76 JPAIR Multidisciplinary Research Employee’s Performance in Small and Medium Enterprises: A Human Resource Management Critical Analysis CLIFF KIRL F. LUBON https://orcid.org/0000-0003-3814-2349 cklubon@gmail.com Notre Dame of Dadiangas University General Santos City, Philippines Originality: 100% • Grammar Check: 98% • Plagiarism: 0% ABSTRACT Performance management is an important step in the organization’s human resource management because it hones and improves employee performance. Determining the extent of functional flexibility in human resource management, organizational communication, leadership behaviors, and employee performance, including their significant relationship, as well as the significant effects, is the aim of this study. A descriptive survey and correlational research design were utilized to gather the said information through a questionnaire with 498 respondents. It was revealed through weighted mean, Pearson correlation, and multiple linear regression analysis that there was a significant low positive correlation between functional flexibility in human resource management and employee performance, organizational communication and employee performance, transformational leadership behaviors and employee performance, and transactional leadership behaviors with employee performance. Given the overall results, the study concluded that all four (4) independent variables had significant effects on employee performance in Small and Medium Enterprises. Keywords — Functional Flexibility, Organizational Communication, Leadership Behaviors, Employee Performance, and Small and Medium Enterprises Vol. 46 · October 2021 DOI: https://doi.org/10.7719/jpair.v46i1.447 Print ISSN 2012-3981 Online ISSN 2244-0445 This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. https://orcid.org/0000-0003-3814-2349?lang=en mailto:cklubon@gmail.com 77 International Peer Reviewed Journal INTRODUCTION In the context of the global economic downturn brought by the pandemic, organizations in both private and public sectors faced challenges for their workers to reach maximum efficiency and competitiveness. Similarly, economic and social disturbances threaten the livelihood and wellbeing of employees. According to the International Labor Organization (2020), the Covid-19 pandemic greatly impacted the world. Most organizations adopt remote work, reduction of workers, reduction of working hours, limited training and development, and reduction of recruitment. In effect, the quantity and quality of work were greatly affected. Also, employees’ work behaviors become a concern with the changes in the work environment and work setup. Bosman and Mervosh (2020) disclosed that the United States of America had slowly reopened its economy, but some businesses remained closed. However, employees showed inappropriate behaviors like resistance to change and accepting new responsibilities, lack of cooperation, refusal to follow instructions. Moreover, employees showed resistance to new policies and procedures and a lack of flexibility in response to the new normal. According to the Department of Trade and Industry in the Philippines, more than 3,000 business establishments temporarily shut down operations while more than 200 permanently closed since January 2020. Furthermore, the Philippine economy was expected to shrink by 2% in 2020 after expanding 5.9% in 2019, and unemployment is projected at 6.8% in 2020. At present, small and medium enterprises (SMEs) that employ 60% of the Filipino workforce have suffered a low quality of outputs because of multitasking. Also, SMEs micromanaged the employees by supervising everything they were doing down to the last detail. Employees were showing helpful ideas, but the owners refused to listen. Lastly, employee disputes like the clashing of ideas, office politics, bullying, and stressful environments have affected the performance of the employees (Abadilla, 2020). Jean Paolo Lacap, Acting Head of the City Treasurer’s Office of General Santos City, said that SMEs were forced to scale down and suspend their operations. The city has over 10,000 micros, small and micro enterprises (MSMEs), asking for recovery measures to assist businesses affected by the pandemic (Gubalani, 2020). Moreover, 68 establishments opted to downsize, affecting 720 workers; 142 businesses implemented flexible work arrangements for 2,704 workers; 286 others with 4,484 workers decided to temporarily cease their operations. 78 JPAIR Multidisciplinary Research In addition, the four-day partial closure of the city fish port complex in early September of 2020 due to the emergence of COVID-19 cases resulted in around PHP 300 million in lost revenues for the fishing industry. New work protocols and policies led to many people losing their jobs and changes in employees’ behavior in the organization (Rebollido, 2021). Employees were hesitant to update their skills and resistant to new policies and work procedures because of age, security of tenure, anxiety, and stress. But the organization depends largely on employee performance (Abadilla, 2020). However, some SMEs in General Santos City failed to train their employees to be flexible and lacked the necessary preparation to adapt to the changes in operation. In effect, employees were not doing their job properly or behaving unacceptably at work. Administrators observed that employees were not doing their work to the required standard or not doing their job at all, not following workplace policies, rules, or regulations, and showing unacceptable behavior at work. On the one hand, one SME in General Santos City wanted to leverage great ideas from its employee to improve productivity and reduce costs. The administrator’s approach was to call all the employees and give ideas. The outcome was a failure because the administrator was not fully aware of the roles of individual employees in the organization. The situation indicated the importance of understanding the employee’s job roles. Therefore, the assessment of internal communication flow was necessary. In contrast, one company needed to address an internal report that revealed that their products were not all used by their employees. The owner issued a memo to all the employees regarding the problem and took a heavy-handed approach. He told the employees to use the product or quit. The action of the owner was a failure. The challenge of getting the best out of the employees during the pandemic is important and necessary for organizations to ensure that employees are getting their jobs done – and well. To help these companies become more competitive, they need to have clear employee performance management (Na-nan et al., 2017). 79 International Peer Reviewed Journal FRAMEWORK Figure 1. Conceptual Framework The framework shows the relationship between variables. In this framework, it is assumed that functional flexibility, organizational communication, and leadership behaviors have something to do with employees’ performance. In this study, functional flexibility includes human resource management practices flexibility, employee skills flexibility, and employee behavior flexibility, while for organizational communication, this includes interpersonal communication context, group communication context, and organizational context. On the other hand, leadership behaviors refer to transformational leadership behavior and transactional leadership behavior of the management. For the dependent variable of the study, employee performance consists of task performance, adaptive performance, and contextual performance. OBJECTIVES OF THE STUDY The study aimed to determine the extent of functional flexibility (human resource practices flexibility, employee skills flexibility, and employee behavior flexibility), organizational communication (interpersonal communication context, group communication context, and organizational communication context), and transformational and transactional leadership behaviors. The extent of the said variables will be used to get its relationship to employees’ performance and develop an employee performance program to address the concerns related to the given variables. 80 JPAIR Multidisciplinary Research METHODOLOGY Research Design Descriptive and correlational research design was utilized in conducting this study through a survey method to determine the extent of functional flexibility, organizational communication, and transformational and transactional leadership behaviors and their relationship to employees’ performance. Research Site General Santos City was considered the locale of the study. General Santos is a chartered city and is considered a highly urbanized city in the province of South Cotabato last September 5, 1988. It has twenty-six (26) barangays with a population of five hundred ninety-four thousand (594,000) (NSO Data, 2016). According to Leonard Flores, CGDG II of CEMCDO, General Santos City was ranked 1 in the “Ease of Starting a Business” category by the IFC-Doing Business Philippines in 2011, top 2 of total daily fish catch unloading volume next to Navotas of the same year, Rank 3 in “Most Competitive Highly-Urbanized City in Mindanao” in 2019, and a member of privileged few and elite LGUs with the presence of four major gateways (airport, seaport, fish port, and transport hub). Moreover, the export value of the city was US$ 1,057,029,909.83 (as of 2019), offering products like canned tuna, fresh pineapple, canned pineapple, crude coconut oil, pineapple juice, coconut water, fresh bananas, organic virgin coconut oil, desiccated coconut and the like. Participants The study was conducted in General Santos City among managers, supervisors, and employees of SMEs. A business asset worth between PHP 3,000,000 and PHP 350,000,000 and total liabilities worth between PHP 3,000,000 and PHP 250,000,000 to qualify as an SME with at least 10 to 199 employees. For the quantitative part of the study, the respondents were four hundred ninety-eight (498), consisting of managers, supervisors, and employees regularly employed to SMEs in General Santos City. The determination of the number of respondents in this study was based on Neuman and Kreucer’s (2003) idea that in a small population, a sampling ratio of about 30% is needed to be equally accurate. 81 International Peer Reviewed Journal Instrumentation A survey questionnaire focused on the functional flexibility in human resource management that has three sub-variables as a) human resource management practices flexibility, b) employee skills flexibility, and c) employee behaviors flexibility. The functional flexibility in the human resource management questionnaire was adapted from De La Lastra et al. (2014). The organizational communication questionnaire focused on three sub- variables as a) interpersonal communication context, b) group communication context, and c) organizational context. Interpersonal communication has three dimensions–personal feedback dimension, supervisory communication dimension, and subordinate communication dimension. Group communication has two dimension–horizontal (co-worker) communication and organizational integration. Organizational context has three dimension-corporation information, communication climate, and media quality. Down and Hazen originally crafted the adapted questionnaire but reviewed it by Downs and Adrian (2012) and Alnajjar (2016). Transformational leadership behaviors has five sub-variables, namely 1) charisma, 2) idealized behavior, 3) inspirational motivation, 4) intellectual situation, and 5) individualized consideration. The transactional leadership behaviors had four sub-variables, namely 1) contingent-reward, 2) active management-by-exception, 3) passive management-by-exception, and 4) laissez- faire. The leadership behavior diagnosis was adapted from Bass and Avolio and developed by Manubag (2004). The dependent variable of the study is employee performance, which has the following factors: task performance, adaptive performance, and contextual performance. Pradhan and Jena (2017) made an exploratory factor analysis that explored the areas of employee performance. The respondents were asked to answer the items included in the survey questionnaire that were validated by five experts in the area of business management, human resource management, and business research to ensure getting the right data in achieving the objectives of this study. Accomplished survey questionnaires were properly retrieved. Data were tallied and tabulated. This research used the following statistical tools: weighted mean, correlation, and multiple linear regression analysis in analyzing the data. The researcher used SPSS Application Guide as statistical software to perform all procedures. 82 JPAIR Multidisciplinary Research RESULTS AND DISCUSSION Table 1. Results for the Extent of Functional Flexibility in Human Resource Management Parameters Mean Value Description 1. Human resource practices flexibility 3.88 Highly Extensive 2. Employee skills flexibility 3.91 Highly Extensive 3. Employee behavior flexibility 3.99 Highly Extensive Grand Mean 3.93 Highly Extensive The extent of functional flexibility in human resource practices has a grand mean of 3.93 which is described as “highly extensive” with an interpretation which indicates that the extent of functional flexibility is 61%-80% (Manubag, 2004). According to Hodge et al. (2011), functional flexibility was a way to meet the problems of a constantly changing environment, rapid technology advances, and the need for new services. It was most closely linked to the efforts of the employees. Management must incorporate and improve individuals’ knowledge, skills, and abilities for them to be given new responsibilities within the firm (Kok & Ligthart, 2014). Thus, the flexibility of human capital had taken into account in the use of manpower. If the employees do not have the necessary flexibility, it can harm the organization (Veise et al., 2014). Table 2. Results for the Extent of Implementation of Organizational Communication Parameters Mean Value Description 1. Interpersonal communication context 3.94 Highly Extensive 2. Group communication context 3.97 Highly Extensive 3. Organizational communication context 3.87 Highly Extensive Grand Mean 3.93 Highly Extensive The three indicators, interpersonal communication context, group communication context, and organizational communication context, the extent of implementation of organizational communication was highly extensive (x̄ = 3.93) with an interpretation which indicates that the extent of organizational communication is 61%-80% (Manubag, 2004). The study of Downs and Adrian 83 International Peer Reviewed Journal (2012) stated that efficient and adequate communication would lead to an enterprise’s efficiency, success, and external consumer orientation. Organizational communication helps organizational participants accomplish both individual and organizational objectives, adapt and respond to organizational changes, organize events, and engage digitally with all organizationally related behaviors (Winarso, 2018). Table 3. Results for the Extent of Transformational Leadership Behaviors Parameters Mean Value Description 1. Charisma 3.50 Highly Extensive 2. Idealized behavior 3.92 Highly Extensive 3. Inspirational motivation 3.99 Highly Extensive 4. Intellectual stimulation 3.91 Highly Extensive 5. Individualized consideration 3.82 Highly Extensive Grand Mean 3.83 Highly Extensive The statistical value for the extent of transformational leadership behaviors was 3.83 and described as highly extensive with an interpretation which indicates that the transformational leadership behaviors is 61%-80% (Manubag, 2004). As stated in the study of Alkhawlani et al. (2019), transformational leaders behaved so that their followers saw them as role models. Leaders were respected, appreciated, and trusted. Leaders are idolized by their followers, who desire to be like them. Also, the leader engaged his supporters in imagining appealing future scenarios and established clear expectations that followers desire to meet, and demonstrated dedication to common objectives and vision. The leaders in transformational leadership should be aware of what is important to the subordinate and encourage the employees to see the opportunities and challenges around them creatively (Pongpearchan, 2016). Odumeru and Ogbonna’s (2013) study stated that transformational leaders empowered their team to be inventive and creative by challenging assumptions, reframing problems, and addressing old conditions in new ways. Furthermore, transformational leaders pay extra attention to a person’s needs for success and advancement by acting as a coach or mentor. Delegated tasks are monitored to identify if followers require further direction or help, and assess progress; nevertheless, followers should not feel as though they were being scrutinized. 84 JPAIR Multidisciplinary Research Table 4. Result for the Extent of Transactional Leadership Behaviors Parameters Mean Value Description 1. Contingent-reward 3.88 Highly Extensive 2. Active management-by-exception 3.93 Highly Extensive 3. Passive management-by-exception 3.75 Highly Extensive 4. Laissez-faire 4.00 Highly Extensive Grand Mean 3.89 Highly Extensive The application of transactional leadership behaviors by immediate supervisors was highly extensive and has a statistical mean value of 3.89 with an interpretation which indicates that the transactional leadership behaviors is 61%-80% (Manubag, 2004). Odumeru and Ogbonna’s (2013) study stated that transactional leaders were more interested in procedures than forward-thinking ideas. These leaders focus on contingent reward (also known as contingent positive reinforcement) or contingent punishment (also known as contingent negative reinforcement). The study of Khan (2017) stated that transactional leadership is very effective at motivating people to achieve their strategic goals. However, its effectiveness in motivating followers beyond the original goals has been questioned. Furthermore, transactional leadership, which is more managerial in style and is applied to lower-level demands, serves as a basis for transformational leadership, which is applied to higher-level demands (Odumeru & Ogbonna, 2013). Table 5. Result for the Extent of Employee Performance Parameters Mean Value Description 1. Task performance 4.16 Highly Extensive 2. Adaptive performance 4.14 Highly Extensive 3. Contextual performance 4.15 Highly Extensive Grand Mean 4.15 Highly Extensive The extent of employee performance in SMEs was highly extensive (x̄ = 4.15) with an interpretation which indicates that the extent of employee performance is 61%-80% (Manubag, 2004), with three indicators: task performance, adaptive performance, and contextual performance. SMEs were said to establish highly extensive task performance by completing tasks outlined in the job description, according to the respondents. That personnel exhibited the capability to adjust 85 International Peer Reviewed Journal and comprehend the change in the workplace, allowing them to carry out their tasks in the firm. Also, volunteering for extra responsibilities, aiding co-workers, and working with them to be rewarded is very evident. As stated in the study of Pradhan and Jena (2017) that explicit job behaviors, which include assigned job responsibilities assigned as part of the job description, are included in task performance. The output component of task performance is primarily covered, and it concentrates on the activities that are included in the organizational rules. Furthermore, employee job performance is not only about output and behavior but also about an individual’s adaptability to future development and other factors. On the other hand, contextual performance eliminated the inconsistencies and clashes that occurred during the production of task performance; it was aimed at lowering the cost of exchange among individuals and teams in organizations, so it was necessary to cultivate a positive organizational climate and improve the completion of work obligations. Table 6. Results for the Relationship between Functional Flexibility and Employee Performance Functional Flexibility Employee Performance Functional flexibility Pearson Correlation Sig. (2-tailed) N 1 1494 .301** .000 1494 Employee performance Pearson Correlation Sig. (2-tailed) N .301** .000 1494 1 1494 **. Correlation is significant at the 0.01 level (2-tailed) There was a significant low positive correlation r = 0.301 (sig. =0.000) between functional flexibility in human resource management and employee performance.  This positive correlation means that when the functional flexibility in human resource management was high, there was corresponding high employee performance. Consequently, when function flexibility in human resource management was low, one could expect lower employee performance. This result was similar to the results of the study made by Davidiscu et al. (2020), in which employees were happy about the new sorts of workplaces, and there was an increasing interest among them. It was proposed in the study that actual 86 JPAIR Multidisciplinary Research human resource management was modified to integrate sustainability. Flexible time and flexible locations are two principles that have been utilized to boost employee productivity and satisfaction. Similarly, the same conclusion was given by Xiu et al. (2017), in which organizations with a strong focus on strategic flexibility were more likely to adopt Innovative HR Practices. Furthermore, the authors found that the extent to which firms have adopted innovative HR practices strongly affected employee productivity. Table 7. Results for the Relationship between Organizational Communication and Employee Performance Organizational Communication Employee Performance Organizational communication Pearson Correlation Sig. (2-tailed) N 1 1494 .374** .000 1494 Employee performance Pearson Correlation Sig. (2-tailed) N .374** .000 1494 1 1494 **. Correlation is significant at the 0.01 level (2-tailed) The correlation between organizational communication and employee performance was a significantly low positive correlation with a correction value of r = 0.374 (sig. =0.000). Again, this positive correlation between organizational communication and employee performance signified that in SMEs in General Santos City, the higher the organizational communication is higher than the employee performance. Worth noting is the result of the study of Musash et al. (2017) and Jacobs et al. (2016), in which organizational communication has a significant effect on job performance. Thus, managers should not focus exclusively on job satisfaction but rather on communication strategies because it improves employee satisfaction, employee performance, and job relations. Moreover, cited in the study of Selamat and Heryanto (2019), it emphasizes that to achieve high employee performance, the organization must strengthen the communication system and keep all employees motivated. Therefore, organizational communication has an indisputable and obvious influence on employees’ overall performance and satisfaction (Nabi et al., 2017). 87 International Peer Reviewed Journal Table 8. Results for the Relationship between Transformational Leadership Behavior and Employee Performance Transformational Leadership Behavior Employee Performance Transformational leadership behavior Pearson Correlation Sig. (2-tailed) N 1 2490 .281** .000 1494 Employee performance Pearson Correlation Sig. (2-tailed) N .281** .000 2490 1 1494 **. Correlation is significant at the 0.01 level (2-tailed) Results of the correlation test showed a significantly low positive correlation between transformational leadership behaviors and employee performance with an r = value of 0.281 (sig. =0.000).  This positive correlation indicated that transformational leadership behavior would positively affect employee performance. The significance, however, was low. Even if the correlation was low, there was still a significant relationship between the two variables. The proponent would like to reiterate the results of the study by Pongpearchan (2016). Transformational leadership and a high-performance work system had a greater impact on creating job motivation to improve the performance of a lecturer in Thailand. Added to that is Pongpearchan’s (2016) study that states transformational leadership can improve performance because this style wants to develop knowledge and employee potential. The same result in the study of Manzoor et al. (2019) in Small and Medium Enterprises in Pakistan in which transformational leadership positively and completely predicts job performance. A transformational leader enables subordinates to have vision, tasks, and objectives to achieve full efficiency and encourages subordinates to think objectively and address challenges in different ways (Pongpearchan, 2016). 88 JPAIR Multidisciplinary Research Table 9. Results for the Relationship between Transactional Leadership Behavior and Employee Performance Transactional Leadership Behavior Employee Performance Transactional leadership behavior Pearson Correlation Sig. (2-tailed) N 1 1992 .329** .000 1494 Employee performance Pearson Correlation Sig. (2-tailed) N .329** .000 1992 1 1494 **. Correlation is significant at the 0.01 level (2-tailed) Transactional leadership had a significantly low positive correlation with employee performance. The correlation coefficient r value was 0.329 (sig. =0.000).  Although the correlation was low it was still the relationship was significant. In other words, a higher transactional leadership behavior resulted in higher employee performance. Shah and Hamid (2015) provide empirical evidence that transactional leadership positively increases employees’ job performance. It posits that transactional leadership style is perceived to be critical that leaders by adopting transactional style could dramatically influence job performance of employees. Therefore, prominent leaders should consider this style of management. Moreover, Paracha et al. (2012) concluded that though both leadership styles have a strong positive correlation with employee performance, transactional leadership was more significant than transformational leadership. The organization must focus on transactional leadership through training and different instructions. Table 10. Result for the Effects of Functional Flexibility, Organizational Communication, Transformational Leadership Behaviors, and Transactional Leadership Behaviors on Employee Performance Model R R Square Adjusted R Square Std. Error of the Estimate 1 .427a .183 .181 .58088 a. Predictors: (Constant), Transactional Leadership Behaviors, Transformational Leadership Behaviors, Functional Flexibility, Organizational Communication 89 International Peer Reviewed Journal Using multiple regression analysis, the result showed that the four independent variables, namely functional flexibility, organizational communication, transformational leadership behaviors, and transactional leadership behaviors, had significant effects on employee performance. To quantify the significant effect of these four variables, the R-value gave an amount of 42.7%. This 42.7% means that employee performance was 42.7% was due to the four independent variables mentioned. In other words, the four independent variables only contributed 42.7% of whatsoever performance the employees had in the SMEs. Thus, there was a significant effect of functional flexibility in human resource management, organizational communication, transformational leadership behaviors, and transactional leadership behaviors on employee performance. CONCLUSIONS Based on the findings workers in SMEs were not that provided by the opportunity to acquire new skills for them to apply to their organization. If only given the opportunity to learn new and relevant skills they will become more equipped which they can utilize to their work and may improve their work performance. When it comes to organizational communication this study concludes that there is the existence of miscommunication due to unclear chain of communication which affects employee’s morale, commitment and loyalty to the organization thus it reflect to their work performance. 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