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The impact of talent management

and employee engagement on
organisational performance
Seyed Abdorreza Payambarpour

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Int. J. Management Practice, Vol. 8, No. 4, 2015 311

The impact of talent management and employee

engagement on organisational performance

Seyed Abdorreza Payambarpour

International Business School,
Universiti Teknologi Malaysia,
Jalan Iman, 81300 Skudai, Malaysia
Email: apseyed2@live.utm.my

Lai Wan Hooi*

Nottingham University Business School,
The University of Nottingham Malaysia Campus,
Jalan Broga, 43500 Semenyih, Selangor Darul Ehsan, Malaysia
Email: Carol.Hooi@nottingham.edu.my
*Corresponding author

Abstract: The paper studies the impact of talent management on organisational

performance in multinational corporations through applying management
development and strategic HR inputs, and to evaluate the mediating role
of employee engagement in the strategic HR inputs and organisational
performance relationship. An online survey was distributed among managers of
the first ten global multinational corporations listed by Fortune magazine 2013
and 498 responses were collected. The respondents were selected through
LinkedIn using stratified sampling. PLS-SEM was used to test the hypothesised
relationships of the model. The result shows a positive relationship between (1)
MD Index and organisational performance, (2) strategic HR and organisational
performance, and (3) employee engagement and organisational performance.
Utilising PLS path modelling to evaluate structural model including higher-
order component (MD Index) is highly original. The paper emphasises the
importance of engagement as a mediator of the relationship between strategic
HR and organisational performance in the talent management context.

Keywords: management development; organisational performance; talent

management; employee engagement; multinational corporation; strategic HR
inputs.

Reference to this paper should be made as follows: Payambarpour, S.A. and

Hooi, L.W. (2015) ‘The impact of talent management and employee
engagement on organisational performance’, Int. J. Management Practice,
Vol. 8, No. 4, pp.311–336.

Biographical notes: Seyed Abdorreza Payambarpour received his

postgraduate degree in Business Administration in 2013. His areas of research
interest include HR function and product quality. He is now with the Industrial
Management Institute (IMI), Arak, Iran.

Lai Wan Hooi is an Associate Professor of Human Capital Management and

Organisational Behaviour at the University of Nottingham, Malaysia. She
obtained a professional degree in Company Secretarial from the Institute of

Copyright © 2015 Inderscience Enterprises Ltd.

312 S.A. Payambarpour and L.W. Hooi

Chartered Secretaries and Administrators, UK, and Master of Economics from

the Graduate School of Economics, Wakayama University, Japan. Her PhD in
Business Administration (Human Capital Management) was awarded
by St. Andrew’s University, while her PhD in Business Administration
(Organisational Behaviour) is from International Islamic University Malaysia.
She is the author of Human Capital Management Practices in Malaysia: Local
and Foreign Perspectives.

1 Introduction

By emerging and increasing globalisation and rivalry around the world, organisations
have noticed that the skills, knowledge, and ability of their personnel represent a key
source of competitive advantage (Lewis and Heckman, 2006; Collings and Mellahi,
2009; Sheehan, 2012a). In this situation, talent management has appeared as a significant
strategic issue. Considerable studies have concentrated on the relationship between talent
management and improved performance (Sheehan, 2012a; Huselid et al., 2005; Boudreau
and Ramstad, 2007; Cappelli, 2008; Collings and Mellahi, 2009; Ready and Conger,
2007). Talent management has been considered within the remit of a number of HR
specialisations, comprising Human Resource Development (HRD), succession planning,
and organisational learning. It should be noted that in all of them the value of talent as an
explicit source of competitive advantage has been highlighted (Sheehan, 2012a).
The theoretical framework of the Resource-Based View (RBV), which considers
internal factors (intellectual and physical) as essential sources of competitive advantage,
considerably influences on the term of talent management. Based on the RBV
perspective, human capital as a vital source for sustaining competitive advantage has
dedicated the most attentions to itself (Sheehan, 2012a). The human capital theory, which
stresses the potential connection between the skill and quality of the personnel and
organisational performance, has a pivotal impact on the human dimension in the RBV
framework (Becker, 1964). Recently, several studies have taken a deeper look at the
significance of differentiated human capital that stresses the different contributions that
particular group of employees are able to make in order to increase organisational
performance (Lepak and Snell, 2002).
Therefore, the systematic identification of strategic positions which helps
organisations to sustain competitive advantage globally is central to the talent
management concept. The initial point to the mentioned approach is the identification of
strategic talent groups or positions instead of individuals per se (Sheehan, 2012a). It
results in an increase of recognition within the organisation, a better degree of
differentiation of roles, and a higher concentration on strategic jobs instead of non-
strategic ones (Becker and Huselid, 2006) or between those roles which have merely
marginal effect in comparison with those jobs which make above-average effect
(Boudreau and Ramstad, 2007).
Most researchers believe that Human Resource Management (HRM) activities are
able to depict the level of investment in human capital and training and development
activities have the most effect on the quality and level of human capital in an
organisation. As a result, such activities have essential impacts on organisational
 The impact of talent management and employee engagement 313

performance (Flamholtz and Lacey, 1981; Marchington and Grugulis, 2000; Snell and
Dean, 1992; Lossy, 1999; McDonnell, 2008). It is explicit that over-investment in non-
critical roles in an organisation is a failure to distinguish between personnel (Collings and
Mellahi, 2009). Managers’ abilities and skills as managerial resources are significant
contributors to all resources of an organisation and allow an organisation to generate
financial profitability and productivity (Castanias and Helfat, 1991). Therefore, the role
of strategic valued people which contain managerial capital can be a crucial source for
potential competitive advantage (Sheehan, 2012a).

2 Research significance

This study is important in terms of knowledge, because it could expand previous

research, which is mostly conducted in Europe (Sheehan, 2012a; Sheehan, 2012b;
Sheehan, 2012c; Mabey, 2008; Mabey and Gooderham, 2005; Mabey and Ramirez,
2005) through collecting data from managers of the first ten global multinational
corporations listed by Fortune magazine 2013. Furthermore, the study is important in
terms of policy, because it addresses an essential topic which business practitioners and
academic researchers in the management field are concerned about in an era of growing
competition and globalisation (Mabey and Gooderham, 2005; Mabey and Ramirez, 2005;
Mabey, 2008; Sheehan, 2012a; Sheehan, 2012c; Sheehan, 2012b). The findings
reveal that investment on developing managers results in organisational performance
improvement.
As one of the vital criteria in management studies, organisational performance is
shown through a comparison between the ultimate results of an organisation and its
objectives and goals. It is crucial for managers to compare their organisation with
competitors. The common use of it as an outcome variable shows the dominant role of
this construct in management fields. There are a few studies which have paid attention to
the essence of performance and the way of measuring it (Richard et al., 2009).
Some researchers try to trace the impact of HR practices on financial indicators
(Youndt et al., 1996; Becker and Huselid, 1998; Guthrie, 2001), financial performance
(Barling et al., 1996), and financial savings (Lee et al., 1993). On the other hand, some
researchers state that such quantitative measures of organisational performance are
unsuitable (Machin and Stewart, 1996; Mayo, 2000; Guest, 2001).
In recent years, there has been a lot of interest in employee engagement, and it has
become a highly popular term (Robinson et al., 2004; Albrecht et al., 2015). Macey et al.
(2009) remarked that ‘rarely has a term […] resonated as strongly with business
executives as employee engagement has in recent years’. Therefore, substantial progress
has been made in order for clarifying the construct and distinguishing it from other
related constructs (Hallberg and Schaufeli, 2006), and understanding the antecedents and
consequences of employee engagement (Saks, 2006; Mauno et al., 2010; Halbesleben,
2010; Demerouti et al., 2010; Crawford et al., 2010; Christian et al., 2011; Bakker et al.,
2014). Moreover, some studies have concentrated on mediating role of the construct
(Menguc et al., 2013; Alfes et al., 2013a; Alfes et al., 2013b).
314 S.A. Payambarpour and L.W. Hooi

3 Research context and research model

3.1 Organisational performance and management development

Across an organisation, the most valued people are managers. It is worth mentioning
their role in leading, influencing strategy, checking performance, and managing resources
(Storey, 1989). Considering the essential role of managers within an organisation, the
main purpose of management development is to develop managerial competencies,
which can assist to enhance organisational performance (Garavan and Heraty, 2001;
Garavan et al., 1999; Lees, 1992; Osbaldeston and Barham, 1992). Thus, the
enhancement of managers should be considered pivotal in talent management, and it is
important to build a connection between human resource and organisational performance
(Mabey and Gooderham, 2005). Besides, a lack of success in enhancing managerial
talent has an adverse impact on recruiting and retaining this important group and a
negative impact on firm performance (Sheehan, 2012a).
Though there is a general consensus about talent management and the essential role
of management development for organisational performance, little research mentioned
how organisations can benefit from investment in management development (Mabey and
Ramirez, 2005). Surprisingly, a large amount of HR budgets within organisations is
targeted on training and developing managers (Garavan et al., 2008).
Previous studies on management development have mainly concentrated on how
factors such as type of industry, organisation location, organisation size, corporate
strategy, sales turnover, and country of ownership impact the level of formalised
management development within organisations (Akuratiyagamage, 2006; Heraty and
Morley, 2003; McDonnell, 2008; Ruth, 2007). Then, the analysis was extended by
D’Netto et al. (2008) in the Australian context and Dastgeer and Ur Rehman (2012) in
the Pakistani context to evaluate how such factors impact on the effectiveness of
management development. In a multi-country context, only a very few studies have
tested if there is a relationship between management development and organisational
performance (Mabey and Gooderham, 2005; Mabey and Ramirez, 2005; Mabey, 2008).
Sheehan (2012a) provided a framework in which management development is a multi-
faceted index, and HR strategy was employed to test the link between talent management
and organisational performance in UK-owned MNCs.
According to Kuvaas and Dysvik (2010), investment in management development by
organisations is a commitment on employees which aids to bolster the mediating effects
of discretionary effort, turnover intentions, job satisfaction, and affective commitment
of employees. All of these have positive impacts on organisational performance.
Accordingly,
Hypothesis 1: There is a positive relationship between MD Index and organisational
performance.

3.2 Organisational performance and human resource activities

For more than two decades, a lot of research have been conducted to determine the
association between organisational performance and human resource activities, and thus
denoted that a positive relationship exists between the extent of HR practices employed
 The impact of talent management and employee engagement 315

and organisational performance (Guest, 2011; Boselie et al., 2005; Becker et al., 1997;
Guest, 1997). In this regard, previous researchers have argued that bundles of HR
practices have a considerable influence on organisational outcomes, than discrete ones
(Becker and Huselid, 2006; Combs et al., 2006; Takeuchi, 2009; Wright and Boswell,
2002). Moreover, some studies have demonstrated that certain HR approaches can drive
organisational performance (Batt, 2002; Datta et al., 2005; Som, 2008; Huselid, 1995),
but other research still have been cautiously conducted (Truss, 2001; Guest et al., 2003;
Den Hartog et al., 2004; Gooderham et al., 2008). Though consensus on which HR
practices to include in the analysis of the link between performance and HR is
inconclusive, training and development is found in nearly all the research. Indeed, this
indicates the crucial role of training and development in RBV theories and also in the
field of human capital (Sheehan, 2012a). According to Becker (1962), it is necessary for
an organisation to invest systematically in human capital to enhance competitiveness of
the organisation (Salas and Cannon-Bowers, 2001). Provision of opportunities to
improve workers’ skills and learn new technologies is also vital in boosting
organisational performance (Thang et al., 2010).
However, training must involve more than fundamental skill development
(Brinkerhoff and Apking, 2001). Hence, an organisation has to consider training
generally as a way to augment intellectual capital, including basic skills (skills necessary
for employees to perform their tasks), advanced skills (skills to apply technology for
knowledge sharing), self-motivated creativity, and an understanding of the customer and
manufacturing system. As training programs are currently performance-focused, these
programs are being assessed both in terms of the number of training programs provided
and the alignment of programs with business requirements, in particular relating to
behavioural change, learning, and performance enhancement (Noe et al., 2010).
Generally, organisational performance improves through investment in training in terms
of reduced turnover, increased market share, decreased conflict and absenteeism,
improved quality, and increased productivity (Salas and Cannon-Bowers, 2001; Huselid,
1995; Thang et al., 2010; Noe et al., 2010). Hence,
Hypothesis 2: There is a positive relationship between strategic HR inputs and
organisational performance.

3.3 Human resource activities and employee engagement

Drawing on social exchange theory, many studies have argued that HR practices transmit
signals to employees about to what extent they are valued and trusted, which in turn
provokes the feeling of obligation to employees (Saks, 2006; Rich et al., 2010; Alfes
et al., 2013b; Allen et al., 2003; Gould-Williams, 2007; Purcell and Hutchinson, 2007).
Moreover, when employees notice that their employer values them and their contribution,
they show positive attitudes and behaviours (Wayne et al., 1997; Cropanzano et al., 2003;
Kuvaas and Dysvik, 2010). Specific HR practices may be regarded as signalling an
intention for long-term investment in workforces that help them reciprocate with
discretionary role behaviour and contributions (Sun et al., 2007; Shaw et al., 2009; Gong
et al., 2010).
In spite of the accumulating evidence supporting the nexus between HR practices and
a range of behavioural or attitudinal variables (Hannah and Iverson, 2004; Snape and
316 S.A. Payambarpour and L.W. Hooi

Redman, 2010; Sun et al., 2007), few researchers have demonstrated the link
between HR practices and employee engagement (Pati and Kumar, 2011; Alfes et al.,
2013b). Moreover, empirical research has clearly shown an association between high
levels of engagement and the same outcomes as the high-performance HRM practices
literature.
According to Guest (2014), engagement needs clearly imbedding within an integrated
system of HR practices, procedures and policies to deliver its claimed advantages. Then,
Albrecht et al. (2015) showed that how four key engagement-focused HR practices
(i.e. personnel selection, socialisation, performance management, and training and
development) can be employed in order to promote employee engagement and result in
positive outcomes that will assist organisations in achieving a competitive advantage.
Hence,
Hypothesis 3: There is a positive relationship between strategic HR inputs and employee
engagement.

3.4 Organisational performance and employee engagement

Today, employee engagement is a distinguished and crucial part of the vocabulary of
HRM (Arrowsmith and Parker, 2013). In fact, the attention of governments, business
practitioners, and researchers has been attracted by this business management concept,
because they are curious to find out the reasons of the concept’s existence in an
organisation and its consequences (Yalabik et al., 2013). There is a consensus among all
the parties mentioned above that the concept of engagement is important due to its
potential effect on performance (Yalabik et al., 2013; Bakker and Schaufeli, 2008;
MacLeaod et al., 2009; Fleck et al., 2010; Halbesleben, 2010; Christian et al., 2011;
Hakanen and Schaufeli, 2012; Soane, 2013).
The essence of employee engagement is unclear and confusing among both business
practitioners and academic researchers. The concept is broadly applied to present
behaviours, traits, psychological states, and their antecedents and results (Macey and
Schneider, 2008). Even though various definitions of employee engagement exist in the
literature, most researchers believe that engaged worker is highly energetic, enthusiastic
about job and often fully involved in job (May et al., 2004; Bakker et al., 2008; Macey
and Schneider, 2008), and performs better than their disengaged peers (Schaufeli, 2013).
Most employee engagement definitions use constructs such as job involvement, job
satisfaction, organisational commitment, and organisational citizenship behaviours, but
limited research has proven the association of employee engagement with other
well-known constructs (Harter et al., 2002; Little and Little, 2006; Attridge, 2009;
Schaufeli and Bakker, 2010). Furthermore, a considerable volume of the literature on
employee engagement has focused on the recognition of the concept’s measures that
reveal a clearly different psychological state than being definitionally linked to
previously accepted constructs (Halbesleben and Wheeler, 2008; Macey and Schneider,
2008; Macey et al., 2009; Rich et al., 2010; Schaufeli and Bakker, 2010; Yalabik et al.,
2013).
The concept of employee engagement considerably contributes to an organisation’s
bottom line (Demerouti et al., 2010; Macey and Schneider, 2008), and has positive
impact on financial outcomes (Xanthopoulou et al., 2009). Besides, current studies have
 The impact of talent management and employee engagement 317

revealed that employee engagement is positively pertinent to supervisor-ratings of job

performance (Bakker and Bal, 2010; Halbesleben and Wheeler, 2008), employee
retention, safety, customer satisfaction, profitability, and productivity (Little and Little,
2006; Truss et al., 2006; Schaufeli and Bakker, 2010; Salanova et al., 2005; Coffman
et al., 2002).
Mukerjee (2014) believes that the existence of increasing competition for attracting
talent compels organisations to ensure engagement of workers to sustain competitive
advantage and drive performance. Therefore,
Hypothesis 4: There is a positive relationship between employee engagement and
organisational performance.

3.5 Organisational performance, employee engagement,

and human resource activities
While prior research has demonstrated an association between HRM and organisational
performance, recent evidence has argued that the link is mediated by a variety of
attitudinal and behavioural constructs at the individual level, especially affective and
continuance commitment, task performance, job satisfaction, and OCB (Den Hartog
et al., 2004; Guest et al., 2004; Kinnie et al., 2005; Kuvaas, 2008; Takeuchi, 2009; Snape
and Redman, 2010). Drawing on social exchange theory, the connection between HR
practices and organisational performance has been proved. Nevertheless, the mediating
role of attitudes and behaviours has resulted in contradictory outcomes (Snape and
Redman, 2010; Kuvaas, 2008; Sun et al., 2007).
Although Truss et al. (2013) have proposed that the attitudinal construct of employee
engagement may provide the key to understanding how effective HR practice can lead to
higher individual and organisational performance, the empirical and conceptual
associations between HR practices and employee engagement, and between engagement
and performance, are not well developed (Guest, 2014; Sparrow and Balain, 2010;
Sparrow, 2013). To date, there have only been few studies examining how HR practices
exert influence over individual and organisational outcomes through employee
engagement (Sparrow, 2013; Truss et al., 2013; Alfes et al., 2013b; Alfes et al., 2013a).
Accordingly,
Hypothesis 5: Employee engagement mediates the relationship between strategic HR
inputs and organisational performance.
This study sets out to evaluate the effect of MD Index, strategic HR inputs, and employee
engagement on organisational performance. After reviewing literatures about HR
performance, SHRM, TM and also examining some essential studies about management
development, particularly the work of Mabey (2008), Mabey and Ramirez (2005),
and Mabey and Gooderham (2005), the current research’s variables were chosen. The
proposed conceptual framework is shown in Figure 1.
As a result of these considerations, we focus on testing the hypotheses of the study
(Figure 1).
318 S.A. Payambarpour and L.W. Hooi

Figure 1 Framework proposed

4 Methodology

4.1 Sample and procedure

To test the conceptual model and associated hypotheses, we used a data set generated
from an online survey, which was distributed among managers of the first ten global
multinational corporations ranked and listed by Fortune magazine 2013. The respondents
of the study who were in all levels of managerial positions were selected through the
world’s largest professional network website (www.linkedin.com). We decided to use
disproportionate stratified random sampling (Sekaran and Bougie, 2010) whereby the
target population was divided into three strata (junior, middle, and senior managers), and
a sample of members for each stratum was drawn using SRS procedure. From 28 April
2013 to 24 February 2014, 1327 questionnaires were distributed through the website and
539 questionnaires were returned. A total of 41 cases were removed due to missing
values. Based on the rule of thumb to run PLS-SEM analyses, the minimum sample size
required is 210 (Hair et al., 2013). As a result, 498 usable questionnaires obtained yielded
 The impact of talent management and employee engagement 319

a 40.60% response rate. The demographic profile of the respondents shown in Table 1
indicates that the majority of the respondents are from the services sector holding senior
and middle management posts in their organisation. More than 47% of the respondents
have been in their positions for more than three years.
Table 1 The demographic profile of the respondents

Frequency Percentage
Management level
Junior 83 16.7
Middle 200 40.2
Senior 215 43.2
Functional area
Marketing/sales 119 23.9
Financial accounting 30 6.0
Production/operations 97 19.5
IT 55 11.0
General management 103 20.7
Other 94 18.9
Sector
Manufacturing 226 45.4
Services 272 54.6
Time in the position
Less than 1 year 89 17.9
1–3 years 171 34.3
More than 3 years 238 47.8
Size
Less than 100 85 17.1
100–500 116 23.3
501–1000 32 6.4
Over 1000 265 53.2

4.2 Measures
The survey questionnaire was adapted from Sheehan (2012a). The items used are
summarised in Appendix 1.

4.2.1 MD system
We measured MD system with a seven-item scale. A sample item is: ‘High potential
managers are selected for intensive development’. Based on the feedback achieved, the
questions’ format changed to five-point Likert scale for the construct. The response scale
ranged from 1 (‘strongly disagree’) to 5 (‘strongly agree’). Composite reliability was
0.847.
320 S.A. Payambarpour and L.W. Hooi

4.2.2 MD ethos
MD ethos was measured with a five-item scale. A sample item is: ‘The emphasis of
training in this organization is to develop individual potential’. The response scale ranged
from 1 (‘strongly disagree’) to 5 (‘strongly agree’). Composite reliability was 0.904.

4.2.3 Significance of MD
Significance of MD was measured with a three-item scale. Participants responded to
items, such as ‘My organization gives a high priority to developing its managers’. The
response scale ranged from 1 (‘strongly disagree’) to 5 (‘strongly agree’). Composite
reliability was 0.925.

4.2.4 Provision of MD
Provision of MD was measured with a six-item scale. An example item is: ‘In-company
job rotation’. The response scale ranged from 1 (‘poor’) to 5 (‘excellent’). Composite
reliability was 0.879.

4.2.5 Strategic role of HR

Strategic role of HR was measured with a five-item scale. An example item is: ‘Human
resource policies are linked to business strategy’. The response scale ranged from 1
(‘strongly disagree’) to 5 (‘strongly agree’). Composite reliability was 0.923.

4.2.6 Employee engagement

Employee engagement was measured with an eight-item scale. An example item is:
‘Help is available from the organization when I have a problem’. The response scale
ranged from 1 (‘strongly disagree’) to 5 (‘strongly agree’). Composite reliability was
0.924.

4.2.7 Organisational performance

We measured organisational performance with a five-item scale. A sample item is: ‘The
quality of products/services’. The response scale ranged from 1 (‘a lot below average’) to
(‘a lot better than average’). Composite reliability was 0.913.
Two different techniques were chosen to control for Common Method Variance
(CMV) including scale reordering as a procedural method, and Harman’s one-factor test
as a Post Hoc remedy (Podsakoff and Organ, 1986). Questionnaire items were reordered
four times during questionnaire distribution among respondents after receiving 30, 75,
150, and 300 responses, respectively. The result of Harman’s one-factor test revealed a
cumulative variance of 38.673% which is less than 50%. Hence, CMV is not an issue
here. Moreover, the measures of outcome variable were placed before those of the
predictors in the survey to control response consistencies (Harrison et al., 1996).
 The impact of talent management and employee engagement 321

4.3 Analysis
Following the key arguments for selecting an appropriate method to estimate structural
equation models (Hair et al., 2011; Hair et al., 2012c; Ringle et al., 2012), we decided to
use the PLS-SEM approach, which has been established as a particularly useful and
frequently applied multivariate analysis method in strategic management research (Hair
et al., 2012a; Hair et al., 2013; Hair et al., 2012b). The goal of this study is to explain the
key target construct organisational performance, for which the variance-based PLS-SEM
approach is especially appropriate (Henseler et al., 2009; Henseler et al., 2012).
Furthermore, this analytical approach is generally recommended when latent variables’
scores in subsequent analysis of predictive relevance are used (Roldán and Sánchez-
Franco, 2012). The statistical software application SmartPLS 2.0 (Ringle et al., 2005)
was used to compute the PLS path model. In evaluating and reporting the results, we
followed recent guidelines for PLS-SEM given by Chin (2010) and Hair et al. (2013),
and assessed the measurement models before evaluating the structural model.

5 Result

5.1 Measurement model

The evaluation of the reflective measurement models examines its reliability and validity
(Henseler et al., 2009). Indicator reliability, when an indicator has a factor loading
greater than 0.7 for its construct, is adequate. According to our assessment, reflective
indicators satisfy this requirement (Table 2), except HRS1, EN6, and MDB5 which
remain in the study on account of their contributions to content validity. Hence, the
indicators in the reflective measurement models reach satisfactory indicator reliability
levels (Hair et al., 2013). The assessment of construct reliability uses composite
reliability (pc) with a value of 0.7 as threshold. All reflective constructs achieve
convergent validity, because their AVE rates surpass the 0.5 level (Hair et al., 2013).
Finally, Table 3 reveals the results of the discriminant validity assessment by applying
the Fornell and Larcker (1981) criterion, which requires that each construct’s AVE
should be higher than its correlation with all of the other constructs.
Table 2 Measurement model evaluation

Latent Measurement Composite Average variance

Loadings
variable item reliability (pc) extracted (AVE)
MD.A3 0.831
MD system MD.A4 0.762 0.847 0.650
MD.A5 0.824
MD.B1 0.926
MD.B2 0.890
MD ethos 0.904 0.703
MD.B3 0.825
MD.B5 0.694
MD.C1 0.868
Importance of MD MD.C2 0.918 0.925 0.805
MD.C3 0.905
322 S.A. Payambarpour and L.W. Hooi

Table 2 Measurement model evaluation (continued)

Latent Measurement Composite Average variance

Loadings
variable item reliability (pc) extracted (AVE)
MD.D1 0.842
MD.D3 0.819
Provision of MD 0.879 0.646
MD.D5 0.785
MD.D6 0.766
MD system 0.695
MD ethos 0.925
MD Index 0.94 0.535
Importance of MD 0.925
Provision of MD 0.899
HRS1 0.570
HRS2 0.895
Strategic role of HR HRS3 0.856 0.923 0.710
HRS4 0.942
HRS5 0.897
EN3 0.828
EN4 0.867
Employee EN5 0.819
0.924 0.671
engagement EN6 0.667
EN7 0.854
EN8 0.863
PR1 0.861
PR2 0.778
Organisational
PR3 0.878 0.913 0.678
performance
PR4 0.851
PR5 0.739

Table 3 The results of the discriminant validity assessment

MD Organisational Strategic
Engagement
Index performance role of HR
Engagement 0.819
MD Index 0.663 0.731
Organisational performance 0.695 0.634 0.823
Strategic role of HR 0.631 0.710 0.597 0.842
Note: The diagonal elements (in bold) are the square root of the AVEs; non-diagonal
elements are latent variable correlations.
 The impact of talent management and employee engagement 323

5.2 Structural model

A step-by-step analysis to provide a detailed picture of our results and to test hypotheses
1–5 comprehensibly was conducted. To begin with, the results of collinearity assessment
among the predictor constructs show that collinearity is not an issue because all VIF
values are clearly below the threshold of 5 (Hair et al., 2013). Consistent with Henseler
et al. (2009), bootstrapping technique was used to evaluate the statistical significance of
the path coefficients. Furthermore, calculation of the percentile bootstrap at a 95%
confidence interval of standardised regression coefficients forms part of the analysis. All
the direct effects in Figure 2 are significant (Table 4). The central criterion for the
assessment of the structural model (Henseler et al., 2012) is the coefficient of
determination R2 which has a value of 0.547 for organisational performance construct.
After running the blindfolding procedure (Hair et al., 2013), the Q2 value for
organisational performance (0.367) and employee engagement (0.262) is greater than
zero, showing that the structural model has satisfactory predictive relevance. In
accordance with the general recommendations given by Baron and Kenny (1986) and
Preacher and Hayes (2004), as well as the PLS-SEM-specific suggestions given by Hair
et al. (2013), the mediation analysis was done. As shown in Table 4, strategic role of HR
has a significant total effect on organisational performance (0.434, p < 0.01).
Furthermore, the indirect effects of strategic role of HR on organisational performance
(0.282, p < 0.01) via the mediator construct (employee engagement) are significant.
Consequently, the result of VIF (65.10%) shows that employee engagement construct
partially mediates the relationship between strategic role of HR and organisation
performance.

Figure 2 The PLS algorithm results (see online version for colours)
 Table 4

324
S.A. Payambarpour and L.W. Hooi
The results of structural model analysis
Endogenous constructs Explained variance (R2) Predictive relevance of endogenous constructs (Q2)
Organisational performance 0.547 0.367
Engagement 0.398 0.262
Relationship Path coefficients t-value p-value Percentile 95% confidence intervals Supported
H1: MD Index  Organisational performance
0.23* 4.00 0.00 [0.082, 0.377] Sig. Yes
(f2 = 0.048/q2 = 0.023)
H2: Strategic role of HR  Organisational
performance 0.15* 3.15 0.00 [0.028, 0.275] Sig. Yes
(f2 = 0.022/q2 = 0.011)
H3: Strategic role of HR  Engagement
0.63* 24.68 0.00 [0.565, 0.697] Sig. Yes
(f2 = 0.662/q2 = 0.356)
H4: Engagement  Organisational performance
0.45* 9.64 0.00 [0.328, 0.567] Sig. Yes
(f2 = 0.0223/q2 = 0.107)
Engagement
Direct effect Indirect effect Total effect VIF (variance accounted for)
H5: Strategic role of HR  Organisational 65.10% (partial mediation)
0.15 0.282* 0.434*
performance
Notes: The cross-validated redundancy measure Q2 is derived from the blindfolding procedure with an omission distance of seven; the p-values are derived from the
bootstrapping procedure with 493 cases and 5000 samples.
* p < 0.01 (two-sided test).
 The impact of talent management and employee engagement 325

5.3 Importance–performance map analysis of path modelling results

As Hock et al. (2010) noted, the importance–performance analysis of path modelling
results permits the identification of areas of improvement that can subsequently be
addressed with marketing or management activities. To increase the analysed
endogenous latent variables’ performance level in future, actions should be taken along
lines that have a relatively high importance and a relatively low performance. Table 5
indicates the index values of the latent variables in the inner model and the exogenous
latent variables’ total effects on the endogenous latent variable (organisational
performance). Figure 3 visualises the ‘performance level’ of each exogenous latent
variable along with its effect on the endogenous latent variable. The result of the IPMA
of organisational performance reveals that employee engagement is of primary
importance for establishing organisational performance. However, its performance is
slightly above the average when compared with the other constructs. If the index value of
the latent variable ‘employee engagement’ increases by one unit, the index value of the
endogenous latent variable ‘organisational performance’ should increase by 0.447 points
in a ceteris-paribus assessment of results. Strategic role of HR is of similar importance
and its performance is also slightly above the average. So steps ought to be taken to
improve the ‘Strategic role of HR’ area. MD Index, on the other hand, has relatively low
performance in comparison with other constructs. This area offers major improvement
potential in terms of the current performance level. Consequently, managerial activities
to improve organisational performance should focus on the employee engagement
construct, MD Index, and strategic role of HR.

Figure 3 IPMA analysis (see online version for colours)

326 S.A. Payambarpour and L.W. Hooi

Table 5 The index values of the latent variables in the inner model and the exogenous latent
variables’ total effects on the endogenous latent variable

Importance (total effect) Performance (index values)

Engagement 0.447 66.637
MD Index 0.230 63.205
Strategic role of HR 0.434 66.175

6 Discussion and conclusions

The goal of this study was to examine the impact of talent management (MD Index and
strategic HR inputs) on organisational performance, while employee engagement
mediates the link between strategic HR inputs and organisational performance. The data
are obtained from managers of the sample MNCs. The findings support all five
hypotheses tested (Table 4), and can be grouped into the following conclusions.
First, management development has implications for organisational performance. In
this respect, it is suggested that, to enhance organisational performance, management
development should be considered by the organisation. Our finding corroborates with
that of Sheehan (2012a), who also ascertained a positive relationship between MD Index
and organisational performance.
Second, human resource practices are positively and significantly associated with
organisational performance. Our finding concurs with the results of many scholars who
have considered to the considerable significance of HRM–performance chain such as
Delaney and Huselid (1996), Purcell and Hutchinson (2007), Guest (2011), Sheehan
(2012a), and Alfes et al. (2013b).
Third, human resource practices have a positive and significant influence on
employee engagement. Our finding corroborates with that of Pati and Kumar (2011),
who also ascertained a positive and significant effect of human resource practices on
employee engagement.
Fourth, employee engagement has a positive and significant effect on organisational
performance. In this respect, there is a consensus of opinion among academicians and
practitioners on high levels of engagement are associated with high levels of
performance. Our finding concurs with the views of Bakker and Schaufeli (2008), Fleck
et al. (2010), and Soane (2013) that the concept of employee engagement has an effect on
organisational performance.
Finally, employee engagement partially mediates the link between human resource
activities and performance. In this respect, it is suggested that HR practices (training and
development) for managers should be conducted by organisations to motivate engaged
people and yield high organisational performance. Our finding concurs with that of Alfes
et al. (2013b), who also ascertained the importance of line managers in the HRM–
performance chain, and the mediating role played by employee engagement.

6.1 Implication for practice

In spite of the world economic downturn and uncertainty, there is still strong global
competition for talents and valued people. Reducing expenditure on management
 The impact of talent management and employee engagement 327

development (a pivotal tool to attract, develop, and retain valued people) adversely
impacts current and future competitive advantage of an organisation significantly. As a
result, organisations must invest in developing their managers to sustain competitive
advantage.

6.2 Limitation
As with all research, this study is not without limitation. The cross-sectional research
designed and all data were collected through self-reported questionnaire. Two different
techniques (scale reordering and Harman’s one-factor test) were chosen to control for
potential CMV (Podsakoff and Organ, 1986; Podsakoff et al., 2003). Furthermore, all
managers were considered as talents, though not all of them might be considered as
potential sources of talent by their organisations.

6.3 Recommendation for further research

The current study includes essential implications for future training and development as
well as talent management research. It reveals the significance of acquiring input from
multiple respondents about issues relating to talent management. Particularly, it will be
crucial to study if talent groups notice that their organisation guarantees to retain and
develop them, and if their perceptions of talent management are different from those
talent management programs and initiatives in the organisation. As the study is cross-
sectional and any definite conclusions about causality cannot be drawn, it is advocated
that future research on the association between talent management, management
development, strategic HRM, employee engagement and organisational performance
benefits from the collection of longitudinal data.

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Latent Sub-construct/type
construct/type Aspects measured
MD Index MD system/best practices
(reflective higher- (reflective)
order component) Being a formed MD policy in
an organisation, selecting high
potential managers for training.
MD ethos (reflective)
The extent to which the
organisation is accountable for
training and development of
management.
Significance of MD (reflective)
The extent to which
organisations give a high
precedence to fostering their
managers.
Provision of MD (reflective)
The quality of the various
methods applied for training
and developing managers.
Appendix 1 A summary of the items used
Item Scale used Code
– Managers are developed against a specific set of skills/competences. Five-point Likert scale MDA1
The impact of talent management and employee engagement
– There are regular appraisals at which development needs are discussed. from ‘strongly disagree’ to MDA2
‘strongly agree’.
– Manager’s career is planned in the organisation. MDA3
– High potential managers are selected for intensive development. MDA4
– Management development activities are evaluated in a systematic
MDA5
way.
– High potential managers are selected for training. MDA6
– Cross-cultural training is provided for managers selected to train. MDA7
– The responsibility for management development is taken seriously by Five-point Likert scale
MDB1
the organisation. from ‘strongly disagree’ to
– The organisation is primarily concerned with the long-term ‘strongly agree’.
MDB2
development of managers.
– The emphasis of training in this organisation is to develop individual
MDB3
potential.
– It is expected to retain managers for five years or more. MDB4
– When filling management vacancies internal promotion/host country
MDB5
promotion is done wherever possible.
– My organisation’s management development policy reflects business Five-point Likert scale
MDC1
strategy. from ‘strongly disagree’ to
‘strongly agree’.
– My organisation gives a high priority to developing its managers. MDC2
– My organisation invests more heavily in management development
MDC3
than comparable organisations.
– Internal skills training. Five-point Likert scale MDD1
– External courses/seminars. from ‘poor’ to ‘excellent’. MDD2
– In-company job rotation. MDD3
– External placements/secondments. MDD4
– Mentoring/coaching. MDD5
– E-learning. MDD6
335
 Appendix 1 A summary of the items used (continued)

336
S.A. Payambarpour and L.W. Hooi
Latent Sub-construct/type
Item Scale used Code
construct/type Aspects measured
Strategic role of Organisations’ business – My organisation has a clear business strategy. Five-point Likert scale HRS1
HR (reflective) strategy and relevant issues to – Human resource policies are linked to business strategy. from ‘strongly disagree’ to HRS2
HR and HRD within the ‘strongly agree’.
organisation. – Human resource plays an active role in formulating or supporting
HRS3
business strategy.
– Human resource development policies are linked to business strategy
to achieve performance improvement through the development of both HRS4
the organisation and the individual.
– Management development is designed to support business strategy. HRS5
Employee The association of respondents – The opportunity to develop my skills and competences is very Five-point Likert scale
EN1
engagement with their organisations. important to me. from ‘strongly disagree’ to
(reflective) – I expect the organisation to provide management development ‘strongly agree’.
EN2
opportunities to me.
– The organisation values my contribution to its well-being. EN3
– I have received recognition for doing my job well. EN4
– My ideas and opinions are taken seriously, in the job. EN5
– I feel ‘emotionally attached’ to this organisation. EN6
– Help is available from the organisation when I have a problem. EN7
– I am satisfied with my job. EN8
Organisational Organisations’ performance in – The quality of products/services. Five-point Likert scale PR1
performance comparison with the key rivals – Development of new products/services (innovation). from ‘a lot below average’ PR2
(reflective) over the last three years. to ‘a lot better than
– Efficiency of factors of production (labour and capital). average’. PR3
– Customer/client satisfaction and retention. PR4
– Financial performance. PR5