Performance and Motivation

ANR: S135090

Name: Yorick Jansen

Department: Organisation and Strategy

Subject: Motivation of employees in the financial sector

Study Program: Business Studies, Bachelor year 3

Word count: 8373

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Management summary

The research focussed on the question what motivates employees to perform well and how

motivated employees can give a company a competitive advantage. First Maslow hierarchy

of needs, Herzberg’s two factor theory and Vroom’s expectancy theory are used to show

what motivates people.

Money motivates employees which are in the first 3 steps of the pyramid of Maslow. From

then onwards factors such as stimulating the personal growth, giving employees more

responsibilities for their work and give employees more recognition for their performance

prove to be better motivating employees. Furthermore employees should feel they are

capable of completing a task with success and the reward should be valuable and in line

with the performance.

Porter’s five forces model, SWOT analysis and the Resource Based View theory are

discussed to show the tools a company can use to analyse the industry it is in and see

where the chances are to gain a competitive advantage.

Motivation can give a company a competitive advantage on the human capital part and

when this is achieved the competitive advantage will be extended to the customer

relationships part since the good performing employees will maintain better relationships

with the customers then the competition.

To motivate the employees in order to gain a competitive advantage, employees should be

stimulated in their personal growth, get recognition for their achievements, get

responsibilities which are in line with their achievements and receive rewards which are in

line with the performance they show. Money can be seen as a motivator to, but it motivates

people less when money is not needed anymore to satisfy the needs someone has.

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Table of contents Chapter 1 1.1 Problem indication Page 4 1.2 Problem statement Page 5 1.3 Research questions Page 5 1.4 Research design Page 5 1.5 Data collection Page 6 1.6 Research structure Page 6 Chapter 2 2.1 Introduction Page 7 2.2 Maslow’s theory of needs Page 7 2.2.1 Critics on Maslow’s theory of needs Page 9 2.2.2 Attitudes on money Page 9 2.2.3 Differences between men and women Page 11 2.3 Herzberg two factor theory Page 12 2.3.a Hygiene factors Page 12 2.3.b Motivating factors Page 12 2.3.1 Criticism on Herzberg’s two factor theory Page 13 2.3.2 Herzberg’ response to the critics Page 13 2.3.3 Herzberg two factor theory validity 50 years later Page 14 2.3.4 Herzberg and implications for management Page 14 2.4 Vroom’s Expectancy Theory Page 16 2.4.a Effort-performance expectancy Page 17 2.4.b Instrumentality Page 18 2.4.c Valence Page 18 2.4.1 Criticism on Vroom’s Expectancy Theory Page 18 2.4.2 Vroom’s response to the criticism Page 19 2.5 Summary chapter 2 Page 19 Chapter 3 3.1 Introduction Page 21 3.2 Porter’s five forces model Page 21 3.2.a Threat of new entrants Page 22 3.2.b Supplier bargaining power Page 22 3.2.c Buyer bargaining power Page 23 3.2.d Threat of substitutes Page 23 3.2.e Intensity of rivalry Page 24 3.3 SWOT analysis Page 25 3.3.1 SWOT and management Page 26 3.4 Resource Based View Page 27 3.5 Competitive advantage Page 28 3.6 Summary chapter 3 Page 29 Chapter 4 4.1 Conclusion Page 30

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1. Chapter one: Introduction

1.1 Problem Indication

The current economic situation is very volatile, in a very rapid pace the world and the

Netherlands have fallen in a serious credit crisis. For employees this brings along much

uncertainty, will they be able to maintain their current job or will they get fired? This

uncertainty impacts the behaviour of the employee and its motivation to work (Donner,

2009). How can the work attitude and performance of employees working in the financial

sector such as banks be influenced by motivation? In general, employees who are not

motivated are performing worse than colleagues which are motivated. This means that

companies which have motivated employees have a competitive advantage over companies

with unmotivated employees (Nohria, 2008)

Motivation can be influenced by a lot of factors:

1) Internal company issues (Kevin, 2001)

2) Personal issues from employees (Welsch, 2008)

3) External factors outside the company (Anonymous, 2009)

Internal company factors which influence the motivation of employees can be the work

relationship among colleagues or the way management treats the employees for example.

Kevin (2001) stated that motivation can be influenced by the way how employees receive

feedback from within the company. When feedback is given in the wrong way it becomes

problematic since motivation will decrease. It should be researched how feedback should be

given to show how it can increase motivation and also which forms of feedback should be

avoided since it decreases motivation (Kevin, 2001).

Personal issues can be things like the home situation of the employees and the way they

are feeling. Think about a personal crisis like a disease or a divorce situation. These issues

are most likely hard to determine and to influence by the employer. But if an employee is

experiencing negativity from his own personal life this can have effect on his motivation to

work and perform well. This can pose a problem since it can have a negative impact on the

motivation of his colleagues (Welsch, 2008).

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External factors such as the economy can influence the motivation of employees. For

example the current recession is influencing the activities of employees in the financial

sector on a daily basis. People get fired or get replaced in a different (lower) function or

keep their job for the time being but with the fear of getting fired in the future (Nixon, 2008).

Recessions affect the motivation of employees at work. This can be in two senses, the first

is that they get motivated even more to perform and do their work better. The other

possibility is that they start to show signs of decreased motivation to perform and that

performance decreases (Anonymous, 2009). The second one is of course problematic.

The research will be focussed on researching the ways how to prevent employees from

decreasing performance and on ways to increase performance by motivating the people.

1.2 Problem statement

The problem indication leads to the problem statement:

How can employees be motivated to gain a competitive advantage for their company?

1.3 Research Questions

1) Which factors influence the motivation of employees?

2) How can motivation of employees give a company a competitive advantage?

1.4 Research Design

The type of research will be largely descriptive. Links will be made between the influencing

factors and motivation and conclusions will be drawn according to those findings on how to

prevent motivation to decrease (Sekaran, 2003). Furthermore the effect of motivation on

gaining a competitive advantage will be researched. The methods used will be surveys

among employees, literature reviews on the motivational factors and maybe even a case

study of a bank which is facing the problem of decreased motivation during the credit crisis.

This will depend on availability of a willing bank to conduct the surveys and the availability of

time.

The main concepts which will be investigated are factors that motivate people at work,

working attitudes of financial employees and motivational models which can be used to

motivate and keep employees motivated. Furthermore the research will also focus on how

motivation can have an impact on the competitive advantage of the company. The three

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areas as mentioned above (internal company factors, external factors and personal factors)

will be investigated as well. The focus will be more on the question what drives people to

work then on the explanation what a competitive advantage is, the impact of motivation on

competitive advantage however will still be made.

1.5 Data Collection

The data collection will be done using publicly available sources such as (online) articles

and available books in the library. The search for the right literature will mainly focus on the

(online) content the library offers. These are all secondary sources. Information will be

gathered by looking for motivation and theories related subjects using keywords and then

read the articles which seem relevant. The search engines which will be used are

ABI/Inform, Jstor, landelijke online contents from the website if the university’s library.

Keywords which are used: Motivation, theory of motivation, Herzberg two factor theory,

Maslow hierarchy of needs, Vroom’s expectancy theory, competitive advantage, employee

attitudes and employee motivation, competitive advantage, SWOT analysis, resource based

view.

The aim will be to only use recent published and up to date literature, in case well known

theories need to be used that exist for a longer period then also older sources are used.

1.6 Research Structure

Chapter one described the problem that will be researched in this paper. Each chapter from

chapter two onwards will start with an introduction to inform the reader what will be

discussed.

The research question that will be researched in chapter two is “Which factors influence the

motivation of employees?” Three motivational theories will be discussed in chapter two:

Maslow’s pyramid, Herzbergs two factor theory and Vrooms expectancy theory.

Chapter three will focus on the research question “How can motivation give a company a

competitive advantage?” In this chapter it will be discussed what competitive advantage

exactly is and how motivation can have an impact on it. Also it will be discussed how

employers can influence the motivation of employees.

Each chapter will end with a short conclusion which states the answer to the research

question.

Chapter five will be the overall conclusion which will briefly state the conclusions on the

research questions and give recommendations following from the answer on the problem

statement.

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2. Chapter two: Which factors influence the motivation of employees?

2.1 Introduction

In this chapter the first of the three research questions will be discussed. It will cover three

theories with a final conclusion to show which factors have influence on the motivation of

employees.

Throughout the years motivation has been researched by many different people. However,

Maslow’s hierarchy of needs theory (Maslow, 1943), Herzberg’s two factor theory (Herzberg,

Mausner, Snyderman, 1959) and Vroom’s expectancy theory (1967) are the most common

used theories. These three theories will be discussed in this chapter.

2.2 Maslow’s hierarchy of needs

Motivation is a term that can be translated into a ‘why’-question. Why do people do what

they do? Under what conditions does certain behavior occur? Motivation stems from

hedonism, avoid pain and try to get as much pleasure as possible (Overskeid, 2002),

meaning that people are likely to choose the behavior that best fits them to reach these

goals.

People that are working for an employer which determines what kind and type of work they

need to do and get a reward for it are exposed to all kinds of external and internal factors

which can cause motivation to increase or decrease (Weber, 2003). External factors should

be seen as everything which happens out of the direct control of the employee but has an

effect on the employee his situation. Internal factors are embedded in the employee his

social situation, his morale about how to judge and value certain situations depends on his

past experiences and character (Weber, 2003)..

Maslow’s theory is that human beings seek satisfaction of a number of internal needs.

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The pyramid of Maslow:

Figure 1.1: Maslow’s Pyramid from: http://thehealthyskeptic.org/images/maslow.gif

Maslow’s theory (1943) puts motivation in a pyramid form with different levels. The first basic

level is physiological, it contains subjects as health, food and sleep (Huitt, 2004).. The

second level is safety; it consists of subjects that are focused on preventing any harm done

such as shelter and avoiding dangerous situations (Huitt, 2004). The third level consists of

belonging. In this step of the pyramid the first basic needs are fulfilled and the human being

starts seeking for love, affection from others and being part of a social group (Huitt, 2004).

When this is met the next step on the pyramid comes in sight for the human being. The

fourth step is esteem, with this it is meant that humans start looking and striving for an

increased self esteem and they would like to get esteem from others as well (Huitt, 2004).

When even this step of the pyramid is reached the last step is made. It contains self-

actualization, the human being starts to strife towards achieving individual potential. This

means the person wants to become a person who is unthreatened and not scared of the

unknown. Self actualised people have a superior ability to reason, to see the truth. They are

logical and efficient and strife for personal growth (Huitt, 2004).

According to Maslow (1943) each person is motivated by needs, of which some are inborn,

basic needs, like the physiological and safety needs. Our needs for food and sleep are at

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the base of motivation, since we need these things to stay alive and therefore they are most

basic. Maslow (1943) also claims that the levels of the pyramid resemble the order in which

the needs arise and need to be met. If one step is not reached for a person it is not realistic

to think the next step can be reached. The further one comes to the top of the pyramid the

better the perceived quality of life is (Chang, Hsiao, 2006).

2.2.1. Critics on Maslow’s hierarchy of needs

However every person is different from the other and critics (Wahba & Bridgewell, 1976)

stated that not every person follows the steps of the pyramid. Maslow himself also

recognized that not all personalities followed his hierarchy (Maslow, 1943). While a variety of

personality dimensions might be considered as related to motivational needs, one of the

most often cited is that of introversion and extroversion. Alderfer (1972) reorganised

Maslow’s theory and came to the conclusion that there are different dimensions of

personalities, each with an introvert and an extravert component. This organization suggests

there may be two aspects of each level that differentiate how people relate to each set of

needs. Different personalities might relate more to one dimension than the other. For

example, an introvert person at the level of relatedness might be more concerned with his or

her own perceptions of being included in a group, where an extrovert person at that same

level would pay more attention to how others value that membership (Huitt, 2004).

In table 1.2 the needs of a person are described according to introversion and extroversion.

Level Introversion Extroversion

Growth Self-Actualization

(development of

competencies)

Transcendence (assisting in

the development of the

competencies of others)

Other (Relatedness) Personal identification with a

group (belongingness)

Value of person by group

(esteem)

Self (Existence) Physiological and biological

(including basic emotional

needs)

Connectedness and security

Figure 1.2: Table Personalities and behavior (Huitt, 2004)

2.2.2. Attitudes on money

Since this research is focused on the motivation of employees, and in most cases

employees get money as a reward for their efforts, the aspect of how money influences the

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attitudes of human beings need to be taken into account as well. Money can have various

meanings for people. There are three different perspectives an individual can take on

money: affective, symbolic and behavioral views (Terence & Mickel, 1999).

The affective view is considered when people look at money as something good, valuable

and attractive or on the other hand as something bad, useless or shameful and dishonest

(Lane, 1991).

When people look at money symbolically, then they associate money with the four most

important points people strive for: achievement and recognition, status and respect, power,

control and freedom. People use money here as something to measure the things they have

accomplished in life (Kirkcaldy & Furnham, 1993) or as something they think it will earn them

the respect of others and a higher social status (Goldberg & Lewis, 1978).

The behavioral part deals with what people can use their money for, for instance they can

use it as savings, go to the stock markets with it or a combination of. It focuses not on how

people view money but what they can do with it (Lane, 1991).

Differences in how people regard money are caused by differences in the social situation

and the background of a person. Wernimont and Fitzpatrick (1972) found that for those who

value the extrinsic aspects of life more, money will be more important as well. These people

see money as something that brings joy and security in life. It serves as a sign to show the

outside world that they achieved a certain social status and success. Those who value the

intrinsic aspects of life, money is seen less important and money can not be used as an

indicator of social status. Extrinsic goals, for example financial success, are those that

depend on the reactions of others, and are typically engaged in as a means to some end.

Intrinsic goals such as self esteem are matching with self actualisation and personal growth

tendencies as mentioned in the upper level of the pyramid. Therefore intrinsic goals are

likely to satisfy basic and inherent psychological needs. (Marshall, 2003)

The research of Oleson (2004) was focussed on the relationships between money attitudes,

gender and human needs. As individuals progress through the steps of the pyramid, it

seems like it that money becomes less and less important for individuals. The maturation

and higher levels of learning and thinking hypothesized by Maslow (1943) as being

associated with the higher stages of needs are part of the reason for individuals being less

interested in money during the latter stages of needs. The less money poses a problem to

satisfy the needs of an individual the less important the needs become, after a while the

need is perceived as something which is always there and therefore as normal. This

phenomenon arises at the steps of esteem and self actualisation of the pyramid (Oleson,

2004).

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2.2.3 Differences between men and women

There are also differences among men and women. Men are more obsessed with money as

something which gives social status and respect from others, while women are more

concerned with money as a retention issue. Oleson (2004) found that both men and women

see money as something which gives power. With regard to the issue of power several

possible explanations for the relationship between money and power exist. One possible

explanation is that both men and women recognize that money can be used to influence

others and increase one’s autonomy and authority in a relationship. Therefore the

conclusion can be that both men and women tend to view money as a source of power. For

individuals in the first three steps of the pyramid money is perceived as something very

important. Individuals in the last two steps are less interested in money (Oleson, 2004)

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2.3. Herzberg two factor theory

In 1959 Herzberg proposed his two factor theory of job satisfaction to be able to better

understand employee motivation and their attitudes. Although this theory is already almost

50 years old the following text will show that it is still relevant for business today.

Herzberg (1959) believed there are two factors involved in motivation at work: hygiene

factors and motivators.

2.3.a Hygiene factors

The hygiene factors are needed to prevent dissatisfaction among employees (Hackman &

Oldham, 1976), these factors do not lead to higher motivation but if they are not present

they will lead to dissatisfaction. The term hygiene comes from the fact that these are a kind

of maintenance factors an employer needs to regularly pay attention to but they do not help

increase motivation. Herzberg (1970, 1971) found that hygiene factors have a point at which

employees consider the current existing factors as normal and start demanding more to

remain at the same level of satisfaction. Because of this Herzberg (1970,1971) stated that

employees can not be satisfied with hygiene factors for a long period. The best situation is

that employees see themselves free from the troubles lacking hygiene factors can cause.

There are also people which strife for the opposite and constantly try to find satisfaction from

hygiene factors, these people are called hygiene seekers (Herzberg & Hamlin, 1961).

Kasser and Ryan (2002, 1996) showed in their research that hygiene seekers experience a

lesser feeling of overall happiness than people who try to find satisfaction from motivating

factors as personal growth, self-esteem and autonomy.

2.3.b Motivating factors

The motivating factors are needed in order to increase the performance of the employee.

Motivating factors are based on the employees’ need for personal growth (Hackman &

Oldham, 1976). When the factors are stimulating enough to create a desire of achievement

for the employee then it increases the performance of the employee since he is more driven

to achieve better results. Below a table is given with factors ordered according to if they are

hygiene or motivating factors. The distinction is made between factors that will lead to more

satisfaction and factors which lead to dissatisfaction. The importance of each factor is

depending on how the individual values the specific factor and it is therefore different for

every employee (Dick, 2006).

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Table 1.3: Table hygiene and motivating factors (Dick, 2006)

2.3.1. Criticism on Herzberg’s two factor theory

Criticism on Herzberg two factor theory (1959) came in the form of Vroom (1964) who stated

that Herzberg (1959) used a recall method in his research. When such a method is used

respondents are reluctant to reveal that dissatisfaction at work could be the result of their

own behaviour, while positive achievements related to work or satisfaction at work are

valued according the personal achievements and capabilities (Bassett-Jones & Lloyd,

2005).

Hardin (1965) had the critic that results of Herzbergs research (1959) could be biased by the

fact that respondents had a poor recall of the past. Opsahl and Dunette (1966) had the

criticism that Herzberg (1959) asserted that money would act as a hygiene factor, but that

there was no support for this assertion in his research.

2.3.2. Herzberg’ response to the criticism

Herzberg responded to all the critics in his work of 1968. Herzberg (1968) stated that all his

critics and managers in companies confuse movement and motivation. Movement originates

from the human instinct to avoid pain and strive for pleasure. This also includes all the

learned behaviour which enables a human being to satisfy all the basic human needs.

Motivation however is something that stems from a drive that comes from within a person

and therefore is not stimulated by an outside incentive (Herzberg, 1968). Motivation is based

on the fact that people get satisfied when they achieve a certain goal, get recognition for that

achievement and see an increase in personal growth. The conclusion he gave is that

individuals do not need incentives to drive their internal motivation (Herzberg, 1987).

Hygiene factors Motivating factors

Relationships among personnel Recognition for achievements

Job security Responsibility

Status Growth opportunities

Salary Career options

Quality of supervision Interest in the specific employment

Working conditions

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2.3.3. Herzberg’s two factor theory validity 50 years later

The fundamentals of the two factor theory of Herzberg originate as stated above from 1959

and are out there for around 50 years. Bassett-Jones and Lloyd therefore performed

research in 2005 to see if the two factor theory of Herzberg (1959) still holds today.

The research (Bassett-Jones & Lloyd, 2005) focussed on the question what motivates

employees to contribute ideas for the company. A survey was held among 3200

respondents where Bassett-Jones and Lloyd (2005) suggested that money and recognition

are not the primary sources of motivation for the respondents in their working situation. The

outcome was in line with Herzberg’s findings in 1959. Intrinsic motivators such as self

esteem and personal growth where valued higher among the respondents to motivate them

at work (Bassett-Jones & Lloyd, 2005). Since the research conducted by Bassett-Jones and

Lloyd provided similar outcomes as Herzberg (1959) as stated above, it can be said that

Herzberg his theory still holds today, 50 years after it was first published.

2.3.4. Herzberg and implications for management.

Job enrichment was the application Herzberg (1959) used to apply his two factor theory

(Sachau, 2007). Herzberg (1959) discussed which actions are required from the

management of a firm to prevent dissatisfaction and next to motivate employees.

Management should take care of the hygiene factors, it should be sure that these are

present and maintained.

The motivating factors prove a more challenging task for the management. Managers

should focus on three main points (Mak & Sockel, 2001):

1) The function an employee fulfils should enable the employee to fully use all his skills

and abilities.

2) If management sees an employee showing signs of increased skills and a potential

to grow even more then more responsibilities should be given to match the increased

performance of the employee.

3) Motivation will decrease when an employee is working below his level, this should be

prevented by management. This can be done by placing the employee to another

(higher and more challenging) position and by placing a lower skilled person at the

current function.

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The outline below in figure 1.4 can be made according to the different options which are

possible for employees’. Low and high motivation and hygiene factors are here considered

and it is shown what this means for the employees situation.

High motivation Low motivation

High hygiene This is the situation in which

the hygiene factors are met

and employees are satisfied.

Highly motivated employees.

There are no reasons to

complain for employees but

there are also no motivating

factors present. In this case

employees come to work to

earn a living but nothing

more.

Low hygiene Employees are motivated to

work but have a lot to

complain about. These

complaints can come from

low salary to bad working

conditions.

This is the worst case.

Employees are not

motivated to work and have

a lot to complain about.

Figure 1.4: Table possible hygiene/motivating combinations for employees (Herzberg 1974,

1977, 1982)

Later on in his work of 1974, 1977 and 1982 Herzberg suggested 8 elements a job should

have to enrich the job:

1) Give employees direct feedback about their performance from the work itself.

2) Create client relationships where employees have the opportunity to come in contact with

the clients.

3) Constantly strife to create opportunities for employees to learn.

4) Give employees control over their own schedule.

5) Give employees access and control over resources owned by the company.

6) Create the possibility for employees to communicate directly with each other.

7) Give employees the responsibility of their own work and performance.

8) Give employees the possibility to cooperate with each other.

Herzberg stated (1974, 1982) that if managers enriched jobs of their employees that the

quality of the performance increased. Also employees would be more interested in their jobs

and they would feel more responsible for the outcome they produced.

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2.4. Vroom’s Expectancy Theory

Vroom (1964,1974) made the assumption that motivation of people comes from what they

think the likely consequences of their actions will be. People determine for themselves what

the reward will be following different lines of behavior and then act according to the line

which has the largest chance to be successful and what provides them with the largest

personal reward (Vroom 1964). The expectancy theory of Vroom (1964) is a process theory,

this means that it focuses on the interactions of individual persons with their surroundings

(Praag & Sloof, 2007).

Individual people are motivated if they believe that (Ratzburg, 2005):

1) An increase in effort will lead to an increase in performance.

2) Good performance will lead to a desired reward.

3) The obtainable reward will satisfy an important existent need.

4) The willingness to satisfy the need is strong enough to make the effort worthwhile.

5) If they are confident about their ability to achieve a high level of performance.

6) If they feel the reward they can obtain is in line with what others surrounding them

get for the same effort.

There are three factors that play an interactive role in the motivation of people (Praag &

Sloof, 2007):

1) Effort-Performance expectancy.

2) Performance-Outcome expectancy, also named instrumentality.

3) Valence

In figure 2.1 here below is shown how these 3 factors are related to each other considering

the effort one is willing to put into a task. A further explanation of the three factors will be

given afterwards.

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Figure 2.1 Expectancy theory model (Praag & Sloof, 2007).

2.4.a Effort-performance expectancy

The effort-performance expectancy factor is about how employees think about a particular

job and if he expects it to be in reach of his capabilities. An employee will be motivated to try

an employment if he or she thinks that it can be done, an employee will be unmotivated to

perform a task if he thinks it can not be done (Potter, 2009). The expectancy of an

employee’s own performance can be put on scale from zero to one. With zero being the

case that a person expects a certain task to be impossible for him to accomplish and one

being the number that the employee has no uncertainty about his own capabilities and

thinks he can fulfill the job (Potter, 2009).

Factors which can positively influence the ideas of an employee’s own performance are

(Ostroff, 1992) and (Allscheid & Cellar, 1996):

1) Confidence in the level of skill one has to execute a task.

2) The level of support that can be expected from executives.

3) The quality of the available resources to perform the task.

4) The availability of relevant information to perform the task.

Effort Performance Rewards

Valence

Expectancy Instrumentality

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2.4.b Instrumentality

The instrumentality factor deals with the employee’s expectation that his actual performance

gets rewarded on the same level as the performance he shows. It must be clear to

employees that the level of performance they show is linked to levels of reward and it must

be ascertained that the rewards will be given (Potter, 2009), when this is done employees

will be more motivated to increase the effort they put in a task (Praag & Sloof, 2007).

Instrumentality can range from zero to one. When an employee values the performance-

outcome factor with a zero then he sees his performance as not being rewarded on the

same level. When an employee values the performance-outcome factor with a one then he

sees his performance being linked to the rewards he gets: excellent performance will lead to

excellent rewards (Potter, 2009).

2.4.c Valence

The valence factor deals with how employees value the reward which they can get by

showing a certain performance. There is intrinsic and extrinsic valence, the first one is about

how valuable performance will lead to outcomes which benefit the employee himself. The

extrinsic valance is about how an employee values the outcome of his valuable performance

for his employer (Latham, 2006). There is positive and negative valance (Tubbs, Boehne &

Dahl, 1993). The valence is positive if an employee would rather get the reward than not

getting it. The valence is negative if the employee rather avoids the reward linked to the

performance. Negative rewards should be seen for example as becoming very tired or

stressed from the performance (Potter, 2009). Valence can also be zero for employees;

when the valence is zero people are indifferent about the reward and they do not care much

about obtaining it. Valence can motivate employees in such a way that the level of

contentment the reward can get them influences the effort they are willing to put into it to

obtain the reward. The more satisfied people are with the reward, the more effort they are

prepared to put into an activity (Potter, 2009).

2.4.1 Criticism on Vroom’s Expectancy theory

Criticism on Vroom’s expectancy theory came in the form of Miner and Dachler (1973). They

said that a closer investigation on Vroom’s theory (1964) revealed that there are inconsistent

findings and that some findings Vroom had are contradicting other findings he did. Locke

(1975) picked this up and continued that there are no consistent findings in Vroom’s theory

(1964) that show which components can predict motivation of employees. Locke (1975) also

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stated that self-ratings like effort, attitude and performance are better to increase

performance than the evaluation from management, but that the evidence to prove this was

missing. Locke (1975) continued that the theory was wrong in making the assumption that

employees chose to maximise the outcomes for themselves when they are performing. And

second that people are not making complex calculations when they are choosing which level

of performance can maximise their own outcomes.

2.4.2 Vroom’s response to the criticism

In 2003 Vroom responded to the criticism his theory had in previous years. Vroom (Latham,

2005) stated that he was aware of the fact that employees are not considering every

possible outcome when they are determining the level of effort and performance they wish

to put into a task. Nor are employees calculating all different factors such as valence,

instrumentality and effort-performance and then determine the way they want to perform.

Vroom (Latham, 2005) states that the main weakness of expectancy theories is that it is not

considering the states of consciousness an employee experiences during every phase of

the process. Vroom (Latham, 2005) therefore agrees with the critics that expectancy

theories make rather naïve assumptions when it comes to the states of consciousness of

persons, but he also states that this is not only the case with his theory but that it counts for

every expectancy theory in general. When an expectancy theory is not making these

assumptions it is not an expectancy theory but a theory of arousal (Latham, 2005). Vroom

(Latham, 2005) stated that his theory should be used to provide a tool for management to

formulate questions about the role the beliefs and motives of employees play in work

performance.

2.5 Summary chapter 2

The conclusion of Maslow’s hierarchy of needs is that every person’ motivation originally

comes from a certain need. The pyramid of Maslow represents those needs, the order in

which they occur and in which they need to be fulfilled. However, not every person is the

same and the difference between extravert and introvert persons can have influence on the

order needs occur. The attitude of higher educated people on money is that it becomes less

important to them when it is not posing a problem to satisfy their needs.

The conclusion from the two factor theory of Herzberg is that employees are not getting

motivated from hygiene factors such as status, salary etcetera. If an employer wants

motivated employees the management should focus on increasing the intrinsic motivation.

20

This can be done by stimulating the personal growth needs of the employees, giving them

responsibility for their work performance and give them recognition for their performance.

The 8 elements of job enrichment can help managers with this task.

The conclusion of Vroom’s expectancy theory is that the motivation employees have to

perform a certain task comes from what they think will be the outcome of them performing

the task. There are three factors determining the level of outcome for the employee: effort-

performance, instrumentality and valence. If an employee thinks he is able to perform the

task well and he favours the reward attached to it then he will be motivated to perform the

task. The other way around also works; if an employee thinks he is incapable of achieving a

good result by doing the task and the reward for his effort is not in line with his performance

then the motivation will be low.

21

Chapter 3: How can motivation of employees give a company a competitive

advantage?

3.1 Introduction

In this chapter three theories will be discussed: Porters Five Forces model, SWOT analysis

and the Resource Based View. These three theories can help a company to gain insights in

their strengths and weaknesses and help them to make strategies to gain a competitive

advantage. The theories will be briefly discussed to show how companies can determine

their position in the industry, reveal which forces are present in the industry and where

strategic decision making should be focussed on.

Then competitive advantage will be discussed. It will be explained how motivation of

employees can contribute to give a company a competitive advantage using the three

theories mentioned above.

3.2 Porters five forces model

The Porter’s five forces framework focuses on explaining the constant differences in the

average profitability between companies and industries. There have been suggestions for a

sixth force but there is disagreement whether or not this is a real force or just a factor

(Porter, 2008). Investigating this more in depth is beyond the scope of this research

therefore the established five forces model will be used. It also focuses on which

implications these differences have for management of the firms in these industries (Porter,

1998). The five forces are:

1) Bargaining power of buyers.

2) Bargaining power of suppliers.

3) Threat of new entrants.

4) Threat of substitutes.

5) Intensity of rivalry.

22

Below here in figure 3.1 there is a picture of the five forces model.

Figure 3.1: Porter’s Five Forces Model (Source: http://pdxreda.blogspot.com/2009/01/doing-

market-analysis-easy-right.html )

3.2.a Threat of new entrants

New entrants in an industry bring along more production capacity in the industry. New

entrants also have a goal to gain a certain market share. This combined puts pressure on

the prices and costs of all players in the industry (Porter, 1998).

Barriers to entry are distinctive industry characteristics that slow down the rate of new

entrants in the industry. Barriers to enter an industry can come from seven different sides

(Porter, 1998):

1) Supply side economies of scale

2) Demand side benefits of scale

3) Customer switching cost

4) Capital requirements

5) Advantages incumbents have independent of size

6) Unequal access to distribution channels

7) Government policy which restricts new entrants

3.2.b Supplier bargaining power

Suppliers which are powerful in their industry can charge higher prices, limit the quality of

products and services or shift costs they face off to the other players in the industry. This

also works for suppliers of labour, if for example a supplier of employees has much power it

23

can take a disproportionate amount of profit in contrary to the rest of the industry (Porter,

1998).

A supplier or group of suppliers is powerful if (Porter, 1998):

1) The concentration of suppliers is larger than the industry the firm sells to.

2) If suppliers are not relying heavily on the income from a certain industry.

3) Industry participants face high switching costs for changing suppliers.

4) There is no substitute for the suppliers’ service or product.

5) If the suppliers are in the position to integrate the buyers of their products into their

own production chain.

3.2.c Buyer bargaining power

Buyer bargaining power is the contrary of supplier bargaining power. In this case the buyer

is in the position to pull more of the value created in the chain towards it own profits. Buyers

can demand lower prices, higher quality of services and products and play suppliers off

against each other.

A group of buyers has power if (Porter, 1998):

1) There are few buyers and the buyers that are present purchase in noticeable large

volumes.

2) The products are undifferentiated and there are a lot of other suppliers offering the

same product.

3) Low switching costs for buying from another supplier.

4) Buyers are in the position to threaten the suppliers to make the products themselves

and they are actually capable of doing it.

3.2.d Threat of substitutes

Substitutes are products or services which perform the same task as products or services

which are out there now but by different means (Porter, 1998). For example the rise of

telephone calls substitutes the need to travel to someone to bring a message.

Substituted may not always be visible since it can come from a totally different industry and

it is quickly overlooked. When the threat of a substitute is high the profitability of the industry

suffers since it experiences competition which puts pressure on the prices (Porter, 1998).

24

The threat of a substitute is high when (Porter, 1998):

1) The substitute offers an attractive alternative on price, performance and quality.

2) The switching costs for taking the substitute are low.

3.2.e Intensity of rivalry

There can be a lot of different forms of rivalry among existing firms in an industry, think of

prices competition, product innovations, promotional campaigns and differentiation on the

service level (Porter, 1998).

Rivalry between competitors is the most intense if (Porter, 1998):

1) Competitors are equal in size and power and there are a lot of competitors.

2) The growth of the industry is slow so competitors need to fight for existing market share.

3) The industry has high exit barriers.

4) Competitors are very committed to the industry and want to become the leader.

25

3.3 SWOT analysis

A strength, weaknesses, opportunities and threats analysis helps a company to make an

analysis about their current situation and can help them formulate a strategy. Strengths

should be matched with opportunities and weaknesses should be overcome to prevent

threats from becoming reality (Pickton & Wright, 1998). Advantages of using SWOT are that

it is a very simple four box framework that can be used very flexibly and therefore is relevant

in many business settings (Pickton & Wright, 1998). Disadvantages are that the data that is

used can be incorrect, the analysis should be done on a regular basis so changes are

detected on time and that the fast changing environment makes it difficult to predict future

circumstances the industry and the organisation can be caught in (Pickton & Wright, 1998).

In figure 3.2 a SWOT analysis is shown.

Figure 3.2: Swot analysis (Source: http://pdxreda.blogspot.com/2009/01/doing-market-

analysis-easy-right.html )

Strengths and Weaknesses

Strengths are the characteristics of the product or service the firm offers and where it has

influence on. Strengths are aspects of the firm which are performing well compared to the

industry (Porter, 1992).

Weaknesses are the opposite of strengths, it are the characteristics of the product or service

the firm offers and where it has influence on. Weaknesses are aspects of the firm which are

26

performing poor compared to the industry. It deals with the internal aspects of the

organisation such as resources and capabilities (Porter, 1992).

Opportunities and Threats

Firms analyze the forces in an industry that shape opportunities and threats. Opportunities

are seen as chances where the firm can take advantage of, threats are seen as hazardous

situations where the firm should watch out for (Zack, 2002). Opportunities and threats are

external aspects which occur in the environment of the industry and outside the influence of

the firm (Porter, 1992).

3.3.1 SWOT and management

SWOT analyses can be seen unreliable due to the fact that single managers or small groups

of supervisors are determining the priority and importance of each factor and this can be

highly subjective. Even when there is an agreement among managers this does not

necessarily needs to be the truth: misunderstandings can occur (Pickton & Wright, 1998).

This unreliability can however also work in the advantage of the SWOT analysis. SWOT

should be seen as a management tool which is performed by a group of key staff members

who communicate with each other. This way SWOT draws the key staff members together

and they can discuss relevant cases occurring in the business context (Pickton & Wright,

1998). As mentioned in chapter 2, communication among employees increases motivation.

This way performing the SWOT analysis can help improve the employee motivation by

increasing the level of communication among employees (Herzberg, 1874, 1982). Strategies

can then be made up and in this way SWOT becomes a tool which supports the

development of key staff members. Pickton and Wright (1998) showed that this way of using

SWOT resulted in a clearer view of the information requirements needed in the industry,

improved team working and improved understanding of the industry and how the firm

operates.

27

3.4 Resource based view

The resource based view (RBV) is a unique perspective on the resources and capabilities of

a firm (Zack, 2002). The RBV shifts the focus of a firm’s strategy from an external view,

where the industry is considered, to an internal perspective where the firm’s internal

resources are centralized. RBV has source heterogeneity as one of the most important

differences between firms and shows why some firms can be more profitable then others

(Barney, 1991; Peteraf, 1993). The RBV also reveals isolating mechanisms which provide

firms with a sustainable competitive advantage over other firms (Barney, 1991,1997).

Isolating mechanisms are measures focussed on the protection of the position of a firm, it

concerns matters such as economies of scale, patents and switching costs (Klepper 1996;

Rumelt, 1987).

The characterising capabilities a firm has and in which it excels are playing a central role in

achieving a competitive advantage. Core competencies of a firm need to be identified,

managed and leveraged in order to bring as much profitability as possible (Ulrich & Lake,

1991). To sustain the competitive advantage the resources should not be easily imitated,

with resources is meant: all physical and financial assets, employee skills and operating

processes of the organisation. Employee skills and operating processes are the hardest to

imitate since they can not easily be reproduced or bought on the market (Rumelt, 1987).

However as mentioned in chapter 2, it takes continuous effort from the employer to keep the

employees motivated and it is therefore more expensive and intensive for management to

do (Dick, 2006). Physical and financial resources can provide a short term advantage over

the competition but it is too easy to imitate and competition will step in quickly and thereby

diminishing the competitive advantage (Barney, 1991).

28

3.5 Competitive advantage

Competitive advantage is when the position of the firm in the industry and its value creating

processes can not be copied by other firms in the industry. With this advantage the firm

outperforms the competition and earns higher profits (Porter, 1998). Competitive advantage

is created by companies through the gathering of unique resources, capabilities and

knowledge (Cater, 2009).

Competitive advantage can come from internal and external factors. Internal factors classify

resources as physical, financial, human, organizational and intellectual (Barney, 1997).

External factors are concerned with the characteristics of the company’s environment

(Spanos & Lioukas, 2001).

Internal factors offer a larger chance for a company to get a competitive advantage since the

company can influence these factors more then external factors (Barney, 1986; Powel,

1993; Maijoor & Witteloostuijn, 1996). As mentioned above, a regular performed SWOT

analysis can help companies determine their strengths and weaknesses and therefore help

to spot chances for the company. Also as mentioned above, Porter’s five forces model

enables a company to analyse the industry it is in and reveal where chances are to gain an

advantage over the competition.

Companies have a larger chance on success if they either differentiate from their

competitors or if they reduce their cost levels below that of the competitors while still

maintaining a high quality. It should be noted however that differentiating from competitors

increases the company’s performance more then reducing the overall costs (Piercy et al,

1998; Morgan et al, 2004; Cater & Pucko, 2006).

Differentiating on internal factors from competitors is based on three factors: human capital,

structural capital and customer relationships management (Cater, 2009). With structural

capital the structures and systems which make knowledge sharing possible are meant

(Cater, 2009). Having human capital in the form of creative and capable employees can

make use of the structural capital and manage the customer relationships, in this way the

human capital leads to an increase in the companies performance by differentiating from the

competitors (Cater, 2009). As mentioned above, the RBV shows that human capital also has

the feature that it can not be imitated easily by competitors like physical assets which can be

purchased or manufactured in the market; this makes the competitive advantage more

sustainable (Cater, 2009). As mentioned in chapter 2, in order to maintain and encourage

the level of creativity and utilize the capabilities of employees they need to be motivated. So

by motivating and keeping employees motivated a company can differentiate from the

competition on the internal factor human capital and obtain a competitive advantage.

29

3.6 Summary chapter 3

The conclusion of chapter 3 is that a company can make use of Porter’s five forces theory to

analyse the industry the company is operating in and learn to spot chances for the company

to gain a competitive advantage. The SWOT analysis can be used by a company to

determine their strengths and weaknesses and enable them to better formulate a strategy to

gain a competitive advantage. The RBV focuses on the internal factors to gain a competitive

advantage and it is shown that human capital can give a company a sustainable competitive

advantage since it is hard to copy for the competition. The employees can create a

competitive advantage on the customer relationship part. Motivation of employees is

important here since creative and capable employees are the source for the advantage over

the competition. Ways to motivate and keep employees motivated are discussed in chapter

2.

30

4.1 Conclusion

The first research question is: Which factors influence the motivation of employees?

Maslow’s hierarchy of needs showed that motivation to work comes from certain needs an

employee wants to fulfil. In the first three steps of the pyramid (psychological, safety and

security and love and belonging) money is seen as a tool to motivate people. In the last two

steps (self esteem and self actualisation) money is not an important motivator anymore but

people can be motivated by offering chances on personal growth.

Herzberg’s two factor theory showed that there are motivating and hygiene factors which

play a role in the motivation of employees. Hygiene factors do not motivate employees but

should be present to prevent employees from becoming unmotivated. This includes subjects

as working conditions, salary, job security, relationships among personnel, job security and

quality of management.

Motivating factors are capable of increasing the motivation and therefore performance of

employees. Factors as personal growth opportunities, career option, recognition for

performance and responsibility in the job are seen as factors which can have a positive

influence on the motivation of employees. Management should make sure hygiene factors

are present and maintained while focussing on the motivating factors to increase the

motivation and performance of the employees.

Vroom’s expectancy theory states three factors that play a role in the motivation of

employees: effort-performance expectancy, instrumentality and valence. The effort-

performance expectancy deals with the expectancy an employee his about his own

capabilities to complete a task. If the employee thinks he can do it, the motivation will be

larger and vice versa. Instrumentality deals with the expectancy of the employee about what

reward he will receive for his performance. If the reward is on the same level as his

performance then he will be motivated to perform well and vice versa.

Valence deals with the expectancy the employee has about how valuable the reward he can

obtain is. If the employee sees the reward as useful, then he will be motivated to perform

well and vice versa.

The answer on the research question which factors influence the motivation of employees is

the following. Money motivates employees which are in the first 3 steps of the pyramid of

Maslow. From then onwards factors such as stimulating the personal growth, giving

employees more responsibilities for their work and give employees more recognition for their

performance prove to be better motivating employees. Furthermore employees should feel

31

they are capable of completing a task with success and the reward should be valuable and

in line with the performance.

The second research question is: How can motivation of employees give a company a

competitive advantage?

Porter’s model showed which 5 forces are influencing an industry and by analysing the

industry chances can be spotted to gain a competitive advantage over the competition.

The SWOT analysis can be used to analyse the current position of the company in the

industry and reveal the strengths and weaknesses of a company which management can

use to formulate the right strategy to gain a competitive advantage. The RBV focuses on the

internal factors of a company to gain a competitive advantage and it is shown that human

capital can give a company a sustainable competitive advantage since it is hard to copy for

the competition. The employees can create a competitive advantage on the customer

relationship part. Motivation of employees is important here since creative and capable

employees are the source for the advantage over the competition. Unmotivated employees

perform worse then motivated employees and since the best performance is required to

remain ahead of the competition it is the motivation of employees which is important to gain

and sustain a competitive advantage.

The problem statement is: How can employees be motivated to gain a competitive

advantage for their company?

Motivation can give a company a competitive advantage on the human capital part and

when this achieved the competitive advantage will be extended to the customer

relationships part since the good performing employees will maintain better relationships

with the customers then the competition.

To motivate the employees in order to gain a competitive advantage, employees should be

stimulated in their personal growth, get recognition for their achievements, get

responsibilities which are in line with their achievements and receive rewards which are in

line with the performance they show. Money can be seen as a motivator to, but it motivates

people less when money is not needed anymore to satisfy the needs someone has.

32

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