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

Cheng Ling Tan and Aizzat Mohd Nasurdin Universiti Sains Malaysia, Penang, Malaysia
tanchengling@usm.my aizzat@usm.my
Abstract: 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. Keywords: human resource management practices, product innovation, process innovation, administrative innovation, knowledge management effectiveness, Malaysian manufacturing firms

1. Introduction
The rapid development of high technology, information and communications technologies have urged many organizations to actively seek for new way, ideas, experimentation, and creative solutions in improving their current product, process, system and technology, which commonly referred as organizational innovation. Malaysia as one of the post-industrial societies has undergone a fierce competition within its rivalries. To survive in the battle, Malaysia has launched its new economy model which aims in transforming the manufacturing firms from the product based towards the knowledge based. Aligned with this move, understanding the fundamental drivers influencing an organization’s ability to innovate successful new products, idea, practices and system is a key strategic task for firms to continue to exist in this dynamic market. It has been widely acknowledged that effective human management resource (HRM) practices (Damampour & Gopalakrishnan, 1998; Tan & Nasurdin, 2010) are significant in extracting positive work behaviours among employees, which consecutively lead to organizational innovation. According to Harter, Schmidt, and Hayes (2002), HRM practices can generate increased knowledge, motivation, synergy, and commitment of a firm's employees, resulting in a source of sustained competitive advantage for the firm. However, a number of authors, such as Hilsop (2003), Morrow and McElroy (2001), and Moynihan, Gardner, Park, and Wright (2001) have argued on the missing link between HRM practices and organization outcomes. The author argued the more research needs to concentrate on the indirect relationship between HRM practices and organizational innovation. Since knowledge is reside in an individual and given the role of HRM practices in influencing an individual’s attitude and behaviours, it is believed that HRM practices has significant and positive relationship on organizational innovation via knowledge management. Unlike developed nations particularly in the United States of America and European nations, studies on innovation in Malaysia are still under researched (Ismail, 2005; Wan Jusoh, 2000). In its efforts to become a knowledge-based economy, Malaysia has emphasized on the importance of innovation in all sectors of its economy (Ministry of Science, Technology and Innovation, Malaysia (MOSTI), 2006). Given the importance of innovation to a firm's competitive position, several studies have tried to investigate the relevant predecessors of innovation, such as individual factors (Damanpour, 1991;
ISSN 1479-4411 155 ©Academic Publishing International Ltd Reference this paper as: Tan, C, L and Nasurdin, A, M. ―Human Resource Management Practices and Organizational Innovation: Assessing the Mediating Role of Knowledge Management Effectiveness‖ The Electronic Journal of Knowledge Management Volume 9 Issue 2 (pp155-167), available online at www.ejkm.com

manufacture. 1989. namely technological innovation. which includes the importance. including prototypes. 2005. Miller & Friesen. 1982). process innovation and administrative innovation can be considered as the pivotal sources of competitive advantage. Garsten. 2. 1984). reward system.com 156 ©Academic Publishing International Ltd . therefore. Damanpour. and organizational structure (Damanpour. Under Mavondo. and others. equipment and/or software (Bi. Product innovation is defined as the development and commercialization of new product to create value and meet the needs of the external user or the needs of the market (Damanpour & Gopalakrishnan. 2006). it can be reviewed from two aspects: (1) breadth of innovation. products. Organizational innovation Organizational innovation has been widely defined as the creation of new idea and new behaviour to the organization (Damanpour & Gopalakrishnan. service and support (Brunsson. Chimhanzi and Stewart’s (2003) study. Given the importance of product innovation. If HRM practices properly realigned. 2007). and innovation will be realized through the ability to use the knowledge to identify and pursue the opportunity. Tan & Nasurdin.. career management. process innovation and administrative innovation are the important predecessors for manufacturing firms and have the equal capability to improve performance or effectiveness. 1996). Sahlin-Andersson & Hallström. Administrative innovation is viewed as performance derived from the changes to organizational structure and administrative process. Chuang. and create competitive advantage (Cooper. Product innovation. HRM practices set the tone and condition of the employer-employee relationship which can encourage the employees to become more innovative (Rousseau & Greller. & Evan. Administrative innovation requires organizations to have verifiable routines and procedures in place for product design. 2000. delivery. there are two distinctive types of organizational innovation have been classified in most literature. 2001). the organizational innovation is operationalized to be multidimensional comprising of these three types of organizational innovation. Damanpour et al. Hennin. The dimensions of organizational innovation are extremely complex and multiple. 2010). process innovation is viewed as a creation of new process or improvement to existing process (Leonard & Waldman. Zheng & Li. 1981). product innovation. 2005). 2006). 1991. 1965).e. 1989. Damanpour. Tan & Nasurdin. which includes policies. This postulates that knowledge management effectiveness allowing employees to generate knowledge within their sphere of influence. Ahrne.ejkm. an organization’s approach of HRM practices has an influential effect on organizational innovation. 1989. environmental factors (Damanpour. Thompson. According to Tan and Nasurdin (2010). while administrative innovation remains distinct from the other two. 1984. Szabat. training. process innovation and administrative innovation based on the most prevalent types that have been discussed in the previous literatures (i. Sun. 1991. Chuang. 1998. which includes changes in techniques. On the other hand. www. Damanpour & Evan. system. and it encompasses basic work activities within the organization which is directly related to management (Chew. process innovation and administrative innovation in enhancing manufacturing firm performance. services. 2001). recruitment) and organizational innovation (product innovation. reward and information system. the degree of influence. add value. and extent as of shared knowledge influences the organizational innovation (Dobni.. However. The present study divided organizational innovation into the main dimensions of product innovation. process innovation and administrative innovation) within the Malaysian manufacturing industry. 2000). Mavondo et al. Damanpour & Evan. products and devices. process innovation and administrative innovation. 2003. Fundamentally. processes. and others (Chuang. and administrative innovation (i. Furnsten. 1994).. the goal of this study was to examine the role of knowledge management effectiveness mediating the relationship between HRM practices (performance appraisal. solve problems.Electronic Journal of Knowledge Management Volume 9 Issue 2 2011 Kimberly & Evanisko. (2) depth of innovation. Damanpour et al. 2005.e. Product innovation is a systematic work process which drawing upon existing knowledge gained from research and practical experiences directed towards the production of new materials. Against this backdrop. namely: product innovation. administrative. Chuang (2005) has further categorized technological innovation into secondary dimensions: product innovation and process innovation. effect on long term profitability. 2010). Jacobsson. organizational innovation was distinctively classified into three dimensions. there is still unexplored research area about particular organizational practices that may influence the organizational innovation. it can play a vital role in contributing to the management of organizational knowledge. 1984. Damanpour & Evan. Since manufacturing firms operate in the highly complex environment on the basis of internal operations efficiency and effectiveness. Process innovation involves the implementation of a new significantly improved production or delivery method.

ejkm. Schuler. Knowledge management effectiveness The learning process occurred to improve the stock of knowledge available to the organization and to amplify the value of its intellectual assets. formal policies. Laursen & Foss. management of the flow of knowledge within the organization.com 157 ISSN 1479-4411 . HRM practices play an influential role in motivating employees to exhibit favorable attitudes and behaviors. If an organization demonstrates competence in knowledge management. previous studies revealed that HRM practices. they are likely to perform better. 2005). and retains employees to ensure the effective implementation and the survival of the organization and its members. 2002). Wiid (1997) viewed as a set of activities that lead an organization in acquiring knowledge both internally and externally. which are required to support and implement the competitive strategy of an www. motivates. leading to higher firm performance (Paauwe & Boselie. Kydd & Oppenheim. 5. Against this backdrop. knowledge management is defined as the deployment of a comprehensive system that enhances the growth of an organization’s knowledge. & Jackson. Fay. RBV argues that human resource is one of the organization’s resources. 2005). reward system. knowledge management effectiveness is conceived as a process to enhance knowledge application to achieve organizational innovation for improving business performance. 1996). Knowledge management has been broadly defined from many perspectives. In summary. 2005). and retain employees who ensure the effective functioning and survival of the organization. In an effort to expand the knowledge management discipline. a subset of which enable them to achieve a competitive advantage. Knowledge management effectiveness can be analyzed from a process perspective (Gold. develop. manufacturing-based industries are seeking to gain competitive advantage at all cost and are turning to more innovative sources through HRM practices (Sparrow. and philosophies that are designed to attract. develops. Zheng. A review of the literature demonstrates five common practices that have been consistently associated with innovation. mainly focused on ―universal‖ or ―best practice‖ approach. HRM practices is also conceptualized as a set of internally consistent policies and practices designed and implemented to ensure that a firm’s human capital contribute to the achievement of its business objectives (Delery & Doty. training. According to Salisbury (2003). which were related to organizational innovation. Jiménez-Jiménez & Sanz-Valle. Shipton. strategic HRM practices approach (Delery & Doty. 1994). 1992). Besides. Among the main approaches to develop HRM: ―universal‖ or ―best practice‖ approach (Huselid. and recruitment (Gupta & Singhal. Schuler and Jackson (1987) defined HRM practices as a system that attracts. 1995). 1986. 1993. we concluded that HRM practices relate to specific practices. and applied by its employees. 1991). Minbaeva (2005) viewed HRM practices a set of practices used by organization to manage human resources through facilitating the development of competencies that are firm specific. and usage of knowledge in an effective and efficient manner for the long-term benefit of the organization (Darroch & McNaughton. 2001. motivate. The AMO theory illustrates that when employees are motivated. 2001). Human Resource Management (HRM) practices As the world is becoming more competitive and unstable than ever before. 2003. and a subset of those that lead to superior longterm performance (Barney. contingency approach (Dyer. 2005). 1985. West. Malhotra & Segars. encompassing performance appraisal. Motivation and Opportunity (AMO) theory appear to be the most popular theories applied in the studies that link HRM and performance (Paauwe & Boselie. career management. such as innovation capital when knowledge is acquired and applied. shared. 1996). Schuler. Likewise. knowledge management effectiveness is regarded as a management discipline which focused on the development and usage of knowledge to support the achievement of strategic business objectives. knowledge management effectiveness can be conceived as the effectiveness of an organization in managing the knowledge acquired. knowledge management can be defined as the management functions that encompass the creation of knowledge. it can be considered as having a knowledge management-orientation (Darroch & McNaughton. Hence. Patterson & Birdi.Cheng Ling Tan and Aizzat Mohd Nasurdin 3. produce complex social relation and generate organization knowledge to sustain competitive advantage. 2005. HRM practices have been defined in several aspects. In general. 1989). 1990. and configuration approach (Wright & McMahan. Human Resource Management (HRM) practices and Organizational Innovation (OI) Resource-based view (RBV) and Ability. 4. Organizations that effectively manage their knowledge within organization will have higher organization innovation in turn to achieve breakthrough competitive advantage.

Drawing upon the argument given above. 2001). and management practices in daily operation (Schuler & Jackson. Kydd & Oppeneheim.. thereby increase their participation in contributing innovation ideas. career management assist employees to attain their career goals and objectives. training. our main hypotheses are constructed as follows: H1: The level of HRM practices (performance appraisal. career management. and recruitment) will be positively related to the administrative innovation. Recruitment involves employing and obtaining appropriate and competent candidates through external sourcing (Sparrow. In a similar vein. Knowledge management is not only served as predecessor to organizational innovation. 1994). training. If employees are likely to feel satisfied with their career management.ejkm. it will help to create and market new products and services (Gupta & Singhal. Shipton et al. enhance organizational culture. Schuler & Jaclson. Therefore. Training helps employee master knowledge. 1993). 1987). Reward system encourages employee to become motivated. training. reward system. production processes. These employees are highly recognized in manufacturing industries as they contribute to firm on the basis of market responsiveness. but also an intervening mechanism between organizational factors and organizational outcomes. growing and sustaining intellectual capital in organizations (Marr & Schiuma. Previous studies have examined the role of knowledge management as a mediator.com 158 ©Academic Publishing International Ltd . in order to motivate employees to take risk. and tolerant of uncertainty and ambiguity (Chen & Huang. and ability which would be contribute to innovation in terms of products. On the basis of arguments put forth by previous scholars (i. Hence. Recruitment gives greater importance to be attached to fit between person and company culture. 1996). 2007). and ability of employees to perform effectively in their job that will lead to higher organizational innovation. Hence. Rashid Alshekaili’s (2011) study reveals that knowledge management mediates the relationship between human capital and innovation performance. which in turn. risk taking. and recruitment) will be positively related to the product innovation. career management. 6. lead to motivate them to perform in innovative activities (Delery & Doty. 1990. new process and/or new administrative practices. skill. Knowledge management is recognized as the fundamental activity for obtaining. training develops the knowledge. reward system. Morrow and McElroy (2001). 1996). According to Wang (2005). skill. Gupta & Singhal. 1993. and recruitment) will be positively related to the process innovation. When firms develop and introduce new product. and recruitment) will be positively related to the organizational innovation (product innovation.e. H1c: The level of HRM practices (performance appraisal. thus. Tung’s (2004) study evidenced that knowledge management mediates the relationship between an organization’s culture and structure. 2005). Jiménez-Jiménez & Sanz-Valle. H1a: The level of HRM practices (performance appraisal. product and process innovation. Knowledge management effectiveness as a mediator A number of scholars. will lead them to perform greater in innovative activities. the high level of implementation of recruitment that attaches individual – organizational fit is likely to result in high organizational innovation. Reward system provides financial reward. and Moynihan et al. we would expect HRM practices to be positively related to organizational innovation. reward system. develop successful new products and generate newer ideas (Guptal & Singhal. For instance. (2001) have argued on the missing link between HRM practices and organization outcomes. who are flexible. in turn. 2003). In turn. they require innovative and creative employees. 1993). such as Hilsop (2003). and organizational effectiveness. The missing link between HRM practices and organization outcomes illustrate the existence of a ―black box‖. performance appraisal increase employee commitment and satisfaction since employees are given chance to discuss about their work performance. career management. process innovation and administrative innovation). reward system. innovative firms treat HRM practices as the organization’s strategy to encourage team responsibilities. For instance. it is www. career management. it is important for a firm to implement supportive HRM practices that can motivate and stimulate employees to be innovative. The ―black box‖ model indicated that there is an unknown apparatus which is apparently invisible in increasing organizational innovation (Marinova & Phillimore. H1b: The level of HRM practices (performance appraisal. Laursen & Foss 2003. This. 2005. promotion and other recognition. training. Since HRM practices are assumed to be a managerial process that allows firms to manage effectively so as to improve the organizational innovation.Electronic Journal of Knowledge Management Volume 9 Issue 2 2011 organization (Hiltrop. which leading to high organizational innovation. and build up customer relationships through participation and empowerment.

The potential manufacturing firms were given two months to complete the questionnaires. Thus. All items were adapted from Argawala (2003). and recruitment) and administrative innovation. and Perak according to the study by National Survey of Innovation. reward system. Laursen & Foss.e.com 159 ISSN 1479-4411 . Methodology 7. training.. training (4 items). career management.2 Method of analysis HRM practices measure comprised of 28 items that included performance appraisal (6 items). and recruitment) and product innovation. these 647 large manufacturing firms located in the six states were selected to be the samples of this study. 2005). career management. Based on our discussion of the literature. which has been omitted in previous studies (i. Overall. and recruitment) and process innovation. US Bureau of Labor www. H2c: Knowledge management effectiveness mediates the relationship between HRM practices (performance appraisal. we hypothesized that: H2: Knowledge management effectiveness mediates the relationship between HRM practices (performance appraisal. 171 useable questionnaires were returned and analyzed. and recruitment) and organizational innovation (product innovation. reward system (6 items). representing a response rate of 25. reward system. reward system. career management.1 Samples In Malaysia. 2003. Zhang. Shipton et al. process innovation (4 items). training. innovating companies were widely distributed in the states of Selangor. 7. and a number of 674 large manufacturing firms were found in these six states.ejkm. Therefore. training. Hence. The items were adapted from previous researchers (eg. H2a: Knowledge management effectiveness mediates the relationship between HRM practices (performance appraisal. reward system. Johor. H1 HRM Practices Performance Appraisal Career Management Training Reward System Recruitment H2 Knowledge Management Effectiveness H3 Organizational Innovation Product Innovation Process Innovation Administrative Innovation H4 Figure 1: Research framework 7. Pulau Pinang.Cheng Ling Tan and Aizzat Mohd Nasurdin important to view knowledge management effectiveness as the ―black box‖ underlying the relationship between HRM practices and organizational innovation. Kuala Lumpur. Kedah. and administrative innovation (5 items). career management. 2006. Organizational innovation were measured using 13 items that included product innovation (4 items). 2002 – 2004. training. and recruitment (6 items). H2b: Knowledge management effectiveness mediates the relationship between HRM practices (performance appraisal. process innovation and administrative innovation).4 percent. our research framework is shown in Figure 1. this study sought to examine the indirect relationship between HRM practices and organizational innovation via knowledge management effectiveness. The samples of this study were derived from Federation of Malaysian Manufacturers (FMM) Directory 2007. career management (6 items).

Electronic Journal of Knowledge Management Volume 9 Issue 2 2011 Statistics.89).1 % were from Perak.85).1%).162. followed by Selangor (26. on the other hand. majority of them are from Pulau Pinang (38.1 2.9 4. and rubber and plastics product (8.000 employees.91). According to previous studies. and ownership of companies were compiled. For this reason. and joint ventures (12. Of 171 large participating manufacturing firms.15) with the range between minimum of 4 years and maximum 51 years. Keskin. 8.7%). Remaining responding companies are from textile (5.3 0.6 4.8 4.87). the majority of responding companies are from electronics/electrical industry (26.3%).7%). medical and precision (2.1 13.7%).82). and machineries (0. organizational innovation can be influenced by firm size and years in operation (Akgun. type of industries.1 percent of the responded companies are 100% local owned company. 2007.ejkm. The mean of years in operation for the firms is 23. Table 1: Profile of participating companies Variable Location of Factory Kedah Perak Pulau Pinang Selangor Kuala Lumpur Johor Type of Industry Electronics / Electrical Chemicals & Chemical products Textile Rubber & plastic products Food & beverages Fabricated metal products Motor vehicles Basic metal Recycling Paper & paper products Medical & precision Machineries Others Ownership of Company 100% foreign company 100% local company Joint venture company Frequency 11 19 65 46 7 23 46 5 10 15 8 18 8 4 1 7 4 1 44 66 84 21 % 6.89). chemicals and chemical products (2.3 0. 2008.9%).4 (SD = 1779.5 4. 2000). The response format was based on a seven-point Likert scale ranging from (1) 'strongly disagree' to (7) 'strongly agree'.6 25.7 10. Pertaining ownership of company. fabricated metal product (10. Above and beyond. Anderson and Tatham 2006).9%) and Johor (13. the hypotheses of this study were tested using hierarchical regression (Hair. 49. Reliability coefficients of the study variables are as follows: career management (0. Byrne & Aren. Knowledge management effectiveness.6 49. Results 8.0 26. and administrative innovation (0.68) with the firm size ranged between 150 and 11.1 years (SD =10.7 38.7 2. These values exceeded Sekaran’s (2003) acceptable level of 0.96). process innovation (0. The remaining participating firms with 11. reward system (0.9 8.1 12. Knowledge management effectiveness (0. recycling (0. followed by others industry (25.60. 2005). and 4. paper and paper products (4.com 160 ©Academic Publishing International Ltd .5%).6%).6%). food and beverages (4.9 5. www.8%).3%). recruitment (0. With regard to type of industry. was comprised of 15 items which were adapted from Zheng (2005).1% from Kuala Lumpur. training (0.1 38. The profile of the participating firms.0%).5%).3 Two control variables in this study were computed and the results showed that the mean of the firm size is 1. these two variables were controlled in the regression analyses.6%).87). motor vehicles (4.88). 6. followed by 100% foreign owned company (38.4 11. such as geographic location. and Chew.9%). product innovation (0.4% were from Kedah.9%). Jiménez-Jiménez & Sanz-Valle. performance appraisal (0.9 2.5 26.1 Profile of participating firms The profile of participating companies is shown in Table 1.

= 1. correlations between HRM practices and organizational innovation are found to be significant.555** 0. however. Correlations among HRM practices dimensions are statistically significant.94 www.05) to r = 0. recruitment (M = 4.01) to 0.42 (p < 0.11. S. Table 2: Intercorrelation matrix PDI 1.362** 0.10 5.563** 1.648** 0. Table 3: Mean scores and standard deviations for the study variables Variables Performance Appraisal Career Management Training Reward System Recruitment Knowledge Management Effectiveness Product Innovation Process Innovation Administrative Innovation Mean (M) 5. Correlation is significant at the 0.47 4.570** 0.06. PA denotes performance appraisal.04). The correlation between HRM practices and knowledge management effectiveness ranged from r = 0.D. and KME denotes knowledge management effectiveness.06 0. reliabilities.480** 0. 8.1).01).352** 0.D.466** 0.14 (p < 0. = 0. 5.603** 0.55 (p < 0.297** 0. S.01) to r = 0.D. 9. RS denotes reward system. = 0. and intercorrelations of the study variables are shown in Table 2 and Table 3 respectively. ADI denotes administrative innovation.23 Standard Deviation (SD) 1.D.66 (p < 0.112 0.44 (p < 0.663** 1. S.86.04 1. ranging from r = 0. p > 0.628** 0. and also organizational innovation are significant and positive.345** 0.01) to r = 0.445** 1.10. 4.ejkm.060 0. 7. = 1.140* 0.02 1. Correlation is significant at the 0.01 level (1-tailed).2 Descriptive statistics Descriptive statistics such as mean scores. = 1.283** 0.05).471** 0.535** 0.66 (p < 0.94 0.443** 1.625** 1.00 PCI ADI PA CM TR RS RC KME **.1). p > 0. PDI PCI ADI PA CM TR RS RC KME 1. RC denotes recruitment.94). Correlation between reward system and product innovation (r = 0.23.00 0. are low and insignificant. 34 out of 36 intercorrelations are statistically significant.02) career management (M = 4.21 4.264** 0.660** 0.97 0.417** 1. ranging from r = 0.514** 1.89 0. All correlations between knowledge management effectiveness with HRM practices.70.00 0.652** 1.240** 0. *. Correlation among organizational innovation dimensions are statistically significant. standard deviations. S.20 4.455** 0. reward system (M = 4.01).00 0. S.444** 0. 2.585** 0.49 (p < 0.01) to r = 0. ranging from r = 0.D. S. 0.89) to be relatively high.00 0.00 0. 3.316** 0.com 161 ISSN 1479-4411 .06).05 level (1-tailed).86 5.97).00 0. = 1. S.00. As shown in Table 2.04 1.45 (p < 0. PCI denotes process innovation. The level of performance appraisal (M = 5.70 5. the correlation between knowledge management effectiveness and organizational innovation ranged from r = 0. CM denotes career management. TR denotes training. and knowledge management effectiveness (M = 4. = 0.D.20. = 0. product innovation (M = 5. and recruitment and process innovation (r = 0.94) and process innovation (M = 5.D.63 (p < 0. the participating manufacturing firms judged their level of administrative innovation (M = 5.01).487** 0.04) was found to be slightly higher than training (M = 5. Besides.05.79 0.00 4. With reference to Table 3. S. Besides.552** 0.00 0.79).468** 0.265** 0.05 5.05). Note: PDI denotes product innovation.47 (p < 0.00 0.Cheng Ling Tan and Aizzat Mohd Nasurdin 8.D. 6.21.47.

19 0.30 10.08 0.29** 0. process innovation (β = 0.02 1. process innovation and administrative innovation). β Std.36** -0.16 0. p < 0.05. reward system.08 1. Of the five dimensions of HRM practices. *p<0.03 -0. p < 0. process innovation and administrative innovation) are portrayed in Table 4.05 0. Earlier results of hierarchical regression on the relationship between HRM practices and organizational innovation (product innovation. The two control variables (firm size and years in operation) were entered in step 1.32** 6. The results of the regression analysis between HRM practices and organizational innovation (product innovation.09 Model 2 Std.01 1. p < 0.12 0.08 0.08 0.01 0.20 0.12** Process Innovation Model 1 Std.07 0. The F-change of product innovation (7.15 0.21* 0. the R of product innovation increased to 0. Career management.01 0.0% to the variance 2 in product innovation.30** -0.93) as well as administrative innovation (14.34. process innovation.02 0. process innovation and also administrative innovation. the R of process innovation increased to 0.31 showing that the five dimensions of HRM practices contributed an additional 30.09 -0.01 0.01) showed that the performance appraisal and training fulfilled the condition for the mediation effects.45 Note: **p<0.30. Performance appraisal was also found to be positively and significantly related to administrative innovation (β = 0.ejkm.25** 0.12 0.01). The results provided partial support for hypothesis H1a. In step 2.01 Model 2 Std.18 5. To examine the mediating role of knowledge management effectiveness as posited in hypotheses H2.87 0.19 projecting that the five dimensions of HRM practices contributed an additional 18.01). process innovation and administrative innovation) (Table 4). The R of administrative innovation indicates a steep increase to 0.19 0. Table 5. β -0.03 -0. only training was found to be positively and significantly related to product innovation (β = 0. Predictors Product Innovation Model 1 Std.05 0. β -0. and recruitment) were entered. the five HRM practices variables (performance appraisal. was significant (p < 0.01).28** -0. training.21.18 5.0% to the variance in process 2 innovation. Both of the control variables (firm size and years in operation) have no effects on product innovation 2 2 2 (R value = 0. reward system and recruitment had no relationship with product innovation.05 0.Electronic Journal of Knowledge Management Volume 9 Issue 2 2011 8. β Step 1: Control variables Firm Size Years In Operation Step 2: HRM Practices Performance appraisal Career management Training Reward system Recruitment 2 R 2 Adjusted R 2 ΔR F-value Δ F-value -0.01 0.01 0.01).72** 7.11 -0.29. process innovation (R value = 0.28 0.01). Table 4: Results of regression analysis: effect of HRM practices on organizational innovation (product innovation. and administrative innovation (R value = 2 0.20 indicating that the five dimensions of HRM practices contributed an additional 18. β -0. β 0.18 0.37** 14.87 1. On adding the HRM practices variables.02 0. 6 and 7 summarizes the results of the mediation effects of knowledge management effectiveness on the relationship between HRM practices and organizational innovation (product innovation.01 0. H1b and H1c.26).26** 0.05).93** Administrative Innovation Model 1 Model 2 Std.36.06 0. On the other hand.3 Hypotheses testing A two-step hierarchical regression was conducted to test hypothesis H 1 and sub-hypotheses H1a to H1c.04 0. process innovation (6. www. p < 0.01 -0.16 0.02). the four-step approach procedures suggested by Baron and Kenny (1986).45 0. and administrative innovation). and the further test on the relationship between HRM practices and knowledge management effectiveness (β = 0. p < 0.01.01) and administrative innovation (β = 0. and Kenny (2003) were followed.12). career management.31 0.0% to the variance in administrative innovation.com 162 ©Academic Publishing International Ltd .

ejkm.01).34** 0.39** 0. the effect of training on process innovation (β = 0. However.16 0. The results indicated that both training and performance appraisal. it is observed that the effect of performance appraisal (β = 0.12** Training KME R 2 Adjusted R 2 ΔR F-value Δ F-value 2 Note: **p<0.39** 0. the effect of training on product innovation was significant without knowledge management effectiveness (β = 0.28 8. β 0.76 0.15 0.01) became insignificant in the presence of knowledge management effectiveness (β = 0.30. This result indicated partial mediation. p > 0.23 6.32** 98.10.05.12.54** 0.23* 0.05). β Training KME R 2 Adjusted R 2 ΔR F-value Δ F-value 2 Process Innovation (With KME) Std. the beta value decreased in the presence of knowledge management effectiveness.04 0.01) and also with knowledge management effectiveness (β = 0.21 0. the effect of training (β = 0.19 0. β 0.18 5. training has an indirect effect on product innovation via knowledge management effectiveness. hypothesis 2 is partially supported.72** 7. As shown in Table 5.21** Criterion Variables Process Innovation (Without KME) Std. thereby. www. Hence.18 5.32** 98. *p<0.36.01) became insignificant with the presence of knowledge management effectiveness (β = 0. In sum. p < 0. sub-hypothesis H2a is supported. sub-hypothesis H2b is supported. β 0. p > 0. p > 0. *p<0.01.12** Product Innovation (With KME) Std. Table 6: Summary of the mediation test of knowledge management effectiveness on the relationship between human resource management practices and process innovation Predictors Knowledge Management Effectiveness (KME) Std.28** 10. thereby implying full mediation.76 70. β 0.21.29** 0.25 0.05). training has an indirect effect on process innovation via knowledge management effectiveness.04. have indirect effects on administrative innovation via knowledge management effectiveness.Cheng Ling Tan and Aizzat Mohd Nasurdin Table 5: Summary of the mediation test of knowledge management effectiveness on the relationship between human resource management practices and product innovation Predictors Knowledge Management Effectiveness (KME) Std.05) implying full mediation. p > 0.05. Similarly. From Table 7.29 0.75 0. Table 6 summarizes the results of the mediation test of knowledge management effectiveness on the relationship between HRM practices and process innovation.26 0.62** 0.29. In other words. Therefore. implying full mediation. p < 0.23. KME denotes knowledge management effectiveness.76 0. p < 0.21** Criterion Variables Product Innovation (Without KME) Std.75 0.20 0. As can be seen from the results.68** 8. β 0.01) on administrative innovation became insignificant in the presence of knowledge management effectiveness (β = 0.01.com 163 ISSN 1479-4411 . sub-hypotheses H2c are supported. KME denotes knowledge management effectiveness. In other words.93** Note: **p<0. p < 0. Therefore.32** 6.36** 0.76 70.

One of the possible explanations may due to administrative innovation is usually done within a shorter period of time since administrative processes and systems can be adjusted according to the needs of the organization. usually conducted at least once annually can help organization further improve administrative processes. And also. β Performance appraisal Training KME R 2 Adjusted R 2 ΔR F-value Δ F-value 2 0. Performance appraisal.14** Note: **p<0.21** Criterion Variables Administrative Innovation (Without KME) Std. namely training was found to have both direct and indirect effect on all three dimensions of organizational innovation (product innovation.12 0. career management.21* 0. the more transfer and flow of information and knowledge which will increase organizational learning and instil new ideas. reward system (M = 4. the higher level of employees’ motivation towards their tasks.40 0. High motivation will help to increase employees’ willingness to generate new ideas in order to increase administrative innovation.76 70. the feedback from performance appraisal activities may not have any impact on product innovation and process innovation. and administrative innovation).Electronic Journal of Knowledge Management Volume 9 Issue 2 2011 Table 7: Summary of the mediation test of knowledge management effectiveness on the relationship between human resource management practices and administrative innovation Predictors Knowledge Management Effectiveness (KME) Std. KME denotes knowledge management effectiveness. the higher level of implementation of training. Hence. was found to have both direct and indirect effect on administrative innovation.01.28 0. The statistical results obtained in this study showed that HRM practices have a significant positive impact on organizational innovation. reward system. Hence. This means the higher level of implementation of fair performance appraisal. Only one of five HRM practices. On the other hand.52** 0. leading to product innovation.16** 0. and recruitment (M = 4.30 10.21) are relatively low compared to performance appraisal (M = 5. β 0. some HRM practices (e.47).20) and training (M = 5.43 0. Employees undertake the training programs are expected to apply the knowledge acquired on the task and job assigned. Contrary to expectation.00). One possible reason for this insignificant relationship may relate to the fact that participating companies in Malaysia perceived the level of implementation of career management (M = 4. both recruitment 164 www. and administrative innovation). Discussion and conclusion The objective of the current study was to examine the direct relationship between HRM practices and organizational innovation. as well as indirect relationship between HRM practices and organizational innovation via knowledge management effectiveness.g. β Administrative Innovation (With KME) Std. process innovation. may be several years to yield results due to technical constraints faced during product and process actualization.26** 0. product innovation and process innovation take a longer period of times. but not on product innovation and process innovation. In another word. 9.ejkm.32** 98.31 0. *p<0. This result entailed that when organizations have higher implementation level of training.37** 14.05. The results of this study also offer several suggestions to manufacturing firms in Malaysia to focus on training program. process innovation and administrative innovation. the knowledge management effectiveness has a mediation effect on relationship between HRM practices and organizational innovation.76 0.43 15. and recruitment) were found to be unrelated to organizational innovation (product innovation. feedback obtained from performance appraisal activities. process innovation. Surprisingly.70). it will advances the growth of employees’ requisite skills and their potential to learn. As a result. Employees are able to generate new understandings and new ideas that will be useful for organizational innovation. efforts taken to enhance knowledge management effectiveness in the manufacturing firms will be useful in enhancing the organizational innovation performance.com ©Academic Publishing International Ltd .30** 0.10 0.39** 0.29** 20.75 0. on the other hand.

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