Administration and business dissertration summary: The influence of organizational cultures on incentive systems in Vietnamese enterprises

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The purpose of this study: The general purpose of this dissertation is to research of the relationship between the organizational culture and the incentive system. The study will answer the questions whether the organizational culture has significant influences on the incentive system, including frequency of incentive use, parity or equity allocation principle.

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Nội dung Text: Administration and business dissertration summary: The influence of organizational cultures on incentive systems in Vietnamese enterprises

1 2 MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY -------------------------------------- NGUYEN THI HONG THAM THE INFLUENCE OF ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS IN VIETNAMESE ENTERPRISES SPECIALTY: BUSINESS MANAGEMENT CODE: 62.34.01.02 ADMINISTRATION AND BUSINESS DISSERTATION SUMMARY HANOI, 2014
3 4 INTRODUCTION next to Hanoi. The survey was implemented from November, 2012 to April, 2013. a. The rationale for studying d. New findings in the dissertation Researches into the relationship between cultures and Different from many previous researches, this research incentives have exposed a significant gap and there are not many investigates differences in the relationship between organizational studies considering directly this relationship. Studies that focus on culture and incentive system within one country, Vietnam. The the impact of cultures on incentive systems mostly examines the findings in this thesis reveals that organizational culture has influence of national culture on the difference in incentives of significant influence on incentive system, including the incentive organizations in different countries and mainly study of the value frequency, the principle, the base and the way to allocate bonus. perspective. Therefore, this dissertation will test the influence of These are new findings that are not answered clearly in previous organizational culture, specially department cultures on incentive studies. In particularly, in employee – oriented organization, the systems applied for these sections in Vietnamese enterprises. This is frequency of bonus is higher, the parity allocation principle and the an issue not answered clearly in previous studies. group – based bonus is used more largely while in less employee – b. The purpose of this study oriented organization, individual – based bonus is used more highly. The general purpose of this dissertation is to research of the To the tight or loose control dimension, the investigation results relationship between the organizational culture and the incentive indicate that in tight control units, the equity allocation principle and system. The study will answer the questions whether the individual – based bonus is used more largely. Another new finding, organizational culture has significant influences on the incentive contrast with the result of Western researches and the qualitative system, including frequency of incentive use, parity or equity study, is that in less employee – oriented units, bonus is paid secretly allocation principle, the base to allocate and the way to pay is more popularly. incentives or not. On the practical perspective, firstly, the findings in this study help predict reward system applied in an organization when c. The research subject and scope understanding its culture. Secondly, the findings also help managers The research issue is the effect of the organizational culture comprehend the relationship between organizational culture and the (specially the section culture) on the incentive system applied in the incentive system. Therefore, they are able to design, fulfill and department in enterprises . change incentive plans to have better results. Study scope: Enterprises in Hanoi and provinces that are
5 6 CHAPTER 1: THEORETICAL BASIS AND LITERATURE REVIEW in the middle of two above viewpoints. Researchers also do not have agreement about the dimension 1.1. Theoretical basis to assess organizational culture. According to the findings of 1.1.1. Culture and organizational culture Hofstede et al (1990), the difference in organizational cultures among companies mainly to be observed and evaluated by 6 1.1.1.1. Culture dimensions, including process versus result orientation Culture is specially difficult to define. Asif (2011) indicated organizational culture, employee versus job orientation that “culture is one of two or three words that is the most organizational culture, parochial versus professional organizational complicated in English”. Generally, researchers have agreed that culture, open or closed system organizational culture, loose control culture refers to belief and value, expressed in practice, in behavior versus tight control organizational culture and normative versus and other things, shared by the members of an organization or a pragmatic organizational culture. nation. However, besides the common agreement, authors shows a 1.1.1.3. The departmental culture lot of different opinion about culture. Hofstede et al (1990) found that organizational culture could 1.1.1.2 Organizational culture be studied at whole organizational level or lower levels, such as the According to Hofstede et al (1990), organizational culture department or unit level depends on its cultural homogeneity. These appeared in academic studies in the United State in 1979 and it is authors found that many organizations included sections that have quite recent appearance. Up to now, organizational culture definition different cultures and jobs with different culture. become a controversial definition in both theory and practice. It This is confirmed in some researches of Hofstede after that. continuously shows different development trends in academics and In addition, Martin (2002) found that the subculture in enterprises new definitions to understand this concept develop endlessly. appeared because of difference in the jobs and functions. Moreover, Although there are various views, scholars are becoming according to Schein (2004), if an organization become successful, it more consensus. While most researchers have agreed that was sure that it would create lower units and start creating their organizational culture includes artifacts, shared value, belief and culture basing on their own leaders. Besides, other authors also underlying assumptions, their viewpoints about each part are clearly supplied evidences on difference in culture among departments and different. Some authors emphasize the value perspective of units. In addition, Reiman et al (2005) studied organizational culture organizational culture. On the contrast, other scholars highlight the of the maintenance units in two nuclear power factories and Kunda artifact aspect of organizational culture. Many remaining authors are (2006) researched into the culture of the engineering unit in an
7 8 advanced technology company. These are evidences of using Pheysey (1993) found that organizational culture had department level to be a research unit in organizational culture relationship with various perspectives of enterprise management. In studies. Therefore, the author decides to choose examination units particularly, this author indicated clearly the relationship between are department in enterprises. organizational culture and the management aspects, such as change, control, organizational design, job design, motivation, decision 1.1.2 Compensation system and incentive making, group behavior, leadership and management, and 1.1.2.1 Compensation system organization development. Culture is emphasized because it impacts on many other things that is showed in the dissertation. Many researchers on compensation have agreed that compensation oftend includes salary, benefits and bonus, share 1.2.2 The influence of organizational cultures on incentive systems options. in enterprises 1.1.2.2 Incentives 1.2.2.1 Domestic literature review Incentives is an important tool to promote managers to reach In Vietnam, researches of the impact of culture on the objectives of organization. Anthony and Govindarajan (2003) management in generally and on salary, reward in particularly are indicated that incentive plans include two parts: short term plans and quite new. There are few studies that considered this issue. Most long term incentive plans. The short term incentive plans include the studies focused on considering each subject separately, such as the total bonus pool, carryovers and deferred compensation. Long term culture or the organizational culture or salary or reward. Some incentive plans comprise stock options, phantom share, stock authors investigated the effect of culture on compensation issue in appreciation right, performance shares and performance units. our country. For example, Thuc Anh (2010) found that although Incentive can be based on the contribution or the working Vietnamese culture stressed power distance, the Vietnamese wanted time. It also can be based on the individual result or the group result. the “equality” in compensation. The too big difference in Moreover, it is allocated equally or equitably. compensation is unacceptable to Vietnamese staffs. Huy and Thang (2012) examined the effect of national culture (Vietnam) on 1.2 Literature review on the effect of organizational cultures on compensation practices applied in enterprises, then they proposed incentive systems in enterprises some hints to help Vietnamese enterprises to design a suitable reward 1.2.1 The influence of the organizational culture on management system to culture value of Vietnamese labor, therefore it helps in enterprises strengthen the effectiveness of paying salary in enterprises.
9 10 1.2.2.2. International literature review Figure 1.5: The theoretical model (Source: The author synthesized and proposed) Recently, there is an increasing interest in testing the Some hypotheses are proposed from literature review: relationship between culture and parts of the management control H1: In result-oriented units, incentives is more likely to used system, such as performance measure system or incentives. The most highly than in process-oriented units remarkable research on the influence of organizational culture on H2a: In employee-oriented units, incentive frequency is incentives system is made by Bento and Ferreira (1990). These likely to be higher than in job-oriented units authors used the qualitative method, explored the influence of H2b: In employee-oriented units, the parity principle for organizational culture on incentive system at an university in the allocating incentives is more likely to be used broadly than in job- United State. Researches on the effect of organizational culture on oriented units. incentive system only examined the impact of the value aspect (not H2c: In employee-oriented units, group-based incentives are practice perspective) organizational culture on incentive system. more likely to be used largely than in job-oriented units However, the practice side is more important and effective to H2d: In job-oriented units, individual-based incentive is investigate organizational culture. Therefore, the dissertation will more likely to be used largely than in employee-oriented units examine the impact of the practice aspect of organizational culture H2e: In employee-oriented units, the secret payment is more on the incentive system. likely to be used popularly than in job-oriented units 1.3 The research model H3a: In tight control units, the equity rule for allocating incentive is more likely to be used commonly than in loose control units Organizational culture H3b: In tight control units, individual-based incentive is Process versus result orientation Incentive system more likely to be used universally than in loose control units Employee versus job orientation Level of incentives Three other practice dimensions, including parochial versus Parochial versus professional Incentive allocation principles professional, open or closed system, and normative versus pragmatic Open or closed system Group-based or individual-based Loose control versus tight control organizational culture have not been considered to produce The way to pay incentive Normative versus pragmatic hypotheses because the author have not found any relationship between these variables and various aspects of incentive system from literature review Control variables Demographics of respondents: Job title, age, sex, number of year working for the company, education level Firm characteristics: working unit, business sector, legal form of organization, company size, company age and ownership
11 12 CHAPTER 2: CASE STUDY OF THE INFLUENCE OF Conclusion of chapter 1 ORGANIZATIONAL CULTURES ON INCENTIVE SYSTEMS Chapter 1 has systematized various different views of IN DEPARTMENTS OF TWO ENTERPRISES researchers about organizational culture and incentive. Then, the Studying organizational culture is not an easy job. Bento and dissertation has given the accepted definition of two concepts. In Ferreira (1990) found that understanding how culture affect on addition, chapter 1 has introduced literature review, proposed the compensation policies requires “a period of immersion in that culture research model and hypotheses on the influence of organizational and intensive use of the insider information”. cultures on incentive systems in Vietnam enterprises. So the author has chosen to study insightly two enterprises producing carton package in the northern region to see whether enterprises in the same industry has differently organizational culture or not and their incentive system are significantly different or not. The author had chosen two cases that are two enterprises in the same industry to eliminate the influence of the outside factors on the incentive system. In addition, based on the results of previous researches, enterprises that belongs to different legal forms has not similar organizational culture. Therefore, two enterprises were chosen. One of them was a private company (An Duy company) and the another had been a state – owned company that is equitized recently (Ban Mai enterprise). So two cases are anticipated to be significantly different in organizational culture, then the author will examine whether incentive practices in two enterprises are different following the predictions given basing literature review or not. At An Duy company, the author interviewed the chief accountant, the vice manager and the assistant of the business division. At Ban Mai enterprise, the vice manager of business division and the chief accountant were interviewed. The interviews were planned about time, place and were direct contacts. Each
13 14 interview lasts from 1.5 to 3 hours. The information of interviews Table 2.1: The comparison of organizational cultures and incentive systems at two enterprises was taken note and was typed within 24 hours. The interviews were An Duy company Ban Mai enterprise Difference note implemented with an interview guide including open questions The - Result-oriented culture - Process-oriented culture - Quite clear developed basing organizational culture scales of Hofstede et al business department - Job-oriented culture - Employee-oriented culture - Quite clear (1990) and incentive system scales borrowed from the research of –The - Professional culture - Parochial culture - Little culture Segalla et al (2006), Mahoney and Thorn (2006) and Goktan and - Open system culture - Open system culture - Quite similar Saatcioglu(2011). The interview guide and the detail information of - Loose control culture - Tight control culture - Quite clear - Pragmatic culture - Pragmatic culture, less clearly - Little interviewees are showed in the appendix of the dissertation. The - Revenue bonus monthly for - Revenue bonus monthly with - Significantly different in th 2.1. Case A: An Duy corporation business each individual who has the same percentage for all parity or equity allocatio department completed his duty. The indirect staffs (working in principles. –The percentage of bonus per office) if the enterprise get the This part presents the general information of the company, incentive compensation was bigger revenue than planed. The - Difference in the allocatio system dramatically higher than other difference in the percentage of basis: individual/ enterpri the divisional culture and the incentive system applied in the divisions in the company. bonus per compensation among results. divisions of the company divisions that work in office was lower - Publicly - Differently 2.2 Case B: Ban Mai enterprise - Secretly Accounting - Process-oriented culture -Process-oriented culture clearly - Little This part presents the general information of the enterprise, department - Employee-oriented culture - Employee-oriented culture - Little –The the divisional culture and the incentive system applied in the culture - Parochial culture - Parochial culture - Quite similar divisions of the enterprise. - Open system culture - Open system culture - Similar - Tight control culture - Tight control culture - Similar 2.3 Some hypotheses were supported - Pragmatic culture more - Pragmatic culture - Little strongly H’1: In result-oriented units, incentives is more likely to used highly than in process-oriented units The - Only be rewarded once per - Bonus monthly with the same - Significantly different in th accounting year before Tet holiday if the percentage for all indirect staffs incentive frequency H’2: In result-oriented units, the equity rule for allocating department company made profit in the (working in office) if the -The previous year. Each staff enterprise get the bigger revenue - Difference in the percenta of bonus per compensation incentive is more likely to be used commonly than in loose control incentive received a bonus that was than planed. Having incentive system equal to his monthly salary. based on the result of a year and units The manager got 1.5 monthly on holiday occasions. salary. H’3: In employee-oriented units, the parity principle for - Secretly - Publicly - Different in the way to pay allocating incentives is more likely to be used broadly than in job- oriented units. (Source: the author synthesized)
15 16 H’4: In employee-oriented units, the secret payment is more CHAPTER 3: THE SURVEY STUDY OF THE INFLUENCE likely to be used popularly than in job-oriented units OF ORGANIZATIONAL CULTURES ON INCENTIVE H’5: In employee-oriented units, group-based incentives are SYSTEMS IN VIETNAMESE ENTERPRISES more likely to be used largely than in job-oriented units 3.1 The research method H’6: In loose control orientation units, incentives is more likely to used highly than in tight control orientation units The study sample was chosen from enterprises that belonged to all For other hypotheses on the influence of organizational legal forms in Hanoi and neighboring provinces. The questionnaires were culture on incentive system, that are indicated in the chapter 1, the used to explore 150 enterprises that were chosen following different result of the qualitative research has not provided evidence to standards to try assure the representative requirement. The scales were support. borrowed from the previous researches. 3.2 The study result CONCLUSION OF CHAPTER 2 The coding and data entering were implemented following This chapter has reported the result of the qualitative study the instruction of using SPSS software. The data was checked by carried out at two enterprises that producing carton packages in the using the frequency table. After that, analyzing factor and checking northern region of Vietnam. The result reveals that some hypotheses scale reliability were applied. EFA model was used to check scale shown in the chapter 1 were supported. Therefore, the quantitative reliability. When the scales were found reliable, the regression study stage using questionnaires with bigger sample was followed. analysis were done to examine hypotheses. 3.2.1 Sample description statistics The sample size was 150 enterprises. This meant the research could collect 300 answer sheets. However, in fact, only 230 answer sheets were collected. After excluding the answer sheets lacking the important information or the respondents were not suitable, 216 answer sheets were used to analyze data. 3.2.2 Checking the scale reliability The primary statistical techniques used to analyze data in
17 18 this study included factor analysis, checking scale reliability and significantly positive relationship with group-based incentives (.217, multivariate hierarchical regression analysis. The eigenvalue-based p 1” were kept. The result of factor analysis .064, F: 1.973, p
19 Table 3.13: Results of Regression Analysis for Each Dependent Variable (Standardized coefficients are shown Significance levels: +p
CHAPTER 4: DISCUSSION AND PROPOSAL Firstly, the findings helps predict an incentive system applied in an organization when understanding its organizational 4.1 The study result and discussion culture. Secondly, to managers, it helps them understand the Different from many previous researches about the relationship between the organizational culture and the incentive relationship between culture and compensation that study pay system, so they can design their reward systems more effectively. preferences of individuals or compensation systems in different Thirdly, the outcome of this dissertation directs changes in the organizations in dissimilar countries, this research investigated organizational culture and the incentive system to have better results. differences in organizational cultures and incentive systems in a 4.3 Some suggestions to managers country, Vietnam. The findings in this research reveal that organizational cultures have significant influences on incentive Firstly, managers should assure the fitness between the systems, including the level of incentive use, the allocation principle, organizational culture and the incentive system. Secondly, managers the base and the way to allocate in merge and acquisition companies should analyze the organizational culture to avoid collision. Thirdly, managers should 4.2 The contribution of this dissertation control organizational culture differences in multinational 4.2.1 The theoretical contribution companies. Firstly, most of the prior studies of the relationship between 4.4 Some policy suggestions culture and incentive examined the organizational culture at the Firstly, the government should have measures to develop the whole organization or enterprise level, this research was stock market to support enterprises change their reward practices. implemented at the lower level, departments or units. Secondly, the Secondly, the government should strengthen the education dissertation has tested some organizational culture scales of Hofstede system and the enforcement of implementing legal rules to intensify et al (1990). The reliability analysis outcome in this thesis and some the belief to each other among Vietnamese people in generally and earlier researches indicated that these scales should be developed and managers in particularly. This helps to make advantages to apply improved more. Finally, this study is done in the transitional effectively various forms of incentives that are popular in developed economy. However, the research outcome is quite similar to previous countries but have not been applied effectively in Vietnam, such as studies when it shows the relationship between organizational carryovers and deferred compensation, to get the benefit of applying cultures and incentive systems these kind of compensation, after that it brings more benefits for both 4.2.2 The practical contribution enterprises and workers.
Thirdly, the government should change actively our national researches investigating the relationship between culture and culture following the international integration trend to support the compensation but considering the national culture, future researches suitability between the organizational culture and the national can explore the effect of the organizational culture on compensation culture. in generally, including salary, benefits to find how the organizational culture affect on the selection of compensation parts: salary, benefits 4.5 The research limitation and directions for future researches and incentives. In particularly, future researches can look for This research has some limitations. Firstly, most measures answering to the questions: what culture an organization has will fit are borrowed from earlier studies, so they were not completely the situation that salary is bigger or benefits are used more. suitable to the Vietnamese context. The second limitation of this Furthermore, the findings are supported in the qualitative stage but research is that the study uses some single item measures to are not tested in the quantitative study will be issues that future investigate some perspectives of the incentive system. researches continue considering. The third limitation is the research sample. While the study scope is all Vietnamese enterprises but the study sample is only selected from enterprises located in Hanoi and neighboring provinces THE CONCLUSION OF CHAPTER 4 because of the resource shortage. Therefore, this is the limitation of In chapter 4, the dissertation has synthesized the results the dissertation although many prior studies in this field that were confirmed by testing hypotheses in chapter 3. The dissertation has implemented by other authors also share the sample limitation presented the explanation for the difference in the testing outcome similar to this dissertation. and the hypothesis (H2e). Based on the study results, the dissertation In addition, in current conditions, Vietnam is in the first indicates contributions created and give some proposals to managers stage of the market economy development, the time of opening its and administration agencies, such as the government. The study door is not long so many factors are not created like in developed limitations and directions for future researches were clarified. countries. The incentive forms are evidences. So when the Vietnamese economy become more developed and enterprises are integrated more, it is sure that the incentive types will become diversified and the study subject will be bigger. These are opportunities for future researches in this field. Moreover, the dissertation only concentrates on studying bonus, while it is a part of the compensation package received by labors. There are many
CONCLUSION organizational culture, the dissertation helps managers to have more understanding about designing and implementing bonus plans better, How to have suitable rewards to stimulate efforts is the so improve the business results of enterprises. Furthermore, based on consideration of enterprises. So this issue is interested by theoretical the findings, the anticipation of the incentive system can be made researches. In this thesis, the author has clarified the incentive when understanding its organizational culture. The dissertation has definition, incentive types, base to determine incentives, the indicated some limitations and directions for future researches ared incentive allocation principles and ways. After that, the thesis has introduced. Therefore, researchers who are interested in studying considered the reward system under the influence of the insightfully the relationship between organizational cultures and organizational culture. Based on results of previous studies of the rewards can find the gap to continue researching in this dissertation. relationship between two factors, the dissertation has concentrated on clarifying the effect of the organizational culture on the reward system, answering questions that are not considered clearly in the prior studies. In particularly, this research find that there is a positive relationship between the employee-oriented organizational culture and the reward frequency in units. The employee-oriented organizational culture also has positive relationship with using the equality allocation principle and the group-based bonus. The findings of this study reveal that in organizations with less employee-oriented organizational culture, the secret principle and the individual-based reward are used more commonly. Moreover, the research results of the dissertation indicate that in organizations with loose control orientation culture, the equity allocation principle and individual- based bonus is used more frequently. Based on the findings, this dissertation has both theoretical and practical contributions. On the theoretical perspective, the dissertation has answered questions that are not considered in previous researches on the relationship between the culture and the incentive system. On the practical side, by showing the effect of the
LIST OF THE AUTHOR’S STUDIES PUBLISHED 1. Nguyen Thi Hong Tham (2011), The bonus at the end of a year in enterprises, The Trade journal, volume 35, pp 46-48. 2. Nguyen Thi Hong Tham (2011), Some findings in researches of the relationship between the culture and the incentive system in enterprises, Contemporary business management, National Economics University publishing, pp. 105-124. 3. Nguyen Van Thang and Nguyen Thi Hong Tham (2012), The incentive forms in corporations: The international experience and the Vietnamese practice, Journal of economics and development, July (II), pp. 40-43. 4. Nguyen Thi Hong Tham (2012), The influence of incentive practice on customer relationship management in enterprises, national conference proceedings “C. R. M: Theory and practice in Vietnam”, National Economics University publishing, Hanoi, pp. 148 - 155. 5. Nguyen Thi Huong và Nguyen Thi Hong Tham (2013), Restructuring corporate compensation in Vietnam to overcome difficulties, Journal of economics and development, volume 193 (II), July, pp. 21-25. 6. Nguyen Thi Huong and Nguyen Thi Hong Tham (2013), The influence of organizational cultures on incentive systems – Case of Vietnamese enterprises, International conference: Knowledge management in the transition economy of Vietnam, Hanoi, 8/2013, pp. 273-290.