Documenting HR's effect on company performance.

In an award-winning study, Dr. Huselid has demonstrated that investment in progressive HR practices contributes to corporate profits. Here's a more detailed look at how he did the research, its implications for HR and the direction of his future work.

Despite the rhetoric and developing

conventional wisdom suggesting that investment in human resources can provide companies with a source of competitive advantage, little systematic research has been conducted on this topic. This situation gave me the motivation to complete one of the largest studies ever conducted linking data on HR management practices with objective measures of turnover productivity and corporate financial performance.

My study provides some of the most comprehensive evidence available to confirm the hypothesis that the use of progressive or sophisticated HR management practices has a substantial and positive impact on company performance. In a wide variety of companies representing diverse industries, I found that investment in such practices led to better financial performance, higher productivity and lower turnover. I have confidence in these results because they are consistent across several different measures of performance and have statistical corrections for selectivity and simultaneity.

I began by addressing multiple research questions: What are the factors determining sophistication in HR practices? What are the links between use of such practices and turnover and employee productivity? What are the links between HR sophistication and corporate financial performance?

These questions were explored in a survey sample that included virtually all domestic corporations (excluding holding companies) with more than 100 employees and $5 million in sales (3,452 in all). I received replies from 968 firms across 35 industries, for a response rate of 28 percent.

Definition of HR sophistication

Since the goal of this study was to measure the effects of overall HR management practice "strategy" on firm performance, I used a single measure or index that I called Human Resource Management Practice Sophistication or HRSOPH. The scale, developed in a Department of Labor study conducted at Columbia University, is a compilation of HR management "best practices" in the following areas:

* Personnel selection.

* Performance appraisal.