Human resource management and performance: Evidence from small and medium-sized firms

Abstract

This article examines human resource management (HRM) practices in small and medium-sized enterprises (SMEs). In particular, by examining the issue of causal order, it addresses a significant gap in the extant HRM–performance literature within the context of such firms. Significant simultaneous and longitudinal relationships between HRM practices and specific performance indicators are found. Controlling for past performance and thus, testing for the potential for reverse causality does not eliminate the significant relationship between human resource practices and performance. In sum, the use of human resource practices is found to positively enhance sustained competitive advantage. By explicitly examining the issue of causality in the human resources –performance relationship, this article makes a contribution to both the human resource and SME literatures.

Exploring the relationship between HRM and firm performance: A meta-analysis of longitudinal studies

“…Because of the causal ambiguity and social complexity associated with the development of sustained competitive advantage (Barney, 1991), abilities of competitors to imitate such resources are significantly constrained. In addition to this, the unique historical conditions within each firm make it difficult for rivals to obtain the same quality human capital (Barney, 1991;Razouk, 2011;Sheehan, 2014). Even if competitors realise that a system of HR mechanisms enhances competitiveness, it is difficult to replicate and reproduce it because of the time, money and management expertise involved in its development and implementation (Razouk, 2011;Becker and Gerhart, 1996).…”

“…In other words, regardless of context, the organisational performance is said to be enhanced when firms adopt bestpractice. This approach has evolved subsequently to embrace the broad term 'HPWPs' (Sheehan, 2014), and more recently the work of Appelbaum et al (2000) and Purcell and Hutchinson (2007) known as the Ability, Motivation and Opportunity (AMO) model. Integrated, complementary HPWS are designed not only to improve the knowledge, skills and abilities (KSAs) of employees, but also to encourage and motivate them to invest additional, discretionary, time and effort.…”

“…On the other hand, using 359 firms with over 12 years of longitudinal firm-level profit data, Kim and Ployhart (2014) suggest that selective staffing and internal training directly and interactively influence firm profit growth through their effect on labour productivity. Similarly, by using panel data to examine the potential casual order between HPWP systems and firm performance in small businesses, both Sheehan (2014) and Razouk (2011) find a positive significant relationship between HRM and performance, even after controlling for the past performance. Hence, overall, we hypothesise that:…”

“…More specifically, two studies which surveyed multiple sources of respondents report interrater reliability Youndt et al, 1996), two studies report Cronbach's α (Razouk, 2011;Snell and Youndt,1995), and one study reports both (Sheehan, 2014). Hence, we use the mean of these available reliabilities to correct ̅ (i.e.…”

“…Some empirical research has tried to shed more light on this issue, but so far it has provided mixed findings. For example, some studies have reported a significant simultaneous and longitudinal relationship between HRM practices and firm performance indicators (Sheehan, 2014;Wright and Boswell, 2002;Becker and Gerhart, 1996). Others studies found that initially HRM leads to better firm performance but that this link disappears once past performance is controlled (Guest et al, 2003), suggesting that past performance is a much stronger predictor of current performance and overtakes any impact of HRM.…”