EXPLORING FACTORS OF HRD SYSTEM CAPABILITY: AN … · HRD system capability has been instrumental in managing the shift from the traditional focus to a more transient thrust on making

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International Journal of Management (IJM)

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EXPLORING FACTORS OF HRD SYSTEM

CAPABILITY: AN EMPIRICAL

INVESTIGATION IN SERVICE INDUSTRIES IN

INDIA

Padmalita Routray

Associate Professor, Department of Business Management,

Fakir Mohan University, Balasore, Odisha, India

Amarnath Padhi*

Research Scholar, Department of Business Management,

Fakir Mohan University, Balasore, Odisha, India

*Corresponding Author Email: [email protected]

ABSTRACT

HRD system capability has been instrumental in managing the shift from the

traditional focus to a more transient thrust on making the organization more

productive and efficient. This research work conceptualizes HRD system capability as

a second order factor and explores its effect on Immediate Capability, Intermediate

Capability and Ultimate Capability by evaluating a model of structural equation. The

model is validated using data collected from 151strategic decision makers from the

selective service industries (Retail, Hotel and IT) across odisha in eastern India. The

study follows a hierarchical approach using confirmatory factor analysis to test the

second order factor model and structural equation modelling to test the overall model.

The results show that both empirically and conceptually the second order factor model

is acceptable and better than other competing models of HRD system capability. The

findings support the hypothesis and evidence of a highly explanatory structural model.

The second order factor model allows for analysis of HRD system capability at

different abstraction levels. HR personnel involved in integrated strategic decision

making should use global measures to determine the efficiency of the HRD system

capability. The research indicates that HRD system capability is best represented as a

second order factor and in doing so, it provides an improved measurement of the

construct. Therefore, the researchers developed a more feasible model by integrating

the variable in a nomological network than those that exists today.

Keywords: HRD System Capability, SHRD, Confirmatory factor analysis, second

order factor, Service Sector

Padmalita Routray and Amarnath Padhi


Cite this Article: Padmalita Routray and Amarnath Padhi, Exploring Factors of HRD

System Capability: An Empirical Investigation in Service Industries in India,

International Journal of Management (IJM), 11 (3), 2020, pp. 266–277.

http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=11&IType=3

1. INTRODUCTION

The services sector‟s significance in the Indian economy has continued to increase, with the

sector now accounting for around 55 percent of total size of the economy and GVA growth,

two-thirds of total FDI inflows into India and about 38 per cent of total exports. It has become

the largest and fastest growing market in the world and contributes more to global production

and employment. The share of services sector now exceeds 50 per cent of Gross State Value

Added in 15 out of the 33 states and UTs (Economic Survey, 2018-19). Some services such as

trade, hotels and restaurants, transportation, storage and communication including financing,

insurance and property services as well as other services such as community, social and

personal services expected to increase faster than the industry as a whole. HRD system is

responsible for making sure that global professional service firm employees understand the

local culture and context to ensure service quality. More specifically, national culture should

be examined when service firms implement HRD, including organizational development

(OD) and training and development (T&D).

Human Resources Development has become over the past 20 years the most rapidly

growing field of management studies. HRD has evolved beyond the restricted viewpoint of

merely training and has grown into a more comprehensive approach to human and

organizational learning and information creation (Mittal 2013). Human resources are

important to boost competitive advantages and better market efficiency in a sustainable way.

Werner and DeSimone (2006) indicated that human resources planning activities which are

strategically focused lead to human resource growth and add to the organization's overall

progress. Haslinda (2009) agreed with the above point of view when he argued that the

implementation of human resources activities increase employee capacities in jobs,

productivity and efficiency and enhance goods and services quality. The human resources

development practices and programs when designed and implemented properly enhances

employee capacity to ensure effective organisational performance (Indradevi, 2010; Swanson

and Holton, 2009). Yuvaraj and Mulugeta (2013) stated that through existing training, career

development, performance appraisal and management and organizational development

components, the HRD interventions continue to improve employee capacity and performance.

Kehoe and Wright (2013) argued that the improvement of skills of people significantly

improve quality of service. Clardy (2008) emphasised that companies use human resources

development practices as a major strategy to encourage positive employee behaviour and

enhance their competencies which in turn increase productivity and results. With this

background, the present study tries to explore whether the selected service organisations have

the HRD capability to achieve the strategic goals, meet the requirement of stakeholders and

make them competitive in the changing business scenario.

2. REVIEW OF LITERATURE

Leonard Nadler introduced the concept of human resources development in 1969 and

expanded it in 1970. Rao (1989) noted that the transition from manufacturing to service and

the increasing speed of technological changes make human capital a key element for an

industry's well-being and development. Furthermore, he noted that it is not just a question of

finding ways and means to resolve conflicts or to resolve differences, but also a question of

ensuring that the employee and the employer work unconditionally. HRD can be described as

Exploring Factors of HRD System Capability: An Empirical Investigation in Service Industries in India


a mechanism by which human experience can be built and/or activated through organizational

and personnel training and development for improved performance purposes (Swanson,

2001). The 21st century problems such as globalization, automation and demographic change

pushed businesses to constantly seek new ways to achieve the highest efficiency and quality

outcomes and to make the current employee more efficient.

2.1. Strategic Orientation of HRD function

Every organization's success depends on its human resources. Human resources have the

necessary skills, knowledge and expertise to implement the corporate strategy and planning.

With the passage of time the concept of HRD expanded to incorporate organizational

development. HRD is defined as an interdisciplinary area of inquiry (Jacobs,1990; Swanson

and Holton,2001) that usually includes three areas of practice; i) Training and Employee

Development, ii) Organization Development, and iii) Career Development. This three-legged

version of HRD is often debated as emerging from either systems theory or adult education,

with the differing focus on organizational outcomes and individual development. Lee (2001)

and Wang and Swanson (2008) suggest that it has long been difficult to establish the

definition of human resources development as part of the curriculum for human resources.

Ruona (2002) claims the academia has been paying attention to concepts of human resources

growth for more than four decades. HRD covers the organization's strategic practices. If a

person is to be successful, the organization's prevailing environment must be conducive to

his/her growth. Different research projects have been carried out for the identification and

study of Strategic HRD variables in organizations. In recent years, „work planning' (Garavan,

1991; Garavan, Morley, Gunnigle and McGuire, 2002) has been widely used in the fields

“employee training”, “human resources development”, and “strategic human resources

development”' (Garavan, 1991). Walton (1999) described Strategic HRD as “SHRD provides

the implementation, replacement, change and administration processes to allow both

individuals and teams to take the ongoing and upcoming tasks required of the company, with

the abilities, skills and capacities they need”. HR structures have become more multi-layered

and dynamic in seeking to make HR more important and competitive to contemporary

companies. Reacting to Caldwell and Storey's (2007) allegations that efforts to increase HR

performance have resulted in increased fragmentation and chaos in HR management, leading

to frustration and confusion among internal clients.The HR job will learn to survive with

increasing complexity (cited in Crabb, 2008 by Ulrich) and must be comfortable with being

both managerial and strategic. In this concern, HRD displays an imperative role in workforce

strategy and in the development of the human–technology interface. Garavan (2007) says that

the framework and the significance of multiple partnerships and actors and the improvement

of vertical and horizontal connections through the organization should be identified by

strategic HRD. He believes that strategic HRD must follow vertical and horizontal growth

through learning practices.

First, alignment must be achieved between the organisational mission, corporate plans,

and HRD vision. Tseng and McLean (2008) recognize the importance of HRD's strategic

thrust into each area of the organisation to encourage good and effective behaviour.

Furthermore, environmental screening should be conducted on a regular basis and should take

the form of corporate strategy and HRD. Tseng and McLean (2008) concluded that the

situation poses a risk to the HRD plan and therefore to the practical obligation of HRD to be

put in the business context. Second, the systematic, coherent and coordinated preparation of

HRD, both in business and organization planning will take place. Luoma (2000) definitely

recommends that practical HRD will facilitate the institution's development process by

treating it as a knowledge-based set of problem solving and engaging. Third, HRD solutions

must be appropriate to the problems faced by the organisation and must add value. Garavan



(2007) says that HRD should not, but should be operationally accountable, viewed as a way to

eliminate all institutional problems.

2.2. HRD System Capability (HRDSC)

HRD system focuses on both employee development and organizational development. For

any organization seeking to be competitive and growth-oriented the development of human

resources is critical. The capacity can only be realized through the development of an

environment that can continuously recognize, surface, cultivate and optimize people's

capacities. The HRD system is designed to create such an environment. Throughout recent

years, HRD methods have been developed to achieve this function on the basis of certain

concepts. Garavan (2007), in his article on SHRD, suggested that it is a multi-level activity

and focus on stakeholder satisfaction. Therefore, the HRD system, if addresses the need of

stakeholders, can be called strategic. Hence, the HRD role can be unique in the sense that it

contributes to the strategy-making process and protect or upgrade the core competency by

emphasizing those capabilities that are job-specific (Clardy, 2008). Yost et al. (2011)

attempted to bring out the idea of building separate systems and programs which may help the

SHRD practitioners to adapt and adjust themselves to the changing demands of the

organization. HRD intervention with a focus on organizational objectives can be considered

as one of the strategic moves which help both SHRD practitioners and the firm in achieving

the desired goals. Apart from the achievement of intentions, the HRD intervention may also

help in maintaining sustainability. The nature of various HRD interventions may support the

organization to survive progressively. It may affect delivering Human Resource activities by

increasing the organization's flexibility in changing scenario. In an emerging situation,

offering HRD activities will be done by multiple players, and therefore the role of HRD

managers and line managers will change. Richard and Johnson (2001) explained that different

HR activities start from acquisition, development, and retention and it can be strategic if it

matched with business objectives and HR/HRD system when strategically implemented,

could develop organizational productivity and that system may support to sustain future

corporate developments.

2.3. Objective of the Study

The objective is to explore the factors under Human Resource Development System

Capability (HRDSC) and to analyse the factor structure through Confirmatory Factor

Analysis (CFA).

2.4. Hypothesis of the Study

There is no significant difference on the perception of respondents on different sub-constructs

and the construct of HRD system capability.

3. RESEARCH METHODOLOGY

The study was conducted in selective service industries like Retail, Hotel and IT keeping in

view the people intensiveness of such industries. The respondents of the sample were having

designation like Head-HR, Manager-HR, HR Business Partners, Forntline Managers, Store

Managers and HR Consultants, etc. The sample included those persons who were in strategic

positions and significantly contribute to the HR and /or business strategy formulation and

implementation. A total of 290 respondents were approached initially having above

designation, out of which 151 responded resulting in 52 percent response rate. The research

instrument for the study was developed by the researchers and tested for its validity initially

by consulting experts and reviewing relevant literature. The data were analyzed using



descriptive statistics, followed by exploratory and confirmatory factor analysis using IBM

SPSS statistics 21 and AMOS, 2020 version.

4. RESULTS AND ANALYSIS

The profile of the sample is presented in Table 1. Four levels of designation have been taken:

„HR Head” as level 1, “HR Managers, HR Business Partners(HRBP) and Line Managers

(LM)” as level 2; “HR Consultants, Front Office Managers(FOM), Store Managers (SM”) as

level 3 and HR executives as level 4. The level 1 consisted of 9 respondents, i.e., 5.97% of the

sample. In this, 2 were from hotel sector, 6 were from IT sector and 1 from retail sector. The

level 2 consisted of 65 respondents, i.e., 43.04% of the sample. In this, 17 were from hotel

sector, 27 were from IT sector and 21 were from retail sector. The level 3 consisted of 51

respondents, i.e., 33.78% of the sample. In this, 26 were from hotel sector, 9 were from IT

sector and 16 were from retail sector. The level 4 consisted of 26 respondents, i.e., 17.21% of

the total respondents. In this, 12 were from hotel sector, 9 were from IT sector and 5 were

from retail sector.

Table 1 Demographic Profile: Designation of the respondents

4.1. Exploratory Factor Analysis

Initially 10 variables under HRD System Capability were factor analysed and the variable

namely, “HRD system has the capacity to meet the requirement of the society” found to be a

single factor with factor loading of 0.798. The scale reliability with 10 variables yielded

Cronbach‟s alpha 0.683. However when the above variable was deleted the Cronbach‟s alpha

improved to 0.711 (Table-4). Further this variable was found to be uncorrelated with other

nine variables and therefore dropped. The other variables were factor analysed using principal

component analysis and Varimax rotation. To test the suitability of the variables for factor

analysis, two tests are performed such as Kaiser Meyer Olkin (KMO) test of sample adequacy

and Bartlett‟s test of spherecity, which result a significant value. The results are given below

in Table-2.

Table 2 KMO and Bartlett‟s Test (HRDSC)

The KMO statistics (0.721) is found to be significant (p=0.000). So the sample is adequate

suggesting that items can yield distinctive and reliable factors. The Bartlett‟s test of Sphericity

Level of Designation Sector under which respondents

comes

Total Percentage

Hotel

Sector

IT

Sector

Retail

Sector

HR Head 2 6 1 9 5.97 %

HRM/HRBP/LM 17 27 21 65 43.04%

HR

Consultant/FOM/SM

26 9 16 51 33.78%

HR Executive 12 9 5 26 17.21%

Total 57 51 43 151 100%

Kaiser-Meyer-Olkin Measure of Sampling Adequacy 0.721

Bartlett‟s Test of Sphericity Approx. Chi-Square 271.044

Df 36

Sig .000



reveals a chi-square statistic of 271.004 with 36 degrees of freedom, is also found to be

significant at 0.000 levels.

Table 3 Total Variance of HRDSC

Extraction Method: Principal Component Analysis.

Three factors emerged which are named as “Immediate Capability”, “Intermediate

Capability” and “Ultimate Capability”. The total variance extracted shown in Table- 3 shows

cumulative percentage ranges from first to third portion between 31.845% and 55.092%. For

the first component the initial Eigen values, the total percentage of variance, and the

cumulative percentage values are 2.866, 31.845% and 31.845% respectively. For the second

component the initial Eigen values, the total, the percentage of variance and the cumulative

percentage values are 1.085, 12.057% and, 43.902% respectively. For the third component the

initial Eigen values, the total, the percentage of variance and the cumulative percentage values

are 11.007, 11.190% and 55.092% respectively.

Table 4 Rotated Component Matrixa

Co

mp

on

ent

Initial Eigen values Rotation Sums of Squared

Loadings

To

tal

% o

f V

ari

an

ce

Cu

mu

lati

ve

%

To

tal

% o

f V

ari

an

ce

Cu

mu

lati

ve

%

1 2.866 31.845 31.845 2.189 24.325 24.325

2 1.085 12.057 43.902 1.506 16.734 41.059

3 1.007 11.190 55.092 1.263 14.034 55.092

4 .942 10.472 65.564

5 .845 9.389 74.953

6 .729 8.105 83.057

7 .620 6.887 89.945

8 .515 5.721 95.665

9 .390 4.335 100.000

Variables

Descriptive

Statistics

Factors Cronbac

h’s

alpha Mean SD 1 2 3

HRD system has the

capability to make the

organisation efficient

4.06 0.732 .629

HRD system has the

capability to make the

organisation

productive

4.14 0.684 .473

HRD system has the

capability to meet the

requirement of the

customer

3.90 .661 .677

HRD system has the

capability to meet the

requirement of the

investors

4.13 .585 .757

HRD system has the 3.31 .850 .480



From Table 4 it shows the rotated component matrix, in which the factors extracted were

having loading above 0.40. The factor loadings, reliability statistics and descriptive statistics

among variables are given in table 4. Confirmatory Factor Analysis (CFA) was performed on

the above factors. The CFA using maximum likely method of estimation was done to evaluate

the first order structural model (Figure -1) which shows a decent model fit indices. (Table-5).

In order to evaluate the psychometric properties convergent validity was assessed. To assess

such validity the average variance extracted (AVE) and composite reliability (CR) were

calculated for each sub-construct viz. Immediate Capability (AVE= 0.41; CR= 0.73),

Intermediate Capability (AVE = 0.41; CR=0.66), and Ultimate Capability (AVE= 0.55; CR=

0.70) using Fornell and Larcker (1981) procedure. Though, the AVE is less than 0.50 for two

sub-constructs but the value exceeds 0.40 and the CR is above 0.60, the convergent validity

can be found to be adequate in this case. However, the model didn‟t achieve discriminate

validity as the sub-constructs were highly correlated. However, the all the indicator under

different subconstruct were found to be significant. Therefore, a second order factor structure

was considered to develop a single construct i.e., “HRD System Capability (HRDSC)” which

is shown in Figure-2.

Figure 1 Confirmatory Factor Analysis (First order structural model of HRDSC)

capability to meet

strategic goals

0.711

HRD system has the

capability to support

organisation

innovation

4.34 .588 .855

HRD system has the

capability to make

people quality focused

3.46 .737 .530

HRD system has the

capability to meet

requirement of

employees

4.28 .687 .845

HRD system

contribution is

important for

organisational

effectiveness

3.97 .761 .617

Extraction Method: Principal Component Analysis. Rotation Method: Varimax

with Kaiser Normalization



Table 5 Fit indices for Structured Model

Figure 2 Confirmatory Factor Analysis (Second order structural model of HRDSC)

Table 6 Path analysis of Structural Model

Fit Index Structural

Model Values

χ2/df ( Chi-square /

degree of freedom)

1.499

RMSEA

(Root mean- square error of

approximation)

0.058

GFI

( Goodness of fit index)

0.957

(TLI)

Tucker-Lewis Index

0.904

NFI

(Normed fit index)

0.845

CFI

(Comparative fit index)

0.939

Measurement Path Estimate

Immediate capability HRDSC . 941

Intermediate capability HRDSC ..882

Ultimate capability HRDSC ..733

HRD system has the capability

to make the organisation

efficient

Immediate capability ..395


to make the organisation

productive



to meet the requirement of the

customer


HRD system has the capability Immediate capability ..528



Analysing the path coefficient (Table.6.), it is found that immediate capability (+.941)

contribute highest followed by intermediate capability (+.882) and ultimate capability

(+.733). It is found that immediate capability contributes highest followed by intermediate

and ultimate capability. All the path coefficient was found to be significant.

Table 7 Squared Multiple Correlations

Variables Estimate

Ultimate Capability .537

Intermediate Capability .779

Immediate Capability .886

HRD system has the capability to make the organisation

efficient

.279

HRD system has the capability to make the organisation

productive

.205

HRD system has the capability to meet the requirement

of the customer

.596

HRD system has the capability to meet the requirement

of the investors

.156

HRD system has the capability to meet strategic goals .462

HRD system has the capability to support organisation

innovation

.167

HRD system has the capability to make people quality

focused

.227

HRD system has the capability to meet requirement of

employees

.123

HRD system contribution is important for organisational

effectiveness

.290

Table-7 shows the squared multiple correlations, in which it is found that the predictors of

ultimate capability explain 53.7 percent of its variance. Similarity intermediate capability

explains 77.9 percent and immediate capability explain 88.6 percent of their variances. Since

the service industries chosen were distinct from each other; to find the industry effect one way

analysis of variance was conducted to evaluate the hypothesis:

to meet the requirement of the

investors


to meet strategic goals

Intermediate

capability

..680


to support organisation

innovation

Intermediate

capability

..409


to make people quality focused

Intermediate

capability

..527


to meet requirement of

employees

Ultimate capability ..539

HRD system contribution is

important for organisational

effectiveness

Ultimate capability ..351



“There is no significant difference on the perception of respondents on different sub-

constructs and the construct of HRD system capability.”

Figure 8(a) Descriptive Statistics

Sectors N Mean Std.Deviation Std.Error

HRD System Capability

Hotel Sector 57 4.2953 .21527 .02851

IT Sector 51 3.9504 .33616 .04707

Retail Sector 43 3.6195 .22669 .03457

Total 151 3.9864 .38033 .03095

Figure 8(b) ANOVA

Figure 8 (c) Post Hoc Test

TukeyBa, b

Means for groups in homogeneous subsets are displayed.

a. Uses Harmonic Mean Sample Size = 49.663.

b. The group sizes are unequal. The harmonic mean of the group sizes is used. Type I error levels are

not guaranteed.

The table- 8(a-c) shows the descriptive statistics, ANOVA table, and results of post -hoc

test. From the post hoc test it was found that hotel industries HRD capability was found to be

better (Mean=4.29; SD=0.215; N=57) in comparison to IT industries (Mean=3.95; SD=0.336;

Sum of

Squares

Df Mean

Square

F Sig.

Immediate

Capability

Between groups 17.661 2 8.831 75.456 .000

Within groups 17.320 148 117

Total 34.982 150

Intermediate

Capability

Between groups 12.579 2 6.289 32.194 .000

Within groups 28.914 148 .195

Total 41.492 150

Ultimate

Capability

Between groups 7.125 2 3.563 15.567 .000


Total 40.997 150

HRD system

Capability

Between groups 11.294 2 5.647 80.333 .000


Total 21.697 150

Sector under which respondent

comes

N Subset of alpha = 0.05

1 2 3

Immediate

Capability

Retail Sector 43 3.3547

IT Sector 51 3.99461

Hotel Sector 57 4.1930

Intermediate

Capability


IT Sector 51 3.8954


Ultimate

Capability


IT Sector 51 4.0098


HRD System

Capability


IT Sector 51 3.9504




N=51) and retail industries (Mean=3.819; SD=0.226; N=43). The poor performer among the

three industries was the retail industry.

5. DISCUSSIONS

Data analysis shows that the HRD system‟s immediate capability is more on making the

organization efficient, productive and customer oriented. The HRD function plays an

important role in increasing people competency and thus can create desired kind of service

capability to meet the requirement of the customers and hence can impact financial

performance of the company. The descriptive statistics shows that the companies are doing

fairly good on these aspects So far as immediate capability of HRD is concerned; it is found

that making organization productive is an important contribution of it. In medium run the

intermediate capability focuses on the ability to meet strategic goals, make the organization

innovative and quality focused. However, the descriptive statistics shows that the companies‟

HRD capabilities are not well developed to meet the strategic goals and make them more

quality focused. However, the capability of HRD system is very good for making the

organization innovative. While analysing the ultimate capabilities of HRD the focus should be

more on meeting the requirements of employee and make the organization effective. The

descriptive statistics reveal that companies meet the requirements of employees and are fairly

good in contributing to organizational effectiveness. Comparison across industries reveals that

Industries are different in terms of their HRD capability. Hotel industries‟ quest for excellence

far surpasses that of IT and retail industries. They are good in making the organisation

efficient and productive using HRD capability; hence meet the requirements of customers and

investors successfully. They are able to meet the strategic goals and the contribution of HRD

system in making the organisation effective is important for them. IT and retail industries,

though capable of meeting the requirements of employees, are not able to perform very

effectively so far as efficiency, productivity and customer orientation is concerned. In these

organisations HRD capabilities are not aligned properly to achieve the strategic goals.

6. CONCLUSION

Service industries are people intensive and therefore the role of HRD system is vital to

increase the competitiveness of these industries (Hotel, Retail and IT). Hotel industries giving

thrust on this aspect will be the future leaders. In future years there will be more competition

in retail industries and thus increases the importance of HRD in making the organization more

capable in meeting the strategic goals by developing people capability. Such the capability

will enhance the organizations‟ capacity not just to compete on cost front but also to create a

better service climate to attract customer and stay ahead of the competition. In case of IT

industries the focus on innovation will be more profound and the people capability can be

more strategy focused if the HRD system capability can be developed to meet the strategic

goals of the organizations.

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