The importance of SMEs to the country is undeniable, especially their role in becoming competitive and in sustaining economic development. Therefore, the power of such technology, competitiveness, and the potential of innovation in SMEs must be increased, as well as their contributions to the economy, and their effectiveness has to be improved. For that reason, in SMEs, innovative capability is viewed as essential in achieving dynamic competitive advantage so that they can survive in today’s rapidly changing economic environment. With this innovative capability, SMEs are able to select, develop, work, sustain, modify, enhance, and expand technologies and products. Hence, organizational innovative capability is an absolute requirement for Malaysian SMEs. Here
Basically, the role of HRM can be utilized for predicting the innovations behavior in an organization. The effective management of a firm’s human resources can promote enormous innovations from the employees by encouraging the behavior of ‘creation and execution of knowledge’. Jimenez-Jimenez and Sanz-Valle and Shipton et al. also agreed that HRM practices are the crucial input for innovation, and the most powerful in motivating employees to increase and enhance their innovative behaviour (Ar & Baki, 2011; Tan & Nasurdin, 2010). Nasution et al. stressed that the HRM practices are critical in the development of innovation, as well as in the customer value, particularly in service innovations. Additionally, through effective HRM practices, employees will also be encouraged to experiment with new ideas, develop knowledge and implement changes in the organizations, whereby all of it contributes to innovation in the organization (Tan & Nasurdin, 2010). These suggestions are in line with proposals by Conway and McMackin and Smith et al., who stated that to be innovative, organizations should have participative and effective HRM practices, which later encourages new ideas and innovations.
In evaluating 220 businesses, Mavondo et al. found that HR practices are the major mechanism that affects organizational performance. This study suggests that HR practices and innovation are important mediators, and any related study of learning orientation, marketing orientation, or others should include the practices to enhance the performance. Lau and Ngo found that HR practices are significant to performance, as was evaluated using 332 firms in Hong Kong. It indicates that the HR practices were positively correlated to the evaluated innovation, which was in product innovation. In searching for the relationship between HR practices and innovation by interviewing 48 selected firms out of 220 SMEs that had been identified in Malaysia, Hashim et al. also indicated a significant positive correlation between HR practices and innovation activities in SMEs. They concluded that SMEs should strive to adopt the eleven HR practices (rewarded for innovation, creativity and innovation training, skills sharing, see people as people, develop innovation capabilities, recruit competent employees, various recruiting sources, various hiring procedures, continuous training and high job security) that were evaluated, as the practices can accelerate the innovation processes, which then leads to the organization’s success and survival.