Unravelling the HRM practices and performance link in Malaysian SMEs: The role of organizational innovation

Abstract

Many studies have focused on direct link between HRM practices and organizational performance. There is a strong relationship between these two variables that driven further research to identify the mechanism through which such relationship exists. Following resource-based view (RBV), the aim of this research was to investigate the indirect effect of organizational innovation on HRM practices-performance linkage. Data was collected from owners/managers of manufacturing SMEs in West Malaysia. 331 (60.5%) distributed questionnaires were received and analyzed through PLS-SEM. Out of six hypotheses on mediation, only one hypothesis was rejected. The findings strongly supported the RBV theory when organizational innovation significantly mediated the relationship. These results clearly indicate that organizational innovation plays an intermediate role between HRM practices (i.e. communication and information sharing, compensation, selection, performance appraisal, and training and development) and organizational performance of SMEs.