Internal Stakeholders and Value Creation: Empirical Evidence Using Advance Analysis

Sweta Srivastava Malla

Research Article: 2022 Vol: 21 Issue: 3

Internal Stakeholders and Value Creation: Empirical Evidence Using Advance Analysis

Sweta Srivastava Malla, Indian Institute of Foreign Trade

Citation Information: Malla, S.S. (2022). Internal stakeholders and value creation: Empirical evidence using advance analysis. Academy of Strategic Management Journal, 21(S3), 1-13.

Abstract

Organization value creation is hallmark of making the organizations sustainable in a long run. In a rapidly changing scenario, having employees with high affective commitment has become one of the major challenges for various business organizations. The purpose of this study is two-fold, i.e., first, to study the relationship between select organizational variables and second, the paper presents a detailed process on using a relatively new software called ADANCO. The study tries to explore if a few or all the four dimensions of organizational justice contribute toward enhancing affective commitment. Job Satisfaction is also taken as an important variable in the study. Responses were collected from the middle-level employees working in various industries in India. The data is analyzed using a relatively new application, called ADANCO that used PLS-SEM based methodology. Role of distributive, Interpersonal, and informational justice were highlighted as effective contributors in enhancing employees’ commitment.

Keywords

Organizational Justice, Indian Context, ADANCO Software, Job Satisfaction.

Introduction

Value creating is an evolving topic of discussion in management and theorists are of the view that value creating for external stakeholders can only be achieved through the values created by internal stakeholders. No organization can enhance value for shareholders and customers unless it pays attention to the most important group of internal stakeholders, i.e., and its employees. The present study focuses on select variable to achieve the same. The evolving nature of explicit and implicit employee contracts has brought the topic of Organizational justice for discussion to the forefront and has caught the attention of researchers. The concept of organizational justice started with the seminal work of Adam in the form of equity theory (1963, 1965) which focused on fairness of outcomes. In organizational settings, the concept deals with an employee’s perception of justice and fairness (Greenberg, 1987). Research in this area gained momentum as it was found that employees value fairness and their attitude is linked to their perception. A positive attitude ensues after perception of justice and on the contrary negative attitude is demonstrated after perception of injustice (Greenberg, 1990). Organizational justice is seen as a key element in understanding the behavior of employees especially in the current scenario where the turnover rate is high and job-switching is prevalent.

Organizational justice is a four-dimensional construct that deals with distributive, procedural, informational and interpersonal components. Despite the four-dimensional definition of organizational justice, much of the research has not looked at all four dimensions of justice simultaneously. In the Indian context, much of the commitment research has focused on leadership traits or structural factors as its potent antecedents. This study aims to help the organizational leaders in identifying the important factors for employees’ affective commitment within the framework of social exchange theory (Blau, 1964). According to Blau's (1964) social exchange theory, employees perceive being rewarded for their work-related contributions and fair decision-making procedures and view their association with the employer beyond the call of duty. Rupp & Cropanzano (2002) have posited that understanding social exchange in organizational context may be complicated as it involves psychological factors such as trust, fairness, and support. The understanding that develops between the exchange partners forms the basis of long-term relationships. Previous studies have demonstrated a positive link between organizational justice and affective commitment as documented in the meta-analysis done by Cohen-Charash & Spector (2001) and Colquitt et al. (2001).

In a rapidly changing scenario, having employees with high affective commitment has become one of the major challenges for various business organizations. Extant literature has reported many constructs that lead to enhancement of affective commitment, directly or vicariously. The research on this variable started with the seminal work by Mowday et al. (1982), where they defined commitment as a process by which employees get glued to the organizations and wish to remain with them. Researchers have been fascinated by commitment as an outcome variable for other important variables under investigation. More specifically, the meta-analysis of this variable (Mathieu & Zajac, 1990) suggests that the variable has been seen as a consequent construct. Another meta-analysis has described it as psychological attachment employees have toward their organization. According to the authors, commitment has been studies with relation to demographic and personality variables, turnover intension, distributive justice, and leader-member exchange etc. Early studies have conceived it as one-dimensional construct. Stemming from multiple conceptualizations of the term, Allen & Meyer (1990) posited that the variable has three distinct factors- Affective, Continuance and Normative. Each of these dimensions of commitment is different from each other having distinct antecedents. Authors have distinguished between the three forms by maintain that “Employees with strong affective commitment remain because they want to, those with strong continuance commitment because they need to, and those with strong normative commitment because they feel they ought to do so”.

Affective commitment is the focus of this study and has been defined as “positive feelings of identification with, attachment to, and involvement in the work organization” (Allen & Meyer, 1990). Employees who exhibit psychological commitment experience fit between personal and organizational goals and values. Broadly, affective commitment is about employees’ feeling of identification with their organization. This component is particularly important as it emphasizes on willful association with organization as against a compulsive one. With emotional attachment in place, employees can give their best to organizations. This component of commitment best helps the organizational leaders as they can retain the workforce without having to spend much on salary hike or other monetary factors. Organizational justice is more closely connected with affective commitment than other factors of organizational commitment (Konovsky & Cropanzano, 1994; Meyer et al., 2002). Studies have demonstrated that individuals high on affective put in more efforts while fulfilling their responsibilities (Meyer & Allen, 1997).

A review of literature has focused on several antecedents of affective commitment in a wide variety of organizational settings. Mathieu & Zajac (1990) have grouped the antecedents into five categories, i.e., personal characteristics, role states, job characteristics, group-leader relations, and organizational characteristics. Some important consequences are intention to leave, absenteeism, job attentiveness etc. A meta- analysis done by Cohen in 1992 categorized the antecedents into the followings: personal, role related, structural, and work experiences. In Indian context, the concept has been studied in various industries like IT, public sector banks (Jain et al., 2019), power generation organization (Jain, 2016), healthcare institute (Sharma & Dhar, 2016), BPO employees (Kaur et al., 2020) etc.

The objective of the paper is two-fold. First, it aims to examine the effect of organizational justice and job satisfaction on affective commitment. With Indian respondents this linkage has not been explored earlier. Often non-western studies do not get the same result as western ones. Hence it is crucial to re-visit the investigation with non-western Indian respondents.

Second, previous studies have not been conclusive as far as the effect of each of the dimensions on affective commitment is concerned. Hence the paper will examine the effect of each of the individual dimensions of justice on AC.

Hypothesis Development

The justice-affective commitment link

While exploring the dimensions of justice, researchers have agreed upon four major types: distributive (fairness of outcome), procedural (fairness of process), informational (fairness in providing relevant information) and interpersonal (dignified and respectful treatment). Many justice studies have focused mostly on distributive and procedural dimensions. Social exchange theory posits that the mutual relationship between employee and employer is determined by the outcome that employee receives and subsequently forms perception about organizational fairness. This ensures a reciprocal process wherein the employee responds in the form of loyalty and commitment toward organization (Cropanzano & Mitchell, 2005). The process of reciprocity is used for both tangible as well as intangibles (here, informational and interpersonal) outcomes (Foa & Foa, 1980). In accordance with the social exchange theory and the norms of reciprocity, we hypothesize that an organization that is perceived as fair will contribute toward the development of affective commitment among its employees. Hence, the following hypotheses are proposed:

H₁: Perception of Distributive Justice positively impacts Affective Commitment.

H₂: Perception of Procedural Justice positively impacts Affective Commitment.

H₃: Perception of Interpersonal Justice positively impacts Affective Commitment.

H₄: Perception of Informational Justice positively impacts Affective Commitment.

Job satisfaction-commitment link

Job Satisfaction is another variable of interest for our research. It is defined as the extents to which people like or dislike their job (Locke, 1976). This also determines if employees will leave or stay in the organization (Aydogdu & Asikgil, 2011). Job satisfaction positively affects affective commitment. Even though both work satisfaction and organizational commitment are based on favorable employee perceptions, job satisfaction is conceived as a precursor to organizational commitment. Employee evaluations of their jobs are portrayed in job satisfaction, whereas employee perceptions of the organization are reflected in organizational commitment. As a result, job satisfaction should come first, followed by organizational commitment (Arunachalam & Palanichamy, 2017). Similar findings were reported for Chinese respondents. In a study done on Vietnamese sample, Hua (2020), found that JS contributes to affective commitment. A study conducted in Uganda reported the dependence of commitment on job satisfaction (Mwesigwa et al., 2020). Based on the aforesaid discussion, the following hypothesis is proposed:

H₅: Job Satisfaction positively affects Affective Commitment.

Method

The data were collected from 496 respondents in online format. The participants were executive students enrolled in various executive management programs offered in one of the business institute in north India. The respondents belonged to different organizations and informed consent was obtained before collecting the data. Voluntary responses were obtained, and anonymity was promised. Sample details are provided in Table 1 and Figure 1.

Figure 1: The Proposed Conceptual Model.

Table 1 Demographic Information
Males	422
Females	73
Mean age	33.58
Lower	12.9 %
Middle	69.1 %
Upper	16.8 %
Private Public	431 64

Measures

A five-point Likert Scale was used for data collection ranging from 1 (disagree) to 5 (agree). The following scales were used:

• Distributive Justice (DJ) – was measured by a four-item scale adapted from the work of Price & Mueller (1986). An example is “Compared to other employees, my work reward is proper in view of my work responsibilities”.
• Procedural Justice (PJ) – was measured using a six-item scale adapted from Niehoff & Moorman (1993). An example item is: “Employees are allowed to challenge or appeal job decisions made by the boss”.
• Interpersonal Justice (IPJ) – was measured by a three-item scale adapted from Colquitt (2001). An example items is: “My boss refrains from improper remarks or comments”.
• Informational Justice (IFJ) – was measured using a three-item scale adapted from Niehoff & Moorman (1993). An example item is: “The boss offers adequate justification for decisions made about my job”.
• Job Satisfaction (JS) - Job satisfaction was measured through a three-item scale adapted from the work of Cammann et al. (1983) with responses such as, “I am satisfied with my job.”
• Affective Commitment (AC) – was measured using Allen & Meyer’s (1990) scale. An example item is: “I really feel as if this organization’s problems are my own”.
• In addition, demographic information was also sought.

Results

The data was analyzed using ADANCO 2.2.1. The use of this software is increasing now and lately reported in numerous published works (Valaei & Jiroudi, 2016). The software is based on Partial Least Squares path modelling approach, which is used when the goal of the study is to see how well external latent variables predict endogenous latent variables. Further, assessment of overall model fit, reliability, discriminant validity, composite and saturated models are few of its associated merits (Benitez et al., 2020).

Analysis of data for this study entailed a four-stage process: Preliminary, CMV, Measurement model, Saturated Model stages.

Preliminary Stage

In the preliminary stage, data was checked for missing values and its sufficiency for the constructs under observation. Using SPSS statistical software, exploratory factor analysis was conducted, and reliability was also checked. The objectives were two-fold: to achieve data reduction by removing those items that did not represent or contribute significantly to the construct; and test the emergence of factors as reported in literature. All the constructs were found to be in consonance with the literature.

Common Method Variance

In case of self-reported measures there is a possibility that the tested relationship between the constructs may be distorted by presence of common method variance (CMV). Hence there was a need to check for the presence of variance. Although occurrence of CMV cannot be ruled out completely still two post-hoc statistical techniques were employed to test the data i.e., Harman’s (1976) one factor test and single unmeasured latent method factor, also called as unmeasured latent method construct (ULMC) (Podsakoff et al., 2003; 2012) using SPSS and AMOS packages respectively. Harman’s single factor test examined the percentage of variance found in unrotated forced single factor solution. Factors were rotated using Principal Axis factoring with no rotation and a fixed single factor. The explained variance thus found was 37% (much less than the threshold value of 50%), suggesting that CMV was not a problem in this study. Some researchers have maintained that though single factor method is the most used one, yet it has certain limitations and hence alternatives have been proposed (Podsakoff et al., 2003; 2012; Markel & Frone, 1998; Kock et al., 2021). An alternative used in this study was ULMC which has been successfully used in published studies (Richardson et al. 2009). Here, all the constructs were re-estimated using a single latent factor that was loaded on each of the indicators used in the model. Satisfactory model fit indicates the presence of bias in this technique. Following indicator values were obtained in the study: ?² /df = 3.24, GFI=0.83, TLI=0.89, RMSEA=0.07. The threshold values suggested by Hu & Bentler (1999); Byrne (2010) and Bentler & Bonnet (1980) indicate a poor model fit. Hence using these two techniques, it was concluded that method bias was not a threat to the study.

Measurement Model

Confirmatory Composite Analysis (CCA) was carried out using ADANCO software based on the reflective model procedure suggested by Hair et al. (2020) and Benitez et al. (2020). The overall fit of the estimated model was assessed in various steps. First, indicator loading was checked and all those items with standardized loadings < 0.708 were dropped. Two items from the AC Scale (items 3 and 4) had to be dropped. Second, indicator reliability for all the items was checked that was found to be more than 0.7. Third, construct reliability was checked, and the details are provided in Table 2. Fourth, convergent validity was measured by Average Variance Extracted (AVE) and the acceptable threshold value of 0.5 or higher is considered acceptable (Table 2). Next, discriminant validity was evaluated using the Fornell-Larcker criterion and Heterotrait-Monotrait Ratio of Correlations (HTMT).

Table 2 Reliability Results
Construct	Dijkstra-Henseler's rho (ρ_A)	Jöreskog's rho (ρ_c)	Cronbach's alpha(α)	AVE
DJ	0.9094	0.9351	0.9072	0.7827
PJ	0.9001	0.9235	0.9001	0.6684
IPJ	0.8947	0.9275	0.8818	0.8104
IFJ	0.9382	0.9583	0.9348	0.8847
AC	0.7744	0.8305	0.7277	0.5569
JS	0.8748	0.9217	0.8726	0.7969

Note. DJ=Distributive Justice, PJ=Procedural Justice, IPJ=Interpersonal Justice, IFJ=Informational Justice, AC=Affective Commitment, JS=Job Satisfaction.

Results of Fornell-Larcker tests are placed in Table 3. This method postulates that AVE of a factor should be greater than the sum of its squared correlations with the other components in the model. Results provided in Table 3 suggest that our model meets the criterion. Additionally, HTMT ratios were also used as they are considered as an improved method of assessing discriminant validity (Henseler et al., 2015). HTMT ratios ranged between 0.25 to 0.88 (Table 4) which indicates that the model satisfies the discriminant validity criteria since the ratios are < 0.90 threshold value given by Gold et al. (2001). Hence discriminant validity of the model was found to be satisfactory using both the techniques.

Benitez et al. (2020) have posited that the model fit is assessed through the indices of SRMR, unweighted least squares (d_ULS), and geodesic discrepancy (d_G). The standardized Root Mean Square Residual (SRMR) value of the estimated model was found to be 0.05 which is much below the acceptable threshold value of 0.08 (Hu & Bentler, 1998), indicating that the model under investigation is suited for carrying out further analysis. Further, d_ULS and d_G should be less than the corresponding HI95 values. Table 5 presents the goodness of model fit results that are considered acceptable as per the existing literature (Henseler, et al, 2016; Hair et al., 2016; Tsao et al., 2016; Benitez et al., 2020).

Table 3 Fornell-Larcker Criterion
Construct	DJ	PJ	IPJ	IFJ	JS	AC
DJ	0.7827
PJ	0.2702	0.6684
IPJ	0.1270	0.3686	0.8104
IFJ	0.2708	0.6530	0.4593	0.8847
JS	0.1507	0.1761	0.0503	0.1808	0.7969
AC	0.2549	0.2755	0.1642	0.3189	0.4113	0.5569

Note: DJ=Distributive Justice, PJ=Procedural Justice, IPJ=Interpersonal Justice, IFJ=Informational Justice, AC=Affective Commitment, JS=Job Satisfaction.

Table 4 Heterotrait-Monotrait Ratio Of Correlations
Construct	DJ	PJ	IPJ	IFJ	JS	AC
DJ
PJ	0.5725
IPJ	0.3954	0.6802
IFJ	0.5634	0.8822	0.7486
JS	0.4356	0.4701	0.2540	0.4681
AC	0.6046	0.6277	0.5022	0.6660	0.7798

Note. DJ=Distributive Justice, PJ=Procedural Justice, IPJ=Interpersonal Justice, IFJ=Informational Justice, AC=Affective Commitment, JS=Job Satisfaction.

Table 5 Good Of Fit
	Value	HI95	HI99
SRMR	0.0517	0.0389	0.0402
dULS	0.7368	0.4173	0.4463
dG	0.3397	0.2640	0.2738

Structural Model

The explained variance shows R² and Effect size (f²) values. VIF values are not being reported as Benitez et al. (2020) maintains that checking multicollinearity is not necessary in case of reflective model as covariances are equally scaled in ADANCO. However, there is a practice among the researchers to publish VIF results (Lokuge et al., 2019) hence the results are provided in Table 6. VIF values within the threshold of 5 is considered as free from multicollinearity (Ringle et al., 2015) and Hair considers this threshold as 10 (Hair et al., 1995). In the study, VIF was found to be ranging between 1.12 to 4.89, indicating that multicollinearity is not a concern for this study. From Table 7, it is evident that the f² values are ranging between 0.02 and 0.40 showing small to large effects. According to Cohen’s (1988) evaluative criteria, f² ≥ 0.02, f² ≥ 0.15, and f² ≥ 0.35 represent small, medium, and large effect sizes, respectively. It is pertinent to note here that f² values have been provided only for the significant path coefficients. The structural model explained the total variance of 54% in commitment. Structural results support hypotheses 1, 2, 3 and 5, thereby indicating the positive effect of DJ, IPJ, and IFJ on AC. A significant relationship between JS and AC confirmed hypothesis 5. Hypotheses 2 did not get support from the model.

Table 6 Variance Inflation Factors (Vif)
Indicator	DJ	PJ	IPJ	IFJ	JS	AC
JS1					2.5251
JS2					2.3706
JS3					2.1678
DJ1	2.0661
DJ2	3.1568
DJ3	2.9724
DJ4	3.0806
PJ1		2.8677
PJ2		3.1078
PJ3		1.9738
PJ4		2.2616
PJ5		2.6942
PJ6		1.6485
IPJ1			3.8129
IPJ2			4.2114
IPJ3			1.8209
IFJ1				3.2001
IFJ2				4.8998
IFJ3				4.8075
AC1						1.5001
AC2						1.7153
AC5						1.6605
AC6						1.1244

Table 7 Total Effect Inference And Hypothesis Testing
Hypothesis	Path	Path coefficients	t-statistics	Hypothesis Supported	Cohen’s f2
1	DJ →AC	0.1801	4.6556***	YES	0.05
2	PJ →AC	0.0303	0.5347	NO	-
3	IPJ →AC	0.0911	1.9835**	YES	0.09
4	IFJ →AC	0.1903	3.2477***	YES	0.02
5	JS →AC	0.4574	13.1610***	YES	0.40
	R²
	AC	0.5446

Note: *t-values: 1.65 (10 per cent); **t-values: 1.96 (5 per cent); ***t-values: 2.58 (1 per cent). DJ=Distributive Justice, PJ=Procedural Justice, IPJ= Interpersonal Justice, IFJ=Informational Justice, AC=Affective Commitment, JS=Job Satisfaction.

Discussion

The purpose of this study was to explore about the effect of dimensions of justice and job satisfaction on employees, commitment. More specifically, the study aimed at identifying the contribution of organizational justice, organizational trust, and job satisfaction on the predictor variable, i.e., Affective Commitment. A total of 5 hypotheses were tested using ADANCO software and important findings were obtained after analyzing the data. The results point toward a significant contribution made by the variables of job satisfaction and organizational justice in enhancing AC. Supporting previous studies (Ohana & Meyer, 2016; Rego et al., 2004), Table VII indicate that DJ, IPJ and IFJ were identified as the most important types of organizational justice, supporting H1, H3 and H4 (β=0.18, p<0.00; β=0.09, p<0.05; & β=0.19, p<0.00).

Unexpectedly, the result did not support H2, indicating that procedural justice may not contribute significantly to AC. Mirroring a similar non-western study, Khan et al. (2015) reported that DJ (and not PJ) came out as a significant predictor of turnover intention. A possible explanation for the missing support of H2 could be interpreted by using Hofstede’s cultural dimensions of power distance and collectivism. This can be used to construe the understanding about our findings as these are the two most important dimensions that distinguish India from western countries. In a meta-analysis, Li & Cropanzano (2009) have emphasized on cross-cultural differences between western and eastern cultures. In line with few specific studies (Hang-yue et al., 2006; Silva & Caetano, 2016; Fischer, 2016; Colquitt et al., 2013), posited that cultural dimension acts as important determinant of justice perception. Lesser levels of participation do not have the same impact on organizational commitment in higher power-distance cultures as they do in lower power-distance cultures. Similarly, people in low-power-distance cultures reacted more negatively to lesser levels of procedural justice than in high-power-distance cultures. India is an example of a high power distance culture, and employees here maybe more accustomed to relying on their boss's instructions and are unconcerned about their lack of procedural fairness or a voice in decision making (Summereder et al., 2014). Another dimension pertains to this discussion is of Individualism-Collectivism. India is an example of collectivistic culture where priority is given to group rather than self (Triandis, 1995) and it influences the way people perceive reality or interpret their experiences. Collectivists are more likely to be showing acceptance for a low level of procedural justice than individualists because they have lesser expectations and a lower demand for process control. Based on analyses, this result revealed that collectivistic employees may be concerned mainly about individual outcomes (here, distributive justice). Cross cultural studies have provided comparable explanation for the missing link between interpersonal justice and AC. Interestingly; studies done on Indian respondents have reported similar findings (Srivastava, 2015; Pillai et al., 2001). Jiang et al. (2017) have posited that high power distance employees perceive the hierarchical gap as acceptable and consequently close connection with their employers is not emphasized. This is exhibited in having less desire to intervene in the process or even emphasizing on interactional justice. People with lower power distance (western countries) have a greater tendency to reciprocate justice with various employee outcomes but this may not be case for non-western employees. H4 was supported in congruence with various other findings from western and Indian context (Colquitt et al., 2013; Rana & Singh, 2021). The relationship between informational justice and organizational commitment can be explained by the fact that when higher authorities and managers keep their employees informed about organizational matters, they inspire feelings of loyalty and compliance with policies and rules, thereby cultivating organizational commitment (Srivastava, 2015). Hence the four dimensions of justice are differently related to AC and possible explanation is provided by cross-cultural studies.

H5 that explores the relationship between job satisfaction and commitment, was significant (β = 0.46, p <0.00). Similar findings have been reported recently from non-western studies (Nanjundeswaraswamy, 2021; Mwesigwa et al., 2020). The plausible explanation could be that employees’ satisfaction with certain aspects of their job may lead to enhanced AC. Organizational decision makers need to identify those important factors responsible for enhancing the job satisfaction of employees who will then reciprocate by developing affective commitment.

Managerial Implications

Organizations leaders will get important takeaways from this study. It is important to be just and fair with employees, is one important finding of the study. It is also pertinent for managers to note that new generation employees are not just concerned about their salary and perks; they also value justice and fairness in the system. These positive aspects determine the level of trust they place on employers thus shaping their AC. Findings clearly indicate that since justice and fairness play a role in forming trust and influencing commitment hence managers should be attentive to these aspects. In addition, managers should also focus of enhancing job satisfaction of the individuals. Literature review suggests that varying aspects like leadership (Jha & Bhattacharya, 2021), HR policies (Valaei & Jiroudi, 2016), TQM (Arunachalam & Palanichamy, 2017), CSR (Singh & Malla, 2021), empowerment (Aldaihani, 2020), well-being (Malla, 2013) etc. can be worked upon to increase job satisfaction. As committed employees are a boon to any organization, findings will particularly be useful for the organizations that are in service sector. Depending on the context, managers can identify which aspects is to be paid attention to, for augmenting employee commitment or performance. The empirical findings are useful for HR managers, practitioners, and researchers alike.

Conclusion

The findings clearly indicate that cultural factors should have been taken as control variable in the study. Cultural differences are the main identified reasons responsible for invalid findings. This study employs several commonly used western theoretical framework, model, and scales, which were established primarily by US researchers for use in US contexts and may not be appropriate in the non-western (here, Indian) context. Post-hoc review of literature suggests that these findings are in line with other studies carried out in the non-western context. A fresh look at the relationship of variables should be carried out by future researchers.

References

Aldaihani, S.G. (2019). Administrative empowerment among Kuwait University staff and its effect on their job satisfaction.Journal of Applied Research in Higher Education, 12(2), 210-229.

Academy of Strategic Management Journal (Print ISSN: 1544-1458; Online ISSN: 1939-6104)

Internal Stakeholders and Value Creation: Empirical Evidence Using Advance Analysis

Abstract

Keywords

Introduction

Results

Discussion

Conclusion

References