Chapter 3: Human Capital Management Practices and Performance in Small and Medium Sized Enterprises: A Conceptual Framework

A conceptual framework for understanding the contribution of Human Capital Management (HCM) practices to HRM system characteristics and firm performance is presented. HCM practices serve as a feedback mechanism that has the potential to enhance HRM system fit and flexibility. It is suggested that sophisticated HCM practices are consistent with a strategic orientation toward HRM system control, in contrast to more simplistic practices which are more consistent with a financial control orientation. Since a strategic control orientation is supportive of an entrepreneurial orientation, it is anticipated that for SMEs operating in complex, dynamic and hostile technological and competitive environments, sophisticated HCM practices will contribute to innovation and ultimately financial performance.