While it is fairly obvious how marketing, sales, product development and manufacturing contribute to an organization’s success, the link between human resources and firm success has been much more ambiguous. Measuring how the sales department affects a firm’s revenues is quite simple. But it’s much harder to measure the effects of changes in hiring, training, performance appraisal and information sharing processes.

The most conclusive proof of value of human resources came via a paper published last year in the Academy of Management Journal. The authors used meta-analysis techniques to provide strong evidence for the concrete benefits to firms when they take care of their people. (Meta-analysis is a fancy word for a methodology that allows researchers to combine results from many different studies to look for broader patterns.)

Examining 116 articles published between 1985 and 2011, the authors found that an organization’s human resource policies improve employee motivation and build a strong pool of talent. These two factors, in turn, lead to reduced employee turnover and better operational outcomes such as productivity, product or service quality, and rate of innovation. And, when the organization’s employees are productive, innovative and committed to delivering high-quality products and services to its customers, the organization will see increased revenues.

How can an organization improve its bottom line by taking care of its people? The authors suggest three basic strategies:

1. Create recruiting, hiring and training processes that ensure that employees have the right skills to get the job done.
2. Design rewards and career development programs so that they enhance employee motivation.
3. Provide employees with opportunities to grow their skills and abilities in a manner that also achieves the organization’s objectives. Some examples include giving workers a fair degree of autonomy in how they do their jobs and allowing them to have a say in matters that affect them.

Let’s face it, many of us think of HR as the place we go to when we want to change our benefits or our paycheck doesn’t look right. This study provides the most convincing evidence yet of the true value provided by HR.

If you are interested in improving your company’s Human Resource Practices please get in touch with Charlesetta Medina by sending her an email to cymedina@fullerton.edu or by giving her a call at (657) 278-3464. Our award winning Student-led Business Consulting program accepts new clients during both the spring and fall semesters but space is limited so plan ahead.

Written by Dr. Atul Teckchandani who is an Assistant Professor of Management at the Mihaylo College of Business and Economics, California State University, Fullerton. He teaches courses in entrepreneurship, provides student advising and is involved with the Center for Entrepreneurship within Mihaylo College. He has a PhD in Business Administration (Management of Organizations) from the Haas School of Business at the University of California, Berkeley, as well as an MBA from the McCombs School of Business at the University of Texas, Austin.