High-performance work systems and their impact on financial performance in SMEs

Abstract

Small and medium-sized enterprises (SMEs) are a significant source of wealth and employment in economies. Enterprises must use modern systems to manage their employees in an increasingly turbulent business environment. These systems will help them to improve their financial performance and gain a competitive advantage in the marketplace. This study examined the role of HighPerformance Work Systems (HPWS) as a predictor of SMEs' financial performance (FP) based on the link between human resource management and economic performance. The study examined the mediating role of SMEs' reputation (RE) and SMEs' social value (SV) in the relationship between HPWS and FP and the direct relationship between these constructs. The study quantifies this relationship in the context of human resource management in small and medium-sized enterprises in Slovakia. Data were collected from 128 SME owners/managers through a questionnaire instrument. Partial least squares structural equation modelling (PLS-SEM) using Smart PLS 4 was used to test the study's hypotheses. The study highlighted a significant positive effect of HPWS on all RE, SV and FP constructs. In addition, this study also confirmed the mediating role of RE in the relationship between HPWS and FP. The expected direct mediating effect of the SV construct between HPWS and FP was not confirmed. The study also includes limitations and recommendations for future research.