SHRM Foundation Research How Does Human Resource Management Influence Organizational Outcomes? A Meta-Analytic Investigation of the Mediating Mechanism Funded: November 2010 Completed: February 2012 David P. Lepak, Ph.D., Rutgers, The State University of New Jersey, Dept. of Human Resource Management Kaifeng Jiang, Rutgers, The State University of New Jersey, Dept. of Human Resource Management Executive Summary With increasingly intense global competition, companies have recognized the importance of human resources in obtaining sustained competitive advantages and have increased their focus on how human resource management (HRM) practices can help achieve organizational goals. Strong links between HRM practices and organizational outcomes have already been associated with such positive outcomes as greater employee commitment, lower turnover, higher productivity and quality, better service and safety performance, and better financial performance. However, precisely how HRM practices result in these positive outcomes is still unclear. Jiang, Lepak, Hu, and Baer sought to determine how HRM practices affect important organizational outcomes. They did this by analyzing the results of over 100 studies involving over 30,000 organizations. The result of their work offers several insights and practical advice for HR professionals. KEY FINDINGS AND IMPLICATIONS FOR PRACTICE • HRM practices can be categorized into three types: o Skill-enhancing HR practices include practices that are designed to ensure appropriately skilled employees, such as comprehensive recruitment, rigorous selection, and extensive training. o Motivation-enhancing HR practices include those that are implemented to enhance employee motivation such as developmental performance management, competitive compensation, incentives and rewards, extensive benefits, promotion and career development, and job security. o Opportunity-enhancing HR practices are those that empower employees to use their skills and motivation to achieve organizational objectives. HR practices like flexible job design, work teams, employee involvement, and information sharing are generally used to offer these opportunities. • The investment in the three HR practice categories is associated with increased financial outcomes, but the three categories of HRM practices influence financial performance in different ways. o Skill-enhancing HR practices influence financial outcomes directly, but also through their effects on enhancing human capital. o Motivation-enhancing HR practices and opportunity-enhancing HR practices are more likely to improve financial outcomes through enhancing employee motivation. o Motivation-enhancing HR practices have the strongest effect on financial outcomes, followed by skill-enhancing and opportunity enhancing HR practices. o These results suggest that organizations can obtain substantial financial benefits from investing in all three HR dimensions. • To maximize the return on their investment in HRM, organizations should use appropriate HR practices. o Organizations should focus more on practices, such as recruitment, selection, and training when the goal is to increase human capital. o When organizations aim to improve employee motivation, they should consider how to appraise employees’ performance, how to compensate for their work, how to make jobs meaningful and interesting, and how to involve employees in work teams and the decision-making process. o The largest gains in financial performance will be realized when organizations enhance both employee skills and motivation at work. Study Methods Results from 120 studies that included a total of 31,463 organizations were examined and summarized quantitatively using a technique called “meta-analysis.” The researchers focused only on studies that examined the relationships between HRM practices and organizational outcomes. Five categories of organizational outcomes were examined: human capital, employee motivation, voluntary turnover, operational outcomes (e.g., productivity), and financial performance. View the full list of SHRM Foundation funded research.