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Training and development are the process by which individuals change their skills, knowledge, attitudes and behavior Robbins and DeCenzo, Training involves designing and supportive learning activities that resulted in a desired level of performance. In China, most of the studies showed that providing continual training and development opportunities are a factor that improves employee retention. The training and development is also associated with higher job and company satisfaction Zhang and Carter.

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Performance Appraisal: Performance Appraisal is the procedure of assessing how well employees execute their jobs when match up to a set of standards and then communicating that information to those employees Mathis and Jackson, Compensation and Rewards: The efficiency of capable employees is possibly to be inadequate if they are not motivated to perform.

One way that organization can motivate employees and performance is to offer performance based compensation Delaney and Huselid, A reward and compensation system is based on the expectancy theory which propose that employee are more likely to be motivated when there is a strong association between their performance and the reward they receive Fey et al.

Performance: A number of theoretical and empirical studies have linked HRM practices to the performance of the firm. Recent studies reflect an impressive influence of HRM practices on organizational performance. Batt examined the relationship between human resource practices, employee quit rates and organizational performance in the service sector. His findings confirm that, firms emphasizing high skills, employee participation in decision making and in teams and human resource incentives such as high relative pay and employment security, have lower quit rates and higher performance.

Furthermore a positive relationship between HRM practices and service performance was also confirmed. According to the above discussion, this study shows that performance of service companies can be improved by HRM practices. Hypothesis 1: Human resource management practices are closely linked with performance of service companies. Strategy: It is important for the companies to establish HRM practices that suit their business strategies if they want to generate high profits Taylor, In both the administration and the academic literature, it is usually recognized that the strategic deployment and management of human resource can contribute to the success, growth and continuity of the firm.

A number of other researchers have investigated the relation between enterprise strategy and human resource management Lorange and Murphy, ; Nkomo, ; Brewster, According to behavioral perspective, HRM practices should be linked to enterprise strategy. Now, there are a rising number of empirical studies that sustain this perspective Schuler and Jackson, Based on the above statement, this study therefore proposes a second hypothesis. Hypothesis 2: There is close association between HRM practices and business strategies of service companies.

The key for higher firm performance is firm strategy formulation and implementation decisions Hill and Jones, Strategic thinking, as an emerging critical characteristic of the management process, includes the competitive moves and business approaches that produce successful performance. While it is clear that strategic thinking is an important step to achieving business success.

Lee conducted an empirical study of the relationship between business type, strategy and performance of Chinese medicine industry in Taiwan. But there are a small number of empirical researches examining the relationship between enterprise strategy and firm performance in service industry.

Based on the above discussion, this study proposes the third hypothesis. Hypothesis 3: strategic orientation is related to higher company performance. Performance: Delery and Doty have recommended that a good fit between HRM strategies and the enterprise strategy of the firm tend to lead to superior outcomes. The resource-based view has prompted recent work on how HRM practices contribute to firm performance by influencing human capital, unrestricted effort and desired attitudes and behaviors Becker and Gerhart, ; Wright et al. The enhanced competition in the marketplace of service firms has brought about the need to manage HR strategically so that it becomes a source of competitive advantage Chew and Sharma, Based on the above statement, this study therefore proposes a fourth hypothesis.

Hypothesis 4: Incorporating HRM practices with enterprise strategy will be significantly and positively linked with company performance of service firms.


Integrating the literature review and hypotheses of the studies described in the previous chapter, this study proposes a research model Fig. Company performance is the dependent variable which is measured by service quality, sale growth and technological innovation. HRM practices are the independent variables which are measured by recruitment and selection, training and development, compensation and reward, employee participation and performance appraisal.

Enterprise strategy is a mediating variable.

Sample: To investigate the linkage between HRM practices, enterprise strategy and company performance in Chinese service firms, a large-scale questionnaire survey was conducted in three major cities, Beijing, Shanghai and Tianjin. These three cities were selected based on their level of economic openness and development. Beijing is the capital of the China and one of most popular cities in the world, located in northern China. Tianjin is sixth largest city of china, located in northern China.

In comparison with the other two cities, Tianjin is less developed in terms of GDP per capita, infrastructure, household consumption and human resource development. This study based on the sample frame of China Industrial Enterprises Database, compiled by the China State Statistics Bureau, to cover the manufacturing and service sectors. The study commute only service sector data.

The service sector includes enterprises in insurance and banking, import and export trading and retailing department stores and advertising. A sampling plan was developed to ensure that appropriate respondents were included in this study. To request participation from the selected firms and contacted the firms by telephone and through our interpersonal networks. If a particular firm refused our enticement, the study survey substituted it with another firm in the same industry.

Then mailed questionnaires to these enterprises with the promise that their individual responses would remain confidential. And received usable questionnaires, a response rate of Table 1 shows the characteristics of the sample. Firms with an age of years constituted Small firms with fewer than employees accounted Of these service firms, Thus, a 40 item survey questionnaire was developed to obtain the responses from managers.

Respondents were asked to rate their answers on multi-item scale.

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The scale ranged from five strongly agree to one strongly disagree. Control variable: Recent review of the literature Huselid ; Jackson and Schuler, suggests that a variety of conditions in the external and internal organizational environments influence HRM activities, enterprise strategy and company performance. To reduce the possibility of fake results caused by correlations among these variables and our construct of interest, survey included following control variable: Firm size and research and development expenditures; length of establishment. Survey calculated research and development expenditures directly by accounting data.

Industry concentration was calculated by dividing sales from the relevant industry largest four companies by the total sales for that industry. Factor Analysis and reliability of the measurement variables: To check the measurement degrees and recognize their dimensionality, principal component factor analysis with varimax rotation was applied to reduce the collected data into certain factors.

In this study, measurement items with a factor loading greater than 0. Furthermore, the result of internal reliability above 0. Hence, this is clear that the instrument used in this study had strong internal reliability and it could be used with confidence for the application of further statistical analysis and interpretation. Factor analysis was utilized to recognize the dimensionality of each research item, to select questionnaire items with high factor loadings and to evaluate these selected items with items suggested theoretically.

Coefficient alpha were evaluated to recognize the internal consistency and reliability of the construct. Latent roots Eigen values , accumulated variance and other criteria were employed to verify the number of dimensions to be extracted from the principal component factor analysis. The selected criteria are: Factor loading 0. Table 2 present the results of factor loadings for measurements of human resource management practices. The Table 2 shows that a total of 22 variables. The internal consistencies of all these variables are also presented.

It is shown that those variables within a factor tend to have a high coefficient of item-to-total correlation of training and development ranges from 0. Table 3 present the results of factor loadings for measurements of firm performance and perceived performance indicators such as quality service, sale growth and technological innovation.

The Table 3 shows that a total of 14 variables.

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It is illustrated that those variables within a factor tend to have a high coefficient of Item-to-total correlation of company performance 0. Table 4 demonstrate the results of factor loadings for measurements of enterprise strategy which is measured by quality improvement and cost reduction. The Table 4 illustrates that a total of 7 variables. Which is above the acceptable level. Latent roots Eigen values and other criteria were used to determine the number of dimensions to be extracted from the principal component factor analysis.

Table 5 shows the criteria of the proposed model and the results of variables in this study.