The Corporate Conundrum: How to Blend People and Process to Improve Firm Performance.
| Autor | Rathakrishnan, Thanuja |
1 Introduction
Today's business environment is undergoing an aggressive transformation and relentless changes in the name of evolution. These dynamic business conditions lead to uncertainty caused by a lack of knowledge about possible future states of affairs (Knight, 1921). Given the complexity and ambiguity of the business world, one of the most challenging conundrums lies in maximising effectiveness and firm performance. This is apparent among multinational companies (MNCs), especially those in the Malaysian manufacturing sector. The manufacturing sector has always focused on processes to increase production (Brettel, Bendig, Keller, Friederichsen, & Rosenberg 2014). However, the current business conditions have sparked conflicting viewpoints and arguments that priority should be given to either people or processes in the highly uncertain environment.
Previous studies have devoted much attention to what constitutes good firm performance (Crespo, Griffith, & Lages, 2014; Jasimuddin & Hasan, 2015; Jones & Linderman, 2014; Mollick, 2012). However, the following question remains: "What are the roles of people (individual values) and process (effectuation) in advancing firm performance?" This is of concern due to Malaysia's stagnant ranking in the Global Innovation Index (GII). Malaysia's ranking in the GII has dropped from 28 in 2010 to 37 in 2017, with a slight increase (35) in 2018 and 2019 (Malaysia Science and Technology Information Centre, 2019). In spite of the government's efforts and investment in human capital and processes (e.g. R&D, training, technology, workshops, industry-led programs, education) (Economic Planning Unit, 2015), innovative outcomes seem to be declining. The decreasing trend in innovation since 2010 is alarming as it indicates that Malaysia is losing its focus on innovativeness, which serves as a competitive advantage and a business sustainability tool in firms (Singh, Garg, & Deshmukh, 2008). If these issues are left unresolved, Malaysia will fall far behind in innovation and, consequently, firm performance. Therefore, this study endeavoured to identify the right blend of people and process to achieve the desired outcomes (innovative behaviour and firm performance) that ensure sustainability in today's global economy.
The extant literature, predominantly in the field of strategic management, claims that the secret of good firm performance lies in a firm's process (Arasa & K'Obonyo, 2012; Oliveira, Macada, & Oliveira, 2016). This inference is made based on investigations into organisational structure-related factors alone, which depict the organisational process. Conversely, literature in the management and human resources field argues that firm performance is affected by the human capital of firms. For instance, previous studies have found that top managers' support is significantly and positively related to financial performance (Lo, Wang, Wah, & Ramayah, 2016), that individuals' self-efficacy and effort influence sales performance (Donassolo & Matos, 2014), and that employees' entrepreneurial competencies are crucial for obtaining higher performance (Gerli, Gubitta, & Tognazzo, 2011). Both fields have made fruitful attempts to prove their respective points. While human resources journals generally conclude that ignoring people leads to process paralysis, strategic management journals counter that the organisational process eventually determines how individuals perform. As such, whether to focus on people or process remains a puzzling question, especially for MNCs.
Despite the potential importance of both people and process in explaining firm performance, they have seldom been studied within a single framework. Therefore, this study strived to narrow this gap by including both people (individual values) and process (effectuation decision making) factors to understand how they achieve the desired outcomes (innovative behaviour and firm performance). In particular, the study posited that firm performance depends on individuals and their competencies in carrying out the firm's process diligently.
In addition, this study expanded previous viewpoints on the sequence of the influence of people and process on firm performance. The individual aspect focused on individuals with values that support the use of an effectuation process, which subsequently enhances innovative behaviour and firm performance. The values embraced by individuals have been found to explain employee performance in the past, thus increasing the chances of such values influencing firm performance as well. However, the value-performance relationship has shown contradictory results, as the studies have highlighted both positive and negative relationships (Ahmic, Sunje, & Kurtic, 2016; Purc & Laguna, 2019; Sousa & Coelho, 2011). Due to these discrepancies in the literature, this study suggested the introduction of mediators to link individual values and performance. Two mediators were proposed: (1) effectuation, which is a decision-making process; and (2) innovative behaviour, which is an intermediate outcome leading to firm performance. The study thus aimed to answer the following research questions:
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What are the roles of people (individual values) and process (effectuation) in advancing firm performance?
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Does effectuation mediate the relationship between individual values and innovative behaviour?
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Does innovative behaviour mediate the relationship between effectuation and firm performance?
According to the GE Global Barometer (2014), most firms in Malaysia have been found to adopt causation and structured decision-making processes. In other words, effectuation is still in its infancy in promoting innovative behaviour in manufacturing MNCs in Malaysia. Hence, this study intended to test if the relationships proposed above are applicable to MNCs.
2 Literature Review
2.1 People to process
The study of Nelson and Winter (1982) on the Toyota Production System found that success is based on routines and organisational processes. This indicates that human capital is ultimately replaceable and interchangeable as long as individuals receive the same extensive training. Mollick (2012) explains that organisations with a consistent and reliable process "do not rely on any individual worker's skills, but rather, firm-level processes to hire and train the appropriate individuals for the appropriate roles." However, the study of Mollick (2012) also found that there are individual differences between middle managers and innovators in terms of firm performance. In simpler terms, individuals uniquely contribute to the performance of a firm.
The study of Yildiz, Murtic, Zander and Richtner (2019) looked into individual-level capability (i.e. individuals' capability to recognise, assimilate and exploit new knowledge) for the effective management of the knowledge process in MNCs. The results of their study showed that individuals' intrinsic motivation and overall ability are key antecedents to absorptive capacity, whereas extrinsic motivation is not a significant predictor. Michailova and Nielsen (2006) also mentioned that knowledge creation and knowledge sharing between individuals can be developed through the social exchange of information between them (within or among organisations), which enhances the knowledge process in MNCs.
According to Yildiz et al. (2019), studies of the knowledge management process have opened up avenues for research on organisational learning and knowledge management. However, the authors draw attention to the fact that many studies have examined knowledge management from a macro perspective (e.g. knowledge management orientation in firms, organisational communication transfer) (Hutzschenreuter & Horstkotte, 2010; Wang, Hult, Ketchen, & Ahmed, 2009), while less consideration has been given to the micro or individual perspective. As such, this study responded to the concern raised by Yildiz et al. (2019) by looking into the role of individual values in the decision-making process in MNCs.
2.2 Process to performance
MNCs employ process control mechanisms to coordinate units in order to meet global organisational objectives (Brenner & Ambos, 2013; Jasimuddin & Hasan, 2015; J ones & Linderman, 2014). Process control specifies desirable employee behaviour and includes centralisation and standardisation, as well as written manuals, to ensure that employees adhere to specified processes (Brenner & Ambos, 2013). Additionally, Jasimuddin and Hasan (2015) identified that integration processes in MNCs (e.g. learning and development, top management support, centralisation) are positively linked to knowledge sharing that promotes the successful performance of MNCs.
In equal measure, previous research recognises the drawbacks of process control, centralisation and standardisation for firm performance. For example, Jones and Linderman (2014) found that process control is not related to competitive efficiency. Further analysis proved that as the level of competition increases, process control discourages innovation performance. This is because innovative outcomes require new ideas pertaining to processes and products, and require organisations to go beyond structured, repetitive processes that minimise variation (Aboelmaged, 2012; Jaussaud & Schaaper, 2006; Jones & Linderman, 2014). However, a recent study by Zarzycka, Dobroszek, Lepisto and Moilanen (2019) provided evidence of the coexistent relationship between innovation, standardisation and management control. Their study refuted previous studies that found have that process control hinders innovation (Jaussaud & Schaaper, 2006; Jones & Linderman, 2014).
Studies have also revealed that the knowledge transfer process improves firm performance (Crespo et al., 2014; Jones & Linderman, 2014). According to Jones and Linderman (2014), incremental learning via knowledge transfer lies within the scope of process improvement. Their study found that process...
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