Human Resources in Sri Lanka's IT Sector

CHAPTER 1
INTRODUCTION

For an organization to survive and expand in the rapidly competitive environment dominated by several players, it is paramount for an organization to perform. The organization performance would be measure according to several variables such profitability, sales, production quality and market share, however, few organizations give prominence for the most important factors which is human resources performance. According to HRM commentator’s retention and development of the organization employees are pivotal for organization performance.

The overall purpose of human resource management is to ensure that the organization is able to achieve their success through people. Ulrich and Lake (1990) states that: ‘HRM systems can be the source of organizational capabilities that allow firms to learn and capitalize on new opportunities’. But in the other hand HRM has an ethical dimension as well, which means it should also concern the rights and needs of people in an organization.

With the increased competition, globalization, boundless technological advances, -companies are forced to think about the factors like HRM, environment…etc to run the extra mile ahead of the others. Therefore nowadays employers consider investments on the HRM functions are very significant and effective, rather than seeing it as just a cost.

As it shown above, HRM should be incorporated with each and every function with in an organization. Starting from the recruitment process to the training and development, performance appraisal, performance incentives, promotion system , design of work and working environment…etc should aligned with effective HRM practices as it will reduce the direct & indirect employee grievances which results in a highly motivated and pleased workforce, which in turn influences on the overall organization performances.

When considering the structure of the Human resource management, there are two categories;

1. Managerial Functions

2. Operative functions

Functions of HRM

Managerial Functions Operative Functions

Planning Employment
Organising Human Resource
Directing Development
Controlling Compensation
Human relations
Recent trend in HRM

1. Managerial functions – It include Planning, organizing, directing and controlling.

· Planning is the main activity that a manager has to consider. The management has to decide what to do and how to do to achieve the objective of the organization. Management uses this process to plan the future of the company, decide what actions they are going to make to avoid difficult problems etc. (Bateman, Snell, 2007).

· Organizing is established in the internal structure of the organization. It mainly concerns the flow of information within the company, division and coordination. Manager has to know what the subordinates can do and what kind of training they need. To achieve the objectives set in the planning process there should be a proper organization of work. In here the management set the tasks, responsibilities and authorities to the employees. The manager has to discuss the tasks with the employees and has to clarify what to do, how to do and make them understand about the job (Allen, G, 1998). Then it is easy to achieve the objective.

· Directing is the next stage after completing planning and organizing. This is to execution of the plan. It influences the people to achieve the objectives in a correct way through motivation, communication, and leadership. The proper direction of employees will affect the achievement of the objectives. The manager has to have a proper relationship with the employees in the company, and then they can easily direct the employees to achieve the target.

· Controlling involves checking, verifying and comparing of the actual with the plan that the company set. Actions and operations are adjusted to identified plans and standards through control. The training programs, conducting interviews, analyzing labor turnover details are some of the controlling functions that a manager can work out. Controlling allows setting the performance standards within the groups and to do the proper communication.

2. Operative functions – These activities are related to specific activities such as, employment, human resources development, compensation, human relations and recent trends in human resource management.

· Employment – This means securing and employing the people with the relevant qualifications to achieve the organizational objectives. The functions include in employment are, Job analysis, human resource planning, recruitment, selection, placement and induction.

· Human resource development – This is the process of improving skills, knowledge, attitudes, aptitudes, commitment etc. depending on the organizational requirements. The functions include in human resource development are; Performance appraisal, training, management development, career planning and development, promotion, demotion and change and organization development.

· Compensation – This is the process of providing sufficient, equal and fair reward to all employees. The functions include in compensation are; Job evaluation, incentives, wage and salary, bonus, fringe benefits, social security and measures.

· Human Relations – It is the process of interaction between people. The management can practice different human resource policies to interact with the people. Good relationship will motivate people to do a better job In the organization. The functions in human relations include; Motivating the employees, developing the communication skills, developing leadership skills, providing comfortable work environment to the people, improving quality of work life of employees and boosting employee morale.

· Recent trend in human resource management – This area is always developing. It is advancing at a fast rate. The recent trends in human resource management is; Quality of work life, recent techniques of Human resource management and total quality in human resources.

In 1989 David Guest describes a human resource model according to what he thought. . This model consists of four elements;

1. Human resource policies and practices
2. Human resource outcomes
3. Organizational outcomes
4. Leadership

1. Human resource policies and practices – when an organization is introduced there are many policies available in a company. They are;

• Organization and job design
• Management of change
• Recruitment, selection and socialisation
• Appraisal, training and development
• Reward systems
• Communication

According to this model human resource policies are design to achieve the four key human resource outcomes which explains as the second element of this model.

2. Human resource outcomes – The model include followings;

• Commitment
• Quality
• Flexibility
• Strategic integration

Quality is not only concern about the quality of manufacturing product or the services provided by the company, it includes the quality of the workforce, the management of the workforce and the human resource policies used in the company. Flexibility is the facility to change the jobs people are doing, working arrangement such as number of hours they are working and the nature of employees’ contract. Strategic integration is the link between human resource strategy and business strategy. Guest explains that integration requires an organizational culture where managers work or share. The commitments have a direct relationship with valued business consequences. He says that commitment is confused and that the relationship between commitment and the performance is difficult to establish. When an employee commitment is higher means that employee is satisfied about the facilities and the way the company treat to employees. When they are satisfied performance will be automatically higher in the organization.

3. Organizational outcomes – The organizational outcomes include following;

• High job performance
• High problem solving
• High innovation
• Low turnover, absence
• High cost – effectiveness

4. Leadership – Leadership is the most important element to make all these outcomes success.

With the understanding of importance of the involvement of HRM for the betterment of an organization, this paper is about the effect of HRM development to the IFS business success.

1.1 Aims and objectives of the study

During the recent years IT sector began to bloom and many leading IT professionals fortified the future of their companies by investing in Sri Lanka. Within few years it begins to expand and now a days it has become a major business sector which support the economy and which provides enormous career opportunities to the younger generation.

Latest s show that, over 175 software developments companies are actively operating in Sri Lanka, which are originated from both national and international grounds and they are providing services for both the export and domestic markets. Some of these companies and their products are already well recognized and performing extremely well in the IT sector by competing with other foreign markets. Among these, companies like,Millennium Information Technologies- who not only turned the Colombo stock exchange in Sri Lanka into the world’s first ever “event-driven” exchange but with their versatile automated trading system have powered the Boston stock exchange among several other clients in the United States, as well as exchanges in Europe, Asia Pacific and Africa;Virtusa Corporation- one of the fastest growing software services firms in the US with seven years of consecutive growth and the largest technology center based in Sri Lanka and; Informatics- a local company whose telecom product is in operation at the regional sites of some of the world’s leading telecom operators, such as Cable & Wireless of UK and Millicom of Luxembourg, are leading the way, marking the name of Sri Lanka in the world. Furthermore international names likeIFSfrom Sweden have set up their research and development center employing over 700 people and recently MicrosoftandOraclehave also opened offices in Sri Lanka.

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This is an effort to find out the involvement of human resource to the success of Sri Lankan IT sector and how well they are managed for them to get ready to face the future challenges in ever changing world. Taking the IFS Sri Lanka Ltd as the Reference point, the research will focus on interpreting the influence of Human Resource Management on the company’s success.

Research as a whole, is a process to find an answer to a specific question. The initial objectives of this study are to formalize the necessary procedures and questions to be answered, in order to gather the intended information, which will be desirable in finding an answer to the core research question.

To achieve the above objectives, following are the outline of the information that will try to gather, to be used in developing proper evaluations & conclusions.

1. Actions taken to motivate the employees.
2. Established procedures on providing job satisfaction to the employees.
3. The process of developing employee skill and how the company utilize it.
4. How strong is the employee-employer relationship
5. Level of performance of the company and how the employees contribute its’ success.

1.2 Company Background

IFS, is one of the world’s leading providers of component-based business software developed using open standards. Since 1983, IFS has been a provider of business applications focused on meeting the needs of selected industries. Basically, IFS operates in two areas: lifecycle management, where asset and product lifecycle management are critical issues, and mid market ERP (Enterprise resource planning), which covers distribution and manufacturing in midsize companies. Mainly company operates in Europe, the US, the UK, Australia and Asia with the head office situated in Linkoping, Sweden and having the employs about 2,723.

Today, IFS is a global software company that helps leading enterprises improve efficiency, cut costs, react swiftly to market conditions, and take advantage of new business opportunities. IFS Applications, IFS’ suite of more than 60 web-based components, is the only true component-based business solution on the market, allowing deploying the software step by step as company’s needs and budget dictate. Using open standards, IFS makes it easier to stay up-to-date with technology and integrate with legacy systems. And only IFS offers total lifecycle management, enabling their customers to maximize profitability over the lifecycles of your products, customers, and assets. IFS’ superior technology, functionality, and Industry focus have won praise from some of the world’s leading analyst firms. Gartner recognizes IFS as either a visionary or a leader in all four of its ERP and asset management Magic Quadrants. Most important, IFS’ legendary commitment to customer service has never wavered. Today, IFS has an impressive roster of satisfied customers, ranging from mid-size companies to global industry leaders such as PepsiCo, General Electric, Lockheed Martin, General Dynamics, DuPont, Volvo, BMW, Deere & Co., and Rockwell Automation.

Since the day, IFS was founded, they have given a greater importance for the customer service. Therefore today, IFS has become the only enterprise software provider that offers a global product for the mid-market together with local support. IFS has support centres in each country in which it operates, ensuring that you will receive the best customer support anywhere in the world. IFS keep track of your unique component configuration; patch levels, and customizations, ensuring that the information is available globally to all IFS support centres. Therefore it has become the huge network of all the information required to solve the customer issues without any unnecessary delays.

Within the huge IFS network, office in Sri Lanka has a major importance, as it is one of the two IFS R & D centres in world and major part of software development is done there, with having more than 700 employees in two local country offices. The focus group for the study is mainly taken from Sri Lankan offices and depending on the opportunities employees from the other locations were involved in the study.

1.2.1 Financial Highlights

Based on the IFS Annual report 2008, it illustrate that the company is having growth in every section. Mid 2008, IFS has announced long-term financial targets entailing that, in the next five years, product revenue will double through organic growth and acquisitions, the operating margin will increase to15 percent, the dividend will rise to 50 percent of earnings after tax and surplus liquidity will be used to repurchase shares. Furthermore, report says that IFS has signed 10 largest license agreements during the year had an aggregate value of SKr 141 million where as the corresponding for 2007 was SKr 103 million. A total of 20 license agreements valued at more than US$ 0.5 million each were signed. And In all, 215 (177 in 2007) new customers were added, and 760 (778 in 2007) customers either upgraded or expanded their existing solutions.

• Annual Net Revenue
• Annual Earnings Before Interest & Tax (EBIT) Value
• Net Debt

In order to summarize the success I have extracted the above three from the report which explains the key factors of company’s growth. Net revenue (: 7) amounted to SKr 2,518 million (2,356 in 2007), an increase of 7 percent, which is the highest revenue the company achieved per year for the last 4 years. EBIT (Earnings before Interest & Tax) value turns out to be Skr, million 154, which is a great turn over compared to the value, SKr million -128 in 2004. Furthermore, as the : 9 shows, IFS have succeeded in diminishing their debts. They have being able to reduce the debts from Skr, million 363 to Skr, million 3, which is a sole evidence for the success of the company.

• Variation of Total Assets
• Number of employees

While concerned of their financial growth, IFS seems dedicated to the expansion of the company. From 2004 to 2008, their asset, as well as number of employees has increased continuously in a similar rate.

1.3 Significance of the research

Success and development of any company is depends on the level of human resource involvement. Therefore it is most important to maintain motivated and satisfied workforce to obtain the very best results of its investment. Skill development, employer – employee relationship, grade & pay structure & employee benefits are some of the key factor which directly related with the motivation of the work force.

Purpose of study is to find out how well the importances of above factors are absorbed in the Sri Lankan IT sector; within IFS Sri Lanka Ltd. The research will try to extract the information related to the specific factors and analyze them with the every aspect of the company’s performances.

1.4 Structure of the Research work

With having the text divided in to the several sections, the dissertation starts with an introduction, which provides the basic understanding of HRM and its functions. It concludes with an overview of the whole thesis including the information helpful for the reader to understand the topic and related facts, we are going to discuss about. The next section is the literature review, which explains relevant theories that will help to support the topic and it is followed by the research methodology which explains the research approach, and how the aims and objectives are planned to achieved. Moreover it, clearly explain the methods that used to collect the relevant data and explained the reasons why there are chosen. The result section provides the actual results I have obtained, carrying out the research, and within the analysis section, it exploits the information gathered, and structured a comprehensive analysis. Conclusion and Recommendation sections conclude the research with interpreting the gathered data and results obtained in Analysis section, along with the aims and objectives discussed at the beginning and provide the necessary recommendations based on the live facts and exhibit the virtue of the research.

1.5 Limitations of research

The main limitation of this research is getting the access to the employees within the selected company. The results would be much meaningful if the researcher is succeeded in involving many individuals as possible. Therefore it would be a greater challenge to formalize an easy and simple method to acquire the relevant information from the employees, to make sure that they don’t feel it as an extra burden. Time can be considered as the other major issue since I have to formalize the whole process with in a very short time period and to make sure it has grasp many individuals as possible.

CHAPTER 2

LITERATURE REVIEW

Job Satisfaction

Job satisfaction is one of the most important aspects related to the employee management as it is directly related to the performance of an organization. Because of humans tends to listen to the feelings deep in their thoughts, it’s not enough to full fill every other things, if the employee is not satisfied with what he/she does.

Job satisfaction is not same as the motivation but it linked. Job design is aimed to enhance job satisfaction and performance by using different design methods such as Job rotation, job enlargement, job enrichment etc. Job satisfaction can be viewed as “a pleasurable or positive emotional state resulting from the appraisal of one’s job experience” (Lock 1976). When someone is satisfied with his/her job that is job satisfaction, or when any job is fulfilled one’s expectation that is job satisfaction. Job satisfaction mainly considers the attitudes and feelings that people have about the work. The Guion (1958) defines morale as ‘the extent to which an individual’s needs are satisfied and the extent to which the individual perceives that satisfaction as stemming from his total work situation’. However there are some features of job satisfaction identified by Paul Spectors (1985) such as, Pay- amount and fairness or equity of salary, Promotion-opportunities and fairness of promotion, Supervision-fairness and competence at managerial tasks by ones supervisor, Benefits- insurance, vacation, and fringe benefits, Contingent procedures-sense of respect, recognition and appreciation.

According to While Luthan (1998) there are three important views to job satisfaction;

1. Job satisfaction is an emotional thing related to a job that cannot measure.
2. It is determined by how well outcome is achieved or exceeds expectations
3. It shows some attitudes which can be used to identify how employees think about their job and how they achieve their targets.

The factors that affect the job satisfaction of an employee can be divided in to three main areas;

1. Internal factors
2. External factors
3. Individual factors

Internal, external and individual factors which affect to the job satisfaction are listed in the table. Internal factors are the factors that linked to work but those are not the only factors affecting job satisfaction. External factors are related to work or to the working environment and individual factors mainly consider a person and the person’s family and network of friends.

Job satisfaction factors

Description

Internal Factors

· Job variety

Number of skills and depth of knowledge required to do the job

· Autonomy

The freedom that the employee get to control their own work

· Goal determination

The freedom that the employees get to set their own targets and the criteria to achieve those targets

· Feedback and recognition

The private and public comments that they achieve for their performance

External Factors

· Achievement

The person’s success on their job. The trainings, improved equipments, proper education may be the way to increase the achievement and the job satisfaction.

· Role ambiguity and role conflicts

Knowing the position of the work place, responsibilities and agreement between roles. Clarifying the tasks in the job, and the position in the organization. When reduce role ambiguity it lead to job satisfaction

· Opportunity

The opportunities with the current and the other employers. If employees feel they have fewer opportunities in the current position, then job satisfaction decrease.

· Job security

The assurance that employees get to their job

· Social interaction

The way they deal with the others. The quality and the quantity of the interaction.

· Supervision

Herzberg explain this as a hygiene factor. The quality of management is affect to the job satisfaction. If the quality is lower, worker can become dissatisfied.

· Organizational culture

Culture and management style can increase/decrease job satisfaction.

· Work schedules

Match between work schedule and the employee’s schedule. Flexitime may increase the job satisfaction by allowing employee to interface between work life and personal life

· Seniority

The time duration that a person has held a position. When people are respect to the seniority, it will increase job satisfaction

· Compensation

The rewards and the role of money

Individual Factors

· Commitment

This is the dedication that a person is doing to his/her job. If the actions of researching, selecting and the way he/she doing the job is visible to friends and others, then the person is satisfied.

· Expectations

Every person has some expectation. Basically what people expect in return for work.

· Job involvement

How important a job in someone’s life. More the person involved more satisfaction.

· Effort / reward ratio

This is the balance between the amount they worked and rewards received

· Comparisons

How a person can rate the job with someone else jobs. If a person has a good job compared to others they are satisfied.

· Age

How old someone, the people who old have more work experience, they understand what are the best thing to do, but sometimes they cannot satisfy with their job. Younger people have no previous experience which to compare with the current job. So they are satisfied.

Table 1

There are two main theories of job satisfaction, Variance theory and the model of job characteristics. According to Hackman and Oldham (1975) the variance theory explains that if you want X from your work then you are satisfied to the extent that it provides you with X. The second model explains the causes of job satisfaction are objective characteristics. When the employees are satisfied with their work they tend to work more, they are become more committed to the organization, and they are more productive than previous, they try to achieve their targets in a better way. (Bravendam Research Incorporated, 2002). However job satisfaction association with organizational commitment that was not mentioned in most of the studies was noted by Elangovan (2001). A negative association between the job satisfaction, stress and commitment was indicated in his study. According to his study, higher stress leads to lower job satisfaction and this in turn results in lower commitment. Petty et al, (1984) explains that there are three possible links between performance and job satisfaction.

1. Satisfaction generates performance

2. Performance generates satisfaction

3. Satisfaction and performance link indirectly

1. Satisfaction generates performance

When designing the job it should aim to produce job satisfaction. Then it will optimize worker performance.

2. Performance generates satisfaction

When a person perform well that achievement generates job satisfaction. He/ she feel to do more for their job. So the effort should be made to improve performance then it will increase job satisfaction.

3. Satisfaction and performance link indirectly

These two are linked but under certain conditions.

Apart from the above theories, there are successful studies proving the importance and impact of maintaining a satisfied workforce. The analysis by Vroom (1964) covered 20 studies, in each of which one or measures of job satisfaction or employee attitudes were correlated with one or more criteria of performance.

Low salaries, lack of status and social security affect the motivation. When the motivation is low, job satisfaction is low. Lack of job satisfaction is a sign of turnover in an organization. The salaries and benefits which employees can achieve are related to job satisfaction.

Motivation

“Management is nothing more than motivating other people”, is one of the most popular & proven principle followed within any kind of organization.

Motivation is concerned with the strength and direction of behaviour and the factors that influence individuals to behave in certain ways. Individuals are motivated to perform in a specific method based on their perception of the situation. Motivation primarily concerned with what energizes human behaviour, what direct or channels such behaviour, how this behaviour is maintained.

Motivation concerns energy, persistence and direction. According to Arnold et al (1991) there are three components of motivation,

1. Direction -what a person is trying to do

2. Effort – how hard a person is trying

3. Persistence – how long a person keeps on trying

According to the diagram felt need creates tension for people. Tensions motivate people to avoid it. The environment will influence to shape people needs and expectations influence the effort. Management can influence employee’s expectations in a different ways, by offering incentives and setting them specific goals. The person’s effort and results can influence the level of performance. The rewards / outcomes are the results achieved. Outcome can come from internal / external environment. Outcomes are always not positive; it can be negative as well. If it is negative, they tend to result in employee dissatisfaction / de motivation.

There are number of motivation theories which are complementary to one another. The content models in motivation mainly focus on the needs that individuals are trying to satisfy in a situation. The process models focus on how managers can change the situation in a better way to tie satisfaction to performance. Reinforcement theory is as developed by Hull (1951) suggests that successes, in achieving goals and rewards act as positive incentives and reinforce the successful behaviour, which is repeated the next time a similar need emerges which is coincided with the theory by Taylor (1911), who wrote: “It is impossible, through any longer period of time, to get workmen to work much harder than the average men around them unless they are assured a large and permanent increase in their pay”. In this theory there are four principal techniques available,

1. Positive reinforcement – If someone encourages the people when they done something they are utilising positive reinforcement.

2. Escape/avoidance reinforcement (Negative Reinforcement) – This is a form of a reinforcement. It increases the behaviour of a person by taking away something bad. The negative reinforcement is not same as punishment. It is not a form of a punishment.

3. Extinction (repeated non reinforcement) – Elimination of behaviour

4. Punishment – Most of the people are not expected to take this kind of an experience. The main idea of punishment is to withhold rewards.

Motivation is only likely when a clearly perceived and usable relationship exists between performance and outcome, and the outcome is seen as a means of satisfying needs. This theory was developed by Porter and Lawler (1968) in to a model that follows Vroom’s ideas by suggesting that there are two factors determining the effort people put in to their jobs. First the value of the rewards to individuals that they satisfy their needs for security, social esteem, autonomy and self actualization, and the second is that rewards depend on effort, as perceived by individuals.

According to Latham and Locke (1979) motivation and performance are higher when individuals are set specific goals, when goals are difficult but accepted, and when there is feedback on performance. Abraham Maslow developed the Hierarchy of needs model in 1940’s and still it valid today to understand motivation, management training and personal development. This model explains the responsibility of employers to provide the work place environment which is encourages employees to fulfill their requirements.

At the same time he explains needs are interrelated with some other needs that are less understood. Those are, Knowledge needs, understanding needs and aesthetic needs.

The relationship of Maslow’s other needs

The need for knowledge is defined as the desire to build up facts and s. The need for understanding is an extension of the need for knowledge. This involves search for the relationships between things and what they know and it includes the search for meaning. The aesthetic needs are the beautiful things need to be surrounded.

According to Maslow all these need