How HR Really Drives Performance: Insights from a Global Study of 505 Companies

For decades, organizations have debated whether HR truly impacts performance or whether its influence is mostly indirect, soft, or impossible to measure. A major 2024 study published in The International Journal of Human Resource Management finally offers a compelling and methodologically rigorous answer. Drawing on data from 9,923 individuals across 505 organizations in 71 countries, the authors demonstrate that HR’s impact on performance is is statistically significant.

The study shows that HR does not improve performance through isolated practices or administrative routines. Instead, its influence operates through the creation of strategic human capabilities within the workforce. These internal capabilities explain up to 40% of organizational performance, an extraordinary level of explanatory power in management science. Understanding this mechanism reshapes how leaders should view HR: not as a peripheral function, but as a builder of core strategic capacity.

This article unpacks that mechanism, examines the evidence behind it, and outlines what it means for leaders navigating an era of rapid technological and organizational change.

From HR Practices to Strategic Human Capabilities

A persistent challenge in HR research has been the so-called black box problem: HR practices correlate with performance, but exactly how they produce value has been unclear. This study offers one of the clearest explanations yet by focusing on a set of six interconnected strengths referred to as strategic human capabilities.

The first of these capabilities is human capital, which captures the level of skill, expertise, and talent within the organization. Complementing this is learning, the organization’s ability to absorb new information, generate ideas, and translate knowledge into effective action. The third capability, collaboration, reflects how seamlessly people work across functions, boundaries, and teams. A fourth capability, strategic alignment, represents the workforce’s shared understanding of the organization’s direction and how individual roles contribute to overarching goals. The fifth capability, culture, encompasses the shared values and norms that shape daily behavior and guide decision-making. Finally, leadership describes the capacity of individuals and teams to execute, adapt to change, and create momentum for future development.

The study demonstrates that these capabilities do not operate independently but form a coherent system, an internal engine that translates HR investments into organizational outcomes. The authors argue, and the data supports, that HR practices actively build these strategic human capabilities. Once developed, these capabilities become the proximal drivers of performance, explaining why some firms execute strategy effectively while others struggle.

By identifying this mechanism, the study resolves the black box problem with unusual clarity: HR does not create performance directly, but by shaping the internal conditions that make high performance possible.

Why the Study’s Methods Matter

The credibility of the study rests not just on its theoretical contribution but on the quality of its design. Unlike many HR studies that rely on self-reported single-source data or narrow samples, this research uses a multi-rater, multi-industry, cross-national approach.

The dataset includes 9,923 respondents from 505 for-profit organizations, spanning 71 countries and 20 industries, making it one of the most globally representative HRM studies to date. Crucially, assessments of HR practices, strategic capabilities, and performance come from three distinct rater groups, and the performance subsample includes four rater groups. This separation ensures that no single individual reports on all variables, significantly reducing common method bias, a major flaw in much previous HR research.

The analytical approach further strengthens the findings. The authors use transparent OLS regression models, reporting R² values, ΔR², significance levels, and full control variables. This level of specificity allows readers to see not just whether effects exist, but how meaningful they are. In a field where many studies rely on less-transparent PLS-SEM models, this clarity is particularly valuable.

Together, the dataset, design, and modelling approach make the results exceptionally robust.

How Much Does HR Actually Explain?

This is where the study becomes striking.

The authors find that HR practices explain a substantial share of the internal capabilities that organizations rely on, and these capabilities, in turn, strongly predict performance.

The final model predicting strategic human capabilities reports an R² of 0.23, meaning that 23% of the variation in these capabilities is directly explained by HR-related factors such as HR flexibility, strategically oriented HRM, and workforce strategic importance. In the context of complex organizational constructs, this is already a meaningful effect.

But the real insight comes from the performance model. The final regression predicting organizational performance produces an R² of 0.40. This means that 40% of the difference in performance across firms is explained by the combination of HR constructs and the strategic human capabilities they create.

In practical terms, the findings indicate that HR, through the capabilities it develops, accounts for nearly half of why some firms execute better, align better, innovate better, and adapt better than others.

The HR Levers That Matter Most

The study identifies four HR constructs that shape strategic human capabilities in different ways.

The most powerful of these is HR flexibility. The extent to which employees possess broad skills, can move across roles, and work within HR systems that adapt rapidly to change. HR flexibility has a strong direct effect on strategic capabilities and a direct effect on organizational performance. It also serves as a bridge, transmitting the influence of other HR practices into more strategic outcomes. In environments shaped by disruption, technological change, and shifting skill demands, HR flexibility functions as a strategic shock absorber.

The second construct is strategically oriented HRM, which refers to HR practices that are deliberately aligned with strategic goals, including leadership development, talent pipelines, and succession processes. This form of HRM has both direct and indirect effects on strategic human capabilities, reinforcing the idea that HR must act as a strategic partner rather than an administrative service.

A third influence, workforce strategic importance, represents the organization’s underlying belief about the strategic value of its people. The study shows that when employees are perceived as central to competitive advantage, the impact of HR flexibility on capabilities becomes significantly stronger. This suggests that culture shapes how effectively HR practices translate into real capability.

Finally, technical HRM, ncluding compensation, staffing, and basic HR operations, shows only indirect effects. These processes are essential for stability, but they do not themselves create competitive advantage. Instead, they provide the structural foundation on which more strategic HR mechanisms operate.

Why Strategic Human Capabilities Matter Even More in the AI Era

Although the study does not focus on artificial intelligence, its findings are highly relevant to organizations navigating technological transformation. AI does not eliminate the importance of human capability; it amplifies it. Technologies can only be implemented, scaled, and leveraged when employees can adapt, learn, collaborate, and align with strategic goals.

The capabilities identified in the study: from learning and collaboration to strategic alignment and leadership, mirror the attributes organizations require to integrate AI effectively. They represent the human infrastructure that enables transformation.

In this sense, AI strategy is fundamentally people strategy, and people strategy is capability-building through HR.

Conclusion — HR as a Strategic Engine

The 2024 global study by Ulrich and colleagues provides one of the clearest empirical demonstrations to date that HR is not a peripheral support function. It is a strategic engine responsible for building the human capabilities that allow organizations to execute their strategy and achieve superior performance.

With 23% of capability variance and 40% of performance variance explained, the findings elevate HR to a central place in organizational design and competitive advantage. Organizations that invest in HR flexibility, strategic alignment, and workforce value will outperform in environments shaped by volatility and transformation. Those that do not will find themselves constrained, lacking the internal capabilities required to adapt and compete.

The message is straightforward:
HR builds the capabilities.
The capabilities drive the performance.

Source: https://www.tandfonline.com/doi/full/10.1080/09585192.2024.2408026?