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Complementary HR and HCM Practices Drive Productivity Better

By Sinan Aral, Assistant Professor of Information, Operations and Management Sciences

Sinan Aral research on recipe for increasing worker productivity

These practices generate a disproportionate productivity premium when they are implemented simultaneously as a tightly knit system of organizational incentives, rather than alone or in pairs.

When it comes to human capital management and driving performance through technology-enabled HR systems, companies that adopt a tightly knit trio of human resource practices – HCM, HR analytics, and incentives – reap greater productivity gains than companies employing one or the other, according to recent research by Sinan Aral, professor in NYU Stern’s department of information, operations, and management sciences.

Aral studied data from 189 companies that purchased enterprise and HR software between 1995 and 2006 in order to determine if the various HR practices were complementary in terms of enhancing productivity or if they worked equally well in isolation.

In his co-authored paper, “Three-Way Complementarities: Performance Pay, HR Analytics, and Information Technology,” Aral found that companies that adopted HCM alone experienced a 6 percent gain in productivity, but that those that implemented HCM in concert with HR analytics and compensation incentive practices enhanced productivity by 16 percent.

“These practices generate a disproportionate productivity premium when they are implemented simultaneously as a tightly knit system of organizational incentives, rather than alone or in pairs,” Aral said. “Managers need to think holistically about how practices fit together.”

The researchers were able also to confirm that the combination of HR software and practices wasn’t added as an afterthought to already successful incentive programs but was the factor that drove improved performance.