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Unravelling the HRM–Performance Link: Value‐Creating and Cost‐Increasing Effects of Small Business HRM

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  • Luc Sels
  • Sophie De Winne
  • Johan Maes
  • Jeroen Delmotte
  • Dries Faems
  • Anneleen Forrier

Abstract

abstract The majority of empirical studies on the HRM–performance link report a positive story. The costs associated with the productivity rise due to high performance work practices (HPWP) have been largely neglected. The purpose of this study is to develop a conceptual framework that maps both the value‐enhancing and cost‐raising impact of HPWP. In addition, we want to pronounce upon their overall effect on financial performance. To test our model, we rely on a sample of small businesses. Understanding both performance and cost‐related effects of the implementation of HPWP is particularly valuable for small businesses since they often lack financial resources to implement HPWP and benefit less from economies of scale compared to their larger counterparts. Study results indicate that although greater use of HPWP is associated with increased productivity, this effect is offset by increased labour costs. However, we find an overall positive effect of HPWP on firm profitability.

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  • Luc Sels & Sophie De Winne & Johan Maes & Jeroen Delmotte & Dries Faems & Anneleen Forrier, 2006. "Unravelling the HRM–Performance Link: Value‐Creating and Cost‐Increasing Effects of Small Business HRM," Journal of Management Studies, Wiley Blackwell, vol. 43(2), pages 319-342, March.
    • Handle: RePEc:bla:jomstd:v:43:y:2006:i:2:p:319-342
    DOI: 10.1111/j.1467-6486.2006.00592.x
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    1. Peccei, R.E., 2004. "Human Resource Management And The Search For The Happy Workplace," ERIM Inaugural Address Series Research in Management EIA-2004-021-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam..
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    1. Corral de Zubielqui, Graciela & Fryges, Helmut & Jones, Janice, 2019. "Social media, open innovation & HRM: Implications for performance," Technological Forecasting and Social Change, Elsevier, vol. 144(C), pages 334-347.
    2. Petra Andries & Dirk Czarnitzki, 2014. "Small firm innovation performance and employee involvement," Small Business Economics, Springer, vol. 43(1), pages 21-38, June.
    3. Iryna Alves & Sofia M. Lourenço, 2022. "The use of non-financial performance measures for managerial compensation: evidence from SMEs," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 33(2), pages 151-187, June.
    4. Murmann, Martin, 2017. "The productivity effects of worker replacement in young firms," ZEW Discussion Papers 17-010, ZEW - Leibniz Centre for European Economic Research.
    5. Mihail, Dimitrios M. & Kloutsiniotis, Panagiotis V., 2016. "The effects of high-performance work systems on hospital employees' work-related well-being: Evidence from Greece," European Management Journal, Elsevier, vol. 34(4), pages 424-438.
    6. Czarnitzki, Dirk & Thorwarth, Susanne, 2012. "Productivity effects of basic research in low-tech and high-tech industries," Research Policy, Elsevier, vol. 41(9), pages 1555-1564.
    7. Łukasz Bryl, 2018. "Human Capital Orientation and Financial Performance. A Comparative Analysis of US Corporatons," Journal of Entrepreneurship, Management and Innovation, Fundacja Upowszechniająca Wiedzę i Naukę "Cognitione", vol. 14(3), pages 61-86.
    8. Adam Seth Litwin & Phillip H. Phan, 2013. "Quality over Quantity: Reexamining the Link between Entrepreneurship and Job Creation," ILR Review, Cornell University, ILR School, vol. 66(4), pages 833-873, July.
    9. Li Sun & Chanchai Bunchapattanasakda, 2021. "Impact of Strength of Human Resource Management System on Perceived Organizational Support," International Journal of Business and Management, Canadian Center of Science and Education, vol. 14(3), pages 1-60, July.
    10. Pittino, Daniel & Visintin, Francesca & Lenger, Tamara & Sternad, Dietmar, 2016. "Are high performance work practices really necessary in family SMEs? An analysis of the impact on employee retention," Journal of Family Business Strategy, Elsevier, vol. 7(2), pages 75-89.
    11. Abdul Waheed & Xiaoming Miao & Salma Waheed & Naveed Ahmad & Abdul Majeed, 2019. "How New HRM Practices, Organizational Innovation, and Innovative Climate Affect the Innovation Performance in the IT Industry: A Moderated-Mediation Analysis," Sustainability, MDPI, vol. 11(3), pages 1-21, January.
    12. Kaifeng Jiang & Riki Takeuchi & David P. Lepak, 2013. "Where do We Go From Here? New Perspectives on the Black Box in Strategic Human Resource Management Research," Journal of Management Studies, Wiley Blackwell, vol. 50(8), pages 1448-1480, December.
    13. Nason, Robert S. & Wiklund, Johan & McKelvie, Alexander & Hitt, Michael & Yu, Wei, 2019. "Orchestrating boundaries: The effect of R&D boundary permeability on new venture growth," Journal of Business Venturing, Elsevier, vol. 34(1), pages 63-79.
    14. Ahmed Muneeb Mehta & Muhammad Bilal Ahmad & Muhammad Ahsan Khan & Rabia Shahid, 2019. "Impact of Practices by Human Resource on Job Satisfaction of Foreign & Local Bank Employee," Journal of Social Science Studies, Macrothink Institute, vol. 6(1), pages 101-111, January.
    15. Pankaj C. Patel & Betty Conklin, 2012. "Perceived Labor Productivity in Small Firms—The Effects of High–Performance Work Systems and Group Culture through Employee Retention," Entrepreneurship Theory and Practice, , vol. 36(2), pages 205-235, March.
    16. Ahmed Imran, Hunjra & Muhammad Irfan, Chani & Sher, Aslam & Muhammad, Azam & Kashif-Ur, Rehman, 2010. "Factors Affecting job satisfaction of employees in Pakistani banking sector," MPRA Paper 32130, University Library of Munich, Germany.
    17. Muhammed Nawaz & Muhammad Irfan Shakoor & Syed Shahzaib Pirzada, 2013. "The Professional Development of Employees in Banks of Pakistan: A comparative study of public and private banks in Punjab Pakistan," International Journal of Learning and Development, Macrothink Institute, vol. 3(5), pages 89-110, October.
    18. Jeewhan Yoon & Kevin May & Jae H. Kang & George T. Solomon, 2019. "The impact of emotional self-management on benefit offerings and employment growth: an analysis of the fastest growing businesses in the United States," International Entrepreneurship and Management Journal, Springer, vol. 15(1), pages 175-194, March.
    19. Gabriela ÞUÞUEANU & Elena Claudia ªERBAN, 2014. "High Performance Activity Practices in Small Firms in Romania," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 17(2), pages 290-303, December.
    20. Brigitte Kroon & Karina Voorde & Jules Timmers, 2013. "High performance work practices in small firms: a resource-poverty and strategic decision-making perspective," Small Business Economics, Springer, vol. 41(1), pages 71-91, June.

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