HR Practices,Learning Culture and Human Capital: A Study on Indian Business and Professional Service Sector

Abstract

This study aims to examine the role of human resource (HR) practices and learning-oriented culture to influence organizational human capital through knowledge management (KM) processes. Several linkages were proposed among study constructs based on previous literature annotations. Further, proposed relationships were empirically tested using structural equation modelling technique with the help of SPSS 20, PROCESS macro and AMOS 20 software. Data were collected from 237 employees of Indian business and professional service providers. This study discusses the role of HR practices and learning-oriented culture to affect KM process and shows that the proposed relationship has the potential to positively influence organizational human capital. In addition, results of the study provide empirical evidence to the mediating role of KM process between the associations of HR practices, organizational human capital, learning oriented culture and organizational human capital. Later, authors discuss study findings and provide insights into implications, limitations and future scope of the study.

Keywords

HR practices learning culture human capital training and development job design

Introduction

In the present globalized and highly turbulent business environment, practitioners are continually witnessing ‘human capital development’ as the key source for achieving competitive edge. Organizations make investment in managing human capital and recruiting people, who possess better skill sets and competencies to deal with the changing paradigms of management. In fact, evaluation of human capital as knowledge, experience, skills and appropriate knowledge management (KM) capabilities are prominently required to create long-lasting value (Lahiri & Kedia, 2009).

Generally, organizational capabilities and competencies are considered as prime indicators of value creation through which long-term sustainability and profitability can be achieved. Here, human resource (HR) practices play a major role in gaining competitiveness by functioning as key activity to influence employees’ individual skills and behaviour; it can also be useful in creating and developing new knowledge (Kamoche & Mueller, 1998; Lo´pez-Cabrales, Real & Valle, 2011). Knowledge can be viewed as a key strategic resource that assists in acquiring, disseminating and applying various organizational practices to gain competitive advantage (Zack, 2003). Further, implementation of effective KM is usually found difficult in the absence of proper cultural, behavioural and organizational realignment (Davenport & Prusak, 1998) which can be institutionalized with the help of employees’ learning behaviour.

The next section of the article explains theoretical background and reviews prior literature on HR practices, learning culture, KM process and human capital. The third section sheds light on methodology used to seek results. The fourth section presents the empirical result of the study. Further discussion, study implications, limitations and future directions are mentioned in the later section.

Review of Literature

Previous researchers reviewed the concept of human capital and investigated the potential associations between HR and KM perspectives, which shed light on several existing and emerging concepts. However, the act of managing HR influences the knowledge flow by which KM seeks to increase its outcomes (Scarbrough, 2003). Yahya and Goh (2002) mentioned that the focus of KM should be kept on employees themselves, and subsequently the influence of HR practices on KM practices. Besides these research efforts, there is still the lack of studies with plausible efforts to integrate HR practices and learning culture, (Lytras & Poulodi, 2006) with KM process dimensions and human capital (Hsu, 2005).

Chen and Huang (2009) examined the linkages between HR practice and KM capacity (acquisition, sharing, application) and suggested to extend the research horizon by conducting further investigation in the field of managing knowledge. Hsu (2008) suggested studying the associations among organizational predictors, knowledge sharing, human capital and organizational performance. Further, Jimenez-Jimenez and Sanz-Valle (2013) explored that human resource management (HRM) practice helps in enhancing learning culture and affects KM by enhancing abilities to learn, and suggested to study the presumption that learning culture and people behaviour may exert impact on the linkages of HR practices and KM process in a positive directed way.

Objectives of the Study

The first objective of this study is to explore the relationship between HR practices and KM process. The second objective of the study is to explore the relationship between learning culture and KM process. Next, this study aims to examine the relationship between KM process and organizational human capital. The fourth objective of the study is to examine the mediating role of KM process between predictors (HR practices, learning culture) and outcome, i.e. organizational human capital.

Rationale of the Studies

In business and professional service organizations, learning culture and HR practices facilitate an environment conducive to support people in learning new practices and creating knowledge thereto. Moreover, learning is required to attain knowledge and develop skills so that human capital can be maximized. Accordingly, presence of learning culture may facilitate development of KM activities to enhance knowledge generation, acquisition, dissemination and application processes and subsequently leading to human capital development.

Methodology

Population, Sample and Data Collection

The study population includes employees from five business and professional service provider firms. According to World Trade Organization (WTO), service sector classification, business and professional service segment include accountancy, architectural, engineering, information technology and legal service providers. Business and professional service organizations from Delhi and NCR region were contacted to take part in the survey. Data were collected using an online survey method (Hair et al., 2010). Initially, 350 employees were invited to take part in the research and a convenience-sampling method was used for data collection. Online structured questionnaire instrument was adapted to collect the responses. Survey link was mailed to respondents including a mail note, communicating the assurance of anonymity to respondents and the link was also posted in web communities of these service provider firms.

A total of 242 responses were collected with the response rate of 69.1 per cent. After removing five missing records, 237 usable responses were recorded for further analysis. The sample was composed of 126 male and 111 female respondents. Age-wise classification of respondents include (68) below 25 years, (126) between 25 to 35 years and (43) above 35 years. The experience of respondents within the organizations varied from less than 3 years for 76, between 3 and 6 years for 124 and more than 6 years for 66 respondents. Respondents profile is composed of accountant (37), architect (44), engineer (59), IT professionals (51), legal advisor/consultant (46) which indicates designation-wise classification of employees in business and professional service sector.

Measures

HR practice dimensions were grounded over previous literature discussions by several researchers (Becker & Gerhart, 1996; Chand & Katou, 2007; Huselid, 1995). The study adapts Chand and Katou (2007) four-item scale to assess ‘training & development’ dimension and four-item scale for measuring the second dimension, that is, ‘job design’. To measure learning culture, five-item scale, developed by Lee and Choi (2003) and advanced by Lee, Kim and Kim (2012), was taken. Further, in the work of Lee and Lee (2007), eight-item scale has been adapted to measure KM process. In the work of Youndt (1998), five-item scale was used to measure organizational human capital. The suitability of the final questionnaire was pre-tested to ensure the relevancy and appropriateness for the respondents.

Statistical Approach

Data were analyzed using multiple linear regression as implemented in SPSS 20. Further, our analysis employed structural equation modelling technique comprised of two-stage model building approach (Anderson & Gerbing, 1988; Joreskog, 1993) for testing the model and analyzing the proposed relationships. Confirmatory factor analysis was performed with maximum likelihood estimation technique on all the constructs (Brown, 2006). Then structural analysis was performed to test the hypotheses. PROCESS macro (Hayes, 2013) was used to test mediation effect of KM process between proposed linkages.

Theoretical Background and Empirical Model

Prior researchers have explored that HR practices, either isolated or as a composite system, are configured with higher level performance (Arthur, 1994; Hoque, 1999; Youndt et al., 1996). Here, it is notable that human capital can be presumed as the extent of individual’s ability and competence (Wiig, 1997). In addition to knowledge-based view, resource-based theory also endorses human capital concept by acknowledging that resources must possess the attribute of rareness, value, inimitability and non-substitutability (Barney, 1997). KM process has been regarded as a key element that embodies potential to develop and render value for creating, sharing and storing knowledge (Soliman & Spooner, 2000). However, it is highly recommended to transfer created knowledge across the organization before its entire exploitation in order to achieve KM success and developing human capital (Nonaka & Takeuchi, 1995).

Further, knowledge development within and across organizations may likely to benefit transformation of innovative and creative ideas into product, services or actions (Shani, Sena & Olin, 2003). Furthermore, Armstrong (2000) emphasized the role of HR management in KM for learning and disseminating new and existing knowledge practices and point outs the significance of people in planning business schemes, which embodies several learning outcomes.

Most often, people feel hesitant to share their knowledge with others (Ciborra & Patriota, 1998) and sometimes it becomes difficult to exploit the knowledge comprehensively, even after organizational concerted efforts towards knowledge exchange (Szulanski, 1996). However, several researchers explored the linkages among HR practices, KM process dimensions, learning culture and human capital management; yet, there is a need to integrate and study these anchors thoroughly. Grounded upon theoretical underpinnings, a research model has been framed to examine and validate the proposed linkages (see Figure 1).

Figure 1.

Source: Prepared by authors.

HR Practices

HR practices facilitate organizations to explore, manage, and exploit knowledge and expertise in an effective and efficient way (Scarbrough, 2003). Generally, HR practices are considered as an investment in human capital, which are expected to lead high or low level of perceived organizational support and identify the value of employees (Narang & Singh, 2012). In this study, training and development and job design dimensions of HR practices have been adopted to explore potential relationship among constructs. Further, training and development can be visualized as a strategic resource of human capital management, which offers unique knowledge, abilities and skills to empower organizations, in order to build dynamic capability and achieve positive results (Jodlbauer et al., 2011). In the area of managing HRs, both practitioners and researchers are increasingly conscious of the need to understand the thinking of employees working in different contexts and factors that affect it and provide end outcomes as HRM policies and practices (Budhwar, 2000).

Apparently, training facilitates employees to develop their personal and managerial skills and to achieve the overall organizational effectiveness (Rahman et al., 2013). Foss, Minbaeva, Pedersen and Reinholt (2009) examined the linkage between work design and knowledge sharing and explored that work pattern may affect motivation to exchange knowledge. Hence, based on literary discussion, it can be presumed that HR practices may be aimed at enhancing KM process in organizations.

Learning-oriented Culture

Pinho, Rego and Cunha (2012) elicit that organizations should acknowledge learning practices, education, training and development to develop a strong performance-oriented culture. In fact, the technical view of organizational learning relates to knowledge creation, which consequently leads to develop a strong sense of learning among employees (Easterby-Smith & Araujo, 1999; Huber, 1991). Dasgupta and Gupta (2009) elicit that organizations should build-up a system of continuous learning with the purpose of improving competencies of knowledge workers. According to De Long (1997), KM practices are most obvious symbol of culture that provides levers for behavioural change needed to support KM objectives. In line with the findings of Liebowitz (1999), which corroborate that KM success is 90 per cent dependent on developing a collaborative culture (Schmitz et al., 2014) says that learning culture is a crucial element in developing KM practices. However, it is not enough for individuals to learn and much of the potential value will lost unless learning is distributed and incorporated in daily work (Park, 2009). Therefore, it can be summed up that learning-oriented culture may likely affect KM process in a positive direction.

KM Process

According to Bender and Fish (2000), KM processes lead to behavioural changes and encourage the origination of innovative ideas, practices and policies. Successful realignment of KM processes offer assurance to efficient utilization of knowledge for gaining overall organizational success. Generally, knowledge emerges from informal social networks (Liao, 2011). Collaborative arrangements (e.g., groups, work teams) facilitate sharing and foster knowledge exchange (Becker, 1964; Lepak & Snell, 1999).

During knowledge acquisition, pre-established procedures are ignored sometimes to explore better way of operating within organizations and to develop human capital (Liao, 2011). Further, human capital relates to the know-how, capabilities and skills developed through employment relation (Galunic & Anderson, 2000). Afore-said statements point out toward the positive directional relationship between KM process and organizational human capital.

Mediating Role of KM Process

HR practices influence KM process in a higher extent when internal consistent practices are adopted in associated form, particularly in comparison to when these practices are exercised in isolation (Jimenez-Jimenez & Sanz-Valle, 2013). Moreover, training and development is not the single element requisite to increase organizational effectiveness because whole proportion of the gained knowledge cannot be transferred to an organization adequately at a time (Rahman et al., 2013). However, human capital is a blend of heritage, expertise, skills and attitude (Hudson, 1993).

Continuous facilitation of extensive training and development programmes may enhance potential among employees so that they will remain self-assured toward their abilities to exchange knowledge. Job design as a HR practice directly influences social capital by configuring structural dimensions and information flow among various jobs (Cabrera & Cabrera, 2005). Therefore based on prior literature support, it can be summed up that HR practices may likely add value by enhancing organizational human capital through KM processes.

Some studies have highlighted the influence of HR practices on knowledge because it plays a crucial role in managing employee capabilities and a learning-oriented culture (Chen & Huang, 2009; Jerez-Gomez, Cespedes-Lorente & Valle-Cabrera, 2005). In general, people adopt training programmes to develop employees’ current skills and to learn new skills (Mathieu, Tannenbaum & Salas, 1992).

Further, key HR practices include job design, training programmes, learning orientation, socialization programmes, developmental performance appraisal and compensation system for fostering knowledge sharing (Cabrera & Cabrera, 2005). People work on different assignments designed in a similar working pattern and such practices motivate employees to function closely across varied learning culture (Mohrman, 2003).

Transformational leaders put continuous effort to establish knowledge supportive culture along with implementing HRM and organizational learning practices (Birasnav, 2014). KM practices will not be effective to develop human capital if organizations do not offer suitable culture and communication facilities properly (Birasnav & Rangenekar, 2010). Hence, based on the afore-said statements, it can be said that learning-oriented culture may likely have a positive impact on organizational human capital through mediating role of KM process.

Analysis

Exploratory factor analysis was conducted using principal component analysis with a varimax rotation method for item loadings (Hair et al., 1992). Following this specification, five factors were loaded which are exhibited in Table 1. Kaiser–Meyer–Olkin and Bartlett’s sphericity test resulted into 0.884, which indicated the adequacy of the sample.

Reliability and validity were evaluated to test the adequacy of the model. Confirmatory factor analysis facilitates a direct approach to which scale validity is examined (Bagozzi, Yi & Phillips, 1991). Composite reliability (CR) values were found beyond the common acceptance level of 0.70 (Gefen, Straub & Boudreau, 2000), reflecting the presence of internal consistency. Average variance explained (AVE) value should exceed the threshold limit of 0.5 to confirm the evaluation of convergent validity (Fornell & Larcker, 1981; Segars, 1997) and values were noted beyond the acceptable threshold. Further, AVE and inter-item correlations were exhibited in Table 1.

Harman’s single factor test (Podsakoff & Organ, 1986) was applied to test the problem of common method variance and one factor explained the highest variance of 33.92 per cent. It was noted that the issue of common method bias does not exist in this study. The purpose of specifying the measurement model was to establish and estimate the model fit indices, that is, chi-square (χ²), degree of freedom (df), comparative fit index (CFI), goodness of fit index (GFI), adjusted goodness of fit index (AGFI) and root mean error of approximation (RMSEA).

Results of model fit were noted as χ² = 437.10 and df = 243, significant at less than 0.01 level. The values of CFI = 0.949, GFI = 0.868, AGFI = 0.837 and RMSEA = 0.058 (Hu & Bentler, 1999) fall within their respective adaptation limits. Majority of the fit indices shows acceptable values except GFI and AGFI. Since GFI and AGFI lie below the threshold value of 0.90 (Bollen, 1990; Miles & Shevlin, 1998), it reflects the rational choice for improving model at a certain level. The RMSEA value below 0.07 (Steiger, 2007) is considered as appropriate for reasonable fit. Hence, it can be stated that the model shows a reasonable fit.

In the next stage, structural model fit indices were noted as cmin/df = 1.866, GFI = 0.969, AGFI = 0935, CFI = 0.988 and RMSEA = 0.061. Values for GFI, AGFI and CFI were reported within acceptable model fit range. However, the threshold value for RMSEA proximate 0.06 (Hu & Bentler, 1999) or a higher limit of 0.07 (Steiger, 2007) appears to be the proper fit. In general, the CFI value ≥ 0.95 is remarked as an indicator of good fit (Hu & Bentler, 1999). Based upon these results, we conclude that the data fit the model well.

Table 2 illustrates the regression result for H1, H3 and H4a (see Figure 1). Result shows that HR practices predict KM process significantly as Beta (β) = 0.7411 standard error (SE) = 0.0705 and p value (p) = 0.00 and because β is positive it shows that the relationship is positive as proposed in H1. The relationship between KM process and human capital controlled HR practices and validated hypothesis H4a. Further, HR practices influenced human capital indirectly through the effect of KM process. The indirect effect was noted as β = 0.0411 and this indirect effect of HR practices to human capital through KM process validated the linkage H3.

Bootstrap analysis confirmed the SOBEL test result with 95 per cent confidence interval (CI) value; lower limit CI = 0.0856 and upper limit CI = 0.1715 do not include zero within this range. Further, the direct effect of HR practices on human capital after controlling for KM process was insignificant as β = 0.0555, SE = 0.0857 and p > 0.05. Hence, KM process fully mediates the relationship between HR practices and human capital. Therefore, H(1, 3 and 4a) were supported.

Table 1.

AVE and Inter-item correlations

Var.	Mean	S.D.	CR	AVE	LOC	KMP	OHC	HRP
LOC	3.96	0.66	0.924	0.756	0.869
KMP	3.85	0.59	0.899	0.562	0.597	0.749
OHC	2.12	0.70	0.930	0.727	0.278	0.225	0.853
HRP	2.29	0.45	0.718	0.526	0.411	0.162	0.257	0.825

Source: Authors’ own.

Notes: S.D.-Standard Deviation, CR-Composite Reliability, AVE-Average Variance Extracted, MSV-Maximum Shared Variance, ASV-Average Shared Variance, LOC-Learning Oriented Culture, OHC-Organizational Human Capital, HRP-Human Resource Practices.

Diagonal elements represent square root of AVE and off diagonal elements shows inter-item correlation among the constructs.

Table 3 illustrates the regression result for H2 and H4b (see Figure 1). Result shows that learning culture is positively related to KM process as hypothesized in H2 (β = 0.5755, SE = 0.0445 and p = 0.00) and because β is positive it shows that the relationship is positive as proposed. The relationship between KM process and human capital controlled learning culture and validated H4b.

Bootstrap analysis confirmed the SOBEL test result with 95 per cent confidence interval (CI) value; lower limit CI = 0.0138 and upper limit CI = 0.0209 do not contain zero. Further the direct effect of learning culture on human capital after controlling for KM process was found insignificant as β = 0.1820, SE = 0.0973 and p > 0.05). Results prove that KM process fully mediated the relationship between learning culture and human capital. Therefore, H(2 and 4b) were supported.

Findings of the Study

The conceptualized model in this study explains the relationship between HR practices (training and development, job design), learning culture, KM process and human capital. Previous studies explored the linkages between HRM and KM dimensions but lack of empirical work on linkages of HRM, KM and human capital prompts the need for studying this relationship in future research. Accordingly, this study proposed to assess the impact of afore-said elements on the basis of resource-based theory. Further, this study contributes in HRM and KM literature by deriving empirical results for validating proposed linkages.

Table 2.

Regression results for mediation of KMP between HRP and OHC

Values	B	SE	t	p
Direct and Total effects
OHC regressed on HRP	0.6570	0.0926	7.0940	0.0000
KMP regressed on HRP	0.7411	0.0705	10.5069	0.0000
OHC regressed on KMP controlling through HRP	0.6158	0.1124	5.4784	0.0000
OHC Regressed on HRP controlling through KMP	0.0555	0.0857	0.6472	0.5181
Bootstrap results for Indirect effect	Effect	Boot SE	Boot LLCI	Boot ULCI
	0.0411	0.0655	0.0856	0.1715

Source: Authors’ own.

Notes: N = 237, Bootstrap sample size = 1000, LL = lower limit, UL = Upper limit, CI = Confidence interval.

Table 3.

Regression results for mediation of KMP between LOC and OHC

Values	B	SE	t	p
Direct and Total effects
OHC regressed on LOC	0.2971	0.0667	4.4553	0.0000
KMP regressed on LOC	0.5755	0.0445	12.9383	0.0000
OHC regressed on KMP controlling for LOC	0.1924	0.0868	2.2163	0.0276
OHC regressed on LOC controlling for KMP	0.1820	0.0973	1.8706	0.0626
Bootstrap results for Indirect effect	Effect	Boot SE	Boot LLCI	Boot ULCI
	0.1047	0.0550	0.0138	0.0209

Source: Authors’ own.

Notes: N = 237, Bootstrap sample size = 1000, LL = lower limit, UL = Upper limit, CI = Confidence interval.

The process of acquiring knowledge and learning creates social network, professional specialization, which embodies knowledge in a particular context (Scarbrough, 2003). As a result, organizations purposefully choose human aspect for KM success (Soliman & Spooner, 2000). Based on the theoretical underpinning, we indicated that human capital as a ‘stock of knowledge’ possesses the quality of competitiveness and fulfils the requirement of continuous up-gradation in the changing context to cope up with unpredictable circumstances in the emerging economy. The mediation results using PROCESS macro were graphically presented in Figure 2.

Study Implications

Bhal (2002) says that success is likely to come from key capabilities such as speed, responsiveness, learning capacity and personal competence. The study suggests that organizations need to manage KM capabilities through various HR practices to enhance and develop human capital, which is acknowledged as a valued resource for achieving competitiveness. The study findings explore that different HR practices may not be equally effective under different circumstances. Here, it is also remarkable that impact of HR practices may vary with the types of practices involved. Our findings suggest for applying proper combination of HR practices and learning culture to interact.

The suitability of HR practice combination with learning culture will ultimately result into increased level of human capital as knowledge stocks, skills and competences. In line with the findings of Chen and Huang (2009), our study suggests that managing human capital within organization with the help of various HR practices is a requisite activity to sustain competitiveness.

Limitations and Future Directions

This study contains several limitations, which provide future scope for researchers to extend the research horizon. First, the sample size for this study is relatively low. Further, research in this area with larger sample may provide better results. Another limitation of this study relates to selecting particularly two dimensions to assess HR practices (i.e., training and development and job design). Impact of other HR practices (i.e., career development, staffing and compensation) can also be explored. This study also confronts with endogeneity problem because of self-selection behaviour of the respondent firms. Most probably, not all selected organizations may be following similar KM and HRM practices (Hamilton & Nickerson, 2003). Hence, it may also be helpful to address the issues by providing more generalizable findings.

Figure 2.

Source: Prepared by authors.

Conclusion

In this study, the linkages among HR practices, learning culture, KM process and organizational human capital were studied. We tried to address the previous research gap by collecting data from the sample of business and professional service segment in Indian context. This study highlights the importance of managing KM processes to enhance human capital and focuses on the need of adjoining suitable elements in order to receive optimum results from interaction of different practices and elements.

Footnotes

Acknowledgements

We are grateful to the anonymous reviewers of the journal for their extremely useful suggestions to improve the quality of the article. Usual disclaimers apply.

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