The Effects of Strategic HR System Differentiation on Firm Performance and Employee Outcomes

Abstract

The purpose of this research was to understand the extent to which firms apply different human resource management systems to different occupations within the same organization (HR differentiation), and how this influences both firm and employee outcomes. We conducted two studies pertaining to these questions. The first study was based on data collected from managers and the results showed that firms differentiate their HR investments based on the strategic value of occupations, which was further associated with the human capital of those occupations; differentiation in human capital was also associated with firm performance. The second study was based on data obtained from non-management employees. The findings of this study indicated that employees who were recipients of less HR system investment had lower fairness perceptions, which were further associated with turnover intentions and organizational citizenship behavior. Although the evidence from these studies suggests that firms may realize benefits from HR differentiation, managers should carefully consider how to balance the effects of differentiation on firm performance and employee well-being before implementing such systems.