Human Capital Investments and Employee Performance: An Analysis of IT Services Industry

Abstract

The rapid pace of technological innovation necessitates that information technology (IT) services firms continually invest in replenishing the skills of their key asset base, the human capital. We examine whether human capital investments directed toward employee training are effective in improving employee performance. Our rich employee level panel data set affords us the opportunity to link formal training with performance at the individual employee level. Using a dynamic panel model, we identify a significant positive impact of training on employee performance. A unit increase in training is linked to a 2.14% increase in an employee's performance. Interestingly, we find that in the IT sector, skills atrophy and consequently high-experience employees reap higher returns from training, which highlights the uniquely dynamic nature of IT knowledge and skills. We also find that general training that an employee can utilize outside the focal firm improves employee performance. However, specific training pertinent to the focal firm is not positively linked to performance. On the other hand, although domain and technical training both enhance employee performance individually, the interaction between the two suggests a substitutive relationship. Thus, our findings suggest that the value of training is conditional on a focused curricular approach that emphasizes a structured competency development program. Our findings have both theoretical and practical significance. Most important, they justify increased human capital investments to fuel future growth in this important component of the global economy. This paper was accepted by Lorin Hitt, information systems.

Big Data Investment, Skills, and Firm Value

“…In doing so, it connects an emerging literature on IT spillovers Nault 2007, 2012;Chang and Gurbaxani 2012;Tambe and Hitt 2014) to a recent literature that documents geographic divisions in IT returns during periods of rapid IT innovation and argues that technological change in general-and the spread of big data technologies in particular-has the potential to foster "digital divides" and inequality across regions (Freeland 2012, Dewan et al 2010, Forman et al 2012. Finally, by examining how labor networks change in importance over the life cycle of IT innovations, this paper contributes to a literature on IT human resource management and firm performance (Agarwal and Ferratt 2001, Ang et al 2002, Levina and Xin 2007, Bapna et al 2013. Implications for managerial and policy decisions related to big data technology investment are discussed at the end of this paper.…”

When do international human capital enhancing practices benefit the bottom line? An ability, motivation, and opportunity perspective

“…During the process of aggregation from the individual to the firm level, the nature of human capital changes due to the firm's combinative processes that impact interactions between employees (Ployhart & Moliterno, 2011). Therefore the positive relationship between individual human capital and individual performance (Bapna, Langer, Mehra, Gopal, & Gupta, 2012;Blundell, Dearden, Meghir, & Sianesi, 1999) may not necessarily hold at the firm level (Ployhart & Moliterno, 2011). Even though individual employees' IHC is associated with positive individual-level outcomes (e.g., Black, 1988;Shaffer, Harrison, & Gilley, 1999), and, for top managers, with positive firm-level outcomes , there is little empirical clarity on whether investment in aggregate IHC will by itself impact a firm's performance.…”

Job Hopping, Information Technology Spillovers, and Productivity Growth

“…Finally, this paper contributes to the literature on IT human capital. Although significant attention has been paid to IT labor markets (Ang et al 2002, Levina and Xin 2007, Mithas and Krishnan 2008, the research has not been tied to the larger IT productivity literature; therefore, how IT human capital explains variation in IT returns is not yet well understood (see Bapna et al 2013 for a recent exception).…”