Int. J. Innovation and Learning, Vol. 19, No.

1, 2016 25

Effects of employee retention practices on perceived

firm and innovation performance

Subhash C. Kundu* and Neha Gahlawat

Haryana School of Business,
Guru Jambheshwar University of Science and Technology,
Hisar-125001, Haryana, India
Fax: +91-1662-276240
Email: sckundu@yahoo.com
Email: neha_gahlawat@yahoo.com
*Corresponding author

Abstract: The current study purports to establish the linkage between various
retention practices and perceived firm performance and innovation
performance. Using multiple regression analysis on a sample of 563
respondents from 204 organisations operating in India, the study has
highlighted that employee retention practices in the form of development and
empowerment and supportive organisational culture are positively related to
perceived firm performance. Findings have also highlighted the positive
relationship between development and empowerment and innovation
performance. However, no such relationship has been found between
supportive organisational culture and innovation performance. Implications for
HR practitioners and further researches are discussed.

Keywords: retention; firm performance; innovation; development and

empowerment; supportive culture; India.

Reference to this paper should be made as follows: Kundu, S.C. and

Gahlawat, N. (2016) Effects of employee retention practices on perceived firm
and innovation performance, Int. J. Innovation and Learning, Vol. 19, No. 1,
pp.2543.

Biographical notes: Subhash C. Kundu is a Professor in the Haryana School of

Business, Guru Jambheshwar University of Science and Technology, Hisar,
Haryana, India. Currently, he is the Director of Haryana School of Business. He
received his PhD degree from Kurukshetra University, India, on Japanese
Human Resource Management. He has authored and edited ten books. He has
published papers on HRM, entrepreneurship, information management, and
international management. His research papers have been accepted in
international conferences held in Malaysia, Korea, Hong Kong (China), USA,
Slovenia, Spain, Thailand, Australia, and India. His areas of interest are human
resource management, strategic management, international management,
information management, and entrepreneurship.

Neha Gahlawat is a Research Scholar, pursuing her PhD degree from Haryana
School of Business, Guru Jambheshwar University of Science and Technology,
Hisar, Haryana, India. She has published four research papers. Her research
papers have been accepted and presented in national and international
conferences held in India.

Copyright 2016 Inderscience Enterprises Ltd.

26 S.C. Kundu and N. Gahlawat

1 Introduction

With passing times, significance of traditional sources of competitive advantage like

natural resources, technology and economies of scale to the organisational success has
been declining due to their easy availability and imitation. The resource-based view of
the firm (Barney, 1991), a prominent research concept claims that sustained competitive
advantage can only be achieved through idiosyncratic and inimitable internal assets. In
this regard, Pfeffer (1994) has stated that human resources (HR) can be considered as the
organisations greatest asset since they comprise of an organisations intangible,
irreplaceable and un-imitable resources. However, fierce competition and greater
employment fluidity have made getting and retaining this important asset a major
challenge for the organisations (Fegley, 2006).
Whenever an organisation loses a critical employee, there occurs a negative impact
on innovation and perhaps, there are chances of inconsistency in providing services, slow
implementation of new programs, and major delays in the delivery of services to
customers (Abbasi and Hollman, 2000). It is assumed that unnecessary employee
turnover often have extreme consequences and it may endanger efforts to attain
organisational objectives as well. In India only, a 25% difference in attrition rate
generates a million-dollar organisational expense to reinstate these employees for every
50 positions in the organisation (Doh et al., 2011). Ghosh et al. (2013) opine that
employee departure causes drop in productivity levels and simultaneously, increases the
cost. They believe that it may benefit competitors as they can secure an edge by
potentially gaining these human assets. On the same line, Juhdi et al. (2013) state that
losing good employees leads to reduction in productivity and quality which in turn, can
adversely hamper an organisations competitive advantage. Even the most proficient
organisations unable to bear the damages, if the failure occurs in implementing effective
employee retention strategies (Gberevbie, 2010). Retaining talented employees has been
established as a key ingredient for achieving competitive advantage particularly in
knowledge-based Indian organisations (Bhatnagar, 2007). Srivastava and Bhatnagar
(2008) believe that a well defined and well executed retention strategy definitely yields
competitive advantage to the organisations. By gaining an understanding of the
importance of the retention concept, this paper mainly aims to investigate the relationship
between employee retention practices and firm and innovation performance. No
empirical study has investigated the effects at such a broader level, especially in
developing countries. This underlines the relevance of studying the effects of employee
retention practices on firm performance in Indian context. The study will also look for
some well selected differences in retention practices employed by Indian organisations
and their effect on performance with regard to the organisations nature, ownership as
well as industry.

2 Theory and hypotheses

2.1 Employee retention

In recent times, employee retention has become a popular concept within HRM literature.
Now, the term retention not only encompasses its general meaning, i.e., continuation,
holding and preventing from separation, but also hold a new edge and that is securing
 Effects of employee retention practices 27

employees in an organisation (Yamamoto, 2011). Grounded with the notion of strategic

HRM, the retention of the talented employees is predicted as one of the key functions that
HRM is willing to play strategically in organisations (Bhatnagar, 2004). According to
Frank et al. (2004), retention is defined as an effort by an employer to keep desirable
employees in order to achieve specific business objectives. In the retention concept,
organisations are the main actors and retention is specifically considered as an
organisational management issue which can be stated as an array of human resource
management policies for retaining the current or expected high-performing employees
within organisations for long periods of time, enabling them to exercise or develop their
capabilities (Yamamoto, 2009). On the same line, Cappelli (2000) refers retention as the
portfolio of HR practices that organisations develop to reduce voluntary turnover rates.
The extant literature depicts the consensus among various authors regarding the main
strategies responsible for staying of employees in the organisations. In a study of 444
junior and middle level managers in Indian organisations, Ghosh and Sahney (2011) have
explored that the designing of managerial jobs via balancing both the organisational
social and technical subsystem elements can help in achieving managerial retention.
Nazia and Begum (2013) have emphasised upon implementation of three Rs, i.e., respect,
recognition and rewards as they improve retention of employees in Indian MNCs.
Govaerts et al. (2011) believe that paying attention to learning of employees results in
better retention. Similarly, Echols (2007) has also found that learning and development
process is a strong retention practice but when it get combined with selective promotion
and salary action. Through a survey of 149 managers in Spanish SMEs, Cegarra-Leiva
et al. (2012) indicate that existence of positive and supportive organisational values for
work life balance plays a major role in enhancing their retention in SMEs. However,
Thite (2010) believes that though the retention strategies across different occupational
groups and industries have many common features such as competitive pay, supportive
organisational climate, and opportunities for learning and development, they need to be
more evidence-based and context-specific as well.

2.2 Firm performance

A burgeoning body of literature have attempted to determine the so-called linkage
between HRM practices and firm performance (Alfes et al., 2013; Macky and Boxall,
2007; Maier et al., 2014). Though, what to consider for measuring firm performance is an
issue of never ending debate. Firm performance is a very wide concept which has been
used interchangeably with the terms like productivity, efficiency, effectiveness and more
recently, competitiveness and innovativeness. Studies assess variety of performance
measures including financial performance (Huselid et al., 1997), productivity (Guthrie,
2001), absenteeism (Guest and Peccei, 1994), quality of product and service (MacDuffie,
1995), customer satisfaction (Rogg et al., 2001), employee attitude (Harley, 2002;
Ramdani et al., 2014), accident rate (Preuss, 2003) and perceived firm performance
(Delaney and Huselid, 1996; Som, 2008). On the basis of Dyer and Reeves (1995) study,
performance outcomes of HR practices can be differentiated as financial outcomes (e.g.,
profits, sales and market share), organisational outcomes (e.g., productivity, quality, and
efficiency) and HR outcomes (e.g., satisfaction, commitment and intention to quit). Sels
et al. (2006) suggest that firm performance can be measured at hierarchical levels. The
three levels which they have introduced are behavioural outcomes (voluntary turnover);
28 S.C. Kundu and N. Gahlawat

employees performance (labour productivity) and higher level firm performance

(financial performance). The point is that the differences exist when such measures are
operationalised by firms (Boselie et al., 2005).

2.3 Innovation performance

Innovation performance, entailing the development of new products, services or markets
as well as establishment of new management systems, is the most important determinant
of sustainable competitive advantage (Hurley and Hult, 1998). Orientation towards
innovation has increased considerably as following new trends and maintaining good
position in the market has become a necessity for organisations these days (Drejer, 2008).
Through a study of 54 Indian corporations, Som (2002) has revealed the four important
changes that have generated the need for continuous and rapid innovation in Indian
organisations, i.e., intense competition, well sophisticated technology, increased turmoil
in product market environment, and higher growth potential. On the same line, Agarwala
(2003) has also stated that competitive pressures have forced Indian organisations to
become more innovative as well as proactive since it has become a necessity for survival.
According to Chen and Huang (2009), there are two dimensions of innovation
performance, i.e., administrative innovation performance and technical innovation
performance. However, Cooke and Saini (2010) have suggested four dimensions to
measure the extent of innovation in an organisation and these are product, production
method, business process, and innovations related to customer services. Verhees and
Meulenberg (2004) have stated that innovation performance can be effectively measured
by considering efficiency of an organisation in developing new products or services
relative to its competitors.

2.4 Retention practices and performance linkage

Prior empirical attempts have explored that formulation and implementation of a robust
retention strategy helps in creating a stable workforce by retaining the critical employees
and therefore, helps in attaining superior performance over competitors (Juhdi et al.,
2013; Gberevbie, 2010). According to Gberevbie (2010), when an organisation adopts
appropriate employee retention strategies like good organisations image, employee
participation in decision making, competitive salary package, and better treatment of
employees, there is a positive impact on organisational performance. In a survey of 4,811
employees, Doh et al. (2011) suggest that the organisational actions which an
organisation put into use to encourage employee engagement and retention support the
firms financial performance. Kundu and Vora (2004) state that developing and retaining
a talented workforce helps an organisation in sustaining competitive advantage through
effective delivery of services.
Considering the importance of high qualified workforce, Barney (2001) states that
nurturing and retaining them is very important to gain an edge over competitors. In a
meta-analysis across a range of industries, Cotton and Tuttle (1986) have found that
practices like fulfilment of expectations, work-group cohesion and opportunities for
advancement are highly related to employee turnover. Kwon and Rupp (2013) suggest
attracting and retaining high performers through investments in selection, training and
development, and incentive-based pay definitely lead to improved firm performance. It is
apparent that prior research interests have been mainly limited to the studies of retention
 Effects of employee retention practices 29

practices in relation with few aspects of firm performance. Hence, with the help of above
literature, we raise the following hypotheses:
H1 The employee retention practices are positively related to perceived firm
performance.
H1a Development and empowerment-based employee retention practices are positively
related to perceived firm performance.
H1b Supportive organisational culture-based employee retention practices are positively
related to perceived firm performance.
A number of studies have conceptualised that HRM practices certainly have impact on
various aspects of innovation (de Leede and Looise, 2005; Jrgensen et al., 2008).
According to Gupta and Singhal (1993), human resource management is generally
viewed as predecessor of innovation. It is due to the fact that capability to innovate in an
organisation depends upon its employees competences and their motivation; and these
are the HR practices like empowerment, performance appraisal and compensation that are
held responsible for change in employee attitudes and behaviour (Martell and Carroll,
1995). Moreover, the adoption and implementation of HRM practices that put emphasis
on the strategic value of employees help in eradicating the factors proving hindrance to
innovation (Becker and Huselid, 2006).
In a quantitative study of semiconductor design industry in Taiwan, Tsais (2006) has
deducted that effective use of employee empowerment practices is positively related to
innovations in an organisation. Similarly, Jimnez-Jimnez and Sanz-Valle (2008) have
confirmed that adoption of practices like internal career opportunities and incentive-based
compensation provide opportunities for innovation. In addition, through a survey of 1,900
Danish companies, Laursen and Fosss (2003) have also explored that superior innovative
performance can be attained with adoption of HRM practices especially training.
However, Beugelsdijk (2008) has established that employment insecurity is negatively
related to organisational innovation. Indeed, studies have found the link between HR
practices like employee empowerment, job rotation, employment security, and the use of
career development programs and innovation performance (Beugelsdijk, 2008; Jimnez-
Jimnez and Sanz-Valle, 2008). Hence, on the basis of above literature, following
hypothesis can be raised:
H2 The employee retention practices are positively related to innovation performance.
H2a Development and empowerment-based employee retention practices are positively
related to innovation performance.
H2b Supportive organisational culture-based employee retention practices are positively
related to innovation performance.

3 Research methodology

3.1 Sample
The present study employed a questionnaire survey approach to collect the data for
testing the research hypotheses. Primary data based on 563 respondents from 204 firms
30 S.C. Kundu and N. Gahlawat

was gathered and analysed. Firms were selected randomly and respondents from these
firms were contacted by using both random and convenience methods. The distribution
and characteristics of sample can be seen through Table 1.
Table 1 Distribution and characteristics of the sample

Variables Categories Number % Average

1 Ownership
Organisations Indian 98 48.04
Multinational 106 51.96
Total 204 100.0
Managers Indian 270 48.0
Multinational 293 52.0
Total 563 100.0
2 Nature
Organisations Manufacturing 97 47.55
Service 107 52.45
Total 204 100.0
Managers Manufacturing 270 48.0
Service 293 50.2
Total 563 100.0
3 Oraganisation size 37,948.84
4 Gender Male 413 73.4
Female 150 26.6
Total 563 100.0
5 Designation HR 223 39.6
Non-HR 340 60.4
Total 563 100.0
6 Age Managers 31.04
Organisation 40.63
7 Work experience 7.18
8 Industry ITES 83 14.7
Automobile 90 16.0
Electronics 40 7.1
Pharmaceutical 35 6.2
Banking and finance 47 8.3
Foods and beverages 30 5.3
Hospitality 30 5.3
Construction 30 5.3
Media and entertainment 36 6.4
Telecom 32 5.7
Others 110 19.5
Total 563 100.0
Source: Author
 Effects of employee retention practices 31

Table 1 showed that the sample included both Indian companies (48.04%) and
Multinational companies (51.96%), further, managers sampled in Indian companies were
48.0% and in MNCs were 52.0%. According to the nature of the organisations, the
sample included 47.55% manufacturing companies and 52.45% service companies and
managers sampled in manufacturing companies were 48.0% and managers in service
companies were 52.0%. On an average, there were 37948.84 employees per organisation.
The sample consisted of both male (73.4%) and female (26.6%) managers/ employees.
Out of the total sample, 39.6% were HR managers and 60.4% were non-HR (line)
managers. Average age of the respondent employees/managers was 31.04 years whereas
average age of the organisations was 40.63 years. Average total work experience of the
managers in the corporate sector was 7.18 years. Considering the industry, 14.7% of the
respondents belonged to ITES industry, 16.0% to automobile, 7.1% to electronics, 6.2%
belonged to pharmaceutical, 8.3% to banking and finance, 5.3% to food and beverages,
5.3% to hospitality, 5.3% to construction, 6.4% belonged to media and entertainment,
5.7% to telecom, and rest of the 19.5% belonged to miscellaneous industries.

3.2 Measures
3.2.1 Employee retention practices (independent variables)
For this study, in addition to general information about the respondents and the
organisations, a nine item measure of retention practices was used for collecting data
from organisations operating in India. The nine items borrowed from the literature were
career development programs, faster promotions, clear specification of roles and
responsibilities, greater work autonomy, sharing of business information, supportive
work culture, pleasant work environment, and job security (Agarwala, 2003; Musser,
2001). Respondents were asked to give their opinions on a five-point Likert scale ranging
from strongly disagree (1) to strongly agree (5), concerning the extent to which their
companies adopted these retention practices. The measure items can be seen through
Table 2.

3.2.2 Firm and innovation performance (dependent variables)

To determine the performance of the responding firms, two performance measures were
used in this study and they were: Perceived firm performance and Innovation
performance. The dependent variable Perceived firm performance was a composite
measure that included eight items: quality, productivity, profitability, customer service,
market share, return on equity, financial strength, and revenue/sales (Khandwalla, 1977;
Som, 2008). To measure performance, we settled on the perceptual measure for a number
of reasons. According to Hoskisson et al. (2000), factors like shortage of market-based
financial reporting, inefficient regulatory mechanism and vagueness in financial reporting
restrict the measurement of financial indicators in emerging economies. It is true that
sometimes, perceptual measures also have limitations in the form of increased
measurement error and the potential for common method bias. However, it has been
found that only limited biases are related with self-reported firm performance data (Wall
et al., 2004). Most of the studies using perceptive data have demonstrated their validity
and suitability in measuring firm performance, while claiming that there exist a high
correlation between perceptual measures and objective measures of firm performance
32 S.C. Kundu and N. Gahlawat

(Geringer and Hebert, 1991; Venkatraman and Ramanujam, 1986). The eight items on
perceived firm performance were measured on a five-point Likert scale ranging from 1
(much lower) to 5 (much higher). The respondents were asked to evaluate how their
companies were performing in comparison with competing organisations over the past
three years in the same industry.
Innovation performance was a single item measure. The respondents were asked to
evaluate how their companies were performing in developing new products, processes,
services, and technologies relative to its competitors over the past three years (Verhees
and Meulenberg, 2004). Again, to measure innovation performance, we adopted the
perceptual method as in the case of firm performance.

3.2.3 Control variables

Three variables were chosen as control variables, including nature, ownership and
industry (Chen and Huang 2009; Zhang and Morris, 2014). According to Chen and
Huang (2009), an organisation innovation performance may vary, depending upon the
industry. Kim et al. (2010) have found ownership as a valid moderator in HR practices
and performance research. Although there is not a single mode of classifying the various
types of industries, here, industry was broadly classified into ITES, automobile,
electronics, banking and finance, foods and beverages, hospitality, pharmaceutical,
automobile, construction, media, and others. Other control variables included in the
analysis were nature of the companies (manufacturing and service), and ownership of the
companies (Indian and MNC).

3.3 Statistical methods

Statistical tools like factor analysis, correlations and regression analysis were used for
analysis of gathered data. Factor analysis was used to reduce data by bringing out the
broader dimensions. Correlations were used to see the relationship among various factors
and then, regression analysis was adopted to quantify the effects of employee retention
practices on perceived firm performance and innovation performance. Cronbach alpha
values were also calculated to see the internal consistency and reliability of the measures
and the data.

4 Results and discussion

A total of nine variables regarding retention practices were subjected to principal

components factor analysis with varimax rotation by using the criterion that factors with
eigenvalue greater than 1.00 were retained. For stating the factors clearly, loadings
exceeding 0.550 were considered and included in a factor. Though, Harman (1976) has
suggested that in order to outline the procedure for approximating standard error of factor
loadings, loadings greater than 0.29 were considered significant at the 0.05 level. The
value of commonalities ranged from 0.443 to 0.800 for various variables. The extracted
two factors have eigenvalues 1.096 and 4.364, explaining 60.675% of the variance.
Table 2 shows the factors, loadings for all variables, eigenvalues and percentage of
variance explained by each factor. The two derived factors were considered as sub-scales
and used for further analysis. The first factor named as Development and
 Effects of employee retention practices 33

Empowerment loaded significantly with six practices/variables like career development

programs, faster promotions, provision of competitive salaries, clear specification of roles
and responsibilities, greater work autonomy, and sharing of business information. It
showed the comprehensiveness of the retention program practiced by companies. Second
factor was described as Supportive organisational culture. The variables namely
supportive work culture, pleasant work environment, and job security were loaded
significantly on this factor. Table 2 shows Cronbach alphas for the subscales, both of
which showed high reliability, having values 0.821 and 0.825, respectively. The alpha
value for full scale was 0.866. All alpha values were higher than the suggested value of
0.70 (Hair et al., 1998).
Table 2 Factor loadings of varimax rotated principal components

Percent of Cronbach
Factors Loadings Eigenvalue
variance alpha
F1 development and empowerment 4.364 32.440 0.821
Use of career development programs for the 0.817
satisfaction of employees
Faster promotions (internal) to the employees 0.789
Provision of competitive salaries to the 0.636
employees
Clear specification of roles and responsibilities 0.611
Greater work autonomy is provided 0.604
Sharing of business information with 0.553
employees
F2 supportive organisational culture 1.096 28.235 0.825
Existence of culture that makes employees 0.873
stay in the organisation
A pleasant work environment is developed in 0.803
order to retain the employees
Commitment to provide job security 0.769
Total scale 0.866
Source: Author
Table 3 shows the single extracted factor related to firm performance, loadings for all
variables, eigenvalue and percentage of variance explained by the factor. The extracted
factor has eigenvalue 4.954, explaining 61.930% of the variance. The factor named as
Perceived firm performance loaded significantly with eight variables, i.e., quality,
productivity, profitability, customer service, market share, return on equity, financial
strength, and revenue/sales. The alpha value for the scale was 0.912, indicating a very
high reliability (Hair et al., 1998).
Table 4 presents the descriptive statistics and correlations among variables. These
correlations supported the hypothesised linkage between employee retention practices,
perceived firm performance, and innovation performance. As high correlation had been
found among some variables (see Table 4), there might emerge the problem of
multicollinearity, affecting signs and significance of the regression coefficients. Variance
inflation factors (VIFs), average VIF and tolerance statistics were calculated to examine
34 S.C. Kundu and N. Gahlawat

the degree of multicollinearity in regression equation. The values of the VIF statistics
associated with the predictors found within the range of 1.01 to 1.61 that were clearly
within acceptable limits (Hair et al., 1998). The calculated average VIF, i.e., 1.299 was
not substantially greater than 1 and therefore, regression was not biased (Bowerman and
OConnell, 1990). Also, the tolerance values associated with the predictors were greater
than 0.6 which obviously depicted that this statistic was not the source of the problem.
Tolerance below 0.2 indicates the problem of multicollinearity (Menard, 1995). Hence,
there was no need for concern with respect to multicollinearity problem in the specified
equations.
Table 5 summarises the results of regression analysis regarding the effects of
employee retention practices on perceived firm performance as well as innovation
performance. Model 1a and 1b were taken as the base models that included the control
variables. Both models were found significant according to F statistics. Industry showed
significant impact on perceived firm performance ( = 0.097, p 0.05) as well as
innovation performance ( = 3.634, p 0.001). Other control variables, i.e., nature and
ownership of the firm did not show significant effects on perceived firm performance and
innovation performance. Both models 2a and 3a captured the direct effects of employee
retention practices on perceived firm performance. They both were found significant at
p 0.001 level (considering the F-statistics). Coefficients of development and
empowerment factor, supportive organisational culture factor and overall employee
retention practices were found positive and significant for perceived firm performance
( = 0.400, p 0.001; = 0.118, p 0.05; and = 0.475, p 0.001, respectively).
Accordingly, the results supported the Hypotheses 1, 1a and 1b. model 2b and 3b
highlighted the direct effects of employee retention practices on innovation performance.
Both models were found significant at p 0.001 level (considering the F-statistics).
Coefficients of development and empowerment factor and overall employee retention
practices were found positive and significant for innovation performance (= 0.386,
p 0.001; and = 0.380, p 0.001, respectively). Supportive organisational culture
factor was not found significant for innovation performance, though, correlation was
found between the two variables (r = 0.26, p 0.01). Hence, the results supported the
Hypotheses 2 and 2a only. Hypothesis 2b was not supported.
Table 3 Factor loadings of varimax rotated principal components

Percent of Cronbach
Factors Loadings Eigenvalue
variance alpha
Perceived firm performance 4.954 61.930 0.912
Financial strength 0.835
Profitability 0.827
Return on equity 0.791
Revenue/sales 0.791
Market share 0.788
Productivity 0.774
Customer service 0.763
Quality 0.720
Source: Author
 Table 4

No. of
Variables Mean S.D. 1 2 3 4 5 6 7
items
1 Ownership - 1.52 0.50 -
2 Nature - 1.52 0.50 .05 -
3 Industry - 5.76 3.72 .35*** .05 -
4 Development and 6 3.59 0.64 .14*** .01 .02*** -
empowerment
5 Supportive organisational 3 3.78 0.72 .03 .08* .06 .59*** -
Effects of employee retention practices

culture
Means, standard deviations and correlations

6 Overall employee retention 9 3.65 0.60 .12*** .03 .14*** .95*** .82*** -
practices
7 Perceived firm 8 3.92 0.61 .07* .04 .11*** .48*** .35*** .48*** -
performance
8 Innovation performance 1 3.83 0.81 .12*** .01 .18*** .04*** .26*** .40*** .52***
Notes: ***p .01, **p .05, *p .10.
Source: Author
35
 36

Table 5

Dependent variable
Independent variables Perceived firm performance Innovation performance
Model 1a Model 2a Model 3a Model 1b Model 2b Model 3b
Constant 4.004*** 2.308*** 2.308*** 3.826*** 2.050*** 2.050***
Ownership 0.038 0.004 0.001 1.492 0.027 0.036
Nature 0.034 0.050 0.055 0.437 0.010 0.001
S.C. Kundu and N. Gahlawat

Industry 0.097* 0.037 0.041 3.634*** 0.109** 0.116**

Development and empowerment - 0.400*** - - 0.386*** -
Supportive organisational culture - 0.118* - - 0.020 -
Overall employee - - 0.475*** - - 0.380***
Retention practices
R2 0.015 0.238 0.234 0.038 0.191 0.178
F-statistic 2.850* 34.802*** 42.710*** 7.272*** 26.244*** 30.271***
perceived firm performance and innovation performance

N 563 563 563 563 563 563

Notes: ***p .001, **p .01, *p .05.
Source: Author
Results of regression analyses showing effects of employee retention practices on
 Effects of employee retention practices 37

Based on a sample of 563 respondents, the findings have indicated that adoption of
employee retention practices in the form of development and empowerment and
supportive organisational culture can help in achieving higher performance by an
organisation. This favours the basic postulation regarding the existence of a set of HR
practices that leads to superior firm performance (Delaney and Huselid, 1996). Further,
the results have revealed that development and empowerment factor has comparatively
stronger impact on firm performance than supportive organisational culture. More
specifically, the results have proved that cautious planning and implementation of
practices like career development programs, faster promotions, provision of competitive
salaries, clear specification of roles and responsibilities, greater work autonomy, sharing
of business information, supportive culture, pleasant work environment, and job security
can enhance the firms performance. A number of studies have shared the similar
findings. In a sample of Chinese pharmaceutical companies, Zhang and Li (2009) have
demonstrated that the implementation of practices such as extensive training, employee
participation, detailed job definition, and internal career opportunities is significantly
related to firms market performance. In a study of 180 French firms, Guerrero and
Barraud-Didier (2004) have highlighted that practices like empowerment,
communication, and training that facilitate employee involvement in their job and
organisation are positively related to firm performance. Georgiadis and Pitelis (2014)
have also explored that the employees training has a sizeable positive and statistically
significant impact on sales revenue and profit margin, therefore, enhancing the firm
performance. Similarly, Gberevbie (2010) study has pointed out that there is a positive
impact of adoption of employee retention strategies like good organisations image,
employee participation in decision making and better treatment of employees on
organisational performance. Overall, the results of this study have offered some credence
to the recent research (Ramdani et al., 2014) where empowerment has been found to be
significantly and positively associated with both operating performance and financial
performance.
Further, the results indicate that retention practices specifically development and
empowerment related practices are positively related to innovation performance in Indian
organisations. The findings of this study have supported the notion that adoption of
employee retention practices related to development and empowerment provide
opportunities for enhancing the innovation performance in an organisation (Tsai, 2006;
Jimnez-Jimnez and Sanz-Valle, 2008). This paper would only speculate the reasons for
perceived high effectiveness of retention practices on innovation. It can be said that the
adoption of career development programs, faster promotions, provision of competitive
salaries, clear specification of roles and responsibilities, greater work autonomy, and
sharing of business information encourage employee engagement, help employees
thinking more creatively, and therefore, enhance the innovation performance of an
organisation. Jiang et al. (2012) confirm it by stating that adoption of HR practices
related to development of employees encourage employees to critically examine the
current practices, stimulate their logical thinking, and enable them to take a leap towards
innovation. However, Zhang and Li (2009) contradict our finding by indicating that for
successful innovation in an organisation, employees are required to exhibit more
risk-taking behaviour which is reverse of clear job responsibilities and duties. According
to Krot and Lewicka (2011), innovation is the outcome of collective efforts and strong
relationships of employees. Implementation of retention practices that increase the
38 S.C. Kundu and N. Gahlawat

durability of relationships and free exchange of ideas definitely lead to enhanced

innovation performance in an organisation. On the same line, Hurley and Hult (1998)
have also explored participation in decision making and learning and development as
the two most important antecedents for perceptions of support for innovation. Our
findings have revealed that supportive organisation culture has no significant effect on
innovation performance of the organisation. Contrary to our results, in a study of 202
quality managers, Ruiz-Moreno et al. (2008) have demonstrated a strong association
between various dimensions of organisational climate and perceptions of employees
towards management support for innovation. Kyrgidou and Spyropoulou (2013) have
also stated that creation and implementation of supportive organisational culture
encourage more innovativeness in organisations. Overall, this study provides an excellent
explanation for the relationship between employee retention practices and firm
performance.

5 Conclusions

The models presented in this study advance our understanding of how employee retention
practices can affect perceived firm performance and innovation performance. The results
indicate that employee retention practices in the form of development and empowerment
and supportive organisational culture are positively related to perceived firm
performance. Empirical findings also highlight the positive relationship between
development and empowerment-based retention practices and innovation performance.
However, no such relationship has been found between supportive organisational culture
and innovation performance.
This exploratory study contributes to the growing body of literature on the role of HR
practices specifically employee retention practices in enhancing firm performance as well
as innovation performance in firms operating in India in general. The results of the
present study have practical implications for HR practitioners and organisations in the
Indian as well as global context. A major managerial implication of this study is that
employers need to identify the appropriate retention strategies very carefully and
methodically in order to attain higher performance, i.e., developing the right bundle of
employee retention practices would entail a comprehensive understanding of how each
practice, and combination of various practices, impact firm performance. To foster
innovation in the organisation, managers need to manage firms human capital through
adoption of various retention practices specifically related to development and
empowerment. The results suggest that organisations are required to devise and
implement various policies and practices that serve to create strong organisation culture
and portray employee as an important asset in order to enhance the performance of the
organisation to a greater extent. Moreover, to accomplish intended benefits of employee
retention practices, organisations have to realise the importance of employees buy-in of
the specific retention practices on the basis of their perceptions regarding adoption of
those practices.
The study also possesses limitations and therefore, provides some directions for
future research. This study utilised one method, i.e., self reporting questionnaires to
collect the data from the organisations, therefore, there is a possibility that the results
could be affected by common method variance. Harmans (1976) single-factor test was
applied to all the relevant variables in the model. According to Podsakoff and Organ
 Effects of employee retention practices 39

(1986), significant common method variance emerges if one factor explains the majority
of covariance in the variables. A principal factor analysis on the measurement items
revealed three factors not just one, with eigenvalues greater than one that accounted for
61.8% of the total variance, and the first factor accounted for only 28.4% of the variance
in the data. Since, one general factor did not explain all the variance, the common method
variance was not a subject of serious concern in this study (Podsakoff and Organ, 1986).
However, future empirical studies should also espouse an in-depth case study approach
along with the survey method in order to explore more effective employee retention
practices in supporting firms performance across firms of different sizes, age, and
ownership pattern in the Indian context.
In this study, we controlled only for the effects of firm ownership, nature, and
industry. Future researches should endeavour to incorporate the other factors such as age
and size of the firms when investigating the links between retention practices and firm
performance. In addition, the present study was cross sectional in design. To alleviate this
problem, it is suggested that a replication of this study be longitudinal in design so as to
collect the data over repeated observations that can certainly provide greater insights into
the dynamic relationships between retention strategies, firm performance and innovation.
Moreover, such study should be taken on a larger scale to reach more concrete
generalised results for retention practices and firm and innovation performance linkage in
countries other than India. Further, comparative and cross-cultural studies can be
conducted by the future researchers.

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