When and How Does Innovation Augment the Effect of HRM on SME Performance?

Does innovation by firms augment employees’ impact on small and medium enterprises (SMEs) performance? In this study, we examine the role that innovations play in connecting human resource management (HRM) practices (such as training and development, communication and information, compensation and reward, job design and performance appraisal) with SME performance. This is based on research that looks at human-innovation collaboration, HRM practices and SME performance. Indeed, to date, there has not been a comprehensive HRM-innovation-SME performance framework adequately documented in the literature. Therefore, we conducted a quantitative study using self-administered questionnaires with the SMEs. First, we find that the implementation of HRM practices results in a higher level of innovation and performance among SMEs and that this enhanced innovation ultimately leads to an increase in SME performance. Next, we find that innovation mediates (changes positively) the relationship between HRM practices and SME performance. We conclude that generating creative employees through appropriate HRM practices can improve SME performance, but this desirable outcome depends on realising the innovation rate. This study makes a significant contribution to the body of knowledge about the relationship between high-commitment HRM practices, innovation and SME performance.