The research presented in this paper focuses on the effectiveness of a high performance work system. This system is comprised of practices in the areas of extensiveness of staffing, performance based pay, pay level, job rotation, training and participation. In particular, this study focuses on the effects of such a system on the performance of small and medium-sized enterprises. Results of our study, among small and medium size enterprises in the Netherlands, show that firms with such a system have higher labour productivity and are more innovative. However, no relationships are found with workforce turnover. These results suggest that high performance work systems are not only relevant in large corporations, but may also benefit small firms through a positive impact on performance and innovation.

A new version of this paper is published on 5 december 2006 as a research report, H200621: 'Is human resource management profitable for small firms?'