An organisation climate analysis

In this chapter, we will describe the research background which included a clear brief of organization climate, employee engagement, problem statement, research objective, and research question and significant of the research.

Research Background

The Organization Climate

Organization climate usually do not have a clear definition and is simply explained as a perception that every employee in an organization feels, understood and shared (Kouzes, 1993). It is weather that a particular organization is having, reflecting how its’ system deal with the members. This is something that is difficult to be measured because it is senses or feels of employee perception toward the organization which is cannot be evaluated using tools. The combination of the perceptions reflects the actual work place of the organization.

Organization climate is important for the junior employees to observe and adapt. Their observation and perceptions are usually is the better reflection of the truth than senior employees. This is because senior employees’ perceptions are affected by many factors in the organization. A positive organization climate that set by the executives could be a motivation for employees, resulting effective and efficiency in productivity.

Organization climate is determined by factors from both internal and external environment. Internal environment refers to the factors that affect the perception of the employees which occur within the organization and external environment factors are occur from outside the organization which is difficult to predict and control. In our study, we focus in the internal environment rather than external environment.

Background of Banking Industry in Malaysia

The banking industry had gone through constant transformation over years in keeping up the changing needs of economy. Service quality is one of the important elements to the industry evolved trend (Brown and Kleiner, 2010). Today, excellent service quality had become a crucial factor for a business survival in the present banking industry. This is because the service quality is directly influencing the competitive advantages and corporate profitability. Thus, the majority banks in Malaysia is ongoing their focus in improvement of their service quality.

Nowadays, to achieve the prior competitive advantages in the banking industry, the banks must increasing their demand on providing a better service quality, lower interest rate for loan and greater beneficial for the customers. The banks need to embrace changing and response pro-actively in order to maintain its competitive advantage.

In the past decade, Malaysia banking industry had been transformed significantly and undertaking the effort of restructuring, placing the financial sector to a new and stronger foundation (Adbullah, Andrew and Boo, 2010). It had successfully integrate many business process and redeployed the resources to support the growth of new areas, increased the flexibility of the financial institutions, resulting in new business opportunity.

Besides that, the banking and insurance sector had provide employment to over 123, 000 Malaysia citizens. The service from the sector had benefits many industry development and encouraging development of small business. Such consumers lending had increase from RM 134 billion to RM 343 billion while loan disbursed to small and medium enterprise. The domestic banking institution is expanding, building their strong position in the local country.

According to Abdullah et al (2010), there are several trends in Malaysia banking sector. First of all, the trend is the changes in global economy configuration. This trend illustrate the rapid expanding in economy of many developing country had created many business opportunity for global banking sectors. The raise in India, China and South East Asia economies have increase Asia’s global role. The increment in countries’ output had boost up the economy in Asia and as a collectively region, Asia contribute about 40% of global and one-fourth of the world trade. This is an open tremendous business opportunity for Malaysia as a part of this dynamic growing region.

Secondly, the trend is the current industry is shaping towards the integration of economic and financial regions. The merger and acquisition of many domestic bank with foreign bank had help the domestic bank emerge into a new market, generating a better profit and help the local bank industry expand their target market. The investment among Asia’s economics is increasing the financial activities. These activities involved merger and acquisition which require fund as capital rising. Thus, financial institutions of the related region are becoming the primary source for them to obtain funds.

Thirdly, the trend is the Asia region is moving towards financial integration in helping on the development of financial sector. Many financial institutions were restructuring, improving their financial system in order to attract the investors. The new services or strategies that launch were private equity, structured products, Islamic finance, hedge funds and etc.

In developed countries such as America and Europe countries, their financial institutions are sustain fully managed by their strong government in terms of strong economic background, beneficial policies, better living standard and etc. Malaysia, unlikely the developed countries, which is a developing country is unable to gain total control over external environment, therefore Malaysia have to rely on better control in internal environment.

Trends of Employee Engagement

Employee engagement can be defined as the commitment that an employee has towards the organization, attracted and inspired by the works (Rudledge, 2005). Engaged employees will put their organization in the first place to be concerned, physically and emotionally willing to play their role as part of their organization or sometimes exceeding their duty call to contribute their effort (Seigts and Crim, 2006). They will evaluate every possible alternative to maximize the benefits of their company. In year 2008, Macey and Schneider presented a framework for understanding the elements of employee engagement, illustrating that conditions of the workplace have both a direct and indirect impact on engagement.

However, employee engagement required a two-way relationship among employer and employees. Employer is responsible in building clear roles for employees to take part and also figured the best ways to motivate the employees to be engaged. The first way is to remove roadblock of employees to be engaged. This roadblock refers to those barriers such as lack of confidence, negative perceptions towards the company, demotivated factors and others.

The second way is creating an engaged culture that beliefs and values are wired spread along the organization. The culture can be effective only when everyone is understood and agreed upon. The third way is to set a proper reward system that is allowing the employees to perceive what they will get as the return from the engagement. Reward is a best way to serve as a motivating factor.

When employer getting along with employee, he or she should communicating rather than announcing or listening rather than surveying and paying attention rather than getting attention. Thus, engagement is implemented through persuading rather than enforcing.

Besides employer, employees should also play their part to be engaged in organization. They have to set their mindset that they willing to contribute towards the organization without any complaints. They have to observe what reasons that made the employee to be engaged.

According to Nitin, (2007), he outlined that the levels of employee engagement can be categorized into engaged, not engaged and actively disengaged. Engaged employees form a bond between themselves and the organization, driving it to move forwards. Not engaged employees satisfied in what they have contributed. Although they are unhappy with the organization but they will not complain about that. They are putting in time but not contributing passion in their work. The last is actively disengaged. They are not only unhappy but also trying to influence others perception and denied others accomplishments.

These three categories reflect the current organization climate of a company. Many organization trying to seek a way to influence their employees become engaged, result in creating a positive organization climate. In the other hands, if not engaged employees do not being pay attention, they will slowly become actively disengaged which will result in negative impact of organization climate.

Problem Statement

Employee engagement has long been a concern of organization climate of its construct to engagement in organizational behavioural. In engagement, people employ and express themselves physically, cognitively, and emotionally during role performances.

Employee engagement is very important to determine the future of the organization. Employee is a vital resource for nearly all organization and high performing employee is the organization’s valuable asset. This mean when skill employee had started to leave the organization, it is an indication that the organization is in trouble. Nowadays, it is hard to having organization climate in an organization. There are few antecedent variables that will influence organizational climate toward banking industry such as leadership, communication, compensation, decision making and organization design. Based on the study, it revealed that older workers ages between 55 years old to 64 years old have been more loyal to their employers with a median of 9.3 years, while workers ages 25 to 34 have a median tenure of only 2.9 years. That means there is hardly possible to expect younger workers to spend their careers in one organization. They are more likely to resign in the particular organization if they get a better and attractive offer in other organization (Taylor, 2006).

There is no one will sacrifice and perspiration in one organization without compensation, however, there is a complementary executive compensation strategy that employers should pursue, and it usually involves cash bonuses, stock awards, and deferred compensation plans. Any or all of these may be refined in a manner which are better positions the employer to seek judicial enforcement of loyalty covenants and provides for benefit forfeitures and claw-backs when disloyalty prevails.

The lack of awareness regarding significant of employee commitment has caused the high turnover and uncomfortable among the employees. As you can see, some banks which are making huge profits and which have introduced performance appraisal systems do not give any rewards to the lowest category of workers whereas in the higher category they continue to give them huge bonuses (Solomon, 2010). As a result, National Union of Bank Employees (NUBE) members began to wearing of protest badges and slogans demanding a 30% pay increase. So, there is very hard to keep employee loyalty since there are some indistinct factors that influence the loyalty of employee.

Nowadays, perhaps that the importance of employee engagement has been overlooked by the banking industry and the industry is more emphasize on looking the new employees and not retain the existing skill employees. However, the replacement can actually cost a company anywhere from 35% to 50% of an hourly worker’s salary. Based on the research run by loyalty research centre, for a technical or professional worker, the cost can go as high as 125% of that worker’s salary. According to the loyalty research centre, most of the managers do not realize that how expensive to lose a good worker, those who do their jobs well and productive. For anything less than a loyal, productive worker will cost a company; which is why performance goal setting and review are so important for weeding out the ‘bad’ ones; or for providing additional training and support to those who can be developed or rehabilitated. Employee turnover is extremely costly to companies with large numbers of employees. In the banking industry, employee turnover can also mean the loss of valuable customer relationships. Hence, it is good to keep the employee rather than recruit new employee.

Employee engagement is growing as more important construct, driving and influencing important factors of a business. On the other words, whether the business able to survive in the market is affecting by the employee engagement. Unfortunately, many companies struggle with measuring and improving engagement levels in their organization. Therefore, it is important for companies to have a strong understanding of engagement in order for them to be successful in improving the level of engagement. This study will look at best practices that companies can use to measure and use engagement data as their advantages.

Overall, the purpose of this study is to find out where the lacuna is and to try and find what corrective measures can be taken to reserve this undesirable trend. The engagement levels of the entry level employees were observed. Besides that, various factors considered, and thereafter the attempt to address the problem of reducing the turnover level was undertaken.

Research Objectives

General Objective

The primary objective of this study is to examine the relationship of organization climate towards employee engagement in banking industry.

Specific Objective

To examine the impact and relationship of organization climate which are the leadership, communication, compensation, decision making and organization design towards employee engagement.

Research Questions

Answer all these question will give more understanding of the dimensions in organizational climate underlying the foundation of employee engagement in banking industry.

Does the leadership significantly effect on employee engagement?

Does the communication significantly effect on employee engagement?

Does the compensation significantly effect on employee engagement?

Does the decision making significantly effect on employee engagement?

Does the organization design significantly effect on employee engagement?

Does the organization climate associate with employee engagement?

Hypotheses of the Study

H1: There is significant positive relationship between leadership and employee engagement.

H2: There is significant positive relationship between communication and employee engagement.

H3: There is significant positive relationship between compensation and employee engagement.

H4: There is significant positive relationship between decision making and employee engagement.

H5: There is significant positive relationship between organizational design and employee engagement.

H6: There is significant positive relationship between organizational climate and employee engagement

Significance of the Study

The main importance and contribution of this research is to improve the awareness and knowledge about employee engagement in private corporate, which is commercial bank. First, this research enables banks allocate in Malaysia to further study on employee engagement with factors that will lead to the loyalty of their employees. By conducting this research, it will recommend the banks effective ways of employee engagement in banking industry.

Organizational performance and retention can have a greater impact on an organization’s profitability. Therefore, the managers of the particular banks will find out what resources and benefits are most desired by employees and lead to satisfaction and loyalty in that organization by considering on the five dimensions of organization climate of this research and hence make the employer to retain the talented employees.

There is hardly possible for corporate researcher to do such study on organizational climate and its influence towards employee engagement in banking industry, so we decided to do such research in order to help the corporate researchers and higher education institution to have better understanding on it as well as serve as a base for the future research towards banking industry. Other than banking industry, it also helps to improve higher education institution interests and concern in employee engagement in other industry.

Then, our research studied on employee engagement is also very significant for government that who act as a policy maker. It enables government to uses the research to as the guidelines to amend the policy if necessary to enhance the employee engagement in the banking industry. For example, the current compensation benefit is likely unfair to the employee. Therefore, the government could amend the current policy to be more better, which that the employee will feel more satisfy to it.

Chapter Layout

This paper is organized into 5 chapters namely introduction, literature review, research methodology, data analysis and discussions, conclusion and implication.

Chapter 1: Introduction

In this chapter, we will explain the background of our study and clarify the research problems. Then, we will outline our research objectives and questions that to be answer by our result of research. The significant of study explain who will be benefit after reading our project.

Chapter 2: Literature Review

This chapter aims to review the critical points of published and unpublished information on the basis of secondary data on the topic. A summary is a recap of the important information of the source in a clear and logical manner. The aid of theoretical framework and theoretical model will be discuss in this chapter, enables a more understandable problem in this research.

Chapter 3: Methodology

This chapter encompasses the process of data gathering procedures. This chapter also will discuss the sampling design, data collection methods, sampling design, operational definitions of constructs, measurements scales, and method of data analysis.

Chapter 4: Data Analysis

This chapter provides the understanding on how data is being analyzed and how the survey data relate to the research questions. This chapter provides the analysis of the related hypotheses.

Chapter 5: Discussions, Conclusion and Implication

This chapter provides the linkage of all chapters. Also there will be discussions, conclusion and implication of this study. This chapter also will cover the statistical analysis, discussion and limitation of the study. Finally, recommendations and conclusion will be done for the whole research project.

1.8 Conclusion

In first chapter, we introduce our topic starting with research background, developed our research problem statements, objectives of our study and also the research question. From the information gathered, we developed the hypothesis of our study.