Human Resource Management and Performance-The causal relationship revisited with a longitudinal study

Over the past thirty years, consistent evidence has revealed an association between human resource management (HRM) and performance. There is a general assumption that the adoption of more HR practices is leading to enhanced organizational performance. However, most past studies, in the field, are cross-sectional, limiting the ability to determine causality. There are sound theoretical reasons favouring both the view that increased organizational performance is the result of greater investment on HR practices (forward causality), but also the view that increased performance will, in turn, lead to an increased use of HR practices (reverse causality). The present paper explores and tests these competing perspectives on cross-sectional versus longitudinal models. It also tests the competing cases of forward versus reverse causality in the longitudinal study conducted. The aim of this paper is to present a new developed analytic framework, depicting a circular relationship, including forward, reverse and bilateral causality. It explores how far relationships between HRM and performance are sustainable over time. In an attempt to address the question of causality in the relationship, the paper presents the findings from a longitudinal study in a non US/UK context testing in this way, different cultural approaches than previous studies on the HRM and performance relationship. At the same time as the dataset is longitudinal and has been collected in Greece, a country heavily hit by the recent economic crisis, the present paper focuses on identifying patterns in firms’ response to the crisis as far as the HRM investment is concerned. It also explores differences in HR practices 07_ HR Analytics: How numbers can help organizations achieve sustainability 2 adaptation that have helped firms to sustain or even thrive during the economic crisis period. Three waves of data on HR practices from a total of 140, both manufacturing and services organisations have been collected over a period of 13 years. Performance data (both objective and subjective), including measures of profitability, growth and efficiency have been collected on an annual basis over the 13 year period. A number of control factors, including ownership, size, sector, trade union presence and the cultural as well as the economic context are taken into account. The final results of the study are presented that explore changes in HR practices over the period, paying particular attention to their association with performance measures and to the direction of causality in the relationship. The study emphasizes particularly on the type of the HR practices adapted by the firms which have sustained the crisis and on the stability of HRM-performance cross-sectional links at the different time points