The Role of Human Resource Management in Improving Firms’ Productivity

Abstract

This is a systematic literature review which focuses on the role of human resource management (HRM) on the productivity of firms as well as more specifically when the proclaimed productivity gains can be said to be plausible. A systematic search of academic publisher websites, bibliographic databases, and backwards referenced materials found 74 records of which 20 empirical studies were finally selected as the inclusion criterion. These studies include manufacturing and services, large companies as well as small businesses and designs that include cross-sectional surveys and longitudinal panels, quasi-experiments and a field experiment. Three themes can be identified in the synthesis. First, potential productivity improvements are most also linked with coherent HRM systems, particularly, packages of selective staffing, training, employee involvement, flexible work design, employment security, and performance-rewarded, as opposed to isolated practices. Second, micro-underpinnings of productivity enhancement are best seen through human-capital development and incentive mechanisms; the literature on training outlines of panel, quasi-experimental, and experimental designs have some of the most compelling causal results and spillovers. Third, the HRM-productivity relationship is conditional, two-way and cost sensitive: the circumstances in the industry, the manufacturing strategy, the quality of the implementation, labour cost, turnover rate, and the past performance of the organization have an effect on the strength and orientation of the noticed effects. The literature is where it is methodologically stronger than a mere cross-sectional narrative, yet causal confidence is still imbalanced due to the large number of influential studies based on individual informants, contemporaneous measures, heterogeneous proxy of productivity, and non-random adoption of HRM. The review finds the claim that HRM can enhance productivity is defensible, but conditional: it must be practiced to create internally coherent systems, to create employee capability and motivation useful, to match the production context, and to do this in a way that gives benefits to surpass the costs.