Journal of Entrepreneurship Education (Print ISSN: 1098-8394; Online ISSN: 1528-2651)

Research Article: 2018 Vol: 21 Issue: 1S

The Influence of Islamic HRM Practices on Organizational Learning and Its Impact on Environmental, Social and Religious Performance

Muafi, Universitas Islam Indonesia

Qurotul Uyun, Universitas Islam Indonesia

Abstract

This study focuses on the importance of Islamic HRM Practices (IHRP) in improving the performance of SMEs Batik, especially environmental, social and religious performance which mediated by organizational learning (OL). The object of study is SMEs batik in Pekalongan, Central Java Province which is well-known as a city that has a batik industry center and has been famous in the world. Pekalongan also has a religious community with the majority of Moslem. They are proven to live side by side harmoniously and can interact in business with Chinese and Arab ethnic. The sample of study is mostly the owners/managers of SMEs Batik which scattered from all SMEs Batik in 18 villages. The purposive sampling technique was conducted after the researcher had done the proportional stage of random sampling by taking 17 SMEs in each district. Completed questionnaires totaled 170 respondents. Statistical techniques using Partial Least Square (PLS). The result explains that organizational learning able to mediate the effect of Islamic HRM practices on environmental, social and religious performance. In improving the environment, social and religious performance SMEs should implement Islamic HRM Practices through mediating organizational learning role.

Keywords

Islamic HRM Practices (IHRP), Organizational Learning (OL), Environmental Performance (EP), Social Performance (SP), Religious Performance (RP).

Introduction

Empirical findings have proven that the implementation of the human resources practices plays role in improving organizational performance in small, medium or large businesses scale. The more effective the human resources, the more improve the organization performance. This study is focused on organizational performance which includes environmental, social and religious performance on Batik SMEs in Pekalongan, Central Java Province of Indonesia. Object of this study is selected based on the consideration that Pekalongan is known as worldwide batik city and has even been recognized as a creative city in Southeast Asia in the category of Craft and Folk Arts. Batik industry development continues to increase and has been inherited from one generation to the next. The purpose of this research is to test and analyze the effect of Islamic HRM practices toward environmental, social, and religious performance which mediated by organizational learning. Some empirical studies emphasize on the important aspect of the relationship pattern. The empirical proof has concluded that the practices of HRM in SMEs has an important effect in increasing organizational learning (Srivastava, 2014) and organizational performance (Timothy et al., 2011; Kerr et al., 2007; Zheng et al., 2007), environmental performance (Cordano et al., 2009), social performance (Adams, 2002; Turban & Greening, 1997), and also religious performance (Mitroff, 2003).

Literature Review

Islamic HRM Practices and Organizational Learning

SMEs are very important for managing knowledge. Sharing knowledge is an important thing so that there will be interaction and communication between individual and organization. Organization members have to spread knowledge they have known in order to give benefit for other members. Organization that has a long-term learning orientation is an investation and it will be able to increase organizational performance and competitive advantage in a long term (Lin, 2007; Reid, 2003). The research result from organizational learning toward SMEs in Indonesia is generally done by conducting a workshop and training that can give a benefit to increase its employee competency (Sampe, 2012).

Several studies that examine the effects of HR practices on organizational performance have been largely undertaken by researchers (Alleyne et al., 2005; Bou & Beltran, 2005; Edelman et al., 2005; Offstein, Gnyawali & Cobb, 2005; Muafi, 2009). Some of these researchers generally underline that human resource practices have an influence on organizational performance mediated by several dimensions such as competing strategies and organizational learning. Islamic HRM explains that organization members should not only be viewed as a servant, but they should be placed as valuable strategic assets and strong and dynamic assets (Beekun, 1997; Ab Rahman et al., 2013; Razimi et al., 2014). Ali (2009: Ab Rahman et al., 2013) adds that an employee must improve his skills, attitudes, abilities and knowledge to be able to contribute to the achievement of organizational goals.

The holy Al Quran and Hadith in Islam are the basis of Shariah principles related to the practice of aqidah (belief), worship (obligatory practice and sunnah) and muamalah (good relationship with human beings) (Beekun, 1997, Muafi, 2003). The importance of religious practice in business increases along with the increasing attention given to motivate employees (Ali, 2009; Muafi, 2003). Entrepreneur should facilitates employees through employee development such as training, special assignment, and mentoring. In addition, they must not discriminatebased on race, skin color, sex or religion (Azmi, 2010; Razimi et al., 2014; Rana & Malik, 2016). The practices of Islamic human resources can be assessed through compensation, selection, employee training, performance assestment, and Islamic work ethics. The spiritual dimension is also added in the Islamic spiritual motivation perspective to make Islamic HRM practices more comprehensive than the concepts conveyed by Maslow et al., which are oriented only on material aspects (Muafi, 2015). Work relationships are not only just written and covered in psychological contracts between individuals and employers, but also have a religious dimension (Rana & Malik, 2016).

Organizational learning is an interesting study to investigate because it can improve organizational performance and competitive advantage in facing the global market (Sutanto, 2017). Information and knowledge possessed by individuals will be better and more useful when individuals in organizations interact and exchange ideas so that they can work in synergy (Islam et al., 2015). The study results of Theriou and Chatzoglou (2008) have proven that organizational learning play role in mediating the relationship between human resource practices to organizational performance and organizational innovation.

H1: Islamic HRM Practices (ihrp) is able to improve Organizational Learning (OL) of Batik SMEs in Pekalongan

Organizational Learning and Organizational Performance (Environmental, Social and Religious)

The learning organization is an adaptive, flexible, and continuous learning organization to improve organizational performance through learning to its members (Islam et al., 2015; Rowley, 2006), empowering its members, and sharing discussions collective means and values (Islam et al ., 2013). Islam et al. (2016) explains that organizational learning culture (OLC) can be characterized as a skilled organization in creating, acquiring, transferring knowledge and modifying its behavior to reflect new knowledge and insights. Leaders need individuals to do the company activities well. If this is well established, the individuals will be automatically exposed to the information, values, and visions he or she has found (Islam et al., 2015; Rowley, 2006). Nowadays, the business world must consider the three interests namely market, social and environmental interests. These interests require companies to integrate stakeholder objectives as part of their way of conduct business. Planetary ethics requires businesses to operate within the social and physical boundaries of the earth (McDonough & Braungart, 2002). The advancement of the era and increasing awareness of environmental sustainability make consumers, employees, and investors consider the impact of business practices on stakeholders. This requires the creation of an awareness of greater relations one another. Companies also need to have an understanding of nature as well as global issues which involve feelings, intuition and thinking. Planetary ethics is a new paradigm design that need to understand by businessmen (McDonough & Braungart, 2002). Environmental performance is company’s activities related to environmental sustainability which presented in the form of environmental performance and reported to the parties who have an interest in the field of environment (Bewley & Li, 2000). Some researchers suggest that environmental management may be a tool that helps organizations to improve their competitiveness, work efficiently and have better economic performance (Ambec & Lanoie, 2008; Hart, 1996; Porter & Van der Linde, 1995; Trung & Kumar , 2005).

Social performance is the company's voluntary commitment for social development, which developed within the corporate social environment, and a responsible commitment to the society and social groups that interact with companies (Cuadrado-Ballesteros et al., 2017). Itis defining the company as a series of relationships, not only between owner and manager, but also with the parties or groups involved; employees, customers, suppliers, competitors, environment, and society (Adams, 2002). Nowadays, many scientists and practitioners are increasingly concerned about Corporate Social Performance (CSP). CSP is a measurable result of Corporate Social Responsibility (CSR) implementation and a construction that emphasizes corporate responsibility to many stakeholders, such as employees and the wider community, in addition to its traditional responsibilities to the economy shareholders (Turban & Greening, 1997). Corporate social performance is defined as the configuration of corporate social responsibility principles, social responsive processes, and observable results as they relate to public relations firms (Wood, 1991).

Businessmen who base their work on worship, will try as hard as possible to not violating work ethics, they even not thinking to commit fraud. On the other hand, not all religious-looking businessmen avoid cheating behavior. In some cases, a religious-looking businessmen is hiding his original behavior, or in other words, the businessmen covers his cheating behavior. It can be said that a person's religious level can not be measured simply by looking at the outward appearance of that person. This level of faith can only be measured by the businessman and Allah SWT. Mitroff (2003) explains that if a person and organization are spiritual and because of their belief they follow a higher set of ethical principles, then they can not deny the negative impact of their actions, especially those resulting in physical and social damage. McDaniel and Burnett (1990), in Aydem?r et al. (2010) corroborate the assertion that religiosity as a belief in God is accompanied by a commitment to follow certain principles set by God. The role of the individual in the company must be known by the company so that individuals can develop the knowledge they have for the good of the company. Individuals need support in improving their ability to evaluate experiences and not just repeating them. Finding from Mishina (2016) proves that organizational learning can improve organizational performance through four learning processes: intuition, interpreting, integrating and institutionalizing the individual, group and organization. This finding is reinforced by several other researchers that organizational learning can improve organizational performance (Vijande et al., 2017; Azizi, 2017).

H2: Organizational Learning (OL) is able to improve the Environmental Performance (EP) of SMEs Batik Pekalongan.

H3: Organizational Learning is able to improve the Social Performance (SP) of SMEs Batik Pekalongan.

H4: Organizational Learning is able to improve Religious Performance (RP) of SMEs Batik Pekalongan.

H5: Organizational Learning is able to mediate the effect of Islamic HRM Practices (IHRP) on the Environmental Performance of SMEs Batik Pekalongan.

H6: Organizational Learning is able to mediate the effectof Islamic HRM Practices (IHRP) on the Social Performance of SMEs Batik Pekalongan.

H7: Organizational Learning is able to mediate the effectof Islamic HRM Practices (IHRP) on the Religious Performance of SMEs Batik Pekalongan.

Research Methods

This research is conducted in Batik SMEs in Pekalongan City, Central Java Province in Indonesia. The population is all of the Batik SMEs in 18 sub-districts in Pekalongan City which have assets from 50 million to 2.5 billion and annual sales result of 300 milion to 50 billion. Researcher choose 17 SMEs in each sub-district. The sampling technique is using purposive sampling which is SMEs that have been operating at leaset for 5 years. There are 170 respondents that give their questionnaire back with complete answer (response rate 68%). The variable measurement scale is using Likert scale start ftom 7 (very strongly agree) to 1 (very strongly disagree). Structural Equation Modeling is solved using Partial Least Square (PLS). The result of validity and reliability test shows that all items and variables are valid and reliable. Before the hypothesis test was done, researcher did some test phases, and the result shows that the model is very good.

a) The result of Q2 predictive relevance model is 0.754. It means that the model is able to predict 75.4%, while the rest of 24.6% is caused by variables outside the model.

b) The Goodness of fit model value reaches 0.400 which is greater than 0.36 so that the model is large category.

Respondent’s Characteristics and Profile

The majority of respondents in this study are: the owner and manager of SMEs is 42.9%,; male is 81.8%; aged over 40 years is 44.7%; has been operating for 5-10 years is 59.4%; producing batik with 10-15 variation 56.5%, using 5-10 synthetic color is 80.6%, do not have own waste treatment is 51.2%.

Hypothesis Testing

This study uses Inner Model Test and Research Hypothesis through two stages: direct test and indirect test. The direct test can be seen in Table 1 and described as follows (Figure 1):

Table 1
Inner Model Test Results
Hypothesis Path Original Sample (O) Sample Mean (M) Standard Error (STERR) T Statistics (|O/STERR|) Sig.
1 IHRM -> OL 0.665 0.683 0.083 8.033 0.000 (H1 supported)
2 OL -> EP 0.443 0.473 0.14 3.165 0.002 (H2 supported)
3 OL -> SP 0.589 0.612 0.096 6.17 0.000 (H3 supported)
4 OL -> RP 0.401 0.428 0.128 3.133 0.002 (H4 supported)

Figure 1: Path Coefficient Diagram And Direct Effect Hypothesis Testing

The coefficient indirect effect path (mediation) test can be seen in Table 2 and described as follows:

Table 2
Coefficient Path Mediation Effect And Hypothesis Testing
Hypothesis Exogen Mediator Endogen Sobel Test (a x b) Result
axb Z-test p-value
5 IHRM OL EP 0.294 2.945 0.003 Mediating (H5 supported)
6 IHRM OL SP 0.261 2.609 0.009 Mediating (H6 supported)
7 IHRM OL RP 0.161 2.215 0.027 Mediating (H7 supported)

The overall explanation on the Tables 1 and 2 concludes that the overall study hypothesis is accepted in H1, H2, H3, H4 and H5.

Discussion and Implications

The results concluded that Islamic human resources practices contributes in improving organizational learning. In the context of SMEs, the sustainability of SMEs business is determined by the organization’s ability to maintain its business. Market competition requires companies to have more advantages over their competitors (Yuliansyah et al., 2017; Muafi et al., 2017). The rapid development of the market must be balanced with the knowledge within the company. In this case, SMEs must produce Batik to meet consumer demand, maintain quality, and continue to innovate with products and services. SMEs Batik in Pekalongan needs to perform HR practices based on Islamic principles in order to create organizational learning processes and activities continuously.

SMEs conducts environmental performance by implementing initiatives in the company's environmentally friendly operations such as good waste disposal, use of environmentally friendly raw materials, maintaining cleanliness of the business environment in order to be healthy and not slum. It is important since almost 80 percent of SMEs Batik Pekalongan respondents do not have waste disposal in disposing their products, they are using 5-10 synthesis colors (Muafi, 2017; Kollmus & Agyeman, 2002; Muafi et al., 2018; Diharto et al., 2018a). Education and the formation of pro environmental behavior should conducts from an early age so that the future generation will care about waste pollution, sanitation and clean environment. Ownership of IPAL (Installation of waste water treatment) for the batik waste disposal is very urgent considering that many SMEs throw them in the river and make the river dirty, smelly and has consentrated water (Solopova, 2008; Muafi, 2017; Muafi et al., 2018) suggests that the implementation of environmental concerns requires a high level of commitment from businessmen. Environmental concerns lead to significant positive changes in market appraisal and vice versa, if the company is not concerned with the environment, it will have a significant negative effect on overall company performance (Klassen & McLaughlin, 1996; Muafi, 2016; Muafi et al., 2016a: 2016b).

In terms of social performance, refers to Thomas and Kumar, 2016; Muafi, 2016 that social performance can serve as a determination and evaluation of geographical, individual, pro-poor, individual objectives that involve traditional, quality, innovative and nonfinancial services, which generate economic benefits for customers, customer participation, and empowerment. In social aspect perspective, Batik SMEs in Pekalongan is famous known as harmonious even united to improve social welfare of the surrounding community. The Pekalongan society known not give up easily and always abstain from unemployment. They help each other and help employees who have economic limitations. Science and knowledge about batik is often inherited to the organization’s members without feeling any sense of competition and not stingy to share the knowledge. Even the craftsmen or employees who want to get out of the company and want to become a skipper or batik businessmen are also welcome. They have principle that 'the method can be imitated but the livelihood of God the Creator of the Universe'.

This principle indirectly signifies that the religiousity aspect of Pekalongan society is very strong. It comes from the their origin history as coastal community that since the beginning is the majority of Muslims. They are taught to live harmonious, mutual cooperation, and side by side, despite different religions, beliefs or ethnicity. They can run and deal business transactions with Arabs and Chinese ethnic. They actively engage in social activities and make an extra expenses such as charitable giving, education assistance for employees and other social activities. Besides they believe that it has become a habit that helping people and employees is a charitable field and as a savings forthe afterlife. Religious beliefs and teachings make them have belief that if they work hard and trust in Allah, it will facilitated and smoothed their business. It seems that religion has been a meaningful framework for the implementation of behavior (Muafi, 2015; Clark & Dawson, 1996) and all the practices in life which are suggested by the Qur'an and Hadiths. This is apparent with the religious activities they undertake such as performing ritual prayers in congregation, following regular religious studies, performing social finance (shodakoh) and other religious activities. They believe that if social and religious activities are conducted with routine and sincere, it will bring satisfaction, tranquility, and happiness in life.

References