When Do Human Resource Practices Relate to Financial Performance?

Topic(s): organizational performance
Publication: Personnel Psychology (2012)
Article: Boundary conditions of the high-investment human resource systems-small-firm labor productivity relationship
Authors: C. Chadwick, S.A. Way, G. Kerr, J.W. Thacker
Reviewed by: Scott Charles Sitrin

Previous research has demonstrated that human resource practices aimed at acquiring, training, retaining, and motivating a proficient workforce increase firm performance However, the research on the impact of human resource practices on firms with less than 100 employees is more sparse and less certain. In addressing this void in the literature, researchers analyzed the human resource practices and performance of 96 for-profit, Canadian small firms from areas such as wholesale trade, manufacturing, and retail.


To assess human resource practices, the authors surveyed managers about their human resource practices oriented toward acquiring talent (e.g., recruitment, screening, and selection), training talent, retaining talent (e.g., promotion from within and employee ownership), and motivating talent (e.g., employee ownership and performance-based pay). In order to determine firm performance, the ratio of firm sales to the number of employees was calculated.


Results indicated that systems of human resource practices impact the performance of small firms. Further, the conditions under which human resource practices affect firm performance were also identified. Specifically, systems of human resource practices have a positive impact on performance when the company has sufficient resources and a large amount of capital. Conversely, systems of human resource practices are counterproductive and have a negative impact when the company’s resources are stretched too thin, such as when they are pursuing a resource-intensive strategy to grow or differentiate.