The Differential Effects of HR Practices on Operational Outcomes and Financial Performance

Abstract

This article explores the link between human resource (HR) practices (training, discretion, and group-based incentives) and a series of performance outcomes, including customer satisfaction, labor efficiency, sales revenues, and profitability. We examine whether HR practices have different relationships with distinct performance outcomes and whether they mediate the relationship between operational and financial outcomes. We draw on a unique field-based, quasi-experimental setting in which employee tasks are randomly assigned. Surveys of almost 1,000 employees in 68 call centers are aggregated to the establishment level and matched to vendor-provided customer satisfaction surveys and company archival data on labor efficiency, revenues, and profitability. Results show that HR practices have differential effects on the outcomes of interest, with employee discretion having the most consistent, positive relationship with different performance outcomes. Customer satisfaction partially mediates the relationship between HR practices and financial outcomes (sales revenue and profitability). Labor efficiency is negatively related to sales revenues, presumably because longer time with customers allows employees to better meet customer demands, and in turn, sell more.