The Impact of Human Capital Management on Firm Financial Performance and Market Competitiveness

Abstract

The Human Capital Management (HCM) has become a key factor of firm-level financial turnover and the sustained market competitiveness in an ever-growing knowledge-based global economy. With the shift of organizations in knowledge-intensive production processes, recruitment, training, performance evaluation, compensation processes, involvement of employees, and development of leadership is the key element of sustainable competitive advantage. This paper focuses on how HCM practices have affected financial performance indicators of return on assets (ROA), return on equity (ROE), profit margins and growth in revenues and non-financial indicators of the organization of innovativeness capacity, productivity and market positioning. On Resource-Based Theory (RBT), the Human Capital Theory, and the Dynamic Capabilities Theory, the study examines the connection between formal HCM systems and firm competitiveness. The survey data that was gathered involving 120 manufacturing and service firms were used as the quantitative research design. The key HCM variables on financial and competitive performance are used.