MODELLING THE RELATIONSHIP BETWEEN PSYCHOLOGICAL CLIMATE FACTORS AND
ORGANIZATIONAL PROFITABILITY IN CONSTRUCTION ORGANIZATION
RAHIM MOSAHAB
UNIVERSITI SAINS MALAYSIA
2018
MODELLING THE RELATIONSHIP BETWEEN PSYCHOLOGICAL CLIMATE FACTORS AND
ORGANIZATION PROFITABILITY IN CONSTRUCTION ORGANIZATION
by
RAHIM MOSAHAB
Thesis submitted in fulfillment of the requirements for the degree of
Doctor of Philosophy
July 2018
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ACKNOWLEDGEMENT
I would like to gratefully acknowledge Professor Sr. Dr. Mastura Jaafar my main supervisor and Professor Sr. Dr. Abdul Rashid Abdul Aziz my co-supervisor, for their generously opening doors for me. Each day I gain greater respect for all times they allocated to help, give guidance and share the knowledge with me. Their guidance, encouragements and directions have truly assisted in my growth as a researcher. I truly appreciate for their crucial inputs and supports.
My deepest appreciation and gratitude goes to my beloved wife, Anahita, for her endless love and immense support in difficult times, and standing by my side during this journey. I also wish to sincerely thank her for editing this research, and providing a condition that I could spend most of my time on this study. Without her, this whole journey would not have been possible.
I would also like to express my gratitude to my intelligent, talented, and multi- language son, Arya. What he has accomplished as a student in elementary and now in junior high school age is possible only from the exceptionally gifted kids. His thirst for learning, creativity, self-reliance, understanding, and other individual privileges not only makes me so happy and proud, but also, creates a peace of mind to accomplish a heavy intellectual scholarly work like this research.
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TABLE OF CONTENTS
Acknowledgement ii
Table of Contents iii
List of Tables viii
List of Figures x
List of Abbreviations xi
Abstrak xiii
Abstract xv
CHAPTER 1-INTRODUCTION
1.1 Introduction 1
1.2 Background 1
1.3 Malaysia in the context 5
1.4 Research problem 10
1.5 Research objectives 14
1.6 Research questions 15
1.7 Research scope 15
1.8 Rationale for study 16
1.9 Significance of study 17
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1.10 Organization of the research 20
1.11 Summary 22
CHAPTER 2-LITERATURE REVIEW
2.1 Introduction 23
2.2 Definition of Terms 23
2.3 Theoretical underpinnings 25
2.3.1 Resource-Based View theory (RBV) 27
2.3.2 Social Exchange Theory (SET) 29
2.4 Organizational profitability (OP) 32
2.4.1 Justification for choosing profitability outcome 35 2.4.2 Organizational profitability measure 37
2.5 Psychological climate (PC) 39
2.5.1 Justification for the choosing PC 41 2.5.2 Psychological climate vs. organizational climate 43 2.5.3 PC dimensions and justification for this study 44
2.6 Employee Engagement (EE) 48
2.6.1 Justification for choosing EE 51
2.6.2 EE conceptualization and dimensions 52
2.7 Synthesis of PC, EE and OP 54
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2.8 Research conceptualization 58
2.9 Control variables 63
2.10 Research theoretical framework 64
2.11 Development of hypotheses 65
2.11.1 PC and EE 66
2.11.2 EE and OP 69
2.11.3 Mediating Effect of EE 70
2.12 Summary 72
CHAPTER3-METHODOLOGY
3.1 Introduction 74
3.2 Research design 74
3.3 Research method – survey 76
3.4 Setting of the study 78
3.4.1 Justification for choosing Penang State 80
3.5 Research population 81
3.5.1 Justification for choosing professional employees 81
3.6 Justification for self-report 84
3.7 Sampling method 86
3.8 Sample size 89
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3.9 Data collection 90
3.9.1 Prevention of the data collection bias 90
3.10 Measurement constructs 91
3.11 Validity 96
3.11.1 Content validity 96
3.11.2 Construct validity 99
3.12 Reliability 99
3.12.1 Pilot test 101
3.13 Analysis procedures 102
3.14 Correlation between employee and manager perceptions of OP 108
3.15 Summary 109
CHAPTER 4 - RESULTS
4.1 Introduction 111
4.2 Response rates 111
4.3 Descriptive characteristics 111
4.4 Goodness of measure 114
4.4.1 Multivariate assumptions 122
4.5 Hypotheses testing 128
4.5.1 H1: PC and EE 129
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4.5.2 H2: EE and OP 133
4.5.3 H3: EE mediating effect on EE-OP 135
4.6 Summary of hypotheses testing 140
4.7 Answers to research questions 142
4.8 Summary 143
CHAPTER 5-DISCUSSION
5.1 Introduction 144
5.2 Descriptive characteristics of respondents 144
5.3 Discussion of the findings 145
5.3 Achievement of research objectives 149
5.3.1 Research objective one 150
5.3.2 Research objective two 161
5.3.3 Research objective three 162
5.3.4 Research objective four 164
5.4 Summary 165
CHAPTER 6 –CONCLUSION
6.1 Introduction 166
6.2 Recapitulation of the study 166
6.3 Implications of the research 168
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6.3.1 Theoretical implications 169
6.3.2 Managerial implications 173
6.4 Recommendation for future research 178
6.5 Conclusion of the study 179
6.6 Summary 180
REFERENCES 182
APPENDICES
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LIST OF TABLES
Page Table 1.1 Construction labor productivity performance 8 Table 1.2 Percentage of the sectors contribution to GDB in 2017 9
Table 2.1 Percentage of engaged employees 49
Table 3.1 Contractors classification 79
Table 3.2 Registered contractors in Malaysia and Penang by grade 79
Table 3.3 Contractors categories 80
Table 3.4 Psychological climate questionnaire 94
Table 3.5 Employee engagement questionnaire 95
Table 3.6 Organizational profitability questionnaire 95
Table 3.7 Content validity scoring method 97
Table 3.8 CRV calculation results 98
Table 3.9 Results of pilot study 102
Table 3.10 Correlation between perceptions of OP 109 Table 4.1 Descriptive characteristics of respondents 113 Table 4.2 Mean, SD, Item-to-total correlation and Cronbach’s alpha 115 Table 4.3 KMO and Bartlett’s test for PC, EE and OP 118
Table 4.4 EFA results of PC construct 120
Table 4.5 EFA Results of EE Construct 121
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Table 4.6 EFA Results of OP Construct 121
Table 4.7 The levels of Skewness and Kurtosis of all variables 123 Table 4.8 Correlations between the variables 126 Table 4.9 Tolerance and VIF values of PC variables 127 Table 4.10 Tolerance and VIF values of EE variables 127
Table 4.11 Case-wise diagnostics 128
Table 4.12 PC-JE multiple regression 130
Table 4.13 PC-OE multiple regression 132
Table 4.14 JE - OP multiple regression 133
Table 4.15 OE - OP multiple regression 134
Table 4.16 JE mediating effect on PC – OP 136
Table 4.17 Summary of JE mediating effect on PC – OP 137
Table 4.18 OE mediating effect on PC – OP 139
Table 4.19 Summary of OE mediating effect on PC – OP 140 Table 4.20 Summary of sub-hypotheses testing results 141 Table 4.21 General results of hypotheses testing 142
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LIST OF FIGURES
Page Figure 1.1 Capital project and infrastructure spending Outlook 2 Figure 1.2 Density of population is in working ages in Malaysia 5
Figure 2.1 Research conceptual model 64
Figure 3.1 Classification of research design 75
Figure 3.2 Inductive and deductive reasoning process 75 Figure 4.1 Linearity plot of the research model 124 Figure 4.2 Homoscedasticity plot of the research model 124
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LIST OF ABBREVIATIONS
RBV Resource Based View
CRV Content Validity Ratio
EE Employee Engagement
EFA Exploratory Factor Analysis
EI Employee Involvement
HRM Human Resource Management
JA Job Autonomy
JE Job Engagement
OE Organizational Engagement
OP Organizational Profitability
PF Performance Feedback
PC Psychological Climate
RC Role Clarity
ROA Return On Assets
RPE Revenue Per Employee
RR Reward and Recognition
SC Sense of Contribution
SET Social Exchange Theory
SHRM Strategic Human Resource Management
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SM Supportive Management
TD Training and Development
VAPE Value Added Per Employee
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MODEL HUBUNGAN ANTARA PERSEKITARAN PSIKOLOGI DAN KEUNTUNGAN ORGANISASI DALAM FIRMA PEMBINAAN
ABSTRAK
Kajian ini membangunkan dan menguji model perkaitan perantara yang menerangkan perhubungan antara faktor persekitaran psikologi dan keuntungan organisasi. Model ini diuji dalam konteks pekerja profesional kumpulan syarikat pembinaan G7 di Pulau Pinang, Malaysia. Setelah selesai kajian rintis, dengan menganggarkan kadar maklumbalas sebanyak 25%, sejumlah 980 soal selidik diedarkan kepada 49 syarikat pembinaan. Sejumlah 441 (45%) borang soal selidik telah dikumpulkan. Maklumbalas yang dapat digunakan ialah sebanyak 294, iaitu bersamaan dengan 30% kadar maklumbalas. Menggunakan Pakej Statistik untuk Sains Sosial (SPSS) versi 23, prosedur analisis awal kebagusan penyesuaian pengukuran, yang meliputi penilaian korelasi Item-ke-Jumlah, Cronbach Alpha dan Analisis Faktor Eksploratori telah dijalankan. Akhir sekali, hipotesis yang telah dibangunkan untuk mengkaji hubungan antara pembolehubah dan peranan perantara dalam cadangan model kajian telah diuji. Berdasarkan keputusan, latihan dan pembangunan adalah satu- satunya faktor persekitaran psikologi yang tidak berkaitan dengan penglibatan pekerja.
Perhubungan yang positif telah ditemui antara penglibatan pekerja dan keuntungan organisasi. Model ini menjalani ujian perantara dan hasil menunjukkan penglibatan pekerja sepenuhnya atau sebahagiannya menjadi perantara hubungan bagi kesemua faktor persekitaran psikologi dengan keuntungan organisasi, kecuali latihan dan pembangunan. Di akhir kajian, sumbangan teoritikal dan pengurusan dibincangkan.
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MODELLING THE RELATIONSHIP BETWEEN PSYCHOLOGICAL CLIMATE FACTORS AND ORGANIZATIONAL PROFITABILITY IN
CONSTRUCTION ORGANIZATION
ABSTRACT
The study developed and tested a model of mediation association that explains the relationship between psychological climate factors and organization profitability.
The model was tested in the context of G7 group of construction companies’
professional employees in Penang State, Malaysia. Upon completion of the pilot study, with estimating a response rate of 25%, a number of 980 questionnaires were distributed to 49 participating construction companies to be completed. A total of 441 (45%) questionnaires were collected. The usable responses were 294, implying a response rate of 30%. Utilizing the Statistical Package for Social Sciences (SPSS) 23, the goodness of measure analysis procedures, which include assessments of item-to-total correlation, Cronbach’s Alpha and exploratory factor analysis indices were performed as a preliminary analysis. Finally, hypotheses that were developed to investigate the relationship between the variables and the mediator role in the model were tested. Based on the results, training and development was the only psychological climate factor that was not related to employee engagement. A positive relationship was also found between employee engagement and organizational profitability. The model underwent a mediation test and the result demonstrated that employee engagement fully or partially mediates all psychological climate factors and organizational profitability links, except
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for training and development. Finally, theoretical and managerial contributions are discussed.
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INTRODUCTION
1.1 Introduction
An introduction to the whole research is the content of this chapter. It provides an insight to the research area by presenting general information about the whole study such as the reason for conduction, and how the investigation is undertaken. Sub topics of the chapter consist of: introduction, background, research problem, research objectives, research scope, research questions, rationale for the study, significance of the study, definition of variables, and organization of the research chapters.
1.2 Background
Increasing investment and employment in construction sector can be seen globally, in a way that the report published by Oxford Economics as shown in Figure 1.1, predicted that worldwide, infrastructure spending will grow from $4 trillion from that of 2012 to more than $9 trillion per year by 2025. Overall, about $78 trillion is expected to be spent globally between 2014 and 2025 (Oxford Economics, 2016). The market research conducted by Global Construction Perspectives, forecasts that 97.7 trillion USD will be spent on construction globally during the 2010-2020 decade, and the next decade will see a continuing shift towards Asia and other emerging markets where
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rising populations, rapid urbanization and strong economic growth are drivers for construction (Oxford Economics, 2017).
Figure 1.1: Capital project and infrastructure spending Outlook Source: Oxford Economics (2017)
All these business investments and efforts in construction projects clearly highlight the increasing expectations of higher profitability and emerging new challenges to get ready for. Profitability is generally regarded as an important precondition for long-term business survival and success. In project-based organizations, it is critical to meet or exceed the planned profitability (Laffy and Walters, 2016). Project profitability represents the profit margin on projects and is extremely important especially on fixed-price projects, where project overruns can hit the bottom-line directly. However, due to increasing competition, improved efficiency, and pricing pressure,
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construction projects are experiencing greater difficulties in attaining the expected profitability (Chen et al., 2016).
Labor performance has been found as a key to long-term growth (Dellink et al., 2017) and sustainable improvement in profitability (Hu and Liu, 2016). In fact labor performance and profitability are twinned and they both measure the ability of the organization to gain revenue (Laffy and Walters, 2016). Enormous competition, diversification potentials and most of all, shrinking profit margins demand more aggression in profitability of construction projects as in the other industrial contexts (Choi et al., 2013). On the other hand, construction industry compared to manufacturing is subjected to little standardization of work processes and methods. This multi-project industry is known as one of the most employee intensive, fragmented, time and cost overrun industry operating in adverse environmental conditions (Yeheyis et al., 2013), and under complicated public policy and economic impacts (Myers, 2013).
Meanwhile, construction industry is characterized by change and uncertainty (Ball, 2014). A rapidly changing economic environment, changing customer demands, and ever-increasing product-market competition have become the norm for these organizations (Thijssen, 2015). The rate of change in construction organizations is increasing with forces from external environments (e.g., demographic, economic, legal and regulatory, political, social, and technological) posing an unprecedented amount of threat to the profitability and competitiveness of construction organizations (Loosemore and
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Lim, 2017). All these issues characterize the construction projects with higher labor inputs and low profitability (Pietrosemoli and Monroy, 2013). Thus, to compete in an ever-changing, increasingly-demanding economic environment, organizations must continually improve their financial performance by reducing input costs, and improving output values.
Today’s construction projects are facing with a dynamic global business arena, and researchers agree that the project loss prevention and financial success is extremely important (Fulford and Standing, 2014; Shehu et al., 2014; Myers, 2013). The substantial changes in the business environment and increasing competition mean that organizations attempt to provide improved efficiency at lower costs through innovative processes (Finkel, 2015;
Laffy and Walters, 2016). Employees are expected to sustain high quality performance with enhanced efficiency and productivity in virtually continual states of uncertainty and change. So they face with increasing pressure to undertake more work and to work longer hours (Zhou et al., 2015; Finkel, 2015).
Meanwhile, due to the very nature of construction projects such as industry fragmentation, employee turnover, limitations in supply and difficulties on maintaining professional employees, the profitability concept in construction project is very complex and improving it is not easy (Pietrosemoli and Monroy, 2013). Therefore, construction professionals, as industry’s strategic resources, have become a serious challenging issue for the industry to prevent the profitability loss (Schleifer et al., 1014; Yoon et al., 2014). With
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this disruption of external environments, construction organizations must develop internal strategies which are flexible and inclusive of strategic workforce for their retention and engagement, to boost the profitability (Harter et al., 2002; Laffy and Walters, 2016).
1.3 Malaysia in the context
Malaysia is a multi-ethnic and multi-cultural nation with the Malays being the dominant group. The current population of Malaysia is about 31.7 million in 2016, with 50.7% male and 49.3% female. The age distribution of the population in Malaysia shown in Figure 1.2 reflects that the density of population is in working ages.
Figure 1.2: Density of population is in working ages in Malaysia Source: Department of Statistics, Malaysia (DOSM, 2017)
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Malaysia is actively working towards achieving a high-income status by 2020. This involves intensive transformation of the economic structure.
Looking towards the 2020 target, the challenge is to sustain the impetus of robust growth. Specifically, according to the department of statistics Malaysia (DOSM), this requires average growth of 6.0 per cent in GDP per annum (DOSM, 2017). To achieve this target, the economic sectors including construction industry are to play significant roles.
In line with this target, the 11th Malaysia Plan (11MP) has laid out the Malaysia’s government intention to introduce the further usage of information and communications technology (ICT) and innovative technology to ensure green practices are incorporated into developments. The government aims to increase the labor performance and productivity of the construction sector by 1.6 times, from RM39116 per worker in 2015 to RM61939 by 2020. To achieve this, the 11MP urges the sector to adopt construction methods that leverage technology and modernization, as well as increase the capabilities of low-skilled labor. The four construction-related strategies detailed in the 11MP’s ‘transforming construction’ focus area cover enhancing knowledge content, driving productivity, fostering sustainable practices in the construction value chain, and increasing internationalization of the sector (DOSM, 2017).
According to the department of statistics Malaysia, the overall performance of the construction sector in 2015 recorded a positive growth in all key indicators. The gross output in 2015 was RM177.9 billion, an increase of RM86.6 billion as compared to 2010 with compound annual growth rate of
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14.3 per cent. The number of persons working in the construction sector in 2015 amounted to 1,290,474 persons as compared to 974,488 persons in 2010 with an average growth of 5.8 per cent.
Women-owned establishments in construction sector accounted for 2,622 establishments with a share of 6.5 per cent and generated gross output of RM6.8 billion or 3.8 per cent share of the total sector in 2015, with a total of 56,822 persons amounting to 4.4 per cent share of the total workforce in the sector (DOSM, 2017). The construction industry development board (CIDB) which is the organization for enhancing capabilities and quality within the construction sector and emphasizing professionalism, innovation and knowledge, also reports that the contribution of the four states of Selangor, Johor, Wilayah Persekutuan, Sarawak, and Pulau Pinang, accounted for 75.6 per cent of the total value of construction work done in 2017 (CIDB, 2017).
In 2016, the number of contractors increased by 5.8 per cent to 72,246 (2015: 68,255 contractors). These contractors were categorized by grade, from Grade 1 (G1) to Grade 7 (G7). Grade G1 to G3 contractors form the largest portion of contractors at 77.3 per cent (55,850 contractors). Grade G4 and G5 contractors accounted for 11.3 per cent (8,154 contractors), while grade G6 and G7 contractors comprises of 10.8 per cent (7,795 contractors) of the total registered contractors. The number of registered foreign contractors does not show any significant change, accounting of only 0.6 per cent (447 contractors).
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However, while the Malaysian construction sector plays a key role in the economy through its multiplier effect on other industries, and efficient performance of this industry is an essential building block of the socio- economic development to enable the growth of many other industries, compared to other economic sectors, construction industry keeps experiencing the lowest economic output per unit of labor, known as the labor productivity level (Table 2.1).
For example, according to Malaysia productivity corporation (MPC), construction sector showed RM11.92 revenue per hour which was higher than the RM10.53 recorded in 2014; while Malaysia’s national revenue per employee per hour (RPE/h) was reported RM28.55 in that year (MPC, 2017).
As a result the industry is facing with financial challenges, and as indicated on Table 3.5, the sectors’ contribution to the Gross Domestic Products (GDP) was about 12 times smaller than that of the services sector, about 5 times smaller than that of the manufacturing sector, and about 2 times smaller than each one of the agriculture and mining sectors (DOSM, 2017).
Table 1.1: Construction labor productivity performance Main Economic Sector
RM
2014 2015 2016
Agriculture 54,924 53,676 55,485
Manufacturing 98,153 105,138 106,647 Construction 33,744 35,601 40,018
Services 64,246 66,328 68,166
Source: Malaysia Productivity Corporation (MPC, 2017)
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Table 1.2: Percentage of the sectors contribution to GDB in 2017
Sector Share 2017 (%)
Agriculture Mining
Manufacturing Construction Services
8.7 8.0 22.8
4.6 54.4
Source: Department Of Statistics Malaysia (DOSM, 2017)
Malaysia’s construction projects are suffering from cost overrun that represents the low profitability of the construction organization (Abdul- Rahman et al., 2013). This critical challenging issue in Malaysia is found to be due to the problems from which many have root in demotivated professionals (Muneera, and Naziah, 2015; Oladinrin and Ho, 2015; Razak et al., 2010).
This has been the reason for Malaysia’s construction industry to face with a serious HR related challenging issue of professionals retention.
Randstad (2014) reported 65 per cent are planning to leave their job in the next 12 months, and the major motive for the professionals leaving was better growth and career opportunities (Durdyev and Ismail, 2016; Razak et al., 2010;
Oladinrin and Ho, 2015). This is while, the construction sector as a labor intensive industry, fundamentally relies on the skills of its workforce (Grifell- Tatje and Lovell, 2015; Koetter and Noth, 2013). Accordingly, the Malaysian construction industry is heavy reliant on its professional employees’
knowledge and energy to provide the construction industry operations (Koetter and Noth, 2013; CIDB, 2017). In fact the country expects the majority of the
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construction works to be carried out by the local professionals (Mohamad et al., 2015; Chin et al., 2018; CIDB, 2018).
Khan et al. (2014) argued that the Malaysian government has to focus on construction sector to qualify for the developed nation status. They add that, improvement of the profitability in Malaysian construction industry employing over one million people is essential to improve construction sector impetus for economic growth. Further, Kang et al. (2015) concluded that, Malaysian construction companies workforce activities need to be done on an atmosphere to gauge professional employees’ satisfaction and strive toward creating a more conducive working environment.
In general, while a wealth of literature is available on the problems facing the construction industry globally, and showing a significant positive relationship between HRM practices and profitability (Tay, 2017), comparatively little research has been carried out by academics and practitioners on the human resource related financial performance of the local construction industry. Thus, there is not much information on human resource management (HRM) issues in Malaysia’s construction sector. According to Kang et al. (2015), Malaysian construction companies have limited commitments in workforce and employment concerns.
1.4 Research problem
Several studies have shown that financial performance in the construction industry as a whole in comparison to other industries is
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underachievement, and its continuous declining financial outcome is the most challenging issue in the industry (Hirschman, 2014; Dolage and Chan, 2014;
Hashem et al., 2015; Shehu et al., 2014; Myers, 2013). It seems like the declining and unreliable rate of profitability in construction industry is structurally twinned with this industry’s project management discipline, and has been a dominant issue that has not been addressed adequately (Myers, 2013; Finkel, 2015). Because, despite construction projects being financially under-performance (Myers, 2013; Hashem et al., 2015), and the importance of identifying the factors that contribute to this situation, it has been overlooked for decades (Dolage and Chan, 2014; Shehu et al., 2014), and the construction projects has lagged due to insufficient research in the area of profitability (Fulford and Standing, 2014).
At the same time, the frequently missing and underachievement of profitability targets had been worrying the construction industry and has made it to search for a way out of the misery (Ball, 2014; Grifell-Tatje and Lovell, 2015). The industry has tried out different measures to have profit targets in control, and came up with employee performance and productivity as a way of addressing the issue due to its direct relationship with loss prevention and project profitability (Marrero et al., 2017; Mulva and Dai, 2012; Koetter and Noth, 2013). Thus, owing to its significance to the profitability of construction projects, employee performance and productivity is regarded as a relentlessly discussed topic in the construction industry by both practitioners and
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researchers (Myers, 2013; Hashem et al., 2015; Shehu et al., 2014;
Pietrosemoli and; Koetter and Noth, 2013; Choi et al., 2013).
It should be noted that, in an organization, all jobs are not the same and some are more valuable (strategic) than others. Strategic human resource management (SHRM) focuses on strategic capabilities and strategic jobs as the focal point of workforce management system and represents professional employees as the significant potential source of value adding and wealth- creating for businesses (Knies et al., 2015; Becker and Huselid, 2010). Thus, attracting, selecting, developing, retaining and engaging professional employees holding strategic jobs represent a very significant investment for the organizations (Becker and Huselid, 2010).
The relationship between SHRM and a firm’s financial performance has been extensively studied in human resource journals and literature, while very little information is available on its application to the construction industry (Langford et al., 2014; Knies et al., 2015). However, the available studies have found poor SHRM, professional employees’ disengagement issues causing their impaired performance and productivity, to be the major reasons for cost overruns resulting in profitability drop to be a twinned challenging issue with construction industry (Finkel, 2015; Hashem et al., 2015;
Hirschman, 2014).
On the other hand, engagement is emphasized because, disengaged employees can be a serious liability, causing employees to quit, underperform,
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impose excess costs, create widespread loss, and negatively impact profitability (Macey and Schneider, 2008; Fulford and Standing, 2014; Shehu et al., 2014;
Myers, 2013). This is while firstly, engagement itself is a construct that lacks studies on its antecedent and consequence (Bailey et al., 2017). Secondly, professionals engagement has not been well investigated (Graban, 2016; Saks, 2017). Thirdly, the mechanism through which PC factors affect the OP is absent in the literature (Boedker et al., 2017; Lee, 2015; El-Halwagi, 2017).
Finally, there are calls for more scholarly research by developing a conceptualization of engagement as it functions at both job and organizational level of analysis (e.g. Barrick et al., 2015; Sacks, 2017).
To overcome the professional employees’ disengagement issues, studies have come up with a desirable psychological climate (PC) to create an atmosphere that satisfies these employees’ long term and higher level needs (Fewings, 2013), resulting in highly engaged professionals (Macey and Schneider, 2008; Harter et al., 2002; Saks, 2006; Lee, 2015; Saks,2014), who make a substantive contribution to their agency and may predict organizational financial success and profitability (Hartmann and Rutherford, 2015; Saks, Saks, 2017).
Hence, in order to fill the above mentioned gaps in the literature and based on the resource bases view and social exchange theories, the present study proposes a model which builds on and extends the literature by assuming that implementation of PC factors will provide an opportunity for organizations to achieve higher level of profitability through developing job and
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organizational engagement among the professional employees. As such, to what extent the PC factors would enhance the organizational profitability (OP) through employee engagement (EE)? This leads the study to research objectives and questions.
1.5 Research objectives
Based on the statement of the problem that has been described above, this study mainly aims to assess the role of PC associated with the profitability of firms through professional employees’ job and organizational engagement.
More specifically, this study aims to achieve the following four objectives:
1. The underlining assumption of this study is that PC is a concept within the reach and control of contractors and their project management system. Therefore, to confirm the above mentioned argument, the present study seeks to reveal the relationships between PC factors and EE.
2. PC factors affect EE with different strengths. Knowing the PC components that are more influential on employees’ attitude and behaviors to engender engagement within them, will help managers in recognizing the priorities, planning, decision making, and better allocation of resources (Hu and Liu, 2016). Accordingly, the study is interested in specifying the components of PC that have the strongest or weakest effect on EE.
3. Since EE has been shown to be instrumental in overall work performance, the study attempts to examine the effect of EE on OP.
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4. PC may indirectly affect OP. The study is then interested in affirming the role of EE as the mediator in the link between perceived PC and OP.
1.6 Research questions
Theoretically, PC is an antecedent to EE (Lee, 2015; Macey and Schneider, 2008; Crawford et al., 2014) and they both are positively related to OP (George, 2015; Harter, 2002; Patterson et al., 2004). These lines of arguments have brought up such questions that the present study is intended to empirically answer. The questions are:
1) Do PC components have significant positive effect on EE?
2) Which PC factor has the strongest and weakest effect on EE?
3) Is EE significantly and positively related to OP?
4) Does EE mediate the relationship between PC and OP?
1.7 Research scope
Garner and Hunter (2013) found that PC relates positively to employees’ attitudes and their subsequent behavior towards organizational interests. Thus, the scope of this research is to identify and test potential PC factors that positively affect the employee job and organizational engagement that ultimately result in profitability in construction organizations. In other words, the scope of the research is limited to the construction and their professional employee perception of PC to understand the mechanism that ties PC to OP.
16 1.8 Rationale for study
In old days, a great majority of industries around the world had hardly significant interest in spending or investing money on research and development (R&D) activities (Galbraith, 2015). Characterized with simpler customer requirements, less competition in the market, and limited access to knowledge and expertise, the construction industry specially experienced a little effort in R&D.
However, the last 3-4 decades have marked a total turnaround on the business environment in the wake of technological advancements and communication revolutions, to transform the R&D activity in business into one of the most important area of operations in industries as including construction industry (Mantoux, 2013). Both industrial and academic researchers were focused on the innovation and creativeness of the individuals to explore the enormous potentials in industries.
Research in the construction sector too, helped to find out and show up the true latent potentials within the industry with the innovations and creation of new technologies, tools, equipment developments, performance enhanced material inventions, process reengineering and crew capacity building approaches (Skibniewski and Zavadskas, 2013; Mantoux, 2013). However, the continuous time and cost overrun, declining profitability and comparatively low profitability growth rate, emergent HRM rather than strategic, and the need
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to minimize the input and maximize the output, justify the effort in making the attempt in conducting this research.
As explained before, the mechanism through which the PC affect the OP is absent in the literature (Boedker et al., 2017). Besides, findings of the present study reveal the mechanism that explains the relationship between PC and OP of construction firms. Knowing this mechanism can help managers with better allocation of resources to improve the work process leading to better profitability. Also, having engaged workforce is expected boost profitability by enhancing their satisfaction and commitment, lowering intent to quit, reducing absence levels and going extra miles above and beyond task duties (Albrecht et al., 2015; Saks, 2017; Boedker et al., 2017).
1.9 Significance of study
Since 1980s, several researchers have conducted studies on the concept of profitability in the construction projects (Hu and Liu, 2016; Naoum, 2016;
Ahmad et al., 2016; Altschuld, and Watkins, 2014). Although some studies such as, Naoum (2016) and Sepasgozar et al. (2016) argue that equipment technology represents a major factor to solve the construction industry’s profitability problem, but they too, are utilized by employees and therefore, the key source of profitability decline in construction projects was found to be low performance of workforce (Hu and Liu, 2016; Chen et al., 2017).
As a result, the researchers confirmed that professional employees are the major driver of profitability (Boedker et al., 2017). Surveys carried out in
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Europe and Australia (Boer et al., 2017), U.S. (Keynes, 2016), China (Liu et al., 2015), Chile (Rivas et al. 2011), Iran (Ghoddousi and Hosseini, 2012), Egypt (Hafez et al., 2014), also identified employee performance as the most important factor that can help to significantly improve the construction companies profitability.
Despite numerous investigations and valuable experiences, construction comparative profitability continued to decline, and delays, cost overruns and comparatively low profitability became the integral part and chronic illness of construction projects (Harris and McCaffer, 2013; Liu et al., 2015).
However, the present study assumes that this may be because, the mechanism through which professional employee affect profitability is still in ambiguity, and if identified, it will help the construction managers to implement a strategy that takes the employees to the point of psychological condition that are ready to go extra miles above and beyond their responsibility. The present study also has theoretical and practical contributions because of its attempt in:
a. Contributing to the body of knowledge
The important part to note in this study is the concept of profitability that requires the employee willingness to stay and perform in the organization. First, the relationship between PC and OP has been repeatedly confirmed in books and articles (e.g. Mollaoglu et al., 2015;
Mulva and Dai, 2012; Myers, 2013), but based on literature review to
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date, the mechanism through which PC factors affect OP has not been empirically investigated before. Second, the term EE has gained considerable attention in recent years (Macey and Schneider, 2008), but not only the concept remains in need of more empirical research (Saks, 2006; 2014), but also it is absent in engineering and particularly in construction projects literature. This study creates knowledge, by proposing a new model relating the two concepts of profitability and EE to the PC factors.
b. Producing more substantial evidence by using interdisciplinary focus
While this study is purported to improve the profitability, the theoretical foundations are heavily drawn from the studies of project management, civil engineering, economics, SHRM, organizational behavior, individual psychology and social psychology. As having an interdisciplinary focus with multidisciplinary interests, this study will have key implications for both theories and practices of those areas. As stated by Sovacool (2014), interdisciplinary approach produces a better and more meaningful contribution to the area of investigation.
c. Providing practical contribution
This study highlights the essential function of resources in profitability.
Expected profitability is not possible without workforce as essential function resources willingness to stay and perform in the construction organizations. According to Ehrenberg and Smith (2016), the cost of
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hiring and training a new employee can vary from 25 per cent to 200 per cent of annual compensation.
Therefore, identification of PC factors which engender EE will provide a helpful tool for construction project management to allocate the financial and manpower resources more effectively towards motivating the employees and better profitability. Findings of this research enable the construction managers to formulate policies in a more strategic way that will lead the employee attitude and behaviors into the direction that assures high profitability. In addition, for the better allocation of resources, the study answers to managers need to know which factors yield the largest returns on profitability.
1.10 Organization of research
This research is presented in six chapters. The first chapter provides the study’s introduction, background and the importance of profitability in the construction industry followed by the research problem, research objectives, research questions, and research scope. Finally, the rationale for study, significance of the research and definition of terms are presented.
The second chapter provides an overview of the OP, PC, and EE concepts. Further, the chapter describes psychological factors that positively influence OP and EE of construction projects. After the review of literature, multiple hypotheses are established. In summary, chapter two provides the
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flesh to the body of this study in which it justifies and supports the subsequent stages of this research exercise.
Chapter Three provides information about the methods and procedures of study used to achieve the objective. This chapter provides background information of research methodologies and justification for the research methodology implemented for this research. This includes explanations and reasons for employing certain type of research design, method, instruments, data gathering method and statistical techniques used in the later stage of this study.
Chapter Four presents the results and findings of the survey, the field study, and the proposed project structure together with its application to the next study. The first important contents in chapter four are the explanations on results of pilot test and then, the results from the analysis of data are interpreted, both statistically and inferentially. All the raw data are analyzed and reported. Prior to data analysis, the purification and validation of the scales will be carried out.
Chapter five discusses the findings of research. The results are interpreted in light of the established theories, and literature review. An elaborate discussion on the findings of this study can be found in this chapter.
Chapter six is the conclusion of the study. This chapter offers recommendations for future research. The contribution and implications of this study also are included in this chapter.
22 1.11 Summary
In an increasingly competitive global business environment, what differentiates one industry from the other is the productivity and profitability.
Customers increasingly demand better products in booming business. This current trend affects all category of industry, particularly the construction industry. This highlights studying the factors that could improve the productivity and profitability. Meanwhile, to stay competitive, construction companies must demonstrate high performance of their business operations that would point out to the effectiveness and efficiency of resource allocation and outflow. One of the options is to make the most efficient use of their professional employees at their most important asset. With that spirit in mind, this study is therefore undertaken. This chapter has set out the background of the research. It presents the research aim, objectives and questions and justifies the rationale of the thesis. In addition, the research approach is also introduced in this chapter.
23 CHAPTER 2
LITERATURE REVIEW
2.1 Introduction
The central aim of this chapter is to address the issue of developing an effective literature review by proposing a systematic approach that will lead to a quality research. In this chapter, the important concepts that serve as the backbone of the present study are theoretically and empirically discussed, and multiple researches related to the concepts are brought to light. Based on the preceding review of literature, some critical issues are then raised. A framework for factors, EE and project profitability in the construction industry is also introduced and relevant hypotheses are presented for the purpose of statistical testing.
2.2 Definition of Terms
Definitions of main variables under investigation from the perspective of the present study are as follows:
Construction project management is leading, managing and controlling all construction operations in a way that quality standards and safety requirements are met and construction projects are completed on-time and within budget (Meredith and Mantel Jr, 2011).
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Psychological Climate is defined as perceptions of employees on how work environments are appraised and represented in terms of their meaning to and significance for individual employees’ expectations, opportunities for promotion and their wellbeing in organizations (Munyaka et al., 2017;
Patterson et al., 2004).
Employee engagement is a workplace approach resulting in the right conditions for all members of an organization to give of their best each day, committed to their organization’s goals and values, motivated to contribute to organizational success, with an enhanced sense of their own well-being (Carmeli et al., 2017; Anitha, 2014).
Job Engagement is a distinct and unique construct consisting of emotional and behavioral components that are associated with individual role and beyond performance (Saks, 2017; Saks and Gruman, 2014).
Organizational Engagement is the desire to remain as a member of a particular organization that is translated in the form of willingness to conform to the organization values and exert effort for the good of the organization as a whole (Saks, 2006; 2017; Saks and Gruman, 2014).
Organizational Profitability is ratio of monetary output and input that shows company’s ability to generate earnings relative to its expenses and other costs (Myers, 2013).
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Professional Employee is the one who is equipped with the particular knowledge and skills, earned through a standard education necessary to hold a knowledge-based occupation, and who is commonly engaged in creative and intellectually challenging work, enjoying a considerable job autonomy and privilege of self-regulation (Becker and Huselid, 2010; Becker et al., 2009).
2.3 Theoretical underpinnings
In conducting any study, relevant theories are required to support the investigation (Sanchez et al., 2015). In the literature, the terms productivity and profitability are sometimes used interchangeably (Moran, 2015). The present study follows the industry’s common recognition of profitability at project level, which is referred to as professional employee performance and productivity outcome (Hu and Liu, 2016).
In a systematic approach, since profitability is about efficiency, organizations try to minimize the input and maximize the output. However, in construction industry, labor inputs are high and profitability is low (Pietrosemoli and Monroy, 2013). Considering the said approach, Ball (2014) pointed out three specific areas that drive construction projects profitability and they are: time, work, and construction method that are all related to employees.
On the other hand, based on the principles of economics, in order to improve outputs, inputs and process stages should be considered (Pavitt, 2014).
Considering the input and process stages, Vomberg et al. (2015) argue that, all
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resources are not equally important and therefore, companies should prioritize the strategic resources.
Therefore, it is assumed that firstly, the better allocation and utilization of the talented human resources will result in and profitability at collective level which is supported by resource-based view theory (RBV) (Hitt, 2016), and secondly, the better treatment of employee will result in personal gratitude and their feelings of obligation to respond and reciprocate the favor of the management with positive, beneficial and productive behaviors at organizational level that is supported by social exchange theory (SET) (Birtch et al., 2016).
In other words, from a resource based perspective, performance optimization can thus be realized through selective human resource accumulation and deployment. Social exchange also, is among the most influential paradigms for understanding work place behavior that influences the organizational financial outcome. The RBV and SET theories together provide the theoretical foundation for linking strategic human resource to financial performance and organizational profitability (Nason and Wiklund, 2018).
The present research formulates RBV by examining PC effect on professional EE and his/her behavioral outcome (SET) towards the organizational profitability. Therefore, in light of the research gaps, and grounded on RBV and SET, this study aims to examine a model in which psychological climate impacts both at individual and organizational levels.
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2.3.1 Resource-Based View theory (RBV)
Barney (2001) looked at various businesses and their internal strengths and weaknesses. He proposed a strategic approach that businesses can have a competitive advantage and/or superior performance based upon their utilization of resources. According to Barney (2001), the concept of resources includes all assets, capabilities, organizational processes, firm attributes, information, knowledge, etc. controlled by a business that enable the organization to conceive of and implement strategies that improve its efficiency in generating income. RBV theory suggests that resources possessed by a business are the primary determinants of its performance, and these may contribute to a sustainable competitive advantage of the business.
The RBV examines business’s many resources or assets involving both tangibles and intangibles (e.g. human, financial, organizational, physical, social, and technological). Meanwhile, the RBV suggests that strategic assets of human resources involve improvements, innovations, tactics, and knowledge that contribute to business competitive advantage that significantly relate to operational performance and profitability (DiSegni et al., 2015). Following the RBV logic, professionals and skilled workforce as holders of strategic jobs, are intangible resources that are not easy to competitors to imitate and therefore, more likely to be sources of competitive advantage. These resources are considered strategic in providing economic value, and they are difficult to the competitors to copy (Barney, 2001; Taylor et al., 2017).
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RBV has shown to be not only beneficial in helping to clarify the potential contributions of resources for competitive advantage, but also for strategic management (Pearlson et al., 2016). Strategic management suggests that firms need to seek a strategic fit between the external environment (e.g.
opportunities and threats), and internal resources, (e.g. strengths and weaknesses) (Cascio, 2018). Productive performance requires the cooperation and coordination of resources that are owned and controlled by the business to produce final products with super-normal profit and the source of sustainable competitive advantage. Regarding the very tight competitive environment of the construction projects, the present study is about making use of the existing professional employees to achieve high performance and organizational effectiveness.
The backbone of this idea is drawn from the resource-based theory.
According to this theory, organizations can achieve high performance and stand in a crowd by capitalizing their internal resources (Hitt, 2016). However, physical resources and technology from machines, tools or robotics are by themselves typically imitable. As such, the engaged professionals are considered the internal resource of the construction project that cannot be easily duplicated by the competitors (Pearson et al., 2015).
RBV’s central proposition is that if a business is to achieve a state of sustained competitive advantage, it must acquire, control and satisfy valuable, rare, inimitable and non-substitutable human resources that hold strategic jobs (Barney, 2001). As such, to compete effectively, construction projects must not
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only recruit top talent professionals, but must also inspire and engage them with their jobs and organization to apply their full capabilities to their performance, because EE becomes critical for organization financial success (Anitha, 2014). More recently, SHRM provides a greater focus on internal resources of the organization as resource based view (RBV) or mainly focuses on professionals as the knowledge assets of the organization (Pearlson et al., 2016; Hitt, 2016; Taylor et al., 2017).
2.3.2 Social Exchange Theory (SET)
The very relevant theory to ‘EE’ as a mechanism that explains the relationship between perceived support, employee retention, and profitability, is social exchange theory. The key notion of social exchange theory is
‘reciprocity’. Although the norm of reciprocity is commonly found between individuals, it is also developed between individuals and organizations (Cropanzano et al., 2017). Social exchange theory (SET), popularized by Blau in 1964, explains the motivation behind psychological and behavioral exchange between contributions of employers and employees to each other in the employment relationship (Birtch et al., 2016).
This involves interaction with both co-workers and supervisors in the organizations (Cropanzano et al., 2017). The basic assumption of the SET is that the people tend to commit in a relationship when they believe their commitment or contributions will be reciprocated by the other involving parties. This enables construction managers to recognize the content of social
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exchange relationships which necessitates employees’ feelings and social influences at the individual and organizational levels (Cropanzano et al., 2017).
Social exchange could be an economic exchange that focuses only on basic and short term expectations for the relationship, and emphasizes the economic agreement such as pay for performance. However, social exchange is different from economic exchange in several ways (Liu et al., 2016). The biggest difference is that there is no specified obligation in social exchange. In economic exchange, the exact amount that needs to be repaid is specified when one does a favor for someone.
However, in social exchange, although some expectations are imposed about returning a favor, the exact thing and nature of the favor is not specified.
In addition, different from economic exchange, social exchange involves the feelings of personal obligation and gratitude. For example, when someone loans money from a bank, he/she only owes money to the bank and does not feel personal obligation and gratitude toward the banker who approved the loan. Yet in social exchange, because the support and help are not based on the contract, the feelings of personal obligation and gratitude arise. In other words, social exchange that operates on the norm of reciprocity and requires a long- term orientation is based on feelings of obligation (Liu et al., 2016).
Considering the scope of this research, construction managers can engender employees’ feelings of obligation and gratitude to respond to the organizational favor, and enhance the profitability (Birtch et al., 2016).
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In line with SET notion, Cropanzano et al. (2017) argued that positive and beneficial actions engendered by the organization and/or its representatives, contribute to the establishment of high quality exchange relationships that create obligations for employees to reciprocate in a positive way that will benefit the organization. This statement points out to the idea that construction project management has to be the initiator of this reciprocity concept. In other words, construction managers have to implement a strategy showing they are truly concerned with and responsive to employees’ needs and wants, because these positive acts will motivate employees to demonstrate a better performance.
SET is among the most influential conceptual paradigms for understanding employees’ mutual commitments and behaviors (Liu et al., 2016). It has implications for employee attitude and performance, because employees return the benefits they receive and are likely to match goodwill and helpfulness toward the organization they have a social exchange relationship with (Birtch et al., 2016). In other words, SET evolves employers taking care of employees, producing positive employee attitudes, effective work behavior and performance (Cropanzano et al., 2017; Liu et al., 2016).
The social exchange theory (SET) suggests that responsibilities are generated through interactions, and offers a theoretical basis to explain the expected employee response to organization in choosing to become more or less engaged in their job. EE is his/her psychological and emotional connection to the organization which could be turned into positive behaviors (Karatepe,
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2013). EE leads to feeling proud of being a member of the organization, identifying oneself with it, and willingness to exert energy for the success of the organization.
Researches have also indicated that employee’s fully engagement demonstrates itself through proactively seeking opportunities to contribute to the organizational efficiency and profit (Bakker et al., 2012). Given these considerations, social exchange theorists have proposed that employees are prone to exchange their performance for an employer’s support (Liu et al., 2016). To sum up, the social exchange theory provides a strong reason to believe that the implementation of SET in construction project management can trigger a reciprocity process, where employees will repay the management’s kindness by exhibiting high levels of engagement. Therefore, social exchange theory is a major theoretical underpinning for the present study.
2.4 Organizational profitability (OP)
Profitability is defined as the ability to generate, sustain, and increase profits (Cooper, 2017). Cooper adds that, all businesses, including construction project, are conducted primarily to earn profits and the amount of profit earned measures the efficiency of the business, the greater the volume of profit, the higher the efficiency of the business. Thus, organizational profitability is generally regarded as an important precondition for business survival and success.
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It should be noted that, profitability defers from profit and they are two separate disciplines. The word ‘profitability’ is the combination of two words, namely ‘profit’ and ‘ability’ which indicates the power of a firm to earn profits.
Where profit is the remaining income left after meeting all manufacturing, administrative and other expenses, profitability is the profit making ability.
Profit is about the past; profitability on the other hand, is the financial potential of the project in the future. Profit is static and more a reporting function than a decision-making; in contrast, profitability as a concept is concerned with decision making for the future and it describes the business capacity in generating profit.
As discussed earlier, comparatively low profitability as a challenging issue has been twined with construction industry due to cost overruns. For instance, based on a 64 project study conducted by Construction Industry Institute (CII) from the early 1990s until the late 2000s, the influence on an average cash flow of the construction projects in progress, dropped from 90 per cent to 20 per cent capability, resulting in cost overruns (Mulva and Dai, 2012).
Another study reported that the Indiana Department of Transportation in USA lost approximately $17 million in cost overruns on construction projects in 2001 (Bordat et al., 2004). Likewise, international studies indicated that cost overruns are currently a worldwide issue. In an international study, 258 megaprojects from 20 countries in Europe, Asia, and North America showed an average cost overruns ranging from 20 to 45 per cent (Huo et al.,
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2018). These facts suggest that there are still underlying issues regarding cost and schedule deviations to be resolved, and employee performance can play an important role in resolving this growing problem (Mulva and Dai, 2012).
One reason for this situation is time loss. Researchers have repeatedly affirmed the high percentage of employee time loss in the on-site construction operations that have even been as high as 40-60 per cent of the total work time spent on totally non-productive work tasks (e.g. Zhu etal., 2016; Hajikazemi et al., 2017; Durdyev and Ismail, 2016). For example, Gouett et al. (2011) argued that, up to 40-50 per cent of the direct capital cost of large construction projects are usually spent on the site employee component. It is evident from the general perception of profitability in the construction industry that a great portion of the project cost is locked up with employees.
These continuing problems reveal the great potential lying in the construction projects, and convince the industry to investigate, plan and invest for a potential gain by reducing a sizable portion of this wasted time on construction operations (Dolage and Chan, 2014; Shehu et al., 2014; Myers, 2013).
Therefore, it is very important to implement a strategy and a continuous improvement mechanism that can drive consistent construction profitability in terms of management and craft processes to increase the economic output of construction activities. This requires a broader and new thinking, because traditional methods are no longer adequate for growing industry demands
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(Needles et al., 2012). Thus，resolving the annoying challenges of profitability in construction projects becomes an inescapable duty of the academia, industrial partners, and governments.
2.4.1 Justification for choosing profitability outcome
Profitability is a measure of how well a firm can use assets to generate revenues (Cooper, 2017). Evaluating firm performance using financial ratios has been a powerful tool for decision-makers, including business analysts, creditors, investors, and financial managers (Booth, 2015). Parmenter (2015) argues that, the use of profitability ratios to assess the firm performance is not new, and a simple literature search can find literally thousands of publications on this topic. Delen et al. (2013) believe that profitability ratio is preferred because, it can evaluate the competitive positions of the firm and provide key information to existing or potential investors for better decision making.
The construction industry is an economic investment, and its relationship with national economic development is well posited (Myers, 2013). Among the major economic sectors, the importance of the construction industry due to its very significant role in the Nations’ policies and strategies is unique regardless of whether the country is underdeveloped, developing or developed. For instance, financial performance as the key performance indicator of the construction industry is subjected to quarterly and annual statements of national accounts (Parmenter, 2015).
