Human Resource Management Practices and Organizational Innovation: Assessing the Mediating Role of Knowledge Management Effectiveness

Organizational innovation has been viewed as an essential weapon for organizations to compete in this competitive business environment. Particularly, Malaysia manufacturing firms strive to transform their business model from labor-intensive to knowledge-intensive, which aim to immerse themselves in higher value added activities such as, developing new products, processes, and services, to continual sustain the competitiveness within the rivalries. One of the ways to heighten the organizational innovation is through effective human resource management (HRM) practices and effective knowledge management. This study examined the direct relationships between HRM practices (performance appraisal, career management, training, reward system, and recruitment) and organizational innovation (product innovation, process innovation, and administrative innovation). Additionally, it also examined the mediating role of KM effectiveness on the direct relationship. Data was drawn from a sample of 171 large manufacturing firms in Malaysia. The regression results showed that HRM practices generally have a positive effect on organizational innovation. Specifically, the findings indicate that training was positively related to three dimensions of organizational innovation (product innovation, process innovation, and administrative innovation). Performance appraisal also found to have a positive effect on administrative innovation. Additionally, this study also demonstrates that training and performance appraisal, are positively related to knowledge management effectiveness. Knowledge management effectiveness fully mediates the relationship between training and process innovation, training and administrative innovation, and performance appraisal and administrative innovation. A discussion of the findings, limitations, and implications are provided.