can act like a good father (Hofstede, 1997). This type of relationship will lead to less participative management in decision making.

The Impact of HRM on Organizational Performance

Research by Newman & Nollen (1996:753) indicated that organization performance is better in the companies where there is congruency between national culture and human resources practice. In the unit business level, where its manager consciously practice human resource policies in accordance with country’s value, the performance of business unit i.e. return on assets (ROA), return on sales is better and employee bonus is bigger.

According to Earley (1994:685) if the human resource management practices is not suitable with basic values shared by employees will cause employee are dissatisfied, uncomfortable dan uncommitted. Employee will feel distracted or alienated, because their values are diference from company expectation, and therefore, theori organizational commitment and their job satisfaction will be low, and in turn they may want to quit from the job. When this condition happen for a long time, organization performance will decrease. Conversly, when human resource practice fit with the values shared by employees, organizational performance will be high.

Hypotheses

1. National culture will positively influence on the human resource practices (staffing, participative management, cereer development dan compensation).

2. Organizational culture will positively influence on the human resource practices (staffing, participative management, cereer development dan compensation).

3. Human resources practices will positively influence on the organizational performances.

(a). Staffing will positively influence on the organizational performance.

(b). Participative management will positively influence on the organizational performance.

(c). Career development will positively influence on the organizational performance.

(d). Compensation will positively influence on the organizational performance.

Methods

Population, Sample, and Sampling procedure

Population in this research are companes listed in The Jakarta Stock Exchange 2007. Those companies are very attractive for applicants from almost every part of Indonesia. They want to join and work for the companies. The companies are expected as proxy for representation of various ethnic and culture in Indonesia, and the companies are considered to be able to reflect the diversity of national culture. The research used primary that were collected by using questionnaire through a reply-paid envelope.

Research Variables

The research based the national culture dimension developed by Hofstede (1980), i.e. Power Distance, Individualist-Collectivist, Masculinity-Femininity dan Uncertanty Avoidance. Human resource practices include in the research are: staffing, participative management, career development dan compensation. In additions, the research investigates the influence of organizational culture on the HRM practices.

National culture variables are measured by using adapted Survey Value Module 1994, developed by Hofstede (1990), and organizational culture variables are measured by using questionnaire developed by Hofstede (1997). HRM practices are measured by using questionnaire adapted from the Schuler & Jackson (1990:125), for career development and compensation, Geringer, et al., (2002:5) for staffing and Bae & Lawler (2000:509) for participative management.

The questionnaire for organizational performance is adapted from Delaney & Huselid (1998:949) dan Bae & Lawler (2000:511). Questionnaire uses likert scale: 5 for strongly agree, 4 for agree, 3 for undecided, 2 for disagree, 1 for strongly disagree.

Data Analysis

Descriptive analysis is used to see the trend of respondents respons toward the main research variables based on the mean (avarage). In additions, the data were analyzed by using SEM (Structural Equation Modelling) to investigate the contribution of each dimension of construct and the degree of influences of national culture variable on HRM practice, and the influence of HRM practice on organizational performance.

Results

Profile of Respondents

Survey instrument were distributed in the mid of April 2007 till Mei, 30 2007 to 336 companies listed in the Jakarta Stock Exchange 2007. After waiting the respons from respondents for a month, the number of questionnaire returned were 42 units (response rate: 12.50%). In the beginning June 2007, we sent 260 questionnaires to the companies which did not return the first quesionnaire and we tried to phone the companies. At last, 81 questionnaire returned. Therefore, totally, we accepted 113 questionnaire, however 5 unit questionnaire were defect, and only 108 questionnaire were analyzed. The total sampel of the research meet the maximum likehood approach.

Position of respondents in the companies are as follows: Manager/director of HRM are 64 respondents (59.3%), Assistant of Manager/director of HRM are 41 respondents (37.9%), the rest of the respondents are supervisor 3 (2.8%). Totally, 97% respondents were manager and assistant manager of HRM. Logically, the respondents understand the characteristic of HRM practices and therefore it will minimize common method bias.

Description of the main variable

Collectivism-Individualism dimension

Generally, respondents feel that they are collectivist. Collectism dominate their every day life. Individualism-collectivism dimension is represented by six indicators, one of them is question 4 (Q4) that states: Back to their home town at the ‘Idul Fitri/Christmast is very importance though spend a lot of money, energy and time. 46 respondents (42.6%) answered agree, 23 respondents (21.3%) answered strongly agree, so total score for Q4 is 406 or 75.185%

Power Distance dimension

This dimension reflect the level of percieved power distance felt by respondent. Dimensi power distance is represented by six indicators, one of them is question 5 (Q5) that states: “Generally, employe prefer a superior who act like a father (paternalistic style) is charismatic, protec subordinate and nurturant.” On the avarage, respondents answer ranged between 4 (high), and 5 (very high). Totally, score for power distance is 76.48 %. Based on the established score, this means that respondents admitted that power distance still attach for the majority of them.

Masculinity-Femininity dimension

Masculinity dimension is measured by seven indicators, for example: it is better live with family rather than get promoted in the job but live in another city without family. 80.21% respondents states they agree with the statement, It means that feminism ie. Living together with their family is prefer to living without the family. Respondent do not value house and luxury car higher than family.

Uncertainty Avoidance dimension

Generally, it can be concluded that there is a tendency of axiety among the employees. And it is getting higher because of environemental uncertainty and job insecurity as a result macro economic unstablity. Therefore, this finding is differ fram Hofstede’s (1980) that stated Indonesia society was belong to low undertaity avoindance.

Organizational Culture Variable

The variable measured percieved organizational cuture felt by employees. Organizational culture variable was measured by five indicators such as: “Competency is the only criterion used in hiring new employee, reward and promotion”. 56 respondents (51.9%) answered agree and 13 respondents (12.0%) answered strongly agree, therefore the total score for this indicator is 392 or 72.59% .

HRM Variables

Staffing Variable

Staffing was measured by six indicator, among them is: Selection process is very tight by using various test and interview”. Generally, repspondents stated that in staffing process, competency is considered the most important factors, though may be there is another factors such as past employment and family relationship with the management of the organzation. However, the last two factor is not considered to be dominant factors.

Participative Management variable

Participative management is measured by six indicators, among of them such as: “Employee participates in the quality circle, work team, and information sharing.”. The majority of respondent answered lie between 4 (high) and 5 (very high). Total score for this indicator is 80.21%. It means that the level of participative management in the companies surveyed is high.

Career Development variable

Career development variable is measured by six question such as: “People with good character is prefer to people with good skill at work”, also with the statement : “Promotion is due to loyalty and closed reationship with the suprior than performance”. Respondents respons for these questions lie between 4 (high) and 5 (very high). Total score for this variable is 78.7%. It means that the respondents admitted that having good relationship with superior is important. Although, for career development, it is also important to have a good skill at work. .

Compensation variable

Compensation variable was measured by six indicators, such as the statement: “Employee’s long of service is taken into account in the compensation.” 52 responden (48.1%) answered agree, and 35 respondents (32.4%) answered strongly agree. Total score for this indicators is 439 or 81.29%. It means that most of the companies involved in the survey used fixed pay and compensastion policy is not based on the individual performance.

Organizational performance variable

Organizational performamnce variable was measured by six indicators related with: sales growth, financial capability, profitability, market growth and employee productivity.

In general, renspondent stated that the performance of the organization where they work were perceived as above industry avarage. The scores for this indicator lie between 4 (high) and 5 (very high). Total score for this indicator is 80.03%.

Results of Reliability Test

Table 1 presents the results of reliability test.

Table 1 Cronbach’s Alpha Coefficient

Construct

Number of items

Number of remaining item

Cronbach’ Alpha

Individualism-Colloectivism (P)

.8810

Power Distance (Q)

.8716

Mascculinity (R )

.7853

Uncertainty Avoidance (S)

.8843

Organizational Culture (T)

.8138

Staffing (U)

.7947

Participative (V)

.7473

Career Development (W)

.8877

Compensation (X)

.8867

Organizational Performance (Y)

.8791

Source: Research data

Apart from all indicators i.e. 62 items, there are 51 item, it means that there are 11 items were eliminated. Cronbach’s Alpha coefficient ranged from 0.7473 to 0.8877, therefore, it can be considered as very good and accepted. (Hair et al., 1998).

The Results of Reliability Construct Testing

The result of construct reliability testing is still within the internal consistency, therefore the researcher can relies on the indicator. Table 2 presents the result of reliability test for all main variables.

Table 2

Construct Reliability for each construct

Construct

Construct Reliability (¡)

Colloectivism-Individualism (P)

.8860

Power Distance (Q)

.8770

Masculinity (R )

.8020

Uncertainty Avoidance (S)

.8850

Organizational culture (T)

.8200

Staffing (U)

.7990

Participative (V)

.7520

Career Development (W)

.8880

Compensation (X)

.8890

Organizational Performance (Y)

.8640

Source: Data research

Minimum cutt-off value of construct reliability is 0.70. Based on Table 2, the score for all construct, CR > 0.70. The result indicates that each construct meets the realibility requirement (Ferdinand, 2002).

Two-Step Model-Building Approach

Steps taken in the two-step approach to SEM:

To sum all item scale into summed-scale indicator for each construct by using factor score as weight.

To standardize each summed-scale indicator (z-score) with mean= 0 dan standard deviation= 1

To determine errors (¥) dan lambdas (¬) terms, then make errors (¥) and lambdas (¬) terms as parameter in SEM.

Table 3 presents the result of calculation error (¥) dan lambda (¬) terms based on two step model building approach:

Table 3

Error and Lambda Terms for each factor

Construct

Lambda (¬)

Error Epsilon (¥)

Individualism-Colloectivism (P)

0.783

0.079

Power Distance (Q)

0.522

0.067

Masculinity (R )

0.596

0.050

Uncertainty Avoidance (S)

0.587

0.045

Organizational culture (T)

0.583

0.075

Staffing (U)

0.529

0.070

Participative (V)

0.505

0.084

Career Development (W)

0.709

0.063

Compensation (X)

0.732

0.066

Organizational performance (Y)

0.679

0.062

Source: Research Data

Hypothesis Testing

Measurement Model

In this step, structural full model is estimated by computing scores taken from the composite model in Table 3. The model is good when hypothetical model is theoritically supported by empiral data. The result of SEM analysis is presented in Figure 1.

Figure 1

Output Research Model

Source: Research Data

Table 4. Evaluation of Goodness of Fit Indices

Goodness of fit index

Cut-off Value

Results

Note

£2 – Chi-square

–

34.957

Good

Sign.Probability

0.05

0.140

Good

CMIN/DF

2.00

1.295

Good

GFI

0.90

0.945

Good

AGFI

0.90

0.888

Marginal

TLI

0.95

0.964

Good

CFI

0.95

0.978

Good

RMSEA

0,08

0.052

Good

Source: Reserach Data

Structural Model to test Hypotheses

-.341

.733

PERFORMANCE

<---

STAFFING. H 3a

.040

.301

.134

.894

PERFORMANCE

<---

PARTICIPATIVE. H 3b

-.057

.311

-.183

.855

PERFORMANCE

<---

CAREER DEV H 3c

.388

.107

3.618

***

PERFORMANCE

<---

COMPE NSATION. H 3d

.140

.104

1.343

.179

Test of National Culture Dimension Based on CFA

Based on the output AMOS 4.01, the value of CR national culture dimension respectively as fllows: collectivism-individualism dimension is 10.544, power distance is 10.573, and uncertainty avoidance is 7.599. For all three national cultural dimension are significance at p< 0.05. Therefore, it is concluded that the three dimensions are confirmed as dimensons of national culture. Beause the value of CR for masculity is -0.821, it is conluded that masculinity is not confirmed as a dimension of national culture.

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Hypotheses Testing

Hypothesis 1a

Hypothesis 1a states that national culture is positively influence on staffing. Based on the Table 5. Value CR is -.0.599 and is not significant, therefore, Hypothesis 1a is not supported. In other words, national culture does not influence staffing practices. A number of companies may likely follow foreign company in staffing by conducting fit and proper test to select new employees. In this method, competency is one of the most important factor in staffing decision.

Hypothesis 1b

Hypothesis 1b states that national culture positively influence on participative management. Based on value in Table 5, value of CR is .0.309 and is not significant at p< 0.05, thus H 1b is not supported.

Hypothesis 1b is developed based on Jaeger’s research finding (1986:179). Accoding to Jaeger, in the country with high power distance tinggi, participative management is responded by anxiety, distrust and disrespect. Manager who tries to encourage his subordinates to participate in the wokrplace is perceived by employess as weak and incompetent. Participative management is prefered in USA, but it does is not prefered in Mexico. Power distance also influence on work team formation. In high power distance country, work team does not work effectively because members of team who belong to lower class are not comfortable to encounter face to face with other member who belong to higher position in the organization.

Although, in the descriptive analysis, it has been mentioned that respondents admitted that power distance is relatively high, in the companies suveyed, participative management is common. The result is not consistent with Hofstede (1980) and Jaeger (1986), who predict that in high power distance society, there will be less participative management. Thus Hypothesis 1b is not supported. National culture does not influence on participative management.

Hypothesis 1c

Hypothesis 1c states that national culture positively influence on carrer management. Based on the data analysis presented in Table 5, value of CR is 3.914 and significant at p< 0.05, thus H 1c is supported.

In high masculinity society, performance is highly valued, therefore person carrer can be predicted from whae one does, and every one may compare oneself to another based on what one has achieved. Conversely, in low masculinity society, (high femininity), career management will be based on who one is. Thus, positions in the organization will be occupied by people who are considered to be humble, loyal and good character.

Hypothesis 1d

Hypothesis 1d states that national culture positively influence compensation. Base on the result presented in Tabe 5 value of CR 3.682, and signifucant at p < 5, thus hypothesis 1d is supported.

As presented in descriptive analysis, the majority of respondents states that compensation system is based on fixed pay. In that system long of service is one of the most important factor, thus the longer employee work for the company, the more likely employee have higher wage.

Hypothesis 2a

Hypothesis 2a states that organizational culture positively influence on staffing. staffing. Based on the result provdided in the Table 5, value of CR is 11.115, and significant at p< 0.05; thus H 2a is supported. In the descriptive analysis shows that the majority of companies adopts professional culture, where competecy and performance are valued higher than personal relationship. Thus staffing decision will be based on competecy rather than other factors..

Hiypothesis 2b

Hypothesis 2b states that organizatinal culture positively influence on participative management. Table 5 shows that value of CR is 10.413, and significant at p < 0.05, thus Hypotheis 2b is supported.

By using organizational culture, management established behavior norm for employee and determined expected performance for emloyee. Therefore, it is not surprising that in high power distance society, the majority of companies surveyed practiced participative management.

Hypothesis 2c

Hypothesis 2c states that organizational culture positively influence on career development. The result of computation presented in Table 5 shows that value of CR is 1.274, and significant at p< 0.05, thus hypothesis 2c is not supported. It seems that national culture is more dominant in career develpment rather than organizational culture. In high feminine culture, companies tend to adopt more parochial culture than professional culture. Thus, national culture influence stronger than organizational culture.

Hypothesis 2d

Hypothesis 2d states that organizational culture positively influence on compensastion practice. Table 5

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