Understanding the drivers of organizational business performance from the human capital perspective

Abstract The purpose of this study is to understand the drivers of organizational business performance from the perspective of human capital. Data were collected from 691 employees working in 15 North American credit unions. The model was developed and tested by means of the Partial Least Squares Structural Equation Modeling technique. This study illuminates an underexplored mechanism driving the association between transformational leadership and business performance based on several theoretical frameworks such as leader–member exchange theory, the conservation of resources theory, the heuristic model of employee turnover, equity theory, and capital‐based view. The findings indicate that transformational leaders provide their subordinates with constructive feedback and offer training and development (T&D) opportunities, which are the key factors driving employee job satisfaction. Employee job satisfaction curtails turnover intention, which, in turn, reduces human capital outflow and, consequently, increases business performance. Managers should always act as true transformational leaders and provide their subordinates with relevant performance feedback and ample T&D opportunities. Workers who undergo T&D at the expense of their organization become more loyal and are less likely to leave even though they become more marketable. Organizations are recommended to administer periodic employee satisfaction surveys and prevent the exodus of human capital, which may be difficult to replenish.