Chapter 1 (5)

1.7      Statement of the Problem

HRM has made significant inroads into the Indonesian corporate world. It is common to see large organizations in Indonesia set up a whole department for the sole purpose of managing human resources and hire experts in the field to be in charge of HRM. The enormous benefits of properly managing human resource cannot be over emphasized. However, the majority of the organizations are yet to catch the „HRM cold‟. Inappropriate HRM policies and practices of some of these organizations can be attributed to the non-existence of HRM specialists or HRM departments. Research has established significantly a positive relationship between an organization’s HRM practices and performance. Most of these organizations do not realize the impact of properly managing its human resource and therefore leave policies in the hands of line managers and board of directors who are non-HRM experts to implement or enforce strategies, policies, processes, programs and practices. The value of properly managing human resources is lost to such organizations.

Human Resource Management is extremely important for Indonesian organizations especially because most organizations in Indonesia are manufacturing industries. Management of people and management of risk are two key challenges facing organizations. How you manage the people and how you manage the risks determines your success in the industry business. Efficient risk management may not be possible without efficient and skilled manpower.

Manufacturing has been and will always be an “Economical Asset to any Country”. Though pricing is important, there may be other valid reasons why people select and stay with a manufacturer. Manufacturing Industries must try to distinguish themselves by creating their own niches or products, especially in transparent situations with a high level of competitiveness. In coming times, the very survival of the particular Industry would depend on customer satisfaction. Those who do not meet the customer expectations will find survival difficult. Organizations must articulate and emphasize the core values to attract and retain certain customer segments. Values such as “sound”, “reliable”, “innovative”, “close”, “socially responsible”, “Indonesian”, etc. need to be emphasized through concrete actions on the ground and it would be the organization’s human resource that would deliver this.

HRM has sunk into oblivion to most of the industrial organizations in Indonesia and it is about time they saw the role and impact of HRM or Human Capital on performance and worked towards properly managing their manpower. It is in the face of this existing state that the researcher wishes to establish the impact of HRM and Human capital on organizational performance and how industry can, through appropriate HRM practices improve performance.

1.8      Methods of the Study

The purpose of the study was to examine the impact of HRM on the organizational performance of selected organizations in the Indonesian Industries. The target population for the study was the employees and managers of four big manufacturing companies in Indonesia who wants to remain anonymous in the research. A preliminary investigation carried out revealed that this study had a population size of not less than one hundred and fifty (150) people and this served as the sample size for the study. This study collected date from two main sources; primary and secondary data sources. The primary data are those collected and analyzed by the researcher from the field mainly through responses obtained from the respondents to questionnaires and interviews. The researcher also relied on secondary data which are data already collected for some other purpose by another person other than the researcher. The sources included the particular organization’s induction handbook, employment policies, annual financial reports, ARB Apex performance reports and websites.

Quantitative and qualitative research methods were used to help triangulate and back up each set of findings with the different methodologies. To elicit for relevant information for this study, two sets of questionnaire were designed and administered personally to the particular organization’s employees and managers. This was because the diverse opinions of both employees and managers on HRM issues were what the researcher sought for.

The questionnaire as an instrument was self-explanatory and consisted of only closed questions. The questionnaire had three sections; Section A asked for the personal details of the respondents, Section B had different questions on seven HRM dimensions such as recruitment and selection systems, compensation and rewards, training and development, performance management and appraisal, employee involvement, employment security, career planning; and two HRM outcomes specifically for non-managerial employees. The last section, Section C, tackled employee and organizational performance. There were, in all 70 items in the questionnaire for employees and 63 items in that of managers. (See Appendix 1 & 2)

Moreover, a semi-structured interviewing schedule solely for managers was developed and administered with a mixture of closed and open ended questions on existing HR strategies, policies, programs and practices and the perceived outcomes that affect organizational performance.

1.9 Organization of the Thesis

This work is organised into five chapters.

The first chapter is the introductory chapter and it comprises; background to the study, statement of the problem, research questions which raise research objectives. It also covers the significance of the study and the sequential arrangement of the study.

Chapter two provides a broad background for the subsequent chapters and an extensive review of existing research works on the concepts and theories which give a better understanding of the subject matter.

Chapter three encompasses the methodology to the study. It provides for research design; procedure and method, population covered by the study, description of the study area, sampling techniques, instruments, data collection procedure and analysis. A review of the methodology is provided under this chapter.

Chapter four focuses on data analysis and interpretation of the results and discussions whilst Chapter five embodies the conclusions drawn based on the findings of the study upon which recommendations are made as well as directions for future research on the subject matter.

1.10    Summary

The emphasis of this chapter was the concepts of human resource management, or Human Capital Management, the existing economy and the new economy. This provides a framework for the discussion of the role of human resource management in the new economy.

It is clear that the world in which we work and live is going to change radically. The focus will be on information, knowledge and communication and thus intellectual and human capital. Knowledge management will play an essential role in the new economy, just as physical assets played an important role in the old economy. These changes and the changing focus from physical assets to intellectual assets will have a direct impact on the role of human resource management.

Human Resource management played a vital role in organizations in the old economy and has slowly been developing into Human Resource Capital management.