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

Staffing is a key practice for innovation. This practice is related to the selection of peoples or employees based on their multivalent skills and appropriate to the organizational cultures. In a rationale, the selection of the employees promises confidently to the future organizations’ success and survival. Chen and Huang stated that in order to innovate, an organization will probably face with the uncertainty of success; and of that problem, the organization will need employees who are risk- taking, flexible and tolerant of the uncertainty; and the characteristics of employees can be evaluated in the recruitment / selection / staffing actions. Through the effective recruitment / selection / staffing actions, employees will be the assets of producing new ideas in an organization’s innovation process. Here
Despite the extensive identification of the significance of HRM for innovation, the practices of communication and information sharing among employees will foster synergistic working relationships (Nonaka, 1994 cited in Vlachos, 2008), in which they will establish a conducive organizational climate that encourages employees to give full commitment and collaboration to the organization. Employees will become more creative and flexible where it will generate a variety of ideas and cause innovative behavior in the organization. It can be concluded that information sharing can develop competitive advantages for an organization. This competitive advantage can stimulate an organization through their technology or management abilities in order to enhance innovative activities in the organization. As a rationale, information sharing promises confidence for the future organization’s success and survival. Hence, the following proposition is: P2: HRM practices (training and development, reward system, performance appraisal, staffing and communication and information sharing) will have a positive relationship with organizational innovative capability.
Organizational innovative capability demonstrates a strong influence on the organizational performance. The capability of an organization to innovate allows a diversity of strategies and opportunities to be pursued in order to enhance growth and survival. An organization that emphasizes innovation activities will have a higher impact on their employees’ sense of commitment and productivity in terms of higher job satisfaction, lower employee turnover, and subsequently, to boost organizational productivity. Therefore, the organization’s ability to innovate can be an effective strategic capability for SMEs to address problems related to the smallness and newness. In sum, the literature recommends that SMEs that cultivate innovation have a more positive impact upon the performance of an organization than mainly focusing on the creation of innovative products and services. Furthermore, some analysts have attempted to draw similarities in the relationship between innovation and organizational performance. For instance, these authors argue that organizational innovativeness is strategies and actions that can be undertaken within the organization in order to realize corporate orientations and goals, where it has been proved to be among the most powerful contributors to business performance. They further argued that firms will be more successful in responding to their environment, if they have greater capacity to innovate. This enables SMEs to develop new capabilities that can lead to competitive advantage and ultimately, achieve superior performance. Meanwhile, Luk et al. investigated organizational innovativeness in two types of administrative innovativeness and product-related innovativeness in relation to business performance in the transition economy of China. They found that both types of organizational innovativeness are drivers of business performance.