In this dissertation, the main objective of the study is to access the effect of human resource management practices (recruitment and selection, training and development, employee satisfaction, employee relations and performance appraisal) on the performance of Cooperative Bank of Oromia. Human resource management (HRM) is a comprehensive and logical approach to the employment and development of people. It can be regarded as a philosophy about how people should be managed, which is reinforced by a number of theories relating to the behavior of people and organizations. Human resource management is a process of bringing people and organizations together so that the goals of each group are accomplished. This implies HRM is part of the management process, which is concerned with the management of human resources in an organization.
HRM tries to secure the best from people by captivating their unreserved cooperation. In this way, it includes systematic planning and control of a network of the necessary organizational processes affecting and involving all organizational members including human resource (HR), planning, job and work design, job analysis, staffing, training and development, achievement evaluation and review, compensation and incentives, employee safety and representation and organizational improvements.
A cooperative bank is a business organization which is the proprietorship of its members, who are simultaneously the possessors and the clients of the bank. Cooperative banks are often established by individuals belonging in common interest. According to Gupta & Jain (2012), alike any financial institutions, Cooperative Banks in most parts of the world take deposit and lend money. It also provides financial assistance to the people with slight revenues to safeguard them from the debt deception of the cash lender. Cooperative banks are prescribed and managed on the principal of cooperative, self-help & mutual help. As any financial institutions, in Cooperative Bank of Oromia, proper human resource management is vital for its existence and development. Thus, human resource professionals and the bank’s executives are seen employing different mechanisms to retain their experienced employees. Due to this, the study assessed existing conditions in Cooperative Bank of Oromia how it has been applying human resource management practices that enable to attain best performance.
TABLE OF CONTENTS
APPROVAL SHEET
CERTIFICATION
DECLARATION
STATEMENT OF THE AUTHOR
ACKNOWLEDGEMENTS
TABLE OF CONTENTS
LIST OF TABLES
LIST OF FIGURES
LIST OF APPENDICES
LIST OF ABBREVIATIONS
ABSTRACT
CHAPTER ONE
INTRODUCTION
1.1. Background of the Study
1.2. Statement of the Problem
1.3. Objectives of the Study
1.3.1. General Objective
1.3.2. Specific Objectives
1.4. Research Questions
1.5. Research Hypotheses
1.6. Significance of the Study
1.7. Scope of the Study
1.8. Limitations of the Study
1.9. Operational Definition of Terms
1.10. Organization of the Study
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
2.1. General Overview of the Concept of Human Resource Management & Human Resource Management Practices
2.1.1. The Concept of Human Resource Management
2.1.2. The Concept of Human Resource Management Practices
2.2. The Theoretical Basis of the Study
2.2.1. Human Resource Management Models
2.2.2. The Link between Human Resource Management Practices and Organizational Performance
2.2.2.1. Recruitment & Selection processes vs. Organizational Performance
2.2.2.2. Employees’ Training & Development practices vs. Organizational Performance
2.2.2.3. Employees’ Satisfaction
2.2.2.4. Employees’ Relations
2.2.2.5. Performance Appraisal practices vs. Organizational Performance
2.2.2.6. Demographic Characteristics vs. Organizational Performance
2.2.3. Theoretical Framework
2.2.3.1. Resource-Based View
2.2.3.2. Social Exchange Theory
2.2.3.3. Motivation Theory
2.4. Empirical Review
2.5. Conceptual Framework
2.5.1. Variables Specification and Working Hypotheses
2.5.1.1. Dependent Variable
2.5.1.2. Independent Variables
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Description of the Study Area
3.1.1. Profile of Cooperative Bank of Oromia
3.2. Research Design and Approach
3.2.1. Research Design
3.2.2. Research Approach
3.3. Data Types and Sources of Data
3.4. Population and Sampling Design
3.5. Sample Size Determination
3.6. Proportional Sampling Techniques
3.7. Tools and Methods of Data Collection
3.7.1. Tools of Data Collection
3.7.1.1. Questionnaire
3.7.1.2. Interview
3.7.1.3. Focus Group Discussion
3.7.1.4. Observation
3.7.2. Procedure of Data Collection
3.8. Validity and Reliability Tests
3.8.1. Validity
3.8.2. Reliability
3.9. Data Processing and Analysis Approach
3.9.1. Model Specification
3.9.1.1. Chi-Square Test of Association
3.9.1.2. Correlation Analysis
3.9.1.3. Ordinal Logistic Regression Model
3.9.1.3.1. Proportional Odds Model
3.9.1.3.2. Parameter Estimates of Ordinal Logistic Regression
3.9.1.3.3. Fitting an Ordinal Logit Model
3.9.1.3.4. Model Adequacy Checking
3.10. Ethical Consideration
CHAPTER FOUR
RESULTS AND DISCUSSIONS
4.1. Response Rate on Questionnaires
4.2. Validity and Reliability Test Result
4.2.1 Validity Test Result
4.2.2. Reliability Test Results
4.3. Demographic Characteristics of the Respondents
4.4. Position of Respondents
4.5. Descriptive Statistics of Respondents
4.5.1. Employees’ Perception Regarding Recruitment and Selection Process
4.5.2. Employees’ Perception on Training and Development Practices
4.5.3. Employees’ Satisfaction
4.5.4. Employees’ Relations
4.5.5. The Practice of Performance Appraisal
4.5.6. Effects of Demographic Variables
4.5.7. Performance of Cooperative Bank of Oromia
4.5.8. Descriptive Statistics of the overall Study Variables
4.6. Qualitative Data Analysis
4.6.1. Recruitment and Selection Processes
4.6.2. Training and Development Practices
4.6.3. Employees’ Satisfaction
4.6.4. Employees’ Relations
4.6.5. The Practice of Performance Appraisal
4.7. Inferential Statistics of Respondents
4.7.1. Data Testing
4.7.1.1. Chi-Square Test of Association
4.7.1.2. Correlation Analysis
4.7.1.3. Ordinal Logistic Regression Analysis
4.7.1.4. Hypotheses Testing
CHAPTER FIVE
SUMMARY, CONCLUSIONS & RECOMMENDATIONS
5.1. Summary of the Major Findings
5.2. Conclusions
5.3. Recommendations
5.4. Suggestions for Further Research
REFERENCES
APPENDICES
DECLARATION
I, Desalegn Fekadu Etefa, hereby declare that the dissertation work entitled the “Effect of Human Resource Management Practices on the Performance of Cooperative Bank of Oromia ” submitted by me for the award of the degree of PhD in Cooperative Studies at Ambo University is original work and it has not been presented for the award of any other Degree, Diploma or Fellowship in any other Universities or Institutions by any candidate.
Name: Desalegn Fekadu Etefa Signature _____________ Date ________________
STATEMENT OF THE AUTHOR
I Mr. Desalegn Fekadu Etefa hereby declare and affirm that the dissertation entitled the “Effect of Human Resource management Practices on the Performance of Cooperative Bank of Oromia” is my own work conducted under the supervision of Prof. S. Nakkiran. I have followed all the ethical principles of scholarship in the preparation, data collection, data analysis and completion of this dissertation. All scholarly matters that are included in the dissertation have been given recognition through citation. I have adequately cited and referenced all the original sources. I also declare that I have adhered to all principles of academic honesty and integrity and I have not misrepresented, fabricated, or falsified any idea / data / fact / source in my submission. This dissertation is submitted in partial fulfillment of the requirements for a degree in PhD from the Post Graduate Studies at Ambo University. I further declare that this dissertation has not been submitted to any other institution anywhere for the award of any academic degree, diploma or certificate.
I understand that any violation of the above will be cause for disciplinary action by the University and can also evoke penal action from the sources which have thus not been properly cited or from whom proper permission has not been taken when needed.
Name: Desalegn Fekadu Etefa Signature: ______________ Date: _______________
ACKNOWLEDGEMENTS
The execution of such most important research is never the effort of anyone alone. The contributions of many different people and organizations, in their different ways, have made this possible. Therefore, after all these years of hard work, it is necessary to express my gratitude to those who in one way or another contributed and extended their support and valuable backing in the preparation and completion of this academic work. First and foremost, I would like to thank Almighty God, for his blessing, mercy bestowed on me abundantly and for this wonderful opportunity he has given me to write this dissertation. Next, I would like to take immense pleasure to extend my heartfelt thankfulness to Professor S. Nakkiran, my PhD supervisor. He provided me his full and unreserved support for the accomplishment of this dissertation. He inculcated me not only how “to identify the wood from the trees” but also to look at the whole part. Thus, I wish to express my thanks to Prof. Nakkiran who dedicated much of his time in directing me during the preparation of this dissertation.
I also take this opportunity to extend my appreciation to the Management of Cooperative Bank of Oromia for providing me fund during the process of data collection. They also arranged me condition to collect necessary data from their employees. Besides, I thank all the participants in my survey, who have shared their precious time all through the progression of data collection. I appreciate all partners of mydissertation Committee who havegivenmebroadpersonal andproficientguidance. Likewise, I would like to pass my genuine gratitude to the Department of Cooperative, College of Business & Economics, School of Post Graduate Studies and Ambo University respectively.
Last but not least, I would like to thank my parents for their absolute encouragement throughout my PhD degree. Nobody has been more significant to me in the pursuit of this research than my families. Thus, I thank them, whose love and support were with me. In particular, the patience and sympathetic shown by my wife and my children during the years of this program is greatly memorable. Hence, I wish to thank my loving and supportive wife, Sr. Lelise Firisa, and my three wonderful sons (Kotim, Sukoth and Tolif Desalegn), who provided me unending inspiration. I also thank my younger brother Gutema Fekadu and other friends, who have motivated me throughout the entire process. My deepest gratitude also goes to Mr. Gudeta Aga, Head of the Department of Statistics at Ambo University who was dedicated to share me his knowledge on the application of statistical models. Finally, I express my appreciation to all writers of those materials I referred. May God bless you all!
LIST OF TABLES
Table 2.1: Summary of Explanatory Variables, Codes, and Unit of Measurement
Table 3.1: Sample Frame of the Study
Table 4.1: Factor Analysis Results (Varimax Rotation).
Table 4.2: Discriminant Validity for Reflective Constructs
Table 4.3: KMO and Bartlett's Test
Table 4.4: Validity check by Correlation
Table 4.5: Cronbach's Alpha Result of Dependent & Independent Variables
Table 4.6: Demographic Characteristics of Respondents
Table 4.7: Position of Respondents
Table 4.8: Respondents’ Perception on Recruitment and Selection
Table 4.9: Respondents’ Perception on Training and Development
Table 4.10: Respondents’ Perception of Employees’ Satisfaction
Table 4.11: Respondents’ Perception on Employee Relation Practices
Table 4.12: Descriptive Statistical Review of Performance Appraisal Practices
Table 4.13: Descriptive Statistical Review of Demographic Variables
Table 4.14: Descriptive Statistics of Employees’ Perception towards PCBO
Table 4.15: Descriptive Statistics of HRM Practices, Demographic Variables and PCBO
Table 4.16: Descriptive Statistics of Explanatory Variables
Table 4.17: Test of Normality Distribution of Variables by Skewness & Kurtosis
Table 4.18: Test of Normality Distribution of Log of Variables by Skewness & Kurtosis
Table 4.19: Test of Normality by Kolmogorov-Smirnov Statistic
Table 4.20: Test of Normality by Log of Kolmogorov-Smirnov Statistic
Table 4.21: The Result of Test of Association by Chi-Square Test Statistics
Table 4.22: Chi-square Test of each Demographic Variables and PCBO
Table 4.23: Correlation Coefficient between the Dependent and Independent Variables
Table 4.24: Spearman's Correlation Coefficient between each Variable
Table 4.25: Model Fitting Information
Table 4.26: Goodness-of-Fit
Table 4.27: Results of Model Summary: Pseudo R-Square
Table 4.28: Test of Parallel lines..
Table 4.29: Parameter Estimates of Ordinal Logistic Regression based on Route-One
Table 4.30: Parameter Estimates of Ordinal Logistic Regression based on Route-Two
LIST OF FIGURES
Figure 2.1: Conceptual Framework Regarding the Relationship between Human Resource Management Practices and Organizational (CBO) Performance
Figure 4.1: Gender of Respondents
Figure 4.2: Age Category of Respondents
Figure 4.3: Marital Status of Respondents
Figure 4.4: Educational level of Respondents
Figure 4.5: Respondents’ Work Experience
Figure 4.6: Salary of Respondents
Figure 4.7: Total Deposit status of CBO, 2021
Figure 4.8: Revenues/ Earnings of the Bank, 2021
Figure 4.9: Total Assets of CBO, 2021
Figure 4.10: Capital of CBO, 2021
Figure 4.11: Total Loans of the Bank, 2021
Figure 4.12: The Bank’s Balance Sheet and Customers’ Deposit, 2021
Figure 4.13: Profit of the Bank after Tax and Dividend Shared, 2021
Figure 4.14: Histogram showing the Distribution of Recruitment and Selection Data
Figure 4.15: Histogram showing the Distribution of Log Recruitment & Selection Data
Figure 4.16: Q-Q plot showing the Distribution of Training and Development Data
Figure 4.17: Q-Q plot showing the Distribution of Log of Training & Development Data
Figure 4.18: Q-Q plot showing the Distribution of Log of Recruitment & Selection Data
LIST OF APPENDICES
ANNEX I: Survey Questionnaires for Employees of the Bank
ANNEX II: Check Lists for Key Informant Interviews
ANNEX III: Guideline points for Focus Group Discussion
ANNEX IV: Lists of City Branches from which Samples were identified
ANNEX V. Histograms and Q-Q plots showing the Distribution of Data
ANNEX VI: Data Test by Skewness & Kurtosis Distribution by Transforming both Values of Variables & Their Logs
ANNEX VII. Generalized Liner Model of Omnibus Test, Goodness-of-Fit, Pseudo R-Square, and Test of Parallel lines by Transforming Logs of Variables
ANNEX VIII. Parameter Estimates of B & Exp. (B) by Transforming Log of Values of Variables
ANNEX VIX. Spearman’s Rank Correlation Coefficient by Transforming the Values of Variables and their Logs
LIST OF ABBREVIATIONS
BSC: Balanced Score Card
CBO: Cooperative Bank of Oromia
COOP BANK: Cooperative Bank
ERG: Existence-Relatedness-Growth
ETB: Ethiopian Birr
FDRE: Federal Democratic Republic of Ethiopia
FGD: Focus Group Discussion
HA: Alternative hypothesis
H0: Null hypothesis
HRD: Human Resource Development
HR: Human Resource
HRM: Human Resource Management
IBB: Installed Base Business
ICA: International Cooperative Alliance
ILO: International Labor Organization
ISSN: International Standard Serial Number
MT: Motivation Theory
NBE: National Bank of Ethiopia
PCBO: Performance of Cooperative Bank of Oromia
PMCC: Pearson’s Product Moment Correlation Coefficient
Q-Q plot: Quantile-Quantile Plot
RBV: ResourceBased View
ROA: Return on Asset
ROD: Return on Deposits
ROE: Return of Equity
ROPA: Result Oriented Performance Appraisal
SC: Service Cooperatives
SET: Social Exchange Theory
SHRM: Strategic Human Resource Management
SPSS: Statistical Packages for the Social Sciences
ABSTRACT
In this dissertation, the main objective of the study was to access the effect of human resource management practices (recruitment & selection, training & development, employee satisfaction, employee relations & performance appraisal) on the performance of Cooperative Bank of Oromia. To do so, the methodology employed was descriptive & explanatory research design. Both qualitative & quantitative research approaches were followed . To conduct this study, primary and secondary data were collected. Majority of the data were collected from 300 employees working in 82 branches and the size was determined by formula of Yemane. To proportionally select employees, Cochran 1963 formula was used and then respondents were randomly selected. The tools used were questionnaires, interview, focus group discussion, observation & document review. To collect the data, the tools were pre-tested and then pilot was taken to check for errors and any ambiguity. Questionnaires were prepared in 5-point likert scale. Analyses were done using both descriptive and inferential statistical tools. The descriptive statistics include, mean & standard deviation, while the inferential statistics were chi-square, ordinal logistic regression & Spearman’s Rank Correlation. The results of the research were markedly reported & summarized. Accordingly, the total descriptive statistics of the respondents have been described as feeling alright with the mean values >3 ð > 60% ð > 180 for both predicted & predictor variables except for performance appraisal. In short, the overall descriptive statistics of human resource management practices was 3.18. Even if some practices were at relatively better status, performance appraisal is not at good condition. Besides, both the primary and secondary data ratified that the bank’s performance is promising. Moreover, the inferential statistics computed indicated the degree of relationship between the variables. The chi-square values of all explanatory variables were significant at P-values<α=.05 & Chi-Square at α=.05, df 4 were > the Table value (9.49 ). This shows there is association between the variables & performance of the bank. Together with this, ordinal logistic regression was applied. Consequently, computed values verified that there was strong links between the practices & performance of the bank. The correlation between performance of the bank & the variables were in the range of .44 to .72, which is labeled as medium & strong. Besides the odds ratio s of the explanatory variables were >1, which means a unit increase in the variables cause > 1 entity increase on the performance of the bank. The same result was also indicated by the inferential statistics. Accordingly, recruitment & selection have the strong effect followed by performance appraisal, employees’ satisfaction, training & development, employees’ relation & demographic variables respectively. Thus, the finding of the research identified which human resource management practice is more contributing to the performance of Cooperative Bank of Oromia in particular. In short, it was concluded that proper handling & execution of practices of human resource management has eloquent value on the performance of the bank. Lastly, the proposed intervention strategies identified were advertising properly recruitment criteria to invite competent employees and announcing the result of selection to candidates on time, practicing substantive training by proper trainer and supporting by necessary facilities. Creating conducive work environment, promotions better to be applied in a fair & transparent manner and motivating the workers based on their performance, harmonious relations among all concerned in the company should exist and finally carrying out periodic fair and free competency-based performance appraisals.
CHAPTER ONE
INTRODUCTION
1.1. Background of the Study
Human resource management (HRM) is a comprehensive and logical approach to the employment and development of people (Watson, 2004; Purce, 2014). It can be regarded as a philosophy about how people should be managed, which is reinforced by a number of theories relating to the behavior of people and organizations (Ryan & Deci, 2006; Griffin et al., 2016). According to Ahammad (2017); Karim Suhag et al (2017); Bisrat (2019), human resource management is a process of bringing people and organizations together so that the goals of each group are accomplished. This implies HRM is part of the management process which is concerned with the management of human resources in an organization.
HRM tries to secure the best from people by captivating their unreserved cooperation (Saha et al., 2014; Crane et al., 2019; Quoquab & Mohammad, 2019). In this way, it includes systematic planning and control of a network of the necessary organizational processes affecting and involving all organizational membersincludinghuman resource (HR), planning, job and work design, job analysis, staffing, training and development, achievement evaluation and review, compensation and incentives, employee safety and representation and organizational improvements (Mudor, 2011; Armstrong et al., 2016).
Scholars in the field of HRM stated that the success and survival of theorganizationis contingent onthe severalfactors namely capital, equipment, and human power and other resources (Egbu, 2004; Hsieh & Chen, 2011; Asiaei & Jusoh, 2015). Of all these resources, the human factor is the most significant one, since it is the people that use all other resources (Rudrabasavaraj, 2005 cited in Seidu, 2012). So that it is confessed that the workersof the organization greatly contribute for the attainment of organizational missions (Mehta, 2016). This means without the productive efforts of workers, the material resources of an institution would be of no use.
Moreover, if the people who are in charge of these resources are not appropriately qualified, then the utilization of these resources would not be optimum (Chandan, 2003; Victora et al., 2004; Sikes & Gannon, 2011; Garnham, 2020). This shows the use of resources in an effective and efficient way is reliant onthe talentand involvement of quality human resource.However, the performance ofthe workersvariesowing totheir beliefs, opinion and talent (Van den Brink, 2013; Oladapo, 2014; Krishnan & Scullion, 2017). In such situations, cost-effective management of the human resource conveys the comfortable working environment, knowledge updating and better perception on the business tasks (Guest, 2002; Opeyemi & Abosede, 2020).
Now a day,it ishighly realizedthat individualsworking in organizations have their own needs, motivations and expectations,whichtheir contribution to the organization isquitethat ofthe otherresourcebeing employed (Ramu, 2018). This verifies that organization cannot run its activities successfully unless the human resource is managed well. Due to this fact, successful corporate leaders intoday’s market recognize that properly managed human resource empowers to hold viablebenefit (Birasnav et al., 2011; Faulks et al., 2021).
Historically, the significance of human resource management is a recent issue (Ehnert & Harry, 2012; Stredwick, 2013; Elsafty & Ragheb, 2020). Its paramount importance has been highlighted as a basic foundation of economic advantage since of the progressively competitive worldwide commercial center confronting organizations, and the bluntness with which other sources of sustainable benefit such as technology, manufacturing processes, structure, and business strategy, can easily be acquired (Bamberger & Meshoulam, 2002 cited in Seidu, 2012).
According to Storey (2001); Quansah (2013), the term human resource management is masked in managerial excitement and its underlying philosophy and charactersdo not seem to beeasily defined. But it obviously needs a definition ofthe topicmatter if anyone isto investigateand understand human resource management policies and practices. Human resource management ispart ofthe management process thatmakes a specialty ofthe managementof individualsin work organization which emphasizes that employees arethe principalresource in the acquisition of sustainable competitive advantage.
For that matter, researchers verified that human resource endeavorshave tobe integrated withthe organizationalstrategyto realizeboth the efficiency and equity objectives (Buller & McEvoy, 2012; Lendzion, 2015; Boon et al., 2018). This signifies the crucial activity to be executed to enhance accomplishment of corporation is ensuring human resource activities support organizational efforts concentrating on productivity, service, and quality. Hence, the crucial concentration for human resource management must be on organizational success.
An organizational performance is a pointer that measures in what way an organization achieves its objectives (Hamon cited in Jandari, 2019; Anwar & Abdullah, 2021).In thisregard, several researchers (Farouk et al., 2016; Singh & Mahmood , 2017) have distinguished determinants of organizational performance. According to these researchers, there are several important human resource management practicesthat ought tosupport the organization’s business strategy, which include: analyzing work and designing jobs, decidinghow many numberof employees with explicit knowledge and talents are needed, recruiting potential employees, selecting employees, training employeesthe way toperform their jobs and preparing them forthe long run, evaluating their performance, gratifying employees, and creating a positive work environment.
Added to this, demographic characteristics also affect the performance of organizations, which is the outcome of employees (Adio & Popoola, 2010; Wakene et al., 2020). At companies with successful human resource management, workers and clients have a trend to be highly happy, and subsequently the companies activate to be greatly innovative, have more noteworthy efficiency and create a more favorable reputation within the community (Guest, 2002; Noe & Tews, 2008). This is an indicative that a companyperforms best when allof thosepractices are managed in a good condition.
A growing group of researches, including both industry-specific studies and cross-industrial studies, consider human resource management’s role on firm performance (Bartel, 2004; Liao, 2011; Úbeda-García et al., 2021). The human resource management environment can be an even more important determinant of efficiency in sectors that provide service including banking industries than in other sectors such as manufacturing, and government owned public sectors, given the much greater share of the total production costs accounted for by employment and the much broader direct contact between workers and clients, in services (Abate et al., 2014). Hence, in today’s competitive and quickly changing business world, organizations particularly within the service industry necessitate to guarantee most utilization of their resources to their own advantage; for organizational survival (Luthans & Youssef, 2004; Lee et al., 2012. This describes human resource management is exceptionally importantin serviceindustries, including banking.
Thebanking industryplaysa crucialrolein themodern economic world. Banks collect the reserve funds of the clients and then offer them out to business, people and producers and after that encourage commerce (Oliveira & von Hippel, 2011; Koch & MacDonald, 2014; Migliorelli, 2018). Producers borrow from banks the cash needed for the acquisition of crude materials and to satisfy other requirements like capital.It is safeto keep money in banks. Interestis additionallyearned thereby (Boot, 2017; Anetor, 2019; Khan et al., 2020). Thus,the interestto save is enthused and therefore thevolume of savings increases. The savingsisutilizedto supplynew capital assets (Ferri & Pesic, 2017). Due to this, now a day, the bankingindustryis serving as abackbone forthe developmentof any economy; owing to the circumstance that thisindustryisan indispensableconstituent of the financial sectorsfor the straightforwardmanagementof economicresources aroundthe world(Ahmad et al., 2010; Hecklau et al., 2016; Migliorelli, 2018). Henceforth, banking isforeseen as a heart and barometer of thefinancial operationin everycountry.
In every organization, there is progress and at the same time there a crisis. At the time when organizations face challengessuch asa financial crisis, they are merely those meticulously trained professionals/experts who can react quickly to changeswithin theenvironmentand devicestrategiesfor resolution to come into being (Shanthilakshmi, 2013; Ho, 2016). In such circumstance, human resource management is indictable for cautiously picking and training individuals with the required skills to seek it achieves effectively its plan. In the life span of business, crisis might emanate from both within and outside of it. In this regard, certain exogenic factorsthat have to bepredicted, include the collapseof hugebanks and indemnity enterprises, may possibly seeminglytake offof nowhere (Wright & Boswell, 2002; Robinson, 2009). Endogenic causes that contribute to the collapse of the business are all those within the company itself, including improper management of the human resource (Kunene, 2009; Franco & Haase, 2010; Bushe, 2019).
In Ethiopia, to promote the business of banking and finance, the government created enabling conditions since 1994 to liberalize the economy (Tesfay, 2016; Desalegn, 2022). Following this, many private banks are established in the country together with Cooperative Bank of Oromia (Coop Bank of Oromia/ CBO). Beginning in Germany, the co-operative banking concept gradually spread to the rest of the continent and to the Nordic countries (Nakkiran, 2002; Fonteyne, 2007; Kalmi, 2017). This ideology penetrated into African countries, including Ethiopia. The new arrangement created in the financial industry has given the opportunity for the advent of a new era of competitive environment since it abolished the monopoly of the public banks. The difference between the banks of the Public and those Private sector centers on their background and work culture. It has been witnessed that the Public banks’ work culture was established on the concept of socioeconomic responsibility, where profitability is secondary issue (Moharana, 2013). On the contrary, private sector banks work towards profitability, which is highly determined by how they apply human resource management practices (D'Souza, 2002). As a result, at present, the competition is going on sky high among the private banks in particular.
The topic investigated was the performance of the Cooperative Bank of Oromia (PCBO) in line to the effect of human resource management practices. Cooperative Bank of Oromia is established to provide all banking service and products. It was registered on 29th October 2004 and commenced operations on 8th March 2005 with 7 branches. Currently, the number of branches of the bank reached 597 and its employees are above 5,174. It also started its operation with 7 million capitals, which at present has reached above 8 billion ETB. The bank’s major intention is to invigorate the financial and social improvement of Oromia through mobilizing financial resources from cooperates, private business and public institutions and financing them. It moreover gives amenities of banking for cooperative societies in Ethiopia other substances and people with extraordinary accentuation to agricultural centered activities (Gobena, 2011; Etefa, 2021).
A cooperative bank is a business organization which is the proprietorship of its members, who are simultaneously the possessors and the clients of the bank (Migliorelli, 2018). Cooperative banks are often established by individuals belonging common interest. According to Gupta & Jain (2012), alike any financial institutions, Cooperative Banks in most parts ofthe world take deposit and lend money. It also provides financial assistance to the people with slight revenuesto safeguardthem from the debt deception ofthe cashlender. Cooperative banks are prescribed and managed on the principal of cooperative, self-help & mutual help (Preety et al., 2016). As any financial institutions, in Cooperative Bank of Oromia, proper human resource management is vitalfor its existence and development. Thus, human resource professionals and the bank’s executives are seen employing different mechanisms to retain their experienced employees. Due to this, the study assessed existing conditions in Cooperative Bank of Oromia how it has been applying human resource management practices that enable to attain best performance.
1.2. Statement of the Problem
For any organizations to accomplish well, an efficient and effective human resource managementemanates to be an indispensable component (Markos & Sridevi, 2010). This implies an organization’smost essentialpropertyis certainlyits human resource; however, not all of the organizationsfill-upuse of its potential. In this modern-day competitive and hastily vibrant business world, organizations which are engaged in the provision of service industriesmustensure maximum utilization of their resources to their own advantage (Moore, 2000; Vargo & Lusch, 2014; Subramanian & Suresh, 2022). As banks are service industries, HRM is greatly important in these sectors (Ali et al., 2018). In thisregard, concrete evidence offered by Kamal & Hanif (2009) made certain that human resource management practices are recognized asan essentialcontemplatesacquisition of competitive advantage.
BanksinEthiopia are rivals with respect with service excellence as well as efficiency, in use of advanced technologies, branch network expansions and advertising (Nyoike, 2015; Gebre, 2017).Empirical studies show that performances of a business organization depend on several factors among which the implementation of human resource management practices plays significant role (Bhaskar & Khera, 2013). In this aspect, a study conducted by Grigoroudis et al (2013) proved that there is harmonious association between the practices of human resource management and performance of organization. In addition research conducted by Bisrat (2019) on effect of human resource management on organizational performance shown that any organization who fails to perform HR practices by aligning to the organization strategy and to organize well all HR activities, has been suffering major bankruptcy and even they could not survive. In the research finding of Heskett et al (2008) too, it is stated that satisfied and motivated employees are productive and leading to increased achievement.
So as to inspire workers to continue creative and innovative, sectors such as banks have to reconsider their approach on how they utilize their most significant resources especially, the people. Tangibleevidence identified that thebanking sectoris branded by diverse human resource related problems such as higher employee turnover; reduced employees’ desireto be toldand apply new skills; shrinkage employees’ productivity; and low morale (Davis & Marquis, 2005; Salman et al., 2014; Gupta et al., 2015).
In Ethiopia, human resource management practices have not been issue for long time. It is after the downfall of the Derg regime when the economy policy changed in to free market that human resource management became very important and organizations started to organize their own personnel management department to perform human capital related processes (Jiru & Tadesse, 2019; Krishna et al., 2019).
Following the 1994 Financial & Banking Proclamation, several private banksareemerged in Ethiopia (Geda, 2008; Tesfay, 2016).Of thosebanks, Cooperative Bank of Oromiais thefirst cooperative bankwithin thecountry. By taking the policy reform as an opportunity, now a day several bankshave attainedthe chanceto partakein thefinancial sector where competitive atmosphereis made. However, the performance of Cooperative Bank of Oromia is directly or indirectlyaffected bynumerous problems.According toGobena (2011); Gul et al (2011); Owoputi (2014), the socio-cultural, economic, and political and global factorsgenerallyand other external and internal factors affect the bank’s performance.
Nevertheless, managing human resourceis themost contributing factor among all; the effect of human resource managementis thearea of attentionin thisstudy. As banks are service industries, human resource management is greatly important in these sectors. Managementof individualsand management of risk are two key challenges facing banks (Bartel, 2004; Yeung, 2011; Cherian & Farouq, 2013). How people are managed determines how the risks are managed, whichin turndetermines the accomplishmentof thebanking business (Cardona, 2013; Cherian & Farouq, 2013; Pritchard & PMP, 2014). It is true that an efficient risk managementcannotbe possible in the deficiency of efficient and skilled human power (Harner, 2010). So, in terms of business strategy,a companycan succeed ifit has a viable economic benefit by properly managing its determinant resource.
In connection to this, several researchers have addressed that managing people isharderthan managing technology or capital (Chan et al., 2004). Likely, Guest (2007); Noe et al (2017) noted that firms that have experiencedthe approach tomanage their human resource well in their day to day activities would havean advantageover others forextendedtimesbecause obtaining and deploying human resource effectively is cumbersome and takesmuch longer. Onthe otherhand,the applicationof human resource management practicesis notin theway tosupport the achievement of organizations in most service sectors, including Cooperative Bank of Oromia.
Cooperative banks are one of the poorly managed enterprises mainly in developing countries of the world (Birchall & Ketilson, 2009; Gobena, 2011; McKillop et al., 2020). Thus, studying the performances of such young cooperative bank is indispensable in order that its previous performances will be well-known to the stakeholders and essential suggestions have to be forwarded for improved performances in the fourth coming to sustain in business. For that matter, to ensure sustainable result,it needs toconstantly be innovative by evolving new procedures and productsin a verycompetitive business environment.This is oftenbasically achievable through efficient human resource management. Intellectual assets of any bank can distinguish it from othersand supplystrong basis for its competitive position among competitors (Richard et al., 2009; Eshete et al., 2013; Routh, 2014).
Whetherit ispublic or private, should primarilybotherwith alignment of its respective human resource management practices with the intended business objectives; availability ofthe specifiedskilled labor; and development of the knowledge, skills, attitudes and values of current employees soas toassure viable competitive advantagesin thegiven industry.The eventof informationand skills usually takes place through planned and programmed instruction after having assessed training needs ona private, group and organizational basis (Baizakor et al., 2015).
Moreover, ceaseless assessment ofthe presenthuman resource management practices is undoubtedly neededto spotthe gaps in terms of individual’s cognitive and behavioral change; groups’ integration; and institutionalizationtogether withproper flowof data, strategic alignment, and processes to support firms’ objectives realization. In same token, providing distinct and result-oriented reward and compensation systemmoreoveras creating conducive work environmentin thesector have glowing notorious substantial influence on motivating employees, resulting in strengthening their commitmentwithin thelong term(Adagbabiri & Okolie, 2020).
Available studies, tothe simplestknowledge of the researcher,did notadequately investigate exactly what the effect of the practices of human resource management on the performance of Cooperative Bank of Oromia seems though there are indicators in other banks of the country.
Moreover, in spite of many studies have been done to establish relationship between HRM practices and organizational performance, most of them are conducted in the context of Western and Asian countries and limited literature available in the context of African organizations, including in Ethiopia (Kamoche et al., 2012). This means definitely not research was undertaken to show exactly the effect of the practices of human resource management on the performance of Cooperative Bank of Oromia. In addition, even those very few previous researches conducted in Cooperative Bank of Oromia, other Banks and other sectors failed to show which human resource management practices has more contribution on the performance of organization, including banking industries so that organization prioritize the issues. Thus, the intention of the researcher was to fill this gap.
To the knowledge of the researcher, added to evidence from the different sources, there is a frequent employees’ turnover in CBO, some employees lack adequate knowhow, there is efficiency and effectiveness problem, all employees are not providing the same standard of services to the customers and etc.
So as to successfully examine whether human resource is capable of adding to competitive advantage, and change the existing situation, it was rational to look at the present condition of the practices of human resource management in as numerous settings as promising. It is in the face of this existing state that the researcher preferred to conduct the research on the effect of human resource management practices on organizational performance and interested to show Cooperative Bank of Oromia to appropriately apply human resource management practices to enhance its performance by filling the prevailing gaps.
1.3. Objectives of the Study
1.3.1. General Objective
The overall objective of this study was to assess the effect of human resource management practices on the performance of Cooperative Bank of Oromia.
1.3.2. Specific Objectives
1. To explore the effect of recruitment & selection processes on the performance of Cooperative Bank of Oromia.
2. To study the result of training & development practices on the performance of the bank.
3. To assess the effects of employees’ satisfaction on the performance of Cooperative Bank of Oromia.
4. To examine the outcome of the employees’ relations on the performance of the bank.
5. To evaluate the usefulness of performance appraisal practice on the performance of Cooperative Bank of Oromia.
6. To determine the consequences of demographic variables on the PCBO.
7. To assess the performance of Cooperative Bank of Oromia.
8. To identify the associations between the variables.
1.4. Research Questions
1. What were the effects of recruitment & selection process on the performance of CBO?
2. What were the influences of training and development on the performance of CBO?
3. What were the effects of employees’ satisfaction on the performance of CBO?
4. What were the outcomes of employees’ relations on the performance of CBO?
5. What was the usefulness of performance appraisal practice on the performance of the CBO?
6. What were the consequences of demographic variables on the PCBO?
7. What was the performance of CBO?
8. What were the associations between the variables?
1.5. Research Hypotheses
Research hypothesis is an expected relationship between variables, which is clear, specific, testable and falsifiable. It is needed for a sound and well-developed research study, which contributes to the solution of the research problem (Toledo et al., 2011; Biesecker, 2013). Thus, to address the above identified research objectives and research questions, the research hypotheses were formulated, which were also tested. Consequently, it is supposed that there are positive and significant harmonious association among the dependent variable, in this case performance of Cooperative Bank of Oromia and the predictor variables such as recruitment and selection, training and development, employees’ satisfaction, employees’ relations, performance appraisal, demographic variables and performance of Cooperative Bank of Oromia by the alternative hypotheses while the opposite nature of relationships between the variables was predicted by the null hypotheses, which are predicted as:
H01: Recruitment and selection processes do not positively and significantly affect the performance of CBO.
HA1: Recruitment and selection processes are positively and significantly affecting the bank’s performance.
H02: Training and development practices do not positively and significantly influence the performance of CBO.
HA2: Training and development practices are positively and significantly influencing the performance of Cooperative Bank of Oromia.
H03: Employees’ satisfaction is not positively and significantly related to the bank’s performance.
HA3: Employees’ satisfaction is positively and significantly related to the bank’s performance.
H04: There are no positive and significant relationships between employees’ relations and performance of CBO.
HA4: There are positive and significant relationships between employees’ relations and performance of CBO.
H05: There is no positive and significant association between performance appraisal and performance of CBO.
HA5: There is a positive and significant association between performance appraisal and performance of Cooperative Bank of Oromia.
H06: Demographic variables are not positively and significantly affecting the performance of CBO.
HA6: Demographic variables positively and significantly influence the performance of Coop Bank of Oromia.
H07: Cooperative Bank of Oromia is not performing well.
HA7: Cooperative Bank of Oromia is performing well.
H08: There is no positive, significant and strong association between the variables.
HA8: There is positive, significant and strong association between the variables.
1.6. Significance of the Study
Currently, the business environment becomes stiffly competitive requiring organizations to hold sustainable competitive advantage. As a result, organizations need to look at their resources so as to maximize value. Amongst the greatest essential valuable resources of the organization is the human resource. As a consequence, to be effective and efficient human resource management practices need to be implemented to give their best for the organization. Hence, the intention of this research was to look at the effect of human resource management practices on seen organizational performance, i.e., performance of Cooperative Bank of Oromia.
Besides, despite the fact that many studies have been done to establish relationship between human resource management practices and employee turnover intention, most of them are conducted in the context of western and Asian countries and limited literature available in the context of African organizations, including Ethiopian organizations. Thus, the findings of study would have both theoretical and practical implication for the bank as it is highlighted the effect of human resource management practices in predicting the performance of Cooperative Bank of Oromia. The main theoretical implication brought by this study is important association between human resource management practices and performance of Cooperative Bank of Oromia. It enables the organization to give rational priority set up to the human resource management practices in their daily activities. To this end, it helps to fill the gaps prevailing in the literature.
Therefore, the researcher believes that this research will have importance in helping the management of Cooperative Bank of Oromia, as a primary concerned body, in holding valuable employees, and facilitating decision making process. It helps specifically the management of the bank to review their human resource management policy in line to the direction they are indicated. This helps the management in planning for the development and implementation of effective and efficient human resource strategies that will lead to improved performance of the bank. Besides, the research will help managers to improve the working condition of employees by clearly identifying the link between specific practices of human resource management such as recruitment and selection processes, training and development practices, employees’ satisfaction, employees’ relations, performance appraisal practices, demographic characteristics and performance of Cooperative Bank of Oromia.
So, the findings of the study, if applied, are believed to benefit the Bank by identifying the gaps in the implementation of the human resource management practices and their perceived effect on organizational performance.
In addition, the research will provide lesson to other banks and other service delivering sectors as well. Likewise, the study can be helpful for other interested researchers on similar area of study to use as a reference and to investigate in depth and also to fill the gap of this research itself. In short, the study will serve as a baseline for future studies on the effect of human resource management practices on organizational performance.
1.7. Scope of the Study
The paper is delimited by the sector, area and purpose of the study. Accordingly, of the many service providing industries, the research is focused on the banking industry, particularly Cooperative Bank of Oromia. Although numerous branches of the bank are there, geographically, the study has touched branches of the bank operating in the city branches i.e., Addis Ababa city and its surrounding towns (Oromia towns). This means, the study was confined to Addis Ababa city and the nearby Oromia towns. The logic behind to confine the study on the city branch is since it is difficult to cover all branches of the bank throughout the country within the time bound and also financial constraint.
In general, this dissertation has aimed at looking the effect of particular practices of human resource management on the performance of Cooperative Bank of Oromia. It took into account the concept of the practices of human resource management and performance of organization that are broad and it was impossible to address all of its elements within a given time bound in this research. Therefore, for the objective of this research; selected human resource management practices such as recruitment and selection, training and development, employees’ satisfaction, employees’ relations and performance appraisal were the focus areas. In addition, the consequence of demographic variables on the performance of Cooperative Bank of Oromia and the association between them was treated.
Methodological wise, of the numerous research designs, the study employed descriptive and explanatory research design to meet the objective of the research. With regard to the time scope, the research was conducted from 2019 to 2021 where most of the analyses were completed during the latter period specified.
1.8. Limitations of the Study
Of the several aspects necessitating research, this dissertation was restricted to the effect of selected human resource management practices on the performance of Cooperative Bank of Oromia. It further was limited to five practices (variables) though there are numerous human resource management practices that can affect the organizational performance. Time and financial constraints were a restraining factor to use a more detailed approach for data collection and hence it has made difficult to take large number of sample size for the study. Thus, due to all these constraints as well as goal of the research, not all the branches of the banks were incorporated in the study.
Moreover, very few respondents were not voluntarily to provide accurate and sufficient information to the research questions. Added to this, in the process of random selection of respondents, those whose activities and educational background were more favored. Therefore, by designing tactful approach with the respondents and also with the support of human resource manager added with some volunteer employees working in the sector, the researcher has tried to get the necessary data accordingly. Those a few respondents that were assumed cannot provide the required data were excluded instead, which violated the principle of randomization. With regard to time and budget constraints, the researcher has attempted his best to use his resources effectively and efficiently to meet the target intended to be met by the research.
1.9. Operational Definition of Terms
Under this part of the topic, the contextual meanings of some frequently used terms in the paper were briefly defined as the following:
Bank: Could be a financial institution authorized to get deposits and make credits. Banks may too give financial services, such as wealth administration, cash trade and secure deposit boxes. There are two kinds of banks: commercial and investment banks. In most countries, banks are regulated by the National Bank (Ahmad et al., 2010).
Binary Data: Is a type of categorical data in which there are only two categories (Cox & Snell, 2018).
Categorical Data: Objects being studied are grouped into categories based on qualitative trait and cannot be measured numerically but rather in ‘sets’ or categories. Such data could be either nominal or ordinal (rank) data (Nishisato, 2019).
Continuous Data: Is the objects being studied are ‘measured’ based on some quantifiable or numerical trait and can be measured numerically (Nahm, 2016). Such data could be either interval or ratio.
Cooperative Bank (Coop Bank): Is an institution comprising of a number of people who come together to pool their overflow savings for the reason of disposing of the benefits of the bankers or money lenders with an opinion to conveying the same among the depositors and borrowers (Preety et al., 2016).
Dependent Variable: Is the variable that is reliant on or influenced by the independent variable(s) (Kusurkar, 2011). That means, it is a measure of the behavior of the subject or respondent that reflects the effects of the independent variable. In this research, the term can interchangeably be used with the outcome variable, predicted variable or the response variable. In regression analysis, the dependent variable is denoted by "Y" (Kavitha et al., 2016; Hayes & Montoya, 2017).
In this research, performance of Cooperative Bank of Oromia is dependent variable.
Descriptive statistics: Are brief descriptive coefficients that summarize a given data set, which can be either a representation of the whole population or a portion of a population (Meirmans & Hedrick, 2011; Catchen et al., 2013). Descriptive statistics are broken down into measures of central tendency and measures of variability (spread). Measures of central tendency include the mean, median, and mode, while measures of variability include standard deviation, variance, minimum and maximum variables,kurtosis, andskewness (Doane & Seward, 2011; Kaur et al., 2018).
Development: Is a broad ongoing multi-faceted set of activities (training activities among them) aimed at bringing someone or an organization up to another threshold of performance, often to perform some job or a new role in the future (McNamara, 2008; Kulovesi & Muñoz, 2011; Blewitt et al., 2020 ).
Efficiency and Effectiveness: Efficiency is the ability to produce the desired outcomes by using as minimal resources as possible while effectiveness is the capacity of employees to meet the desired objectives or target (McCourt & Eldridge, 2003).
Effect: Is a change which is a result or consequence of an action or other cause (Sun & Meng, 2009).
Employees: Refer to workers employed by the company, in this case; Cooperative Bank of Oromia.
Employee Performance: Is the employees’ efficacy in functioning activities so that an organization attains its programmed objectives (Armstrong & Baron, 2004). Concurring to Baldwin (2008) it is the improvement of capabilities of both people and groups so as to arrange to saddle their potential commitments towards the accomplishment of the organizational and individual objectives.
Employee Satisfaction:Is a positive emotion resulting from the evaluation of one’s work or work experiences (Nielsen, 2002; Islam & Rasad, 2006).The emotional component consistsof assortedemotionscorrespondingto happiness, joy and disappointment (Kim et al., 2013). This couldbe further categorized into mental and physical satisfactions, which consist of: promotions, recognitions, income, job security, facilities, compensations (basic pay, overtime, bonuses, travel/accommodation allowance, stock options, medical allowance, commissions, and profit sharing), the achievement of other goals thatresult ina senseof fulfillment, etc.
Human Resource (HR): Is the entire knowledge, skills, inventive capacities, gifts and aptitudes of an organization's workforce, along with the values, demeanors, approaches and convictions of the people included within the activities of the organization (Noe et al., 2017) Besides, Pawar (2018) concluded that it is the entirety add up to or total of inborn capacities, obtained knowledge and skills embodied by the abilities and talents of the people utilized in an organization as potential subscribers to the creation and realization of the organizations mission and vision.
Human Resource Development (HRD): Is the combination of a person, occupation and corporate growth rolesso asto attainmaximum efficiency, excellence, chance and success of organizations participants as they act to realize the objectives of the company (Debrah & Ofori, 2006).
Human Resource Management (HRM):Is theway organizations manage their staff and help them to developso asto beable toexecute organizations’ missions and goals successfully (Som, 2008). Similarly, Armstrong (2014) defined it as is all aspects of how people are employed and managed in organizations. It covers the activities of strategic HRM, human capital management, knowledge management, corporate social responsibility, organization development, resourcing (workforce planning, recruitment and selection and talent management), learning and development, performance and reward management, employee relations, employee well-being and the provision of employee services.
Human Resource Management Practices: Are a system of engaging, encouraging, and holding workers to guarantee the continued existence of the business (Schuler & Jackson, cited in Hassan, 2016).
Independent Variable: Is the variable that influences or predicts an outcome measure (Petter et al., 2013). It is interchangeably used in this paper, with predictors, forecaster, prognosticator or explanatory variables. In this research, recruitment & selection, training & development, employees’ satisfaction, employees’ relations and performance appraisal, can affect performance of Cooperative Bank of Oromia. In regression analysis, the independent variable is denoted by "X" (Hayes & Montoya, 2017; Bangdiwala, 2018).
Industrial/Employee Relation: The terms industrial relations, employment relations, labor management relations, employer-employee relations are used interchangeably (Gollan & Patmore, 2013). It is positive relationships existing among workers, between managers and workers, between the top executives and president (executive manager) of the bank, between workers and customers etc. Within the wide sense, the term moreover incorporates the connection between different unions, along with individuals, the managers and the government (Gennard & Judge, 2005).
Inferential statistics: Is a statistical method that infers from a small but representative sample the characteristics of a bigger population. It is also used to test the formulated hypotheses (Marshall & Jonker, 2011; Lowry, 2014; Trafimow & MacDonald, 2017).
Nominal Data: Is a type of categorical data in which objects fall into unordered categories.
Values are used to classify an object by some specific trait or characteristic (Zapf et al., 2016).
Ordinal Data: Is a statistical type of quantitative data in which variables exist in naturally occurring ordered categories. It is a type of categorical data in which order is important. Numbers are assigned to objects to indicate the relative extent to which the objects possess some characteristic where the values are in rank or order (Jakobsson & Westergren, 2005).
Organization/Corporate/Company/Firm: Represents Cooperative Bank of Oromia (CBO). Organizational Performance: Is the capability of firms to achieve its objectives by expending capitals in an actual and proficient manner (Daft, 2007; Richard et al., 2009; Mahdere, 2019). In an expansive way, the term also includes the relation between various unions, besides the companies and the ruler of the country (Gennard & Judge, 2005).
Organization/Corporate/Company/Firm: Refers to Cooperative Bank of Oromia.
Organizational Performance: Is the organizations capacity to achieve its objectives by utilizing resources in a viable and effective way (Lancaster, 2000; Richard et al., 2009; Mahdere, 2019). According to Armstrong (2014), it is the actual output or results of an organization as measured against its intended outputs. It isa sign that shows exactly how an organization realizes its objectives, which includes both financial and non-financial measures. Financial measures include economic factors and non-financial measures include success indicators such as market share, quality, satisfaction and market effectiveness (Kamakura et al., 2002; Zehir et al., 2016).
Recruitment: Is the method of inviting proficient persons to submit their document to an organization so as to get job (Bratton & Gold, 2017).
Reliability: Is the degree to which an assessment tool produces consistent/constant results. That means the extent to which the results can be reproduced when the research is repeated under the same conditions (OConnor & Kleyner, 2012).
Return on Assets (ROA): Is amongst the profitability measures in banks. It is often described as the primary ratio, relates the income earned by the bank to the assets it used in the business operation. It is commonly defined as net income or pre-tax profit divided to the total assets (Power, 2010).
Return on Deposits (ROD): Is also among the profitability measures, which is calculated through dividing net profits to overall deposits. This shows the capability of the management of the bank to use the clients’ deposits in order to generate profits (Adam, 2014).
Return of Equity (ROE): This proportion measures a corporation's benefit by uncovering how much benefit a company produces with the cash stakeholders have contributed. The higher such ratio, the higher cost effective is the fiscal attainment of profitability of a bank. Such ratios measure the performance in terms of finance and the managerial cost-effectiveness of the bank (Casu & Girardone, 2006).
Selection: Is the method by which directors and others utilize particular tools to select from a pool of candidates an individual or people more likely to succeed within the job(s) given administration objectives and legitimate necessities (Bratton & Gold, 2017). It is characterized as the efficient advancement of the demeanor, information, and expertise and behavior design required by a person to perform a given assignment or work (Subha, 2011). Statistics: Is a branch of applied mathematics that involves the collection, description, analysis, and inference of conclusions from quantitative data (Cramer & Howitt, 2004; Chatfield, 2018).
Training: Is the organized advancement of the assertiveness, knowledge, and ability and behavioral arrangement requested by a person to perform adequately a particular duty (Subha, 2011; Routh, 2014).
Validity: Is the extent to which an empirical measure adequately reflects the “real meaning” of the concept under consideration (Wainer & Braun, 2013).
Variable: Is some aspect of a testing condition that can change or take on different characteristics with different conditions (Abdelal et al., 2006).
1.10. Organization of the Study
This dissertation was organized into five major chapters. The first part of the research is dealt with introduction, which provided an overview about the background of the study, statement of the problem, the objectives, the research questions and hypothesis, significance, limitation and scope of the study, and operational definition of terms. The second chapter is focused on the concept of literature review related to human resource management and human resource management practices, theoretical review, empirical studies and conceptual frameworks. Chapter three is committed to the research methodology. The fourth chapter is composed of findings and discussions derived from the analysis of the study. The last is chapter five, where summary of the major findings, conclusions and recommendations of the study were presented. A suggestion for the further research is also addressed in the same chapter.
CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
Authors such as Bell et al (2018); Shahsavar & Kourepaz (2020) assert that the reason for writing a literature review is to give avocation to an exploration question and to help the researcher's decision of ensuing research design. Thus, this section attempted to present related literature pertaining to the research questions introduced in chapter one.
Recently, the predominant spotlight on human resource management writing has been to show the significance of effectively managing human resources of organizations. In such manner, this part reviews the literature related to human resource management practices by depicting the connection among human resource management practices and performance of an organization. Accordingly, this part incorporates theoretical review, empirical studies and conceptual framework. It reviews past works done by analysts within the field of human resource management. What is known as literature review in research does not just give information on what has been done on an area of study however it likewise gives the qualities and shortcomings that could impel an important and insightful study.
This part illustrates the ideas of human resource management, different packs of human resource management, and various bundles of human resource practices, disputes encompassing hypotheses, models and past discoveries. It ends with the empirical study and conceptual framework which show the human resource management practices that have been found to influence greatly on organizational performance, service industry in general and banking in particular.
A bank, as a segment of the financial system, involves the provision of maturity inter-mediation, risk reduction via diversification, reduction of information processing costs and provision of payment functions (Faboze et al., 2002; Ledgerwood et al., 2013). It is thought to significantly contribute to the dynamic development of a country’s economy. Therefore, the prevalence of successful bank that can produce sufficient funds for economic growth could be a necessity. Productivity in the banking framework depicts way better profitability, ensures steadiness and boosts public confidence (Caiani et al., 2015; Bilan et al., 2019). Moreover, it raises the volume of funds inter-mediated, allots resources efficiently, encourages liquidity and facilitates improved quality amenities (Sufian & Chong, 2008).
2.1. General Overview of the Concept of Human Resource Management & Human Resource Management Practices
2.1.1. The Concept of Human Resource Management
The concept of human resource management has been outlined by economists, social activists, industrialists and other academicians in several ways and through different angles. In its broader sense, human resource management stands for the management of the human resources needed by an organization and also being certain that human resource is acquired and maintained for purposes of promoting the organization’s vision, strategy and objectives (Lepak et al., 2006; Khan et al., 2012).
In other words, human resource management centers on securing, keeping up, and utilizing a viable work drive, which organizations require for both their brief and long term survival within the market (Aidah, 2013). To Boxall et al (2007), it is managing activities and workers towards desired ends. It plays a crucial part in advancement and development of any organization. Of the components of production, solely human resources are living being and have unlimited capability and potentials.
Among all the elements of production solely human resources are living being and have unlimited capability and potentials. Thediscrepancyin thelevel of economic improvement of the countriesis basicallya reflection of thedifferencein quality of their human resources. The key clementin thisinferenceis that thevalues, attitudes, general orientation and quality of theemployeesofa countrydetermine its economic development (Armstrong & Barton, 2004; Armstrong, 2010).
Human resource management is concerned with outputs, theaccomplishmentof results and with the consequences, which is the influence made on the performance. However,it isalsoinvolvedwiththe processneededto realizethese results (competencies)and also theinput in terms of capabilities (knowledge, skills and competence) expected from thegroupsandindividual(Ramu, 2018). Itis fundamentallyassociatedwithobtainingand sharpeningthe abilities and skills of thehuman beings functioning in any organization.
According to Armstrong, (2014; Armstrong et al., 2016; Kontoghiorghes, 2016), the general goal of HRM is to support the organization in achieving its objectives by developing and implementing human resource (HR) strategies that are integrated with the business strategy(strategic HRM), contribute to the development of a high-performance culture, ensure that the organization has the talented, skilled and engaged people it needs, create a positive employment relationship between management and employees and a climate of mutual trust and encourage the application of an ethical approach to people management. Hence, the proper and effective management of employees in corporation is perceived as foundation for competitive advantage.
Contrastingto the oldpersonnel management principle,whichrecognizesemployees as passiveelementsofan organization, the modernhuman resource management discipline perceivesstaffs/employees as a strategicassetthatought tobe nurturedto maximizethe potential ofemployees(Úbeda-García et al., 2014; Amasi, 2015; Abdahir et al., 2021). According to Cogin et al (2016); Hamouche (2021), the principal concentration for human resource management should be supporting success in organization.
The most important activity to be checked to improveorganizationalperformance ismaking surethose human resource activities supportorganizationaleffortsparticularly concentrating onefficiency and quality (Becker & Huselid, 2006; Omotayo, 2015; Apalia, 2017). As per Liao (2011); Kehoe & Wright (2013); Baran & Sypniewska (2020), themannerthe management controls the employeeand theresults ofmanagement practices simultaneously influence therelationship amongpeople. Industrial relationsand theworkerretentionare, therefore, theresults ofmanagement practicesand dealingsamongpeopleina corporation (Wright & Boswell, 2002; Uys, 2020). This implies the achievement of an organization to a large extent depends on the nature of industrial relations that exists in it.
Banking being a service sectorindustry, efficiency and devotion of theemployeeshavean enormouseffectontheir broad-spectrumperformance. Thus,employees’ retention is the topmost concentrationin thebanking system,whichinitiates theHRMsystems, procedures, policy and practices by technique ofthe emphasison theiremployees. Withregard tothe association between human resource management andorganizationalperformance,many researches have been conducted on themanufacturingsector, despitethe actual in thetwentiethcentury, mostemployees work inservice sector industriesincludingbanking throughout the world. So, mostconceptsand theoriesutilized inthis literaturestresses onthemanufacturingsector with exception of the findings of Batt (2002); Banker et al cited in Abbasi et al (2011); Delery & Doty cited in Kim et al (2013).
2.1.2. The Concept of Human Resource Management Practices
Human Resource Management Practices are the main source to make sure that taking the advantage of employees’ skills and knowledge to realize the intentions of the organization and a means of influencing employees’ attitude and behavior towards envisioned mission. It is a way of creating motivation, commitment, maintaining quality employees and facilitating smooth run of the business (Stavrou-Costea, 2005). As to Chao & Lee (2007), related HRM practices with the business performance such as training and development, teamwork, compensation, HR planning, performance appraisal, and employee security help to improve the firms’ business performance including employee’s productivity, product quality and firm’s flexibility.
By the same token, Chew & Chan (2008) stated that human resource management practice is a modern discipline that intends organizations to improve their target on core matters such as staff commitment, competency and flexibility, which in turn leads to improved performance.
Consequently, this research intended to see the relationship between HRM practices namely recruitment and selection, training and development, employees’ satisfaction, employees’ relation, and performance appraisal practices on the performance of Cooperative Bank of Oromia.
2.2. The Theoretical Basis of the Study
2.2.1. Human Resource Management Models
Organizationsshouldalign withvariedhuman resource management practicesto attaintheir strategic goals. For that matter, the organization’s human resource management practiceshave todevelop employee’sknowledge, understanding, skills and motivation to behave inways itought tobeeffected(Snape & Redman , 2010; Hamid et al., 2020). In thisregard,variousmodels of HRMaredeveloped bydifferentgroupsof researchers.All thesemodels have assisted the human resourcesprofessionals to effectively manage the human resources.
For instance, European human resource management thinkers,notablyin theGreat Britain, haveconcentrated moreon thedistinctionbetween “soft" and "hard" forms or versions of human resource management. As to Truss et al (1997), cited in Ihuah (2014)whoconducted eight in-depth case studiesin theUK, suggested that, the‘Hardand Soft’ versions, which are the two notableadopted models of human resource management. Thesearebasedon contrasting views ofhuman nature and managerial control strategies.
The ‘Soft Model’ emphasizesindividualsand theirself-sufficiencyand places commitment, trust and self-regulated behavior atthe centralof any strategic approach topeople(Edgar & Geare, 2005). It stresses the importance ofdesegregationof human resource policies with business objectives; highlights on handlingemployees as valued assets and asourceof competitive advantage through their commitment,talentanduppermost qualityskilland performance.As to this model, employees areproactive than inactive inputs into profitable forms, competent of advancement, commendable of trust and collaboration that is accomplished through cooperation (Neiva et al., 2015).
Incontrast, the ‘HardModel’ underlines the rationalism of strategicfit, which places attention on performance management and an instrumental tactic to the managementof people. Themodelis focusedon the notions of tight strategicmanagementwhilethe soft modelis establishedonmanagementthrough commitment.A systematicinvestigation of the descriptionsof thesetwokinds ofhuman resource management models show thatthe previous(soft)is analogousto theviewof the HarvardBusiness SchoolModelwhereasthe latter (hard) resembles that of the MichiganBusiness SchoolModel.
The HarvardBusiness SchoolModel,whichis developed byBeer et al (1984), stresses the humanfacetof human resource managementwhereasthe MichiganBusiness Schoolis taken into accountas contributoryin theapplication oforganizationalperformance. Thus, the HarvardBusiness SchoolModel isbroadly recognizedas drawing itsacademiclineage fromthe schoolof human relationswhereasthe MichiganBusiness SchoolModelappearsto followthe roadof the Scientific ManagementSchoolandalternativeapproachesthatignore the importance ofquestions aboutculture and non-economic factorswithin themanagement of human resources (Korczynski, 2002).
The HarvardBusiness SchoolModeland theSoft model form of HRarerepresentedbythe Developmental-Humanist Principle School, butthe Utilitarian-Instrumentalist Principle denotes MichiganBusiness SchoolModel& thehardmodel version of human resource management.Thoughthesetwoviews,thatareaccustomedcategorizeapproaches to the human resource managementareclearin theliterature,it isnot a humblematter inactualto identifyeitherform ofhuman resource management. With regard to this thought, scholar Truss et al (1997) indicatedthat no puresections ofeitherkindexisted.This couldensuethat organizationspursuing certain methodshave a tendency to adopt human resource management practices,whether or not theyaresupportedthe Developmental-Humanist Principle or the Utilitarian-Instrumentalist Principle.
Moreover, inthe processof defining the Soft-Hard Models of human resource management, Guest (2011) triedto look atthe key peculiarity as beingwhether or notthe emphasisis to be found on the worker or the means. Soft human resource management isinterrelated withthe human relations movement,the utilizationof worker’s skills whereas the McGregor’s Theory Y perspective onindividuals(Developmental-Humanism). This has been compared with theimpressionof a “high commitment work system”, which isgeared towardsinspiring a commitmentsothat behavior is primarily self-regulatedinstead ofcontrolled by sanctions and burdens outdoor to the individual and relationswithinthe organizationsarebased onhigh level of trust.
In connection to these issues, detail explanation is provided by Douglas McGregor, a Management Professor at the Massachusetts Institute of Technology during the 1950s and 1960s. In his 1960 book, the human side of enterprise, McGreor proposed two theories by which managers perceive and address employee motivation. He referred to these opposing motivational methods as Theory X and Theory Y management (Warner, 2009; Senarathne, 2020). Each assumes that the manager’s role is to organize resources, including people to best benefit the company. However, beyond this commonality, the attitudes and assumptions they embody are quite different.
The hard approach results in hostility, purposely low output, and extreme union demands (Van Kleef et al., 2004). The soft approach results in a growing desire for greater reward in exchange for diminished work output. It might seem that the optimal approach to human resource management would lie somewhere between these extremes. However, McGregor asserts that neither approach is appropriate, since the basic assumptions of Theory X are incorrect (Kopelman et al., 2010; Gürbüz et al., 2014; Lawter et al., 2015; Şahin et al., 2017).
Theory X management hinders the satisfaction of higher level needs because it does not acknowledge that those needs are relevant in the workplace (Harter et al., 2003; Chalofsky & Krishna, 2009); Odumeru & Ogbonna, 2013). As a result, the only way that employees can attempt to meet higher-level needs at work is to seek more compensation, so, predictability, they focus on monetary rewards. While money may not be the most effective way to self-fulfillment, it may be the only way available. People will use work to satisfy their lower needs and seek to satisfy their higher needs and seek to satisfy their higher needs during their leisure time. Nevertheless, employees can be most productive when their work goals align with their higher-level needs (Senarathne, 2020).
On the other hand, Theory Y- the higher level needs of esteem and self-actualization are ongoing needs that, for most people, are never completely satisfied (Carson, 2005; Hattangadi, 2015; Grudistov et al., 2019). As such, it is these higher-level needs through which employees can best be motivated.
In general, the Soft HRM is more ofrelated withthe goals of flexibilityand adaptability (Carvalho & Cabral-Cardoso, 2008; Richman, 2015; Veleva, 2020). This implies that communication is playing a principal effect in management.Consistent withthis model, recruitment and selection, performance appraisal practices, high attainment and incentives wereentangledtowardsorganizationalperformance (Bach, 2005; Tuomela, 2005; Jusoh & Parnell, 2008; Ferreira & Otley, 2009; Van Veen-Dirks, 2010; Upadhaya et al., 2014).
Hard HRM, onthe otherhand, focuses on the qualitative,connivingand business-strategic features of handling the “headcount resource” in as “rational”the simplest wayas forthe otheraspectof production “(Utilitarian–Instrumentalism)”.This model primarily focuses on the profits and considers employees as sources of business, no different from machine and tools.
Inactual practice,corporationsusea combinationofhardand softcomponentsin their human resource management strategy (Ihuah, 2014).Due to the rational motive that thisresearchaimedto formrecommendations onhuman resource managementpractices forhumanizingorganizationalperformance,the main emphasisis lied on both of the Harvard model (Soft)andthe Michigan model (Hard Model).
2.2.2. The Link between Human Resource Management Practices and Organizational Performance
Numerous scholars havediverseopinions with reference to the meaning of performance. For instance, some scholars, Javier (2002); Floştoiu (2012); McKevitt (2015); Mohamed et al (2017); Kang, (2019); Gębczyńska & Brajer-Marczak (2020) relate performance to thepopular3Es; that are economy,efficiencyand effectiveness ofa definiteprogram of action.Contrariwise,as to the view of Richard et al (2009),organizational performance encompassesthreespecific areas of organization outcomes;namely: economicperformance (profits,returnon assets,returnon investment, etc.), product market portrayal (sales, market share, etc.), andshareholder return. It isa signthatmeasureshowwellenterprises realize their intentions (Hamon, 2003 cited in Jandari, 2019; Anwar & Abdullah, 2021). In short, performance of organization is an organization’s genuine yield as per measured alongside its assumed earnings that are its intentions. Consequently,in themanagementresearchdomains, organizationalperformance remains to be a confrontational issue.
HRM practicesareamethodof attracting, motivating, andholdingemployeesto confirmthe existence of organization (Osman et al., 2011). Accordingly, if any organizationdesiresto functionsuccessfully, topmostan indispensablefactorwhich organizationsrequireishuman-being(Wright & Boswell, 2002; Shikha, 2010).
To this end, productiveorganizationsarethosethatvalue, develop and nurture their human capitalto grasptheirorganizationalgoals and objectives. Human resource management practicesaredesigned andexecutedin suchwaythat human capital playsa majorrole in attaining the organization’s intentions (Wickramasinhe & Gamage, 2011; Delery & Doty, 1996 cited in Kim et al., 2013). In line to this circumstance, infinite findings point out thatHRM practicespositivelyinfluencethe degreeofemployerandemployeecommitment (Purcell, 2003).This meansthere is an existence ofstrongrelationship between human resource management practices andorganizationalperformance. In short, findings show that human resource management practicesencouragethe workersto performhigherso asto bring improvementin theorganizationalperformance (Singh, 2004; Armstrong, 2006; Katau, 2008). The details of these elements are presented as follows:
2.2.2.1. Recruitment & Selection processes vs. Organizational Performance
Recruitmentand selectionplay decisive role in determining organizations’ effectiveness and performance. Organizationsarein a condition toacquireworkers whoalready possess applicableknowledge, skillsand aptitudes so as tomakecorrectpredictionconcerningtheir futuretalents. Evidence from the findings ofLynch& Smith (2010) reveals thatrecruitment and selection are theinitialprocedureto measureemployees.This is frequentlytangledwith sympathy, fascination, andassortmentofthe appropriatepeople so as to come acrossthe occupationalrequirementsof the organization.
Empirical findings show that practices of HRM are positively associated with the employee’s performance whereasrecruitment and selectionaremoreaffectingthe performance,more than theotherpractices (Ferris et al., 2002). In connection to this, in their studies, Chand & Katou (2007); Marques (2007)confirmedthatrecruitment and selection are related with theprofitabilityand then they suggested that organization’s managementshouldemphasis onthese human resource management practicesleading toan improvedprofit.
As a consequence, so as to make the practice industrious, the involvement ofHuman ResourceDepartment in employmentproceduresupportsto build up theknowledgeof theworkforcethat enables to possess the desirableskills. Thus, positive enabling conditions have to becreatedthathasan ultimate effect on the virtue of the employees.
2.2.2.2. Employees’ Training & Development practices vs. Organizational Performance
Employeesaremajor properties of any organization. Due to this, the role they play towards a company’s achievementcannot beunderestimated.With regard to this, precedingstudies have revealed thattrainingispivotaltoorganizationalsuccess (Afshan et al., 2012). As to Millar & Stevens (2012),trainingprogramsfacilitateemployeesto acquirethe knowledge, skills,and abilitiesto workoutstandingly in fostering andtriggeringcurrent work activities. Employees who posse the right skill for the job and develop it through training on different way affects organization performance.
In connection to this, studies conducted by Hassan (2007)signify the well trainedworker, notsolelyneedlessdirectionhoweversimultaneously;have a tendency to holdsophisticated determination. So,furnishingthesedistinctiveproperties through effectivetrainingbecomes imperativeso asto maximizethe workperformance. The active role they play towards a company’s success cannot be underestimated. Prior studies have made known that training is critical to organizational achievement (Afshan et al., 2012).
According to Armstrong (2010),trainingis theformal and logical amendment of behavior through learningthattake placedue toinstruction, development and plannedexpertise.This practicehas the distinctive rolein theself-actualizationofthe firm’sgoal by incorporating the interests of both the organizationas well as theworkforce. Thus, fortrainingto bringa far betterimpressionon performance, itsstyleand deliveryought tobewell implemented. As a result, if the training practice is expected to bear an indispensable result, investingonthe stated practice willcreateworkersfeel appreciative totheir corporate other than their deeds(Tzafrir, 2005).
Inconnectionto this, Mackelprang et al (2012)developedthattraininghas positive impact on the performance ofthe staffandconjointlythere ishighly positivecorrelationwith performance since itdeliversworkerswiththe abilities,talentsandknowledgeneeded as per the outlook of Castillo et al (2009).
Formaltrainingcomparedwith informaltrainingismore effectiveandfundamentallyrelated toperformance (Kaur & Nagaich, 2019).To the extent trainingplays in the activities of organizations, Bolman & Deal (2017) argued that training is a crucialstarring role in motivatingworkersto be involved in an organized ventures; toconditionallysustenance programswhich willimprove the organization to visualizetheir objectives to be attained. This designates onceemployeesare trained,then it willbeforthrightfor organizationsto realizetheir set goals (Laird, 2003; Kaur & Nagaich, 2019).
Development onthe other wayis abroadongoingmultifaceted set of actions including training practice among themgeared towardstaking alongsomebodyora companyupto a differentthreshold of progress,typicallyto execute some occupation oradditionalrolewithin thefuture (Alal & Florah, 2021). Training and developmentaretypicallywont toclosethe gap between current performances and expected future performance. Theyfall underhuman resource developmenttaskthathas been argued to bea crucialfunctionof human resource management (Weil & Woodall, 2005; Nasurdin et al., 2010; Jiang et al., 2012; Millar & Stevens, 2012). In short, training and development practices have shown to increase employee motivation and to have a tremendous impact on performance. Hence,to reinforcethe performance of the organization,it isan indispensable inevitability to revolutionize theabilityandknowledgeofemployees.
[...]
- Quote paper
- Desalegn Fekadu Etefa (Author), 2022, Effect of Human Resource Management Practices on the Performance of Cooperative Bank of Oromia, Ethiopia, Munich, GRIN Verlag, https://www.grin.com/document/1281998
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