The effects of staffing and training on firm productivity and profit growth before, during, and after the Great Recession.

Abstract

This study integrates research from strategy, economics, and applied psychology to examine how organizations may leverage their human resources to enhance firm performance and competitive advantage. Staffing and training are key human resource management practices used to achieve firm performance through acquiring and developing human capital resources. However, little research has examined whether and why staffing and training influence firm-level financial performance (profit) growth under different environmental (economic) conditions. Using 359 firms with over 12 years of longitudinal firm-level profit data, we suggest that selective staffing and internal training directly and interactively influence firm profit growth through their effects on firm labor productivity, implying that staffing and training contribute to the generation of slack resources that help buffer and then recover from the effects of the Great Recession. Further, internal training that creates specific human capital resources is more beneficial for prerecession profitability, but staffing is more beneficial for postrecession recovery, apparently because staffing creates generic human capital resources that enable firm flexibility and adaptation. Thus, the theory and findings presented in this article have implications for the way staffing and training may be used strategically to weather economic uncertainty (recession effects). They also have important practical implications by demonstrating that firms that more effectively staff and train will outperform competitors throughout all pre- and postrecessionary periods, even after controlling for prior profitability.

The virtuous circle of human resource investments: A precrisis and postcrisis analysis

“…Our result supports the contingent view of the resource‐based theory advocated by Datta et al () and Kim and Ployhart (), which predicts that the effectiveness of HR investment is moderated by the economic conditions of the environment. Datta et al () show that in an environment of economic growth, the positive relationship between HR investment and labor productivity is greater.…”

“…An economic crisis leads to layoffs and widespread downsizing in companies and, as a result, substantial and sudden reductions in the workforce (Kim & Ployhart, ), which have detrimental consequences for the organization. First, the departure of workers can disrupt the complex social process that fosters cooperative behavior among workers by destroying their relationship networks, which in turn can seriously damage task accomplishments and organizational learning capability (Sahdev, ).…”

Are Family Firms Good Employers?

“…Labor productivity, defined as the ratio of firm outputs to labor inputs (Samuelson & Nordhaus, 1989), is a critical indicator of workforce performance (Datta, Guthrie, & Wright, 2005;Kim & Ployhart, 2014). In light of our agency predictions, we expect family firms to exhibit lower labor productivity than nonfamily firms.…”

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

“…For example, Guest et al (2013) confirm the association between HRM and performances but fail to show that HRM leads to high performance. 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.…”

“…Five studies reported both operational and financial performance measures (e.g. Kim and Ployhart, 2014;Sheehan, 2014).…”