Dinkum Journal of Economics and Managerial Innovations (DJEMI).

Publication History

Submitted: October 02, 2023
Accepted:  October 20, 2023
Published: November 01, 2023

Identification

D-0182

Citation

Joanes Kaleli Kyongo (2023). Functional Competency Versus Organizational Performance. Dinkum Journal of Economics and Managerial Innovations, 2(11):620-624.

Copyright

© 2023 DJEMI. All rights reserved

Functional Competency Versus Organizational PerformanceOriginal Article

Joanes Kaleli Kyongo 1*

  1. School of Business and Economics, Daystar University, Nairobi – Kenya; jkyongo@daystar.ac.ke*             Correspondence: jkyongo@daystar.ac.ke

Abstract: The study sought to determine the effect of functional competency on organizational performance. The study was conducted among publicly quoted firms listed on the Nairobi Securities Exchange and the corresponding hypothesis was formulated and tested. The study targeted Human resource managers of each of the 61 firms listed on the Nairobi Securities Exchange as of 2021, and 34 of them responded. The study adopted positivism research philosophy and a descriptive survey design.  Statistical Package for Social Sciences, Version 25 was used to analyze data using linear regression analysis. Research findings from the test of the hypothesis established that functional competency had positive and significant effect on organizational performance. The study finding supports the Resource-Based View which underpins functional competencies and organizational performance.

Keywords: functional competencies, resource based view, organizational performance, nairobi securities exchange

  1. INTRODUCTION

Functional competency refers to “the set of professional skills, abilities, and knowledge which specifically deal with the technical aspects of the job, essential to carry out specific functional or task-related activities” (Janjua, Naeem, & Kayani, 2002, p.398) whereas organizational performance is a collection of financial and non-financial indicators which provide information on the degree of achievement of objectives (Lebans & Euske, 2006).  Functional competency is positively related to organizational performance (Tiraieyari, Idris, Hamzah & Uli, 2009).  Therefore, firms that direct their efforts towards development of functional competency of their managers tend to achieve better performance than their competitors. According to the Resource-Based View, Barney (1991), competence is a resource relevant for competitive advantage, since it supports competitive advantage as it mainly fulfills the requirements of being valuable, rare, in-imitable and non-substitutable. The Resource-Based View Theory justifies variations in performance between firms because of knowledge asymmetries (Hoopes, Madsen & Walker, 2003). Empirical research has shown positive effect of functional competency on organizational performance (Tiraieyari et al., 2009; Rezaie, Alambeigi, and Rezvanfar, 2008).  However, most of the cited studies targeted Education, Health and ICT sectors in the global west and no single such study in the Kenyan context known to the researcher, this study attempted to investigate the effect of functional competency on the performance of firms in different industries in Kenya as listed on the Nairobi Securities Exchange (NSE). According to Janjua et al., (2012), functional competencies include vocational and technical skills which are necessary for the accomplishment of task-related objectives of the job. Functional competence covers the “understanding of and proficiency in managing specific technical tasks” (Katz, 1974, p.91). Therefore, functional competencies encompass proficiency in technical tasks and areas appropriate to the specific job. Therefore, individuals who are functionally competent possess technical skills and knowledge which enable them to achieve the set targets in their technical areas. Organizations measure their performance differently. Some measures of organizational performance include return on investment, market share and market share growth (Droge & Vickery, 1994), sales, export proportions and growth rates in domestic and export sales growth (Sharma & Fisher, 1997). Other researchers have measured organizational performance through  profitability, gross profit, revenue growth, stock price, sales growth, export growth, liquidity and operational efficiency  and the Balanced Scorecard (Anwar et al., 2012;  Kaplan & Norton, 1992). The Balanced Scorecard adopted by the current study examined organizational performance from the perspectives of the customer, learning and growth, internal business processes, environment and finances (Anwar et al., 2012; Kaplan & Norton, 1992). The selected tool is appropriate for this study because it is a multidimensional approach, which does not leave any key technical area in the firm unturned (Anwar, Djakfar & Abdulhafidha, 2012). The Nairobi Securities Exchange, formerly known as Nairobi Stock Exchange until July 2011, was formally recognized in 1954 by the London Stock Exchange as an overseas stock exchange (Nairobi Stock Exchange, 1996).  It has grown to become a major financial institution as it has the fourth largest trading volume across the African continent and plays an important role in the growth of Kenya’s economy (Olweny & Kimani, 2011).  There were 61 companies listed on the Nairobi Securities Exchange as of 2021 (NSE Handbook, 2018).  Since these firms represent key sectors of the Kenyan economy, which include Agriculture, Commercial, and Services Sector, Financial, and Investment sector and Development industry and Allied sector, Nairobi Securities Exchange was the target for the study. The choice of listed companies for the study is further justified by the requirements for listing which include among others, that for a company to be listed, it must be a company limited by shares and registered under the Companies Act (Cap. 486) as a public limited company and to publish audited financial statements regularly in compliance with international financial reporting standards at the end of each accounting period (The Companies Act,2015). For the purpose of compliance, the listed firms issue their audited financial statements, which this study used to measure their financial performance (2017-2019). The group of firms listed on the NSE was considered appropriate for the study because various stakeholders expect them to perform and for them to perform satisfactorily, they would need resources especially human resources. The shareholders hold these companies accountable and expect them to facilitate generation of fair profits. The Government of Kenya aims to achieve and sustain an annual growth rate of 10% for it to realize the Kenya Vision 2030 (GOK, 2007) and therefore expects the NSE to play its role as a robust securities market. The NSE, on its part, expects the listed companies to perform and meet the expectations of the stakeholders by enhancing their efficiency and competitiveness. To address the expectations of stakeholders, managers of the listed companies should be competent enough to achieve organizational goals. Functional competency affects performance in organizations. A study by Tiraieyari et al. (2009) to establish the relationship between technical skill and job performance, showed that job performance of extension workers was positively related to technical aspects of their job (R- Squared = 0.356, p = 0.001).  Similarly, the result of regression analysis in the study of analysis of the job performance of the agricultural extension experts of Iran by Rezaie, Alambeigi, and Rezvanfar (2008) established that functional competency contributed 48.6% of the variance in job performance of extension workers. For the purpose of this study, the following hypothesis was formulated: Functional competency has a positive and significant effect on the performance of firms listed on the Nairobi Securities Exchange.

  1. RESEARCH METHODOLOGY

This study adopted a positivist philosophical tradition and a cross-sectional descriptive survey of all the 61 companies listed on the Nairobi Securities Exchange as of 2021. Primary data was collected from human resource managers or equivalent persons. Secondary data on financial performance (ROA) of Nairobi Securities Exchange listed companies was extracted from the audited accounts for a three-year period, 2017-2019. Instrument validation was achieved through validity and reliability tests. Professionals in human resource management censured content validity. The researcher confirmed face validity by checking the coverage of all the areas of investigation in the questionnaire and by adopting already tested instruments used by similar studies.  This was done to compliment the validity tests done by previous studies from which the research instrument was adapted.  A reliability test of the collected data was performed using Cronbach Alpha and the coefficient for functional competency and organizational performance was 80.3 above the minimum level (0.70) for acceptable reliability as suggested by Nunnally and Bernstein (1994). This means that the data collected was reliable for analysis.

3. RESULTS

The study used both descriptive and inferential statistics to analyze data from the questionnaires and from the published audited accounts. Simple linear regression analysis was used to establish the nature and magnitude of the relationship between the independent variable and the dependent variable and to test the predicted relationship. The value of R squared shows the amount of variation in the dependent variable caused by the independent variable. The Beta values show the amount of change in the dependent variable attributable to the amount of change in the predictor variable. The F-statistics measure the goodness of fit of the model. The statistical significance of the hypothesized relationship was interpreted based on R2, F, t, β and p values. The regression model used was: Y= β0+ β 1X1+ϵ, where Y=Organizational performance; β0= Intercept; β1= Coefficient; X1 =Functional competence and ϵ=Error term. The target population of the study was 61 companies listed on the NSE as of 2021. These companies form the unit of analysis for the study as each firm has a unique set of technical competencies.  Out of the 61 questionnaires issued to Human Resource Managers or equivalent officers, a total of 34 were filled and returned in a form usable for analysis, constituting a response rate of 55.7 %. The study response rate of 55.7 % was considered adequate for purposes of data analysis compared to a previous study done in the same area by Sagwa (2014) who had 60 %. The 34 firms that were surveyed represent the major sectors of Kenya’s economy. Frequencies and percentages were used to examine the distribution of companies listed on the NSE. Table 1 shows how the firms that responded to the study questionnaire are distributed per sector.

Table 01: Distribution of Companies by Ownership, Number of Employees and Year of Establishment

Ownership Frequency Percentage Year of Establishment Frequency Percentage
Locally Owned 23 67.65 1-30  3   9.82
Foreign Owned 11 32.35 31-60 18 51.94
Total 34 100 61-90  6 17.65
 

Number of Employees

Over 90  7 20.59
Less than 100 6 17.65 TOTAL 34 100
100 to 300 3 8.82  

 

 

 

 

 

301 to 500 5 14.71  

 

 

 

 

 

501 to 700 4 11.76  

 

 

 

 

 

Over 700 16 47.06  

 

 

 

 

 

TOTAL  34   100

As indicated in Table 1, firms listed on the NSE are either owned by locals or foreigners and their years of establishment and number of employees differ. The information on firm ownership shows that firms listed on the NSE may be classified depending on who owns a majority of shares between local and foreign investors. Those with over 50 % local ownership are referred to as majority locally-owned and those with over 50 per cent foreign shareholding are referred to as majority foreign-owned.  Out of the 34 that responded, 23(67.65%) were majority owned by local investors, whereas 11(32.35%) were majority owned by foreign investors. This implies that the NSE predominantly consists of locally owned companies. With regard to the level of employment, Table 2 shows that 47.06 per cent of the firms listed on the NSE had more than 700 employees. The figure further shows that cumulatively 73.53 % of the firms had more than 300 employees. The fact that there are 75.53 % of the firms with more than 300 employees implies that a majority of the firms listed on the NSE are large and mature. From the analysis, it is evident that firms that have been in existence for 1-30 years accounted for 9.82 %, 31-60 (51.94%), 61-90 (17.65 %) and over 90 years, (20.59 %). The analysis shows that most of the firms were between 31-60 years in terms of age. The fact that 90.18 % of listed companies on the NSE have been in existence for over 30 years implies that they are mature and established and must have developed appropriate management competencies to enhance their performance. The study sought to determine the effect of functional competency on the performance of firms listed on the Nairobi Securities Exchange. This was done by testing the hypothesis that functional competency has a significant effect on organizational performance by performing simple linear regression analysis.

Table 02: Simple linear regression results for the effect of functional competency on the performance of firms listed on the Nairobi Securities Exchange

      Model        R R Square Adjusted R Square Std. Error of the Estimate
          1     0 .771 0.470 0.433                   9.45692
ANOVA
Model Sum of Squares df Mean Square F Sig.
1 Regression 2346.253 1 2346.253 26.235 .000b
Residual 2861.865 32 89.433
Total 5208.118 33
Coefficients
Model Unstandardized Coefficients Standardized Coefficients t Sig.
B Std. Error Beta
1 (Constant) 42.260 11.924 3.544 0.001
Functional competency 14.863 2.902 0.671 5.122 0.000

Dependent Variable: Organizational performance

Predictor Variable: Functional competencies

  1. DISCUSSION AND CONCLUSION

From the results in Table 3, R=0.771, meaning that there was a strong positive correlation between the independent variable and the dependent variable. The R-squared is 0.470, indicating that 47 % of the variation in organizational performance is explained by variation in functional competency and 53 % is explained by other factors that are not part of the study. The ANOVA results indicate that the model is statistically significant (F= 26.235, p<0.05). The standardized coefficients show that the effect of functional competency on organizational performance is positive and significant (β=0.671, t=5.122, p<0.05). The beta value implies that for one unit increase in functional competencies, performance increased by 0.671. The findings therefore confirm the hypothesis that functional competency has a significant effect on the performance of firms listed on the NSE. The results of the analysis suggest that firms listed on the NSE should consider developing functional competencies to enhance their performance. The study findings agree with the result of a study by Rezaie et al. (2008) who established those functional competencies contributed 48.6 % of the variance in job performance of extension workers. Though the respondents were extension workers, the study compares favorably with the current study where functional competencies contributed 45 % of the variation in organizational performance. Consistent with the findings of the current study also are the results of a study conducted by Tiraieyari et al. (2009) which established that job performance of extension workers was positively related to technical aspects of their job (R- Squared = 0.356, p = 0.001). The study investigated the effect of functional competency on the performance of publicly quoted firms on the Nairobi Securities Exchange. The study was conducted through a cross-sectional descriptive survey design. The study employed both descriptive and inferential statistics to analyze the data. Simple linear regression analysis was used to determine the effect of functional competence on organizational performance. The study tested and confirmed the hypothesis that functional competency has a significant effect on the performance of firms listed on the Nairobi Securities Exchange. This implies that Nairobi Securities Exchange listed companies that invest in the development of functional skills of their managers expect an improvement in their performance.

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Publication History

Submitted: October 02, 2023
Accepted:  October 20, 2023
Published: November 01, 2023

Identification

D-0182

Citation

Joanes Kaleli Kyongo (2023). Functional Competency Versus Organizational Performance. Dinkum Journal of Economics and Managerial Innovations, 2(11):620-624.

Copyright

© 2023 DJEMI. All rights reserved