How HRM affects corporate financial performance: Evidence from Belgian SMEs.

Abstract

In this paper, we provide a summary of several results from a study of HRM in small and medium-sized enterprises in Belgium. The central issue is whether the investment in HRM practices for smaller organizations is 'profitable'. This study differs in three ways from existing research. (1) It deals with the results from a survey of organizations with between 10 and 100 employees from various sectors. (2) In composing an index for 'HRM intensity', we started with a different interpretation of HRM practices, which also fits in more closely with the Belgian institutional context. (3) The operationalization of performance is based on a number of financial indicators which also help determine the 'state of health' of a company. Using the results of the survey, we examined the link between the score for HRM intensity, some performance outcomes and the financial performance of the organization using structural equation modeling. The results show that intensive HRM also offers added value for smaller organizations. Firstly, HRM intensification has a highly positive effect on productivity and, through productivity, reduces personnel costs/added value. This effect is sufficiently strong to compensate for the increased costs associated with intensive HRM. On top of this 'compensation effect', HRM intensity also has major effects on the profitability of the company.