ENHANCING ORGANIZATIONAL PERFORMANCE OF MALAYSIAN SMEs THROUGH HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES AND ORGANIZATIONAL INNOVATIVE CAPABILITY: Product innovationIn fact, there is a large volume of published studies describing the role of HRM practices as the antecedents of innovative capability, whether in SMEs or large businesses. Some of the factors or variables that have been measured in the HRM practices for both businesses include; career development (Sels et al., 2006), recruitment or selection or staffing, training and development, performance management or appraisal, HR planning or function or department (Nguyen & Bryant, 2004), employee participation (Kok & Hartog, 2006), employee relations or communications, compensation or reward system, and others. However, considering that training and development, reward system, performance appraisal, staffing and communication and information sharing practices are the most commonly accepted in SMEs, this study will focus on those five HR practices in investigating their effects on the capability of an organization to innovate.
Training and development have been considered in preparing multivalent employees, which is related to the development of skills and knowledge needed for innovation activities. Training is also associated with enhanced performance of organizations, as the training simplifies the development of the skills and knowledge needed for the organization. At least, they must have the basic skills to perform their tasks effectively. The training also facilitates and advances the capabilities of accepting new knowledge and skills, which can be used to improve innovation competencies among the employees. Shipton et al. shows that exploratory learning is highly related with organizations that handle training, whereby the exploratory learning will be higher compared to the non-training organizations. The exploratory learning, as well as skill development, is a potent way to encourage innovations in an organization.
The reward system or compensation also prominent in enhancing employees’ motivation to be innovative. It is a prominent role of stimulating the innovation processes. Leede and Looise in their study mention that an appropriate compensation or reward system may have a great impact to peoples, and the unbalanced approach in utilizing the reward system might lead to the negative effects to the organizations. In the organizations where innovation is the driving force, the reward system can motivate the employees to risk-taking, develop more products and generate newer ideas. The reward system can be both intrinsic and extrinsic rewards, such as freedom of creativity, financial rewards, promotions and other recognitions. Here
The performance appraisal or management is related to the supports or encouragements provided by organizations for the employees to work effectively, and it is likely to be in positive correlations with the organizational innovation. It can elevate employees’ motivation to embark on the innovation activities which promise favorable innovation results to the organizations (Jimenez-Jimenez & Sanz-Valle, 2005). For example, the diversity of innovations leads to be numerous of patents, publications, grants and reports, which portray the creativity and innovation processes and can improve an organization’s performance (Gupta & Singhal, 1993). Kaufmann and Todtling also argued the direct support schemes should be provided to high-risk decisions such as in the terms of funding and commercialization.