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«Integrating training in business strategies means greater impact of training on the firm’s competitiveness Vichet Sum University of Maryland ...»

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Research in Business and Economics Journal

Integrating training in business strategies means greater impact of

training on the firm’s competitiveness

Vichet Sum

University of Maryland Eastern Shore

Abstract

This paper, using the resource-based view of the firm as the theoretical background, is to

determine whether the integration of training in the firm’s business strategies increases the

impact of training on the firm’s competitiveness. A regression analysis of the data obtained from a survey of training professionals employed in small, medium, and large firms across three different industries reveals a statistically significant positive regression coefficient, b =.554, t(97) = 6.25, p.001.

Keywords: Training, Strategic Integration, Firm’s Competitiveness Integrating training in business strategies, Page 1 Research in Business and Economics Journal

INTRODUCTION

One of the most prominent and widely respected researchers in the area of competitiveness is Michael Porter. According to Porter (1998), a firm’s competitiveness refers to the competitive advantage over its rivals in a particular industry. A firm has competitive advantage when it is able to differentiate itself in the marketplace, generates greater revenues and operates at lower costs than its competitors. In addition, innovation “the application of new ideas to the products, processes or any other aspects of firm’s activities” (Rogers, 1998b, p. 5) has become one of the key drivers for firms to operate profitably and compete sustainably in the globally linked economies. Porter and Stern (2002) asserted that firms operating in advanced nations whose economies were innovation-based would not obtain sustained competitive advantage if they were not able to “create and then commercialize new products and processes and shift the technology frontier as fast as their rivals can catch up” (p. 2). This implies that innovation is a key to obtaining a sustained competitive advantage.

Theoretical establishment in business strategy has elevated the role of human resources, both as a business function and as a labor, in creating sustained competitive advantage. The resource-based view of the firm (Barney, 1986, 1991, 1995) proposed that firms could create and obtain sustained competitive advantage by creating value in a fashion that is rare and impossible for rivals to imitate. The resource-based view of the firm argues that conventional sources such as natural resources, technology, economies of scale, operational and manufacturing designs etc., can be utilized to generate sustained competitive advantage, yet these sources can be easily copied by competitors. In this case, any sources of sustained competitive advantage that cannot be easily imitated are especially important. The resource-based view of the firm established that people (human resources), a repository of knowledge and skills, can be leveraged to create value in a way that is difficult for competitors to imitate (Barney, 1991).

People are the strategic assets meaning “the set of difficult to trade and imitate, scarce, appropriable, and specialized resources and capabilities that bestow the firm’s competitive advantage” (Amit & Shoemaker, 1993, p. 36). Ultimately people, a repository of knowledge and skills, are the most valuable and necessary asset for any firm to compete and generate competitive advantage (Barney & Wright, 1998; Gorman, Nelson, & Glassman, 2004; LopezCabrales, Valle, & Herrero, 2006; Shee & Pathak, 2005; Wright, McMahan, & McWilliams, 1994). Strategically speaking, a firm may have a great strategic plan in place, yet it means nothing if its people lack access to appropriate and relevant knowledge, skills, and attitudes to successfully support or carry out the strategic plan. Since people are the core driver of successful strategy implementation, it is vital for those, especially top management and executive teams, who plan and formulate strategy to realize that having their employees armed with appropriate knowledge and skills is a key element for successful strategy implementation. Porter (2000) stresses that firms operating in the knowledge-based economy become more and more dependent on the skills and knowledge of their workers.

The problem of this study was to determine whether the integration of training in the firm’s business strategies increases the impact of training on the firm’s competitiveness.

Training, as one of the human resource practices, has been qualitatively and quantitatively established in literature to have a positive impact on organizational performance and competitiveness; nonetheless, the extent to which training is genuinely perceived and valued to be strategically important by the firm’s top management is still questionable. The current study sought to contribute to a greater understanding of the strategic integration of training and its

–  –  –

impact on the firm’s competitiveness. Three research hypotheses were to be tested to address the problem of this study.

Hypothesis 1: Training has a positive impact on measures of the firm’s competitiveness.

Training has traditionally been a conventional method utilized to prepare and arm both current and new employees with necessary and relevant knowledge and skills needed to perform day-today operational activities that ultimately determine organizational performance, success and competitiveness. Research in strategic human resource management, organizational performance, performance improvement, and organizational competitive advantage has conceptually and empirically linked training to organizational performance and sustained competitive advantage (Akhtar, Ding, & Ge, 2008; Arthur, 1994; Bartel, 1994; CutcherGershenfeld, 1991; Gerhart & Milkovich, 1990; Huselid, 1995; Huselid & Becker, 1996;





Ichiniowski, Shaw, & Prennushi, 1997; MacDuffie, 1995; Whitney, 2005; Sum, 2010a; Wright, Gardner & Moynihan, 2003).

Training and the Firm’s Readiness Preparation for New Opportunities and Threats A survey with over 300 senior executives in human resource, finance, and operations at U.S. and European companies with revenues of greater than $1 billion conducted by Convergys Corporation (CVG) showed that 65% of corporate executives expressed that in order to gain a competitive advantage in today’s changing markets, a flexible workforce was essential.

Nevertheless, those executives said that retaining key talent was quite a challenge due to the extent that the companies did not have the best systems in place to identify skilled employees.

They added that fewer training and development programs were being provided to their strategic employees; more training and development programs should be offered to those employees to help them stay current in the industrial and market trends and technological innovation (CVG, 2004).

In its survey, PricewaterhouseCoopers (1998) revealed that 70% the Fortune 1000 firms indicated that a barrier to growth was a lack of trained employees. Moreover, many researchers (Adler, 1992; Applebaum & Batt, 1994; Braverman, 1974; Cappelli, 1993; Cappelli & Rogovsky, 1994; d’ Iribarne, 1986; Dyer & Reeves, 1995; Finger & Burgin, 1996; Gallie & White, 1993; Kern & Schumann, 1984; MacDuffie, 1995; Mathews, 1990, 1994; Osterman, 1995; Piore & Sabel, 1984; Senge, 1990; Watkins & Marsick, 1992; Wilkinson, 1983) indicated that the factors that impacted management decisions to train employees were (a) employee performance improvement; (b) the improvement of the adaptability and flexibility of the employees; (c) investment in acquiring new technology; (d) new work practices and sophisticated human resource system; and (e) changes in business strategy. Using four case studies in Greek banks, Glaveli and Kufidu (2005) suggested that the role of training was to aim to maintain, raise, and innovate the core competencies for a strategic positioning of the firm in the industry. In a study to compare training and development practices within and across nine countries and one region, Drost (2002) reported that training was a means to prepare employees for future job assignments.

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Training Impact on the Firm’s Productivity and Efficiency Blundell, Dearden, and Meghir (1999) provided a review of the evidence on the returns to education and training for the individual, the firm and the economy at large. American Society for Training and Development’s 2003 State of the Industry Report quantitatively showed a positive relationship between training expenditures and both revenues and profitability (ASTD, 2003). Moreover, another study, funded by the U.S. Department of Education with the Bureau of Census, determined how training impacted productivity. The results showed that increasing an individual’s educational level by 10% increased productivity by 8.6%; increasing an individual’s work hours by 10% increased productivity by 6.0%; and increasing capital stock by 10 percent increased productivity by 3.2% (US Department of Education, 2003). Wright, Knight, and

Speed (2001) found that:

Companies that increased their annual training budget grew profits by 11.4% - those that didn’t increased profits by only 6.3%. Learning businesses increased turnover by 66% more than those who didn’t invest in training - 15% growth, compared to 9%. Three in four (75%) of companies who have seen measurable staff improvements following training also saw profit increases. Nearly all companies (95%) were in favor of training, saying it is essential for success, with three in four (73%) strongly in favor, but just half (51%) have increased their budget – the key measure that links training strategy to profit making. (p. 3) Using sales per worker and valued-added per worker as measures of productivity, Lyau and Pucel (1995) indicated that 10% increase in training spending per worker led to an increase of 1% in value-added per worker.

Other studies offered the evidence to some extent that improved productivity was generated by training (Booth, 1991; Brown 1990; Dockery & Norris 1996; Duncan & Hoffman,1996; Lillard & Tan 1992; Lynch, 1996; Mincer, 1993). In a survey of 18 companies in Hong Kong, Malaysia, Indonesia, South Korea, Taiwan and Singapore, Chalkely (1991) reported that managers perceived training to generate beneficial outcomes for their firms. Loundes (1999) also provided evidence showing the impact of training on firms’ productivity improvement.

Moreover, Bartel (1994) found that the implementation of new employee training programs significantly increased the productivity. Using the data from the employment opportunities pilot projects (EOPP), Bishop (1990) documented the increase of the productivity of newly hired personnel, which occurred as a result of the participation in firms’ training program. Holzer, Block, Cheatham, & Knott, (1993) found that firms that offered more formal training had higher quality work performed by their employees.

As quoted in the Engineer, a magazine serving the UK's engineering technology community, Mullin (2003), Bosch Rexroth’s personnel manager, stated that “training leads to competent and motivated employees, which in turn leads to fewer problems in the production process and the retention of happier clients” (p. 35). The benefits from training as identified by management included improved occupational health and safety outcomes, greater motivation, lower staff turnover, lower wastage, a more flexible workforce, higher productivity or improved quality of products and services, instilling corporate culture or strategic goals and a range of noneconomic benefits (Billet & Cooper, 1997; Coopers & Lybrand 1994; Dockery, Koshy, Stromback, & Ying, 1997). In surveys conducted by the Centre for Labor Market Research in Australia, employers believed that training benefited the firms (Dandie, Dockery, Koshy, Norris, & Stromback, 1997; Dockery et al., 1997).

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Training Helps Firms Differentiate Themselves in the Marketplace Kleinfelder (2005), founder of Alternative Technology, emphasized that “training helps salespeople differentiate themselves in the marketplace” (p. 4). In addition, Lowe (2005) discussed training integration in a firm differentiation strategy. A research study, conducted by Wilson Learning Corporation (a provider of Human Performance Improvement solutions), showed that traditional sources of competitive differentiation – a superior product or service, increased size through mergers and acquisitions, or reductions in price – no longer suffice in today’s business operation environment (Edina, 2005).

The same research study showed that many of the leading sales organizations in today’s arena were creating competitive advantage by equipping their sales people with business consulting skills. For instance, by learning a consultative process and identifying more appropriate ways to gain an understanding of the customer’s business and then applying these methods effectively, salespeople begin to approach clients from a more strategic standpoint and develop more profitable and compelling solutions (Edina, 2005).

Training and the Firm’s Innovation

Turcotte (2002) found that “both classroom and on-the-job training, innovation in products, services and processes, and implementation of new technologies or new software are variables that are positively associated with support for training” (p. 22). Baldwin (1999) conducted a review of a number of Canadian studies and developed a positive linkage between innovation and training. Baldwin and Johnson (1996) found that firms with a high level of innovation provided training to a larger number of their workers, both through formal and informal platforms. In addition, Baldwin (2000) emphasized the important relationship between innovation, skills and training, and the success of start-up firms. Blundell, Dearden, Meghir, and Sianes (1999) found a direct link between employee education and the ability of those employees to be innovative. By analyzing the data obtained from U.S. firms and their respective employees, Frazis, Gittlemanm, and Joyce (1998) found firms that had more innovative workplace practices had a tendency to offer more training. In addition, Dockery (2001) found that the proportion of employees receiving on-the-job training was positively associated with the firm’s innovation. In a survey study, Sum (2010) reported the evidence of the impact of training on the firm’s innovation.



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