ENHANCING ORGANIZATIONAL PERFORMANCE OF MALAYSIAN SMEs THROUGH HUMAN RESOURCE MANAGEMENT (HRM) PRACTICES AND ORGANIZATIONAL INNOVATIVE CAPABILITY: The Mediating Role of Organizational Innovative CapabilityAdditionally, Akman and Yilmaz, in their study, highlight that the success of innovation is most influenced by innovative capability, and this indicates that innovative capabilities are significant to SME success (Hoq & Ha, 2009). In assisting innovation success, innovative capability develops the interaction between customers and the environment associated with products to be developed. Meanwhile, the internal and external factors concerned with innovative capability are significantly related to innovation performance. This finding is also supported by Lee and Hsieh, who proposed that an enterprise needed to focus on the entrepreneurship organization culture and innovative capability in order to sustain its competitive advantage. Therefore, it is a must for SMEs in Malaysia to develop their innovative capability with the aim of organizational performance improvement. Accordingly, this suggests: P3: Organizational innovative capability will have a positive relationship with organizational performance of SMEs.
The researcher has found that most of the previous studies focus on the direct relationship of HRM and organizational performance. They have also revealed that HRM practices have a consistent relationship, and significantly influence organizational performance. This consistent relationship between HRM practices and organizational performance has driven further research to be conducted in order to identify the mechanism through which these relationships exist. Hence, organizational innovative capability has been introduced as their mediator. Furthermore, researchers in organizational theory have agreed that organizational innovative capability positively impacts organizational performance. Nonetheless, the predictors of innovative capability, and how those predictors influence organizational performance through innovative capability, have not been clearly investigated, particularly in the context of SMEs. Here
Previous studies have shown that innovative capability acts as a strong intermediate indicator of the success of an organization. According to Keizer, Dijkstra, and Halman, innovation is among the primary processes by which SMEs can contribute to the increase in the economic dynamism of each industry. Therefore, SMEs should have the capability to innovate in order to enhance their organizational performance. Indeed, in conducting research related to organizational innovative capability or organizational innovativeness, several researchers have examined several predictors to innovative capability, which in turn, lead to organizational performance. For instance, market orientation, learning orientation; entrepreneurial orientation, social capital orientation and HRM practices.
Additionally, Medina and Rufin, in their study on retailers, discovered that market driving has proven to be a powerful determinant of performance as well as innovation, which acts as a mediator between the retailer’s strategic orientation and business performance. Han, Kim and Srivastava also investigated the innovation-mediated effects in market orientation and the corporate performance relationship in the banking industry. Two organizational innovativeness components (technical versus administrative) might help in identifying empirical familiarities or reconciling unfamiliarity in the market orientation and performance relationship, whereby the utility of the market orientation knowledge can be an advance in the business strategies. Meanwhile, Vincent, Bharadwaj and Challagalla also used innovation as a mediator, as it might influence the environmental, organizational, and financial performance variables. Innovation was selected based on the previous studies, as it can accelerate the chosen variables and performance significantly.