Impacts of Organizational Factors on Work Motivation and Job Performance: Evidence from SMEs in Vietnam

Abstract

This study estimates the influence of organizational-level factors on work motivation and job performance of middle managers of small and medium enterprises (SMEs) in Vietnam. A 5-point-Likert-scale structural questionnaire consisting of 36 observation variables was used to survey middle managers of Vietnamese SMEs. 425 out of 500 responses collected were valid for multivariate data analysis. The results of confirmatory factor analysis and structural equation modeling reveal three main findings. First, philosophy and policy, compensation and benefits, goal system, and leadership have positively significant impacts on the work motivation of middle managers under investigation. Second, there is a significantly positive influence of work motivation on job performance. However, there is no indication that growth opportunities, work environment, evaluation system have significant impacts on the work motivation of respondents. Based on the findings, the study suggests four recommendations for Vietnamese SMEs to improve motivation and job performance of middle managers, which are (1) ensuring the clarity and soundness of the organizational policies and philosophies, especially human resources policy that boosts employees' work motivation; (2) building a comprehensive compensation and benefit system to attract and retain talented employees; (3) developing a clear and adequate goal system; (4) enhancing top-level managers' leadership abilities.

1. Introduction

The improvement of operational efficiency brings various benefits to both enterprises and the whole economy. For enterprises, better operational efficiency means lower costs and higher profits. This not only enhances the competitiveness of enterprises but also helps them grow and upscale. As for the economy, it fosters economic growth and prosperity of the country (Chughtai & Alam, 2014). Efficient enterprises generate more productivity, produce more goods, boost GDP per capita, and increases tax revenue (Syverson, 2011).

Employee motivation is one of the important factors promoting the performance of the organization. While work motivation is a way to utilize human resources, resources utilization is a way to increase productivity, reduce operating costs, and improve overall efficiency. Previous studies show that highly motivated employees are more productive and creative in accomplishing organizational goals (Shaban et al., 2017; Manuti & Giancaspro, 2019). On the other hand, less motivated employees are less productive and tend to deviate from achieving organizational goals (Sabri et al., 2019). Motivation encourages employees to develop competencies and use those competencies to increase work performance (Jayaweera, 2015).

Work motivation can come from individuals, groups, or organizations. Factors at the organizational level are those that the organization can directly, immediately, and on a large scale. Many previous studies have likely shown that the factors of policy and philosophy, compensation and benefits, growth opportunities, working environment, leadership, goal, and evaluation have an impact on employee motivation (DuBrin, 2012; Alshmemr et al., 2017; Hadi & Tola, 2019).

Small and medium enterprises (SMEs) play an important role in job creation and global economic development. They represent 90% of businesses, 60–70% of employment, and about 55% of GDP in developed countries (WTO, 2019). In Vietnam, SMEs are the backbone of economic development, accounting for 98% of all enterprises, and approximately 47% of the country’s GDP (GSO of Vietnam, 2020). However, there have not been many studies on work motivation and performance in SMEs.

Therefore, this study was conducted to determine the main factors and their influence on the work motivation and job performance of SMEs in Vietnam. The rest of this paper is structured as follows: the next section presents the theoretical basis and research hypotheses of the paper. Section three presents the research methodology, including measures, samples and data, and methodology. The results of the data analysis are presented in section 4. Section 5 is the discussion. The final section is the conclusion and recommendation.

2. Theoretical Background and Hypotheses

2.1. Work Motivation

Work motivation has always been an attractive topic that grabs the attention of many scholars around the world. Work motivation plays a crucial role for the organization because it promotes positivity at work, the desire to devote and contribute to the organization of employees, which furthers promote productivity and improve the work performance of employees and organizations. However, there is no unifying definition among researchers due to the complexity of this concept.

Herzberg (1987), using the needed-based approach, described motivation as the driving force that encourages achievements, recognition, responsibility, and development and progress of employees in the workplace. Herzberg’s descriptions consider work motivation as an intrinsic motivator. Agreeing with Herzberg’s point of view, Amabile (1997) argued that work motivation is the intrinsic motivation inside employees, originating from the interest and ability to participate in work due to the stimulation by curiosity, excitement, or a sense of self-challenge. Amabile (1997) added that work motivation is also influenced by external factors when employees are affected by the desire to achieve goals such as achieving rewards, winning competitions, or simply completing tasks to challenge themselves. Similarly, Pinder (1998) defined motivation as a set of energetic forces (both internal and external) which initiate work-related behavior and determine its form, direction, intensity, and duration.

Despite differences in way of expression, there seems to be a consensus that work motivation, both internal and external, activates the energy of people; it is a force that drives people to try to satisfy their needs; all human behavior is motivated to some extent. Therefore, in this study, work motivation is considered as the factor motivating and encouraging the working ability of employees to increase productivity and performance.

2.2. The Relationship Between Organizational Factors and Work Motivation

Work motivation (MOV) can be created at different levels, such as individual-level, group-level, organizational level (Erez & Eden, 2001). At the organizational level, factors that are often mentioned as determinants of work motivation includes policy and philosophy (Ganesh & Indradevi, 2015), compensation and benefits (Eisenhardt, 1989; Ghazanfar et al., 2011), growth opportunities (Alshmemri et al., 2017), working environment (Porter et al., 2016), leadership (Hadi & Tola, 2019), goal system (Greenberg, 2011; DuBrin, 2012; Jiang et al., 2016), and evaluation systems (Mathew & Johnson, 2015). The improvement of those factors is considered as one of the ways to promote employees’ work motivation in organizations.

2.2.1. Philosophy and Policy

Philosophy and policy (PP) refer to the clarity and soundness of the organization’s philosophy and policy that are implemented across the entire organization. An organization’s policy is the established rules and procedures that govern an organization’s day-to-day operations. Meanwhile, philosophy provides an organization’s norms and values, which guide the thinking and actions of organizational members in implementing policies and practices, and identifies the appropriate types of behavior in the organization environment (Katz & Kahn, 1978). When the employees’ expectation of work matches the company policy, they feel more sense of engagement and are more willing to contribute to the company. A well-implemented company philosophy increases motivation levels. A clear understanding of company philosophy and policies leads to increased motivation, morale, and productivity of employees (Ganesh & Indradevi, 2015). Therefore, the study proposes the hypothesis:

H1: There is a significant relationship between philosophy and policy and work motivation.

2.2.2. Compensation and Benefits

Compensation and benefits (CB) refer to the reasonable remuneration the employees received for their work. Compensation is all extrinsic rewards that employees received in exchange for time, effort, and skills they contribute (Byars & Rue, 2006), including both fixed and variable pay tied to levels of their performance. Benefits are programs an employer uses to supplement the base compensation that employees receive (Christofferson & Bob, 2006). Benefits can be both monetary and non-monetary, such as health insurance, paid leave, retirement programs, or flexible work arrangements and well-being programs in terms of increasing employee morale, satisfaction, and commitment (Nankervis et al., 2008). Fair pay treatment leads to higher motivation among employees (Taylor, 1911; Bakhtawar, 2016). Employees will hardly do the task if the remuneration does not justify it, regardless of the outcome. Employees who are given a monetary incentive will perform better in their jobs than those who are not. Incentives and bonuses motivate employees to apply more effort in their work, resulting in improved performance (Eisenhardt, 1989; Ghazanfar et al., 2011; Tran & Do, 2020). Hence, we proposed the following hypothesis:

H2: There is a significant relationship between compensation and benefits and work motivation.

2.2.3. Growth Opportunities

Growth opportunities (GO) refer to the development opportunities employees can get while in the company, including both self-growth such as the employees’ development in skills, knowledge, and job advancement such as promotions. Employees are more motivated by the growth and development opportunities provided by the company (Raval et al., 2014). Growth opportunity is considered a motivating factor according to the theory of Herzberg (1987). Improving the training and promotion opportunities of employees can increase their motivation to work. Previous studies also show that training and promotion opportunities have a close relationship with work motivation. Employees will feel more excited and motivated to work if their jobs provide them with opportunities to improve their skills and advance in their careers. The impact of growth opportunities on work motivation has been proven in various recent studies (Alshmemri et al., 2017). Thus, we hypothesize the following:

H3: There is a significant relationship between growth opportunities and work motivation.

2.2.4. Working Environment

Working environment (WE) refers to the physical condition of the employees’ workplace, in terms of convenience, safety, provision of proper work equipment, etc. Lighting, noise, hygiene, temperature, ventilation, and resources are all parts of the working environment. The working environment positively impacts employees’ motivation (Clark, 2003). A comfortable working environment provides an extra optimistic level of motivation. On the contrary, employees will perform poorly if they are uncomfortable or unhappy with their workspace (Hafeez & Panatik, 2018). Several studies indicated the influence of the working environment on employees’ motivation (Porter et al., 2016). Hence, we proposed the following hypothesis:

H4: There is a significant relationship between working environment and work motivation.

2.2.5. Leadership

Leadership (LS) is the process that influences existing activities and primarily conducts organizations in groups to achieve goals set from the beginning (Mitchell & Scott, 1987). Leaders can have a powerful impact on the outcomes of individuals, groups, and organizations (Pancasila et al., 2020). An organization needs a leader figure to be an example for its other internal members (Paais & Pattiruhu, 2020). He/ she is the one influencing others to understand and accept what needs to be done and how to do it. In another word, he/she manages to facilitate and motivate their subordinates, move individuals and groups to achieve shared objectives. Between leaders and followers are win-win relationships, each party raises one another to higher levels of morality and motivation (Burns, 1978). Appropriate and effective applied leadership styles give employees a sense of empowerment, which can lead to the improvement of employees’ performance (Guterresa et al., 2020). Numerous studies have demonstrated the positive impact of leadership on employees’ motivation (Hadi & Tola, 2019). Hence, we proposed the following hypothesis:

H5: There is a significant relationship between leadership and work motivation.

2.2.6. Goal system

A goal system (GS) refers to a clear and adequate set of goals for employees. Goals have motivational impacts. They direct attention and action (Locke & Latham, 2002). When goals are set, employees are motivated to develop strategies that enable them to achieve those goals. Employees provided with specific, difficult but attainable goals perform better than those given easy, nonspecific, or no goals at all (Lunenburg, 2015). The accomplishment of goals can lead to satisfaction and further motivation, and vice versa. According to goal setting theory, goals need to be specific, difficult but attainable, be accepted, and feedback must be provided on goal attainment. The relationship between goals system and work motivation has been tested in serval studies (DuBrin, 2012; Greenberg, 2011; Newstrom, 2011, Jiang et al., 2016). Hence, we proposed the following hypothesis:

H6: There is a significant relationship between goal system and work motivation.

2.2.7. Evaluation System

An evaluation system (ES) is a structure established to fairly evaluate the employees based on the established performance and evaluation standards, regardless of race, gender, age, and other discriminatory parameters. Well-designed and well-executed performance appraisals have a strong motivational impact on employees (Mehta, 2014). They are a kind of formal, significant, and enduring recognition from supervisors, underlying a message that the evaluated individuals are important and valuable. Performance evaluation is also motivational for employees who are seeking personal learning, growth, and development. When performance evaluation meets the employees’ needs such as gaining recognition, sensing achievement and competence, experiencing growth, and meeting objectives, it brings satisfaction to employees (Mehta, 2014). Previous studies have shown the relationship between the evaluation system and work motivation (Mathew & Johnson, 2015). Hence, we proposed the following hypothesis:

H7: There is a significant relationship between the evaluation system and work motivation.

2.3. Work Motivation and Job Performance

Job performance (JP) refers to the degree to which employees meet job requirements. Job performance is a means to reach a goal or set of goals within a job, role, or organization, but not the actual consequences of the acts performed within a job. Job performance is measured based on employee self-assessment. Employees’ performance is affected by work motivation. Better work motivation leads to better performance of employees (Robescu & Iancu, 2016). Highly motivated employees will be more active at work and more devoted to their jobs, which will result in the improvement of the overall performance. Effectively increasing performance by motivation is an effective policy adopted by many managers (Dien & Duyen, 2021). Previous studies have found the impact of motivation on employees’ performance (Nabi et al., 2017; Dien & Duyen, 2021). Jayaweera (2015) indicated that improving motivation will boost employees’ performance in the hotel industry. Motivation has a significant impact on job performance; increasing the level of motivation for employees will lead to an increase in the level of job performance (Veliu et al., 2017). Therefore, the study proposes the hypothesis:

H8: There is a significant relationship between work motivation and employee performance.

3. Research Methods

3.1. Measures

We used a structured questionnaire to collect data by survey method. The MOV construct was measured by four items derived from Inceoglu et al. (2012). The PP construct was evaluated by three items, the WE construct was measured by seven items, and the LS construct was evaluated by three items, adapted from Victor and Cullen (1988). The CB construct was assessed by four items based upon Williams et al. (2008). The GO construct was measured by seven items derived from Takahashi (2006). The ES construct was evaluated by four items, and the GS construct was assessed by three items, adapted from Najafi et al. (2011). The JP construct was measured by four items adapted from Koopmans et al. (2014). Respondents assessed all items on five-point Likert scales ranging from “strongly disagree” (1) to “strongly agree” (5). The final items of each construct are shown in Appendix 1.

3.2. Sample and Data

The back-translation method was adopted to ensure the validity of the questionnaire’s translation. First, we developed the questionnaire in English by adapting constructs and items from literature. Then, the English questionnaire was translated into Vietnamese by an experienced human resources researcher. The Vietnamese version was then translated back to English by another expert in human resources. This English version was checked against the original one to avoid discrepancies. A pilot test was also conducted to ensure the rationality and effectiveness of items in the questionnaires.

The subjects of the survey were middle managers of SMEs in Vietnam. The determined minimum sample size was 400 respondents, which is good for quantitative research (Comrey & Lee, 1992). Data was collected between 2018 and 2019 with the support of the Department of Industry and Trade, and the Department of Planning and Investment. Finally, there were 425 valid responses out of 500 distributed questionnaires (Table 1).

Table 1: Demographic Profile of Respondents

3.3. Data Analysis Methods

This study used the multivariate data analysis method to analyze collected data and test the proposed hypotheses. Particularly, we used exploratory factor analysis (EFA) to assess discriminant validity among constructs. The chosen criteria for EFA were Kaiser-Meyer-Olkin (KMO) is greater than 0.5, the p-value of Bartlett’s test is smaller than 0.05, the factor loadings of each item are smaller than 0.5, and the total variance explained (TVE) is greater than 50% (Hair et al., 2010).

Next, we use confirmatory factor analysis (CFA) to evaluate the model fit and the validity of each construct. The research model reaches the overall fit index if Chi-square/ df is smaller than 3, CFI, PPI, and IFI are greater than 0.9, and RMSEA is smaller than 0.08 (Kline, 2011). The constructs achieved convergent validity if the factor loadings of their items in CFA are greater than 0.6 (Hair et al., 2010).

The discriminant validity of each construct was assessed by comparing the correlations among the constructs with the value of 1. If the value of 1 does not include in the 95% confidence interval, the constructs reach the discriminant validity (Anderson & Gerbing, 1988). The composite coefficients and AVEs were used to assess construct reliability, with composite reliability coefficients greater than 0.6 and AVEs greater than 0.5 being the criteria (Hair et al., 2010). Finally, the proposed hypotheses were tested by a structural equation model (SEM) at the significance level of 5%.

4. Results

4.1. Reliability and Validity

Exploratory Factor Analysis

The EFA results after deleting unsatisfactory items met the criteria for ensuring the proposed model’s scales’ reliability. The KMO value was 0.5 and the p-value of Bartlett’s test was smaller than 0.05, the variance explained was larger than 50% and all factor loadings were greater than 0.5. Hence, there was internal consistency within each construct (Table 2).

Table 2: Reliability and Validity Test Results

Confirmatory Factor Analysis

The CFA results after deleting unsatisfactory items showed that the model had a good overall fit with the data: Chi-square/df = 2.891, CFI = 0.951, PPI = 0.932, IFI = 0.951, and RMSEA = 0.051. The factor loadings of items in each construct were greater than 0.6 showing that the items used in the constructs reached convergent validity. The composite reliability coefficients were greater than 0.6, and the average variance was greater than 50% showing that the constructs in the model were reliable (Table 2).

4.2. Discriminant Validity

The 95% confidence interval of the correlation coefficients did not contain the value of 1, which indicated that the constructs reached discriminant validity

4.3. Structural Model and Hypothesis Test

The SEM estimation results met the selected criteria (Chi-square/df = 2.421; CFI = 0.916, PPI = 0.912, IFI = 0.916l; RMSEA = 0.068). Thus, the proposed model was fit with actual data.

The findings showed that there are four factors that positively impact work motivation which are philosophy and policy, salary and benefits, leadership, and goal system; and work motivation has a positive influence on job performance (β > 0, p-value < 0.05). Meanwhile, the impact of growth opportunities, working environment, and evaluation system on work motivation was insignificant at the significant level of 0.05 (p-value > 0.05). Thus, we accepted hypotheses H1, H2, H5, H6, H8, and rejected H3, H4, and H7 (Table 3).

Table 3: The SEM Analysis Result

5. Discussion

Although work motivation is a rather familiar topic, there has not been much research on work motivation in SMEs. In this regard, our study examined organizational factors that improve work motivation and the impact of work motivation on job performance at SMEs in Vietnam.

There were 4 out of 7 proposed organizational factors that positively impact work motivation, which are (1) philosophy and policy, (2) compensation and benefits, (3) goal system, and (4) leadership. Philosophy and policy had the strongest effect of 4 factors. This is the factor that has the widest and most common impact in an organization, a guideline for every behavior of organizational members. A good, detail, and complete set of philosophies and policies are easier to understand and implement. If employees are clear that their company policy and philosophy are in line with their values, they might feel more engaged and motivated in their work. The second important factor is compensation and benefits. A well-paid job with attractive payment policies will make employees feel satisfied and want to keep the job and put more effort into their work. The third important factor is the goal system. A clear set of goals let employees know what they should complete to get reward and urge them to attain the goals. The last is leadership. A suitable leadership fosters a positive working environment for employees and brings them together to accomplish mutual goals, allowing them to contribute more. These results pointed out that clear and sound philosophy and policy, reasonable remuneration, appropriate and effective leadership, and a clear goal system are significant to employees’ work motivation in SMEs. The findings are consistent with those of previous studies showing an association between work motivation and philosophy and policy (Ganesh & Indradevi, 2015), salary and benefits (Ghazanfar et al., 2011), leadership (Hadi & Tola, 2019), and goal system (DuBrin, 2012; Greenberg, 2011; Jiang et al., 2016).

The study also found the strong influence of work motivation on job performance. This finding is similar to Veliu et al. (2017), who reported a significant relationship between work motivation and job performance in SMEs. These findings imply that work motivation indeed influences job performance: the more motivated employees are, the higher they perform, and vice versa.

However, we found no significant impact of growth opportunities, work environment, and evaluation system on employees’ work motivation. This may be because, in Vietnamese SMEs employees’ perception, these are must-have characteristics of jobs, like in the Kano model (Kano et al., 1984). These characteristics are the requirements that the employees expect and are taken for granted. If done well, employees are just neutral, but if done poorly, employees will feel demotivated. In another word, a job must provide good growth opportunities, adequate working conditions, and a reasonable evaluation system.

6. Conclusion

This study makes several contributions to understanding the organizational factors that influence employees’ work motivation. We proposed and tested a theoretical model that includes antecedents of motivation from the aspect of an organization. We found positive impacts of philosophy and policy, compensation and benefits, goal system, and leadership on the work motivation of employees SMEs in Vietnam. In addition, the powerful impact of motivation on job performance was also confirmed, which enhances the previous study.

Based on the findings of this study, we suggest the following recommendations for top-level managers of SMEs to improve the work motivation of the employees. First, SMEs should develop and maintain a clear policy and philosophy, especially human resources policy that boosts employees’ work motivation. Second, enterprises should build comprehensive compensation and benefit system to attract and retain talented employees. Third, enterprises should ensure a clear and adequate goal system. Last, top-level managers should work on improving their leadership skills so that they can use appropriate leadership styles to motivate their subordinates.

Our study has some limitations that may provide opportunities for future research. First, the data set for this study was collected in Vietnam only; thus, future studies can extend the scope to various markets. Second, convenience sampling is likely to be vulnerable to selection bias and influence beyond the control of researchers, which may not produce representative results.