Measuring Effectiveness … Demonstrating the Effects of HR Practices
The next row, “HR Activity and Best-Practice Indexes” directly measure the association
between the reported existence of human resource activities, such as merit pay, teams, valid
selection, training, etc., and changes in financial outcomes such as profits and shareholder
value creation (e.g., Becker & Huselid, 1998; Pfau & Kay, 2002). In terms of Figure 1, this
approach attempts to directly associate the second-to-bottom box – HR practices to one
element of the top box –financial measures of strategic success. Some results show strikingly
strong associations between certain HR activities and financial outcomes, which has been used
to justify investments in those activities. However, most existing research cannot prove that
investing in HR activities causes superior financial outcomes (Cappelli & Neumark, 2001).