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Could HRM support organizational innovation?

a a
Daniel Jiménez-Jiménez & Raquel Sanz-Valle
a
Departamento de Organización de Empresas y Finanzas, Universidad de Murcia, Murcia,
Spain
Published online: 18 Jul 2008.

To cite this article: Daniel Jimnez-Jimnez & Raquel Sanz-Valle (2008) Could HRM support organizational innovation?, The
International Journal of Human Resource Management, 19:7, 1208-1221, DOI: 10.1080/09585190802109952

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 The International Journal of Human Resource Management,
Vol. 19, No. 7, July 2008, 1208–1221

Could HRM support organizational innovation?

Daniel Jiménez-Jiménez* and Raquel Sanz-Valle
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Departamento de Organización de Empresas y Finanzas, Universidad de Murcia, Murcia, Spain

Nowadays, it has become clear that the capacity of organizations to innovate and manage their
human resources can be sources of competitive advantage. Recently, literature also asserts a
positive relationship between human resource management and innovation. However, very
little empirical research has specifically addressed those relationships. Using structural
equations modelling with data collected from 173 Spanish firms, this study analyses them.
Our findings show that innovation contributes positively to business performance and that
human resource management enhances innovation. Implications for both academics and
managers as well as future research lines are discussed.
Keywords: Human Resource Management; innovation; performance

Introduction
Today, firms have to face an environment characterized by increasing global competition,
changing customer’s demands and rapid technical changes. In this context, the profitability of a
firm and even its survival depend on its ability to responsed quickly and on its flexibility. In this
context, innovation is frequently related to the achievement and maintenance of competitive
advantage and performance (Utterback 1994; Balkin, Markaman and Gómez-Mejı́a 2000; Lyon
and Ferrier 2002).
In such competitive environments, literature has also emphasized the key role that human
resources (HR) and human resource management (HRM) play in enhancing firm’s competitive
advantage (Lado and Wilson 1994; Wright, McMahan and McWilliams 1994; Becker and
Gerhart 1996). On the one hand because employees’ knowledge, skills and behaviours can be
sources of competitive advantage and, therefore, can positively affect firm’s performance.
Traditional HRM may not work in environments that stress technological innovation and
managers have to face a special challenge in identifying the HRM practices that most effectively
support innovation (Martell and Carroll 1995). On the other hand, HRM is being seen as an
antecedent of innovation (Gupta and Singhal 1993). The basic assumption in the relationship
between them is the idea that the capacity of innovattion of a firm resides in its employee’s
competences and motivation.
Despite the recognition of the existence of a relationship among HRM, innovation and
performance, very little research has explicitly examined this issue, especially from an empirical
perspective.
The purpose of this article is to fill this gap in literature. That is, this study empirically
analyses the relationship between innovation and human resource management and the effect
of both on firm’s performance. First, the literature on this topic is reviewed. Then, it proposes a

*Corresponding author. Email: danieljj@um.es

ISSN 0958-5192 print/ISSN 1466-4399 online

q 2008 Taylor & Francis
DOI: 10.1080/09585190802109952
http://www.informaworld.com
 The International Journal of Human Resource Management 1209

causal model to explain the relationships proposed. Following, this model is tested using
a sample of Spanish companies. Finally, we present our findings along with the theoretical and
managerial implications of the study, its limitations and our recommendations for future
research.
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Literature review and hypotheses

Innovation and performance
Innovation has been conceptualized in a variety of ways, depending on the perspective from
which it has been studied (Knight 1967; Rogers 1995; Wolfe 1994; Damanpour, Szabat and
Evan 1989; Damanpour and Gopalakrishnan 1998). However, literature revision shows that it
can broadly be defined as “the adoption of an idea or behaviour, whether a system, policy,
program, device, process, product or service, that is new to the adopting organization”
(Damanpour et al. 1989). This new idea might be a recombination of old ideas, a scheme that
challenges the present order, a formula or a unique approach which is perceived as new by the
individuals involved (Van de Ven, Polley, Garud and Venkataram 1999) and it can be developed
internally or purchased (Pennings and Harianto 1992).
Innovations can be classified according to different criteria. Following Damanpour (1991),
the most frequent ones are the radicalness of the innovation and the dual-core model.
According to their radicalness, innovations can be broadly classified as incremental or
radical. Radical innovations produce fundamental changes in the activities of the organization
and represent clear departure from existing practices, whereas incremental innovations result in
a lesser degree of departure (Knight 1967; Normann 1971; Daft and Becker 1978; Damanpour
and Gopalakrishnan 1998; Hage 1999).
Damanpour, according to the dual-core model, distinguishes between technical and
administrative innovations. Whereas technical innovations include new technologies, product
and services, administrative ones refer to new procedures, policies and organizational forms
(Normann 1971; Dewar and Dutton 1986; Tushman and Nadler 1986). Technical innovations
can be separated into product innovations, which refer to the development and introduction of
new or improved products and/or services that are successful in the market, and process
innovations, which involve the adoption of new or improved methods of manufacture,
distribution or delivery of service. This is not to suggest that the two types of innovation are
mutually exclusive. Indeed process innovation may often result in subsequent product
innovation and vive versa (Neely, Filippini, Forza, Vinelli and Hii 2001).
For the purpose of our study we distinguish among product innovation, process innovation
and administrative innovation.
In general, literature considers innovation as critical for economic efficiency of both
organizations and nations (Harris and Mowery 1990) and one of the key drivers of long-term
firm success, particularly in dynamic markets (Utterback 1994; Wolfe 1994; Balkin et al. 2000;
Lyon and Ferrier 2002).
The rationale behind this idea is that innovation often serves to deal with the turbulence of
the external environment. To survive in Schumpeterian environments, organizations must be
able to cope with increasing complexity and high-velocity change (Brown and Eisenhard 1995).
In these contexts, companies with the capacity to innovate will be able to respond to these
challenges faster and to exploit new products and market opportunities better than non-
innovative companies (Miles and Snow 1978; Brown and Eisenhard 1995). This idea is
supported by the resource-based theory of the firm. From this perspective, innovation allows the
development of valuable and scarce resources in the company. Moreover, the capacity to
innovate is difficult to imitate.
 1210 D. Jiménez-Jiménez and R. Sanz-Valle

Many studies have demonstrated the positive effect of innovation on performance

(Damanpour and Evan 1984; Damanpour et al. 1989; Brown and Eisenhard 1995; Hansen,
Nohria and Tierney 1999; Roberts 1999; Schulz and Jobe 2001).
Hence, despite some conflicting evidence (Hage and Aiken 1967; Kimberly and Evanisko
1981; Rogers 1995), theory and empirical research suggest a positive relationship between
innovation and firm performance. Accordingly, we propose the following hypothesis:
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Hypothesis 1: Organizational innovation will be positively associated with firm performance.

Due to the general recognition of the importance of innovation as a source of competitive
advantage, a number of studies have tried to identify the main determinants of the innovative
capacity of firms (Damanpour 1991; Wolfe 1994; Ravichandran 1999). Some internal and
external factors have been identified in literature as determinants of innovation. Among the
internal factors, literature highlights strategy, organizational design, leadership, organizational
culture, market orientation of the firm and, more recently, HR and, therefore, HRM practices.
This article focuses on the relationship between HRM and innovation.

HRM and innovation

Today, HR skills and knowledge are a key to success in R&D (Pearson, Brockhoff and Von
Boehmer 1993). Furthermore, there is a general recognition about the importance of HRM as a
determinant of innovation. According to Gupta and Singhal (1993), “people, not products, are an
innovative company’s major assets”.
The assumption underlying those affirmations is that HRs are involved in the whole innovation
process (Galbraith 1984). First, because it is considered that the innovative capacity of a firm
resides in the intelligence, imagination and creativity of its employees (Kanter 1989; Gupta and
Singhal 1993; Mumford 2000). And second, because their implication and support is needed for
the development and implementation of innovation (Van de Ven 1986; Vrakking 1990).
Consequently a set of HRM policies that “can identify, develop, evaluate, and reward the work
behavior that is consistent with the firm’s innovation goals” (Martell and Carroll 1995) is required.
Despite the wide recognition of the importance of HRM for innovation, it has been scarcely
treated in studies of innovation up to now (Laursen and Foss 2003). Literature on HRM has
studied the relationship between HRM and innovation mainly from a contingent perspective.
Conclusions of the literature about which HRM practices foster innovation are presented below.
First, regarding job design, literature argues that companies should allow employees to have
spare time for developing new ideas and design jobs for working with ambiguity and tolerance
(Schuler and Jackson 1987a). Therefore, jobs should promote job enrichment (Kanter 1985;
Tushman and Nadler 1986; Kydd and Oppenheim 1990), flexibility in job definition (Tushman
and Nadler 1986), autonomy (Kanter 1985; Tushman and Nadler 1986; Axtell, Holman,
Unsworth, Wall and Waterson 2000), employee participation (Cummings 1965; Schuler and
Jackson 1987a) and fluent communication (Albertini and Butler 1995; Cummings 1965).
Related to organizational design, literature highlights the utilization of teamwork to enhance
innovation (Eisenhardt and Tabrizi 1995; Laursen 2002). The use of teams is important because
the development of innovations is too complex to be achieved by individual employees (Van de
Ven et al. 1999). Furthermore, these teams have to foster the autonomy (Clark and Wheelwright
1993; Stoker, Looise, Fisscher and De Jong 2001) and the interdisciplinary of their members
(e.g. Kanter 1985; Gupta and Singhal 1993; Henke, Krachenberg and Lyons 1993; Brown and
Eisenhard 1995; Beatty and Schneier 1997; Sheppeck and Militello 2000).
Staffing is considered another key HRM practice for innovation. The use of external sources
of recruitment (Olian and Rynes 1984; Schuler and Jackson 1987a; Sonnenfeld and Peiperl
 The International Journal of Human Resource Management 1211

1988; Raghuram and Arvey 1994), the selection of people based on their polyvalent skills
(Gupta and Singhal 1993), the fit to organizational culture (Jones and Sullivan 1994) or to
provide employment security (Schuler and Jackson 1987a; Jackson, Schuler and Rivero 1989;
Kydd and Oppenheim 1990; Storey, Quintas, Taylor and Fowle 2002) allow companies to obtain
self-confident, risk adoption and involved employees, that favour innovation.
Regarding training, some studies defend the importance of the broad application of training
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in order to develop the employee skills and knowledge needed for innovation (Galende and
Suárez 1999; Ding and Akhtar 2001; Laursen and Foss 2003; Mark and Akhtar 2003). This
training has be characterized for providing polyvalence skills (Sundbo 1999), with a team and
long-term orientation and allowing the participation of employees in the design of training
activities (Garvin 1993; Nonaka and Takeuchi 1995).
Propositions about career paths in innovative organizations suggest broad and planned career
paths that support innovation because they allow employees to acquire competences that are
relevant to many functional areas which, therefore, will facilitate the innovation process (Omta,
Bouter and Van Engelen 1994; Mabey and Salaman 1995; Ding and Akhtar 2001). Moreover,
the career management should have a long-term (Cascio 1990) and team orientation, and should
be based on qualitative criteria and competence acquisition (Stata 1989; McGill, Slocum and Lei
1992; O’Dell and Grayson 1998).
With respect to performance appraisal policy, some authors suggest the use of group
and long-term based appraisals (Miles and Snow 1984; Schuler and Jackson 1987a; Mabey and
Salaman 1995). Second, it is not clear whether the performance appraisal should be results
and process oriented (Schuler and Jackson 1987a; Martell and Carroll 1995; Ding and Akhtar
2001). Third, literature defends the use of performance appraisal for development aims (Snow
1984; Schuler and Jackson 1987b; Miles and Mumford 2000; Mark and Akhtar 2003). In order
to do that, firms should encourage the participation of employees in the whole process of
performance appraisal and provide them with feedback (Beatty and Schneier 1997).
Innovative companies should design attractive compensation packages in order to attract
the best skilled employees (Turbin and Rosse 1990). Some authors have found a positive
relationship between innovation and employee wages level (Balkin et al. 2000; Van Reenen
1996). Therefore, it is suggested that firms should offer incentives (Galbraith 1984; Miles and
Snow 1984; Cascio 1990) in order to motivate employees to development creativity activities
(Cascio 1990; Gupta and Singhal 1993). Those incentives should be based on employee
competences, team performance and have a long-term orientation (Schuler and Jackson 1987a;
Mabey and Salaman 1995). Hence, the compensation strategy for innovative firms is an organic
compensation system, as defined by Gómez-Mejı́a and Welbourne (1988).
Finally, literature defends that HRM practices are more conducive to innovation when
adopted, not in isolation, but as a system of mutually reinforcing practices. The underlying
assumption is that all the practises have to pursue the development of innovation (Hailey 2001).
On the contrary, the effect on innovation of individual HRM practices could be inhibited by
other HRM not considered. Empirical research has found support for it (Peck 1994; Schuler and
Jackson 1987b; Laursen 2002; Laursen and Foss 2003).
As a summary of the literature review the following hypothesis is proposed:
Hypothesis 2: The adoption of a HRM system which includes: a) flexible job design and
empowerment; b) team working; c) long-term and skill-oriented staffing;
d) extensive-and long-term oriented training; e) broad career opportunities;
f) behaviour-based appraisal, and g) organic compensation system, will be
positively associated with organizational innovation.
 1212 D. Jiménez-Jiménez and R. Sanz-Valle

HRM and performance

The relationship between HRM and performance has been increasingly studied since the
emergence of the Strategic HRM approach at the beginnings of 80s and have find support in
the resource-based view of the firm calling for a more statgic role for HR (Sanz, Sabater and
Aragón 1999). Some researchers have used the resource-based view to examine the link between
HRM and sustainable competitive advantage (e.g. Becker and Gerhart 1996; Huselid, Jackson
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and Schuler 1997; Kamoche and Mueller 1998). Their conclusions suggest that HR are some of
the most unique and difficult to imitate resources of any organization, primarily because many
of their most important characteristics are tacit and highly complex. Therefore, HR are primary
sources of sustainable competitive advantage for the firm.
From the configurational approach (see Delery and Doty 1996) point out the importance of
implementing internally consistent HRM practices in order to affect performance. The underlying
assumption of the configuration approach in HRM is that the impact on organizational performance
of sets or “bundles” of interrelated HRM practices can be greater that the cumulative impacts of all
the individual practices comprising the bundle (Arthur 1992; Huselid 1995; MacDuffie 1995;
Ichniowski, Shaw and Prennushi 1997). That is because the use of systems of practices allows
companies to get synergies from the complementarities among them (Milgrom and Roberts 1995;
Becker and Gerhart 1996; Delery and Doty 1996). Although empirical literature is heterogeneous
in their approach, their conclusions and the configurations of HRM practices studied, in general,
provide support to the assumption that companies which implement systems of internally
consistent HRM practices obtain better performance. Furthermore, Omta et al.’s (1994) research
shows that a greater emphasis on HRM that fosters innovation seems to be an important
explanatory factor for greater success in the market. We can conclude that:
Hypothesis 3: The adoption of a HRM system which encourages organizational innovation will
be positively associated with firm performance.

Methodology
Data collection and sample
Data for this study come from a more extensive study, financed by the European Union (FEDER
funds). Our sample, which was draw from the SABI database, includes firms with more than 50
employees and located in a southeast region of Spain. It was designed to reach across industries
(excluding the agriculture sector) and include more and less organizational innovators. A total of
564 companies constituted the population.
Data were collected by mean of a personal interview with the top executive of the company,
using a structured questionnaire. A response rate of 30.7% was yielded from 173 usable
questionnaires.
We compared respondent and non-respondent companies in terms of general characteristics
and model variables. These comparisons did not reveal any significant differences, suggesting no
response bias.

Measures
Innovation: Organizational innovation has been measured in a variety of ways in previous
research. However, according to Manu (1992), innovation orientation has to do with outputs
(e.g. new products or processes), inputs (e.g. R&D expenditures) and timing (e.g. pioneers, quick
seconds or late followers). In our study, we measured the three basic types of innovation:
product, process or administrative systems. As Manu (1992), we used six items for each of them
 The International Journal of Human Resource Management 1213

regarding the changes in the products, processes or administrative systems developed by

the company, the proactive or reactive character of those innovations and the effort of the firm on
innovation in terms of resources spent on innovation or R&D. The confirmatory factor analysis
(Table 1) suggests the use of three items to measure product innovation (rSCR c ¼ 0.87,
rAVE
c ¼ 0.68), three to process innovation ( r SCR
c ¼ 0.86, r AVE
c ¼ 0.68) and finally another three
to quantify administrative innovation (rSCR ¼ 0.92, r AVE
¼ 0.79).
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c c
Innovation has been measured as a unique construct. A second-order factor analysis
demonstrated that three dimensions can be modelled by a higher-order construct (Table 2).
Our results suggest a reasonable fit of second-order specification for our measure of
innovation (x2 ¼ 46.90, df ¼ 24; GFI ¼ 0.94; RMSEA ¼ 0.072; CFI ¼ 0.99; TLI ¼ 0.98;
IFI ¼ 0.99). All, GFI, CFI, TLI and IFI exceed the recommended 0.90 threshold level (Hoyle
and Panter 1995). The RMSEA is 0.072 and the root mean square residual [RMR] and the
standardized RMR are 0.027 and 0.032 respectively, which are considered acceptable.
Performance: To evaluate the innovation’s results different measures have been used
(Regev 1998; McDonough 2000; Damanpour and Gopalakrishnan 2001). In our study we asked
the firm how the evolution of firm’s performance had been during the last three years in terms of
market share, profitability, productivity and customer satisfaction. The confirmatory factor
analysis (Table 1) suggests the use of these four items to measure performance (rSCR c ¼ 0.83,
rAVE
c ¼ 0.55).

Table 1. Constructs measurements summary: Confirmatory factor analysis and scales reliability.
Standardized Reliability,
Item description loading (SCR a, AVE b)
Product innovation
1. Number of new products/services introduced 0.85 SCR ¼ 0.87
2. Pioneer disposition to introduce new products/services 0.86 AVE ¼ 0.68
3. R&D expenditure in new products/services, scale: 1 ¼ below 0.77
competitors; 5 ¼ above competitors)
Process innovation
1. Number of changes in the process introduced 0.86 SCR ¼ 0.86
2. Pioneer disposition to introduce new process 0.95 AVE ¼ 0.68
3. Efforts on innovation in terms of hours/person, teams and training 0.69
involved in innovation, scale: 1 ¼ below competitors;
5 ¼ above competitors)
Administrative innovation
1. Novelty of the management systems 0.88 SCR ¼ 0.92
2. Search of new management systems by directives 0.84 AVE ¼ 0.79
3. Pioneer disposition to introduce new management systems, scale: 0.94
1 ¼ below competitors; 5 ¼ above competitors)
Performance
1. Share market 0.72 SCR ¼ 0.83
2. Profitability 0.66 AVE ¼ 0.55
3. Productivity 0.79
4. Customer satisfaction, scale: in the three previously years: 1 ¼ 0.68
decrease; 5 ¼ increase)
Fit statistics for measurement model of 14 indicators for 4 constructs: x2,72) ¼ 117.02;
P 2GFI ¼ 0.92; P RMSEA ¼ P 0.044;
CFI ¼ 0.99; TLI ¼ 0.98; IFI ¼ 0.99; aScale composite reliability, (rc ¼ ( P li Þ var ðj Þ=½ð Pli Þ2 varðjÞ þ P uii
;
b
Bagozzi and Yi 1988 (Bagozzi and Yi 1998)). Average variance extracted ðrc ¼ ð l2i var ðj ÞÞ=½ l2i varðj Þ þ u ii
;
Fornell and Larcker 1981 (Fornell and Larcker 1981)).
 1214 D. Jiménez-Jiménez and R. Sanz-Valle

Table 2. Second-order confirmatory factor analysis of the innovation.

First-order Second-order
First-order construct Indicator Loading t-value Loading t-value
Product innovation PI1 0.85 –a
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PI2 0.85 12.61 0.78 9.09

PI3 0.77 11.26
Process innovation CI1 0.86 –a
CI2 0.94 16.27 0.93 10.93
CI3 0.69 10.45
Administrative innovation AI1 0.88 –a
AI2 0.84 14.67 0.73 9.01
AI3 0.93 17.34
Fit statistics for measurement model of 13 indicators for four constructs: x2,67) ¼ 94.40; GFI ¼ 0.93; RMSA ¼ 0.044;
CFI ¼ 0.99; TLI (NNFI) ¼ 0.99; aFixed parameter.

To assess the unidimensionality of each construct of innovation and performance, a

confirmatory factor analysis of the four constructs was conducted (Anderson and Gerbing 1988).
The measurement model provides a reasonable fit to the data (x2 ¼ 94.40, df ¼ 67; GFI ¼ 0.93;
RMSEA ¼ 0.044; CFI ¼ 0.99; TLI ¼ 0.99; IFI ¼ 0.99). The traditionally reported fit
indexes are within the acceptable range. Reliability of those measures was calculated with
Bagozzi and Yi’s (1998) composite reliability index and with Fornell and Larcker’s (1981)
average variance extracted index. For all the measures both indices are higher than the
evaluation criteria of 0.6 for the composite reliability and 0.5 for the average variance extracted
(Bagozzi and Yi 1998). Furthermore, Discriminant validity is indicated since the average for
every construct is higher than the square estimated correlation parameter between each two
constructs (Fornell and Larcker 1981).
HRM system: In order to define the HRM system we have conceptualized and measured the
most important areas of HRM identified in the literature. We used a series of 5-point Likert-type
scales for each of them. Regarding how to measure the HRM system of the firm, literature has
used a variety of ways. In this study, we measured the HRM system of the firms following the
study of Delery and Doty (1996). First, from our literature review, we defined an ideal profile for
innovation of HRM practices by adding one standard deviation from the mean of each HRM
variable (Delery and Doty 1996). Then, using the mathematical model proposed in previous
researches of Doty (Doty and Glick 1994; Doty, Glick and Huber 1993), we computed the
measure of configurational fit as the additive inverse of the deviation between a real
organization’s employment system and the ideal system which promotes innovation.

Table 3. Construct correlation matrix.

Correlation matrix
Construct Mean Standard deviation 1 2 3 4 5
1. HRM system 119.80 60.07 1
2. Product innovation 3.58 0.82 0.031 1
3. Process innovation 3.46 0.78 0.044 0.652* 1
4. Administrative innovation 3.67 0.85 0.103 0.475* 0.631* 1
5. Performance 3.78 0.67 0.040 0.390* 0.497* 0.454* 1
*Correlation is significant at the 0.01 level.
 The International Journal of Human Resource Management 1215

Table 3 provides an overview of construct’s means, standard deviations and correlations

among the variables measured to test our hypotheses.

Analysis and results

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A structural equations modelling (SEM) methodology was employed to test the hypotheses. The
proposed structural model is shown in Figure 1. Conventional maximum likelihood estimation
techniques were used to test the model (Jöreskog and Sörbom 1996). The fit of the model is
satisfactory (x2 ¼ 117.02, df ¼ 72; GFI ¼ 0.92; RMSA ¼ 0.056; CFI ¼ 0.98; TLI ¼ 0.98;
IFI ¼ 0.98) (see Table 4), thereby suggesting that the nomological network of relationships fits
our data. This is another indicator of support for the validity of these scales (Churchill 1979).

Figure 1. A model of the relationship between HRM, innovation and performance.

Table 4. Construct structural model.

Hypotheses Standardized parameter estimates
Linkages in the model Number Sign Parameter Estimate t-value
Hypothesis
Innovation ! performance H1 þ b51 0.71 7.10***
HRM system ! innovation H2 þ g11 0.26 3.11***
HRM system ! performance H3 2 g11 0.04 0.60
Second-order construct
Innovation ! Product innovation þ b21 0.79 9.49***
Innovation ! Process innovation þ b31 0.87 10.64***
Innovation ! Administrative innovation þ b41 0.78 9.85***
Indirect effect
HRM system ! Product innovation þ k21 0.21 3.03***
HRM system ! Process innovation þ k31 0.23 3.07***
HRM system ! Administrative innovation þ k41 0.20 3.05***
HRM system ! performance þ k51 0.18 2.88***
*P , 0.1; **P , 0.05; ***P , 0.01; Fit statistics for measurement model of 14 indicators for five constructs:
x2,72) ¼ 117.02; GFI ¼ 0.92; RMSEA ¼ 0.056; CFI ¼ 0.98; TLI ¼ 0.98, IFI ¼ 0.98.
 1216 D. Jiménez-Jiménez and R. Sanz-Valle

In term of our hypothesis (Table 4), the findings for H1 (Innovation ! performance;
b51 ¼ 0.71, p , 0.01) suggest that, as predicted, innovation is positively associated with firm’s
performance. This finding supports the thesis argued in literature that innovation can be a source
of competitive advantage. So, in spite of the risks and costs of innovation, companies which have
a more innovative behaviour will have a higher performance.
Regarding to H2 (HRM system ! innovation; g11 ¼ 0.26, p , 0.01), our results indicate
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that HRM practices affects innovation. Particularly, we found that companies adopting a HRM
system which encourages innovation will be more innovative.
Contrary to our prediction, we didn’t find any significant relationship between HRM system
and performance, Hypothesis 3 (HRM system ! performance; g51 ¼ 0.04) is not supported by
our data. However, we have obtained evidence about the existence of an indirect effect from
HRM system on performance (HRM system ! performance; k51 ¼ 0.18, p , 0.01) through
its effect on organizational innovation. These results suggest that innovation also plays an
intermediate role in the link between HRM and performance.

Discussion
The purpose of this study was to examine the link between HRM and innovation and analyse the
effect of both of them on performance. In order to do that the resource-based view of the firm and
the behavioural perspective was combined.
Although literature highlights the key role of HRM in innovation process (Galbraith 1984;
Martell and Carroll 1995; Laursen 2002), up to now, HRM has received little attaention in
studies on innovation. Furthermore, there is a lack of empirical research on the relationship
between HRM and innovation, mainly from a configurational perspective (Laursen and Foss
2003). However, an important R&D management paper is to find a balance between the creative
drive that produces scientific knowledge and the economic imperatives of commercial markets
(Turpin and Deville 1995). This study contributes to this through its empirical testing of that
relationship and the effect of HRM both on innovation and performance using a configurational
perspective.
Our findings provide evidence of a positive relationship between HRM and innovation. As
predicted, the adoption of a set of certain HRM practices encourages innovation. We can
conclude that HRM can enhance the likelihood of innovation. As Mumford (2000) argues,
ultimately innovation depends on the generation of creative, new ideas and HRM can promote
creativity among employees.
The implications of this result for practitioners are clear. An organization hoping to enhance
performance through innovation should pay attention to its HRM practices. Particularly, it
should emphasize the implementation of a set of practices which enhance innovation, e.g.
flexibility in job definition, autonomy, employee participation, communication, teamwork,
training and use of polyvalence and organizational culture’s fit as criteria for selecting people,
employment security, broad career paths, systematic performance appraisals based on process
and group performance, attractive compensation package and variable rewards.
We also found support for the assumption that innovation affects firm’s performance. This
result is consistent with previous research (Damanpour and Evan 1984; Damanpour et al. 1989;
Wheelwright and Clark 1992; Brown and Eisenhard 1995; Bierly and Chakrabarti 1996; Hansen
et al. 1999; Roberts 1999; Schulz and Jobe 2001) and provides evidence of the importance of
innovation as a source of competitive advantage.
However, we did not find any significant relationship between HRM and performance. In our
opinion two reasons may explain this result. First, it is possible that HRM does not have a direct
effect on performance, but an indirect effect by developing those abilities and behaviours which
 The International Journal of Human Resource Management 1217

enhance innovation. Whether that is the case, there will be a lag effect in the relationship
between HRM and performance that this study can not analyse due to its cross-sectional design.
Besides this, some HRM practices used for fostering innovation can have a short-term negative
effect on productivity and efficiency. A second explanation for a lack of a significant
relationship between HRM and performance can be related to the measure of the HRM system
we used. We measured the proximity of the firm’s HRM system to an ideal HRM system for
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innovation, defined from the literature review. However, according to a contingent perspective,
other configurations of HRM practices are better when firms follow a cost or quality competitive
strategy.
Future research should overcome the limitations of this research, using a longitudinal design
and including strategy as a control variable. We also consider it very important to extend
the question examined in this study by applying a knowledge perspective (e.g. Grant 1996). The
relationship between HRM and innovation could be easily understood through organizational
learning concept, which shows how an employment system could generate new knowledge for
developing innovations. The introduction of this perspective lets us understand these innovative
organizations as knowledge-creating companies (Nonaka 1991), in which every employee is a
knowledge worker who could provide innovative ideas for the production process.

Acknowledgement
The authors gratefully acknowledge the financial support from CajaMurcia Foundation.

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