The Effect of HRM Practices and Human Capital on Organizational Performance: A Literature Discussion From Indonesian MSME Perspective

摘要

HRM practices have a significant effect on organizational performance. If HRM practices are effective, organizational performance will improve. This applies not only to large organizations but also to small organizations. However, in the literature of management, it was stated that the relationship of HRM practices with organizational performance is not yet clear (Armstrong & Taylor, 2014). There is a missing link (Yang & Lin, 2009) or black box (Huselid, 1995) in this connection. Therefore, researchers need to think about mediating factors. In theory, human capital can mediate these relationships because human capital has links both with HRM practices and with organizational performance. Various studies have been conducted to prove this relationship. However, researchers focus more on large organizations. In the context of small organizations, especially in Indonesia, this kind of research is rarely done. As a result, the literature on HRM practices, human capital, and organizational performance in the context of small businesses, especially in Indonesia, is very rarely found. This paper aims to discuss the effect of HRM practices and human capital on organizational performance in the context of MSMEs in Indonesia in the hope of adding resources in this context.