ENHANCING ORGANIZATIONAL PERFORMANCE OF MALAYSIAN SMEs THROUGH HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES AND ORGANIZATIONAL INNOVATIVE CAPABILITY: HRM Practices

ENHANCING ORGANIZATIONAL PERFORMANCE OF MALAYSIAN SMEs THROUGH HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES AND ORGANIZATIONAL INNOVATIVE CAPABILITY: HRM PracticesHuman resources are strategic resources that are important to the organization as knowledge, skills, abilities, behaviors and interaction of the employees who have the potential to influence the performance of the organization (Osman, Ho, & Galang, 2011a). Unfortunately, in Malaysian SMEs, labor productivity (as measured by real value added per employee) is significantly lower than the large companies. In 2011, the average SME productivity is estimated at RM50, 498 per employees compared to the average productivity of large firms of RM 140, 691 per employee. This is attributed largely to the sizeable employment of unskilled employees by SMEs particularly in the labor-intensive industries across all economic sectors. Therefore, to ensure the success of SMEs, SMEs need to retrain and upgrade skills of their employees to enhance the competitiveness and productivity. This is supported by Shahriman and Ling (2011, 23 June), who stated that for Malaysia to be a high-income nation, it is crucial to develop human capital capabilities. In brief, wiser employees make the organization better. However, to develop such employees, SMEs have to implement an appropriate strategy of human resource management (HRM).
Unfortunately, most HRM theories and literature have been focused on HRM studies in large organizations, and overlooked small organizations. Similarly, the study of HRM-performance links in Malaysia also focused on large organizations. Indeed, Subramaniam, Shamsudin, and Ibrahim argued that the question of the extent of HRM theories being applicable to SMEs is yet unclear, and the previous studies also revealed that the utilization and adoptions of the HRM practices in Malaysia SMEs are still limited. Nonetheless, there are local studies that have been conducted in the context of SMEs, but do not focus on the effect of HRM practices on performance. This is because, as claimed by Tansky and Heneman, SMEs have been considered as second-class citizens by HRM researchers for too long. Thus, it is necessary to undertake HRM studies in SMEs so that the findings of these studies could provide more information in order to strengthen the theories in HRM, which include all conditions such as organizational size and structure. Therefore, in turn, these are calls for a shift to focus towards HRM practices in SMEs, since there is limited understanding of the significant roles of HRM in small and emerging firms. add comment
In view of the fact that HRM appears as an essential role for all businesses, more researches into this topic are called for, and as SMEs are not a ‘scaled-down’ version of large firms, all the findings related to HRM in large firms cannot be generalized to SMEs, since SMEs have their unique characteristics, such as the style of entrepreneurial management, flexibility, informal practices, and competitive strategies, as well as they also face different challenges, and demands of firm growth in competitive markets. Hence, Malaysian SMEs have to realize their own competencies, particularly their human resources and HRM practices, in order to transform SMEs into a more competitive and high-value creation industry (Ngah & Ibrahim, 2009). Subsequently, the practices of effective human resource management should be of concern to SMEs to assist in improving the performance within the organization. Moreover, they also need to figure out, value, and adopt the best practices of human resource management in order to ensure enhancement of sustainable performance.