ENHANCING ORGANIZATIONAL PERFORMANCE OF MALAYSIAN SMEs THROUGH HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES AND ORGANIZATIONAL INNOVATIVE CAPABILITY: Organizational innovativenessBased on the above previous studies, organizational innovativeness can be viewed as organizational capabilities to innovate that are reflected through the characteristics and activities of innovativeness at the organizational level. According to Liao, Fei and Chen (2007, p. 348) innovation capability is defined as “the performance of the enterprise going through various types of innovation, and achieving an overall improvement of its innovation capability”, which include product innovation, process innovation, and personal innovation. Wang, Yen, Tsai, and Lin and Subramaniam and Youndt further conceptualized innovative capability as two major types, namely, incremental innovative capability and radical innovative capability. Whilst Akman and Yilmaz and Neely et al. defined innovative capability as the organization’s ability to generate innovative output, which is characterized by the innovative culture in an organization, the ability of internal processes, and the ability to understand and respond to the environment. Here
Based on the definition of innovative capability in the previous literature, organizational capabilities are important to provide and sustain competitive advantage, and to implement the entire strategy within the firm, whereas innovative capability is a firm’s unique asset, a key success factor of industrial firms, and can be considered as a firm’s potential to produce innovative outputs. Therefore, following Akman and Yilmaz and Neely et al., this paper conceptualizes organizational innovative capability as the extent to which the owners/managers of SMEs perceive the organization’s ability to generate, develop and implement new ideas. These innovative capabilities comprise key characteristics, such as the culture of the firm, the internal processes adopted, and the capability to understand the attributes and trends of the external environment. According to Neely et al., the study conducted by UK’s CBI and DTI (Department of Trade and Industry) discovered that innovative firms usually have a strong culture, whereby they have a clear mission and objective for the organization. The culture within the firm reflects a main organizational orientation towards innovation. All strategies in the firm will also be communicated clearly to their members, and their business orientations are based on continuous improvement, which is urged by total customer satisfaction and total quality management. Moreover, the style of working in highly innovative organizations is described to be more open, multi-functional, and team-working. The top management, on the other hand, always empowered employees to carry out their tasks at all levels and personally supports and commits the organization to innovate.
Related to the internal processes, innovative organizations will always be generating and capturing new ideas and behaviors. Knowledge will be shared and coordinated rapidly among employees. They also encourage employees to innovate by providing comprehensive employment schemes where successful ideas will be rewarded, while failure is considered as essential in the process of learning. In terms of understanding the external environment, innovative organizations must be able to react to the external environment by looking at customers and suppliers as an impetus to ideas. Relationships with R&D, design, sales, marketing, and customers should regularly be established as well. These firms also acknowledge the pivotal role of investors and government in the process of innovation, in which the investor provides financial support, while the government provides particular standards to be followed by firms.