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- International Journal of Management (IJM)
Volume 11, Issue 3, March 2020, pp. 266–277, Article ID: IJM_11_03_029
Available online at http://www.iaeme.com/ijm/issues.asp?JType=IJM&VType=11&IType=3
Journal Impact Factor (2020): 10.1471 (Calculated by GISI) www.jifactor.com
ISSN Print: 0976-6502 and ISSN Online: 0976-6510
© IAEME Publication Scopus Indexed
EXPLORING FACTORS OF HRD SYSTEM
CAPABILITY: AN EMPIRICAL
INVESTIGATION IN SERVICE INDUSTRIES IN
INDIA
Padmalita Routray
Associate Professor, Department of Business Management,
Fakir Mohan University, Balasore, Odisha, India
Amarnath Padhi*
Research Scholar, Department of Business Management,
Fakir Mohan University, Balasore, Odisha, India
*Corresponding Author Email: amarnath.padhi@gmail.com
ABSTRACT
HRD system capability has been instrumental in managing the shift from the
traditional focus to a more transient thrust on making the organization more
productive and efficient. This research work conceptualizes HRD system capability as
a second order factor and explores its effect on Immediate Capability, Intermediate
Capability and Ultimate Capability by evaluating a model of structural equation. The
model is validated using data collected from 151strategic decision makers from the
selective service industries (Retail, Hotel and IT) across odisha in eastern India. The
study follows a hierarchical approach using confirmatory factor analysis to test the
second order factor model and structural equation modelling to test the overall model.
The results show that both empirically and conceptually the second order factor model
is acceptable and better than other competing models of HRD system capability. The
findings support the hypothesis and evidence of a highly explanatory structural model.
The second order factor model allows for analysis of HRD system capability at
different abstraction levels. HR personnel involved in integrated strategic decision
making should use global measures to determine the efficiency of the HRD system
capability. The research indicates that HRD system capability is best represented as a
second order factor and in doing so, it provides an improved measurement of the
construct. Therefore, the researchers developed a more feasible model by integrating
the variable in a nomological network than those that exists today.
Keywords: HRD System Capability, SHRD, Confirmatory factor analysis, second
order factor, Service Sector
http://www.iaeme.com/IJM/index.asp 266 editor@iaeme.com
- Padmalita Routray and Amarnath Padhi
Cite this Article: Padmalita Routray and Amarnath Padhi, Exploring Factors of HRD
System Capability: An Empirical Investigation in Service Industries in India,
International Journal of Management (IJM), 11 (3), 2020, pp. 266–277.
http://www.iaeme.com/IJM/issues.asp?JType=IJM&VType=11&IType=3
1. INTRODUCTION
The services sector‟s significance in the Indian economy has continued to increase, with the
sector now accounting for around 55 percent of total size of the economy and GVA growth,
two-thirds of total FDI inflows into India and about 38 per cent of total exports. It has become
the largest and fastest growing market in the world and contributes more to global production
and employment. The share of services sector now exceeds 50 per cent of Gross State Value
Added in 15 out of the 33 states and UTs (Economic Survey, 2018-19). Some services such as
trade, hotels and restaurants, transportation, storage and communication including financing,
insurance and property services as well as other services such as community, social and
personal services expected to increase faster than the industry as a whole. HRD system is
responsible for making sure that global professional service firm employees understand the
local culture and context to ensure service quality. More specifically, national culture should
be examined when service firms implement HRD, including organizational development
(OD) and training and development (T&D).
Human Resources Development has become over the past 20 years the most rapidly
growing field of management studies. HRD has evolved beyond the restricted viewpoint of
merely training and has grown into a more comprehensive approach to human and
organizational learning and information creation (Mittal 2013). Human resources are
important to boost competitive advantages and better market efficiency in a sustainable way.
Werner and DeSimone (2006) indicated that human resources planning activities which are
strategically focused lead to human resource growth and add to the organization's overall
progress. Haslinda (2009) agreed with the above point of view when he argued that the
implementation of human resources activities increase employee capacities in jobs,
productivity and efficiency and enhance goods and services quality. The human resources
development practices and programs when designed and implemented properly enhances
employee capacity to ensure effective organisational performance (Indradevi, 2010; Swanson
and Holton, 2009). Yuvaraj and Mulugeta (2013) stated that through existing training, career
development, performance appraisal and management and organizational development
components, the HRD interventions continue to improve employee capacity and performance.
Kehoe and Wright (2013) argued that the improvement of skills of people significantly
improve quality of service. Clardy (2008) emphasised that companies use human resources
development practices as a major strategy to encourage positive employee behaviour and
enhance their competencies which in turn increase productivity and results. With this
background, the present study tries to explore whether the selected service organisations have
the HRD capability to achieve the strategic goals, meet the requirement of stakeholders and
make them competitive in the changing business scenario.
2. REVIEW OF LITERATURE
Leonard Nadler introduced the concept of human resources development in 1969 and
expanded it in 1970. Rao (1989) noted that the transition from manufacturing to service and
the increasing speed of technological changes make human capital a key element for an
industry's well-being and development. Furthermore, he noted that it is not just a question of
finding ways and means to resolve conflicts or to resolve differences, but also a question of
ensuring that the employee and the employer work unconditionally. HRD can be described as
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- Exploring Factors of HRD System Capability: An Empirical Investigation in Service Industries in India
a mechanism by which human experience can be built and/or activated through organizational
and personnel training and development for improved performance purposes (Swanson,
2001). The 21st century problems such as globalization, automation and demographic change
pushed businesses to constantly seek new ways to achieve the highest efficiency and quality
outcomes and to make the current employee more efficient.
2.1. Strategic Orientation of HRD function
Every organization's success depends on its human resources. Human resources have the
necessary skills, knowledge and expertise to implement the corporate strategy and planning.
With the passage of time the concept of HRD expanded to incorporate organizational
development. HRD is defined as an interdisciplinary area of inquiry (Jacobs,1990; Swanson
and Holton,2001) that usually includes three areas of practice; i) Training and Employee
Development, ii) Organization Development, and iii) Career Development. This three-legged
version of HRD is often debated as emerging from either systems theory or adult education,
with the differing focus on organizational outcomes and individual development. Lee (2001)
and Wang and Swanson (2008) suggest that it has long been difficult to establish the
definition of human resources development as part of the curriculum for human resources.
Ruona (2002) claims the academia has been paying attention to concepts of human resources
growth for more than four decades. HRD covers the organization's strategic practices. If a
person is to be successful, the organization's prevailing environment must be conducive to
his/her growth. Different research projects have been carried out for the identification and
study of Strategic HRD variables in organizations. In recent years, „work planning' (Garavan,
1991; Garavan, Morley, Gunnigle and McGuire, 2002) has been widely used in the fields
“employee training”, “human resources development”, and “strategic human resources
development”' (Garavan, 1991). Walton (1999) described Strategic HRD as “SHRD provides
the implementation, replacement, change and administration processes to allow both
individuals and teams to take the ongoing and upcoming tasks required of the company, with
the abilities, skills and capacities they need”. HR structures have become more multi-layered
and dynamic in seeking to make HR more important and competitive to contemporary
companies. Reacting to Caldwell and Storey's (2007) allegations that efforts to increase HR
performance have resulted in increased fragmentation and chaos in HR management, leading
to frustration and confusion among internal clients.The HR job will learn to survive with
increasing complexity (cited in Crabb, 2008 by Ulrich) and must be comfortable with being
both managerial and strategic. In this concern, HRD displays an imperative role in workforce
strategy and in the development of the human–technology interface. Garavan (2007) says that
the framework and the significance of multiple partnerships and actors and the improvement
of vertical and horizontal connections through the organization should be identified by
strategic HRD. He believes that strategic HRD must follow vertical and horizontal growth
through learning practices.
First, alignment must be achieved between the organisational mission, corporate plans,
and HRD vision. Tseng and McLean (2008) recognize the importance of HRD's strategic
thrust into each area of the organisation to encourage good and effective behaviour.
Furthermore, environmental screening should be conducted on a regular basis and should take
the form of corporate strategy and HRD. Tseng and McLean (2008) concluded that the
situation poses a risk to the HRD plan and therefore to the practical obligation of HRD to be
put in the business context. Second, the systematic, coherent and coordinated preparation of
HRD, both in business and organization planning will take place. Luoma (2000) definitely
recommends that practical HRD will facilitate the institution's development process by
treating it as a knowledge-based set of problem solving and engaging. Third, HRD solutions
must be appropriate to the problems faced by the organisation and must add value. Garavan
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- Padmalita Routray and Amarnath Padhi
(2007) says that HRD should not, but should be operationally accountable, viewed as a way to
eliminate all institutional problems.
2.2. HRD System Capability (HRDSC)
HRD system focuses on both employee development and organizational development. For
any organization seeking to be competitive and growth-oriented the development of human
resources is critical. The capacity can only be realized through the development of an
environment that can continuously recognize, surface, cultivate and optimize people's
capacities. The HRD system is designed to create such an environment. Throughout recent
years, HRD methods have been developed to achieve this function on the basis of certain
concepts. Garavan (2007), in his article on SHRD, suggested that it is a multi-level activity
and focus on stakeholder satisfaction. Therefore, the HRD system, if addresses the need of
stakeholders, can be called strategic. Hence, the HRD role can be unique in the sense that it
contributes to the strategy-making process and protect or upgrade the core competency by
emphasizing those capabilities that are job-specific (Clardy, 2008). Yost et al. (2011)
attempted to bring out the idea of building separate systems and programs which may help the
SHRD practitioners to adapt and adjust themselves to the changing demands of the
organization. HRD intervention with a focus on organizational objectives can be considered
as one of the strategic moves which help both SHRD practitioners and the firm in achieving
the desired goals. Apart from the achievement of intentions, the HRD intervention may also
help in maintaining sustainability. The nature of various HRD interventions may support the
organization to survive progressively. It may affect delivering Human Resource activities by
increasing the organization's flexibility in changing scenario. In an emerging situation,
offering HRD activities will be done by multiple players, and therefore the role of HRD
managers and line managers will change. Richard and Johnson (2001) explained that different
HR activities start from acquisition, development, and retention and it can be strategic if it
matched with business objectives and HR/HRD system when strategically implemented,
could develop organizational productivity and that system may support to sustain future
corporate developments.
2.3. Objective of the Study
The objective is to explore the factors under Human Resource Development System
Capability (HRDSC) and to analyse the factor structure through Confirmatory Factor
Analysis (CFA).
2.4. Hypothesis of the Study
There is no significant difference on the perception of respondents on different sub-constructs
and the construct of HRD system capability.
3. RESEARCH METHODOLOGY
The study was conducted in selective service industries like Retail, Hotel and IT keeping in
view the people intensiveness of such industries. The respondents of the sample were having
designation like Head-HR, Manager-HR, HR Business Partners, Forntline Managers, Store
Managers and HR Consultants, etc. The sample included those persons who were in strategic
positions and significantly contribute to the HR and /or business strategy formulation and
implementation. A total of 290 respondents were approached initially having above
designation, out of which 151 responded resulting in 52 percent response rate. The research
instrument for the study was developed by the researchers and tested for its validity initially
by consulting experts and reviewing relevant literature. The data were analyzed using
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- Exploring Factors of HRD System Capability: An Empirical Investigation in Service Industries in India
descriptive statistics, followed by exploratory and confirmatory factor analysis using IBM
SPSS statistics 21 and AMOS, 2020 version.
4. RESULTS AND ANALYSIS
The profile of the sample is presented in Table 1. Four levels of designation have been taken:
„HR Head” as level 1, “HR Managers, HR Business Partners(HRBP) and Line Managers
(LM)” as level 2; “HR Consultants, Front Office Managers(FOM), Store Managers (SM”) as
level 3 and HR executives as level 4. The level 1 consisted of 9 respondents, i.e., 5.97% of the
sample. In this, 2 were from hotel sector, 6 were from IT sector and 1 from retail sector. The
level 2 consisted of 65 respondents, i.e., 43.04% of the sample. In this, 17 were from hotel
sector, 27 were from IT sector and 21 were from retail sector. The level 3 consisted of 51
respondents, i.e., 33.78% of the sample. In this, 26 were from hotel sector, 9 were from IT
sector and 16 were from retail sector. The level 4 consisted of 26 respondents, i.e., 17.21% of
the total respondents. In this, 12 were from hotel sector, 9 were from IT sector and 5 were
from retail sector.
Table 1 Demographic Profile: Designation of the respondents
Level of Designation Sector under which respondents Total Percentage
comes
Hotel IT Retail
Sector Sector Sector
HR Head 2 6 1 9 5.97 %
HRM/HRBP/LM 17 27 21 65 43.04%
HR 26 9 16 51 33.78%
Consultant/FOM/SM
HR Executive 12 9 5 26 17.21%
Total 57 51 43 151 100%
4.1. Exploratory Factor Analysis
Initially 10 variables under HRD System Capability were factor analysed and the variable
namely, “HRD system has the capacity to meet the requirement of the society” found to be a
single factor with factor loading of 0.798. The scale reliability with 10 variables yielded
Cronbach‟s alpha 0.683. However when the above variable was deleted the Cronbach‟s alpha
improved to 0.711 (Table-4). Further this variable was found to be uncorrelated with other
nine variables and therefore dropped. The other variables were factor analysed using principal
component analysis and Varimax rotation. To test the suitability of the variables for factor
analysis, two tests are performed such as Kaiser Meyer Olkin (KMO) test of sample adequacy
and Bartlett‟s test of spherecity, which result a significant value. The results are given below
in Table-2.
Table 2 KMO and Bartlett‟s Test (HRDSC)
Kaiser-Meyer-Olkin Measure of Sampling Adequacy 0.721
Bartlett‟s Test of Sphericity Approx. Chi-Square 271.044
Df 36
Sig .000
The KMO statistics (0.721) is found to be significant (p=0.000). So the sample is adequate
suggesting that items can yield distinctive and reliable factors. The Bartlett‟s test of Sphericity
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- Padmalita Routray and Amarnath Padhi
reveals a chi-square statistic of 271.004 with 36 degrees of freedom, is also found to be
significant at 0.000 levels.
Table 3 Total Variance of HRDSC
Initial Eigen values Rotation Sums of Squared
Loadings
Component
Cumulative %
Cumulative %
% of Variance
% of Variance
Total
Total
1 2.866 31.845 31.845 2.189 24.325 24.325
2 1.085 12.057 43.902 1.506 16.734 41.059
3 1.007 11.190 55.092 1.263 14.034 55.092
4 .942 10.472 65.564
5 .845 9.389 74.953
6 .729 8.105 83.057
7 .620 6.887 89.945
8 .515 5.721 95.665
9 .390 4.335 100.000
Extraction Method: Principal Component Analysis.
Three factors emerged which are named as “Immediate Capability”, “Intermediate
Capability” and “Ultimate Capability”. The total variance extracted shown in Table- 3 shows
cumulative percentage ranges from first to third portion between 31.845% and 55.092%. For
the first component the initial Eigen values, the total percentage of variance, and the
cumulative percentage values are 2.866, 31.845% and 31.845% respectively. For the second
component the initial Eigen values, the total, the percentage of variance and the cumulative
percentage values are 1.085, 12.057% and, 43.902% respectively. For the third component the
initial Eigen values, the total, the percentage of variance and the cumulative percentage values
are 11.007, 11.190% and 55.092% respectively.
Table 4 Rotated Component Matrixa
Descriptive Factors Cronbac
Variables Statistics h’s
Mean SD 1 2 3 alpha
HRD system has the 4.06 0.732 .629
capability to make the
organisation efficient
HRD system has the 4.14 0.684 .473
capability to make the
organisation
productive
HRD system has the 3.90 .661 .677
capability to meet the
requirement of the
customer
HRD system has the 4.13 .585 .757
capability to meet the
requirement of the
investors
HRD system has the 3.31 .850 .480
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- Exploring Factors of HRD System Capability: An Empirical Investigation in Service Industries in India
capability to meet 0.711
strategic goals
HRD system has the 4.34 .588 .855
capability to support
organisation
innovation
HRD system has the 3.46 .737 .530
capability to make
people quality focused
HRD system has the 4.28 .687 .845
capability to meet
requirement of
employees
HRD system 3.97 .761 .617
contribution is
important for
organisational
effectiveness
Extraction Method: Principal Component Analysis. Rotation Method: Varimax
with Kaiser Normalization
From Table 4 it shows the rotated component matrix, in which the factors extracted were
having loading above 0.40. The factor loadings, reliability statistics and descriptive statistics
among variables are given in table 4. Confirmatory Factor Analysis (CFA) was performed on
the above factors. The CFA using maximum likely method of estimation was done to evaluate
the first order structural model (Figure -1) which shows a decent model fit indices. (Table-5).
In order to evaluate the psychometric properties convergent validity was assessed. To assess
such validity the average variance extracted (AVE) and composite reliability (CR) were
calculated for each sub-construct viz. Immediate Capability (AVE= 0.41; CR= 0.73),
Intermediate Capability (AVE = 0.41; CR=0.66), and Ultimate Capability (AVE= 0.55; CR=
0.70) using Fornell and Larcker (1981) procedure. Though, the AVE is less than 0.50 for two
sub-constructs but the value exceeds 0.40 and the CR is above 0.60, the convergent validity
can be found to be adequate in this case. However, the model didn‟t achieve discriminate
validity as the sub-constructs were highly correlated. However, the all the indicator under
different subconstruct were found to be significant. Therefore, a second order factor structure
was considered to develop a single construct i.e., “HRD System Capability (HRDSC)” which
is shown in Figure-2.
Figure 1 Confirmatory Factor Analysis (First order structural model of HRDSC)
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- Padmalita Routray and Amarnath Padhi
Table 5 Fit indices for Structured Model
Fit Index Structural
Model Values
χ2/df ( Chi-square / 1.499
degree of freedom)
RMSEA 0.058
(Root mean- square error of
approximation)
GFI 0.957
( Goodness of fit index)
(TLI) 0.904
Tucker-Lewis Index
NFI 0.845
(Normed fit index)
CFI 0.939
(Comparative fit index)
Figure 2 Confirmatory Factor Analysis (Second order structural model of HRDSC)
Table 6 Path analysis of Structural Model
Measurement Path Estimate
Immediate capability HRDSC . 941
Intermediate capability HRDSC ..882
Ultimate capability HRDSC ..733
HRD system has the capability Immediate capability ..395
to make the organisation
efficient
HRD system has the capability Immediate capability ..772
to make the organisation
productive
HRD system has the capability Immediate capability ..452
to meet the requirement of the
customer
HRD system has the capability Immediate capability ..528
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- Exploring Factors of HRD System Capability: An Empirical Investigation in Service Industries in India
to meet the requirement of the
investors
HRD system has the capability Intermediate ..680
to meet strategic goals capability
HRD system has the capability Intermediate ..409
to support organisation capability
innovation
HRD system has the capability Intermediate ..527
to make people quality focused capability
HRD system has the capability Ultimate capability ..539
to meet requirement of
employees
HRD system contribution is Ultimate capability ..351
important for organisational
effectiveness
Analysing the path coefficient (Table.6.), it is found that immediate capability (+.941)
contribute highest followed by intermediate capability (+.882) and ultimate capability
(+.733). It is found that immediate capability contributes highest followed by intermediate
and ultimate capability. All the path coefficient was found to be significant.
Table 7 Squared Multiple Correlations
Variables Estimate
Ultimate Capability .537
Intermediate Capability .779
Immediate Capability .886
HRD system has the capability to make the organisation .279
efficient
HRD system has the capability to make the organisation .205
productive
HRD system has the capability to meet the requirement .596
of the customer
HRD system has the capability to meet the requirement .156
of the investors
HRD system has the capability to meet strategic goals .462
HRD system has the capability to support organisation .167
innovation
HRD system has the capability to make people quality .227
focused
HRD system has the capability to meet requirement of .123
employees
HRD system contribution is important for organisational .290
effectiveness
Table-7 shows the squared multiple correlations, in which it is found that the predictors of
ultimate capability explain 53.7 percent of its variance. Similarity intermediate capability
explains 77.9 percent and immediate capability explain 88.6 percent of their variances. Since
the service industries chosen were distinct from each other; to find the industry effect one way
analysis of variance was conducted to evaluate the hypothesis:
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- Padmalita Routray and Amarnath Padhi
“There is no significant difference on the perception of respondents on different sub-
constructs and the construct of HRD system capability.”
Figure 8(a) Descriptive Statistics
Sectors N Mean Std.Deviation Std.Error
Hotel Sector 57 4.2953 .21527 .02851
HRD System Capability IT Sector 51 3.9504 .33616 .04707
Retail Sector 43 3.6195 .22669 .03457
Total 151 3.9864 .38033 .03095
Figure 8(b) ANOVA
Sum of Df Mean F Sig.
Squares Square
Immediate Between groups 17.661 2 8.831 75.456 .000
Capability Within groups 17.320 148 117
Total 34.982 150
Intermediate Between groups 12.579 2 6.289 32.194 .000
Capability Within groups 28.914 148 .195
Total 41.492 150
Ultimate Between groups 7.125 2 3.563 15.567 .000
Capability Within groups 33.871 148 .229
Total 40.997 150
HRD system Between groups 11.294 2 5.647 80.333 .000
Capability Within groups 10.404 148 .070
Total 21.697 150
Figure 8 (c) Post Hoc Test
a, b
TukeyB
Sector under which respondent N Subset of alpha = 0.05
comes 1 2 3
Immediate Retail Sector 43 3.3547
Capability IT Sector 51 3.99461
Hotel Sector 57 4.1930
Intermediate Retail Sector 43 3.5504
Capability IT Sector 51 3.8954
Hotel Sector 57 4.2632
Ultimate Retail Sector 43 3.9535
Capability IT Sector 51 4.0098
Hotel Sector 57 4.4298
HRD System Retail Sector 43 3.6195
Capability IT Sector 51 3.9504
Hotel Sector 57 4.2953
Means for groups in homogeneous subsets are displayed.
a. Uses Harmonic Mean Sample Size = 49.663.
b. The group sizes are unequal. The harmonic mean of the group sizes is used. Type I error levels are
not guaranteed.
The table- 8(a-c) shows the descriptive statistics, ANOVA table, and results of post -hoc
test. From the post hoc test it was found that hotel industries HRD capability was found to be
better (Mean=4.29; SD=0.215; N=57) in comparison to IT industries (Mean=3.95; SD=0.336;
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- Exploring Factors of HRD System Capability: An Empirical Investigation in Service Industries in India
N=51) and retail industries (Mean=3.819; SD=0.226; N=43). The poor performer among the
three industries was the retail industry.
5. DISCUSSIONS
Data analysis shows that the HRD system‟s immediate capability is more on making the
organization efficient, productive and customer oriented. The HRD function plays an
important role in increasing people competency and thus can create desired kind of service
capability to meet the requirement of the customers and hence can impact financial
performance of the company. The descriptive statistics shows that the companies are doing
fairly good on these aspects So far as immediate capability of HRD is concerned; it is found
that making organization productive is an important contribution of it. In medium run the
intermediate capability focuses on the ability to meet strategic goals, make the organization
innovative and quality focused. However, the descriptive statistics shows that the companies‟
HRD capabilities are not well developed to meet the strategic goals and make them more
quality focused. However, the capability of HRD system is very good for making the
organization innovative. While analysing the ultimate capabilities of HRD the focus should be
more on meeting the requirements of employee and make the organization effective. The
descriptive statistics reveal that companies meet the requirements of employees and are fairly
good in contributing to organizational effectiveness. Comparison across industries reveals that
Industries are different in terms of their HRD capability. Hotel industries‟ quest for excellence
far surpasses that of IT and retail industries. They are good in making the organisation
efficient and productive using HRD capability; hence meet the requirements of customers and
investors successfully. They are able to meet the strategic goals and the contribution of HRD
system in making the organisation effective is important for them. IT and retail industries,
though capable of meeting the requirements of employees, are not able to perform very
effectively so far as efficiency, productivity and customer orientation is concerned. In these
organisations HRD capabilities are not aligned properly to achieve the strategic goals.
6. CONCLUSION
Service industries are people intensive and therefore the role of HRD system is vital to
increase the competitiveness of these industries (Hotel, Retail and IT). Hotel industries giving
thrust on this aspect will be the future leaders. In future years there will be more competition
in retail industries and thus increases the importance of HRD in making the organization more
capable in meeting the strategic goals by developing people capability. Such the capability
will enhance the organizations‟ capacity not just to compete on cost front but also to create a
better service climate to attract customer and stay ahead of the competition. In case of IT
industries the focus on innovation will be more profound and the people capability can be
more strategy focused if the HRD system capability can be developed to meet the strategic
goals of the organizations.
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