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Procedia - Social and Behavioral Sciences 235 (2016) 797 – 806

12th International Strategic Management Conference, ISMC 2016, 28-30 October 2016, Antalya,
Turkey

The Effect of SHRM Practices on Innovation Performance: The

Mediating Role of Global Capabilities
Cemal Zehira , Ahmet Üzmezb , Hacer Yıldızc b
a,b,c
Yıldız Technical University, Istanbul, 34349, Turkey

Abstract

The relationship between strategic human resources management (SHRM) practices and innovation performance is one of the main
topics that has been examined recently. However, there are very few studies investigating the role of some specific capabilities which
an organization must have, on this relationships. For this reason, this study tries to figure out the mediator effect of global capabilities
on the relationship between SHRM practices and innovation performance. For this paper, data is collected through a questionnaire
from the managers of four Islamic Banks which are operating in Turkey. Analyzes are done by using SPSS statistics software and
AMOS program. According to the results, SHRM practices influence innovation performance in a positive way and global capabilities
have a mediator effect on this relationship.

©©2016
2016 The
TheAuthors. Published
Authors. by Elsevier
Published Ltd. This
by Elsevier Ltd. is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review
Peer-review under
under responsibility
responsibility of the organizing
of the organizing committeecommittee
of ISMC 2016.of ISMC 2016.

Keywords: SHRM Practices, Innovation Performance, Global Capability, Islamic Banking

1. Introduction

Together with constantly changing environment with increasing competition, human resources management has left
its place to strategic human resource management (SHRM) in order to achieve organizational integration. In this
direction, SHRM practices are situated within the organizations an increasing way. SHRM practices have an effect on
the organizational strategy while it has also been influenced by these strategies. This aspect of SHRM makes it one of
the key factors that affect the organizational performance. There has been some studies investigating the relationship
between SHRM and organizational performance in terms of productivity and financial performance (MacDuffie, 1995,
Pfeffer, 1998; Mendelson and Pillai, 1999). Also it has been suggested that there is a significant and positive way of
relationship between these dimensions with some other works (Delaney and Huselid, 1996; Huselid et al., 1997; Godard,
2004). Another factor that affecting organizational performance especially for global companies that are operating based

Corresponding author. Tel. + 90 532 549 96 11

Email address: uzmezahmet@gmail.com;

1877-0428 © 2016 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
Peer-review under responsibility of the organizing committee of ISMC 2016.
doi:10.1016/j.sbspro.2016.11.088
798 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 235 (2016) 797 – 806

on innovative products and services, is innovation performance of organizations as researched before (Cuneo and
Mairesse 1984; Lichtenberg and Siegel 1991, Scherer 1993, Griliches and Mairesse 1998, Wakelin 2001).

Capabilities consists of the resources that companies have and also which they are able to control. For this reason,
the ability to achieve a sustainable global competitive advantage, to react developments and changes that occur in global
scale and evaluate global opportunities on time forms global capabilities of a company. In addition to these studies, our
research suggests there is a relationship between global capabilities and SHRM practices and also global capabilities
have a mediator effect on the relationship between SHRM practices and innovation performance.

2. Literature Review and Hypotheses

2.1. Strategic Human Resources Management
Fundamental starting points of managerial transformation in the companies are rapid environmental change, complex
and rapidly changing economic conjuncture, globalization, gradually increasing competition in providing innovative
goods and service and transformation in the demand of investors and customers. Companies aim to improve their
performance in different ways such as improving the quality of goods and service, decreasing production cost or
producing such products that customers give a higher value than the other in the market in order to compete under the
neck and neck conditions. According to studies which conducted, another way to improve the performance of
organizations is the human resources applications which have been added to the process of strategic planning which is
generated by academicians together with people who practically implement this system in an organization (April Chang
& Chun Huang, 2005). According to Bowen and Ostroff (2004); a ‘strong HRM system can enhance organizational
performance owing to shared meanings in promotion of collective responses that are consistent with the organizational
strategic goals’. If HR systems are weak, HR practices will send messages that are ambiguous and subject to individual
interpretation leading to inconsistency of practice that can impact on employee performance (Bowen & Ostroff, 2004).

A significant transformation has been experienced in human resources with the aim of construct the relationship
between people who work on behalf of the shared values and organization. Otherwise it will be very difficult to compete
with the companies which are operating in an environment involving dynamic and wide knowledge (Laursen & Foss,
2003). Strategic human resources which has a gradually increasing importance has named differently over time, from
personnel management which is used before 1990s to human resources management (April Chang & Chun Huang,
2005). Human resources has some new privileges in order to provide a sustainable competitive advantage and to improve
the organizational performance. These privileges are strategic and have a direct contribution to achieve the target of
organization such as team based business design, flexible work force, activities for quality improvement, employee
empowerment. These are also considerably different from the functions of traditional human resources management like
education, recruitment and pricing (Huselid, Jackson, & Schuler, 1997). Strategic human resource management
influences the behaviors of employees and managers permanently in order to achieve the strategic aims of organization
(Boxall & Purcell, 2011).

Companies can develop the strategies that will provide them a competitive advantage based on ‘human’ resources.
In this context, according to the theoretical studies conducted by Barney (1991), whose studies are based on the resource-
based view, companies may develop strategies on the basis of their valuable, rare, inimitable and non-substitutable
competencies in a way that will lead to achieve a sustainable competitive advantage. There are many definitions for
strategic human resource management which has been developed according to the proposition of research-based view.
While Wright and Mcmahan (1992) emphasize its feature to allow the organization to reach its goals, Wright and Snell
(1991) give importance on getting a sustainable competitive advantage through the right evaluation of ‘human’ factor
before anything else, its power which enables the interaction between human resources and organizational strategies by
Ulrich and Lake (1991) and the significance of human resources together with its characteristics of hard to imitate, to
buy or sell directly by Bamberger and Meshoulam (2000). Besides, Shaw et al. (2013) state that organizations can
generate human resources pool together with the other applications such as education, sophisticated employee
recruitment, financial incentives and thus, probably gain high income by developing specific knowledge, competency
and abilities based on these features.

SHRM practices are important resources which provide organizations sustainable competitive advantage to achieve
the aims when considering the highlights of the definitions. Organizational performance however, is dependent on
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providing a competitive advantage, achieving strategic targets and developing innovative products and service. Hence
it can be said that there is a relationship between SHRM applications and organizational performance. Some studies
supported with empirical data denote that strategic human resources and SHRM practices influence the organizational
performance (Arthur, 1994; Huselid, 1995). Despite the fact that the studies mostly consider the dimension of
organizational performance based on financial performance or employee performance, this study examines innovation
performance which is affected by the relationship between SHRM and global capabilities. Human resources function
comes into prominence and leads employees in a way to achieve the organizational goals. Colins and Clark (2003) assert
that human resources function achieves targets by influencing the attitude, behavior, ability and competence of
employees. Thus it plays a critical role in activation of performing activities with an innovative thinking (Michie and
Sheehan, 1999, Scarbrough, 2003; Laursen and Foss, 2003; Tan and Nasurdin, 2011). In this paper, we propose SHRM
practices have a significant role on innovation performance together with the mediator effect of global capabilities.

2.2. Innovation Performance

The other variable in the research model is the innovation performance. Williams (1999) emphasizes the
characteristics of innovation that has a positive contribution on investigation and creation which results in new products,
systems or processes. Also in the centre of innovation which influence the organizational performance positively, there
is the idea of development and implementation of new ideas that they have a commercial potential (Laursen and Salter,
2006). Some other concepts have been emphasized later that organizations have expertise, intellectual capital and SHRM
practices in order to create more innovative products in the definitions of 2000s. According to Chen & Huang, innovation
is to develop organizational expertise together with human capital which companies have in order to produce new
products and service. Companies perform particular SHRM practices by providing organizational development to
achieve strategical targets such as improving innovation performance. Organizations explore the expertise and
knowledge that they have through these applications. Then they integrate their new capabilities into the production
process and in this way SHRM practices contribute innovative activities (Scarbrough, 2003).
On the other hand, innovation is defined by Shang and Shyu (2009) as the key element which strengthens the
competition strategies of companies. Companies make investments in big amounts for product and process innovation
which has positive contribution on organizational performance (Kumar and Nti 1998, Stock, Greis and Fischer 2001).
As mentioned, the effectiveness of SHRM practices influence innovation performance and innovation performance
influences organizational performance. In this sense, the investments are made for human resource and the human
resource practices can be considered as one of the applications to improve innovation performance.

There are few studies which examines the relationship between SHRM practices and innovation performance in the
literature with support of empirical data (Laursen & Foss, 2003). It has been figured out that SHRM practices have a
significant role for providing innovation performance in the few studies which examines the relationship mentioned
above (Mendelson and Pillai, 1999; Michie and Sheehan, 1999). The first research done by Laursen and Foss (2003)
analyze the relationship between innovation performance and strategic human resource management as integrated
structure with empirical data and the study asserts that strategic human resource applications positively influence the
innovation performance. Chen and Huang (2009) examine the mediating role of knowledge management capacity in the
relationship between strategic human resource applications and innovation performance. What this study highlights is
that SHRM practices influence knowledge management capacity positively and also this positive affect improves
innovation performance positively. Abuja and Katila (2001) examine the relationship between technological investments
and innovation performance. Laursen and Salter (2006) analyze the influence of open innovation model on innovation
performance and state that this model generates more innovative outcomes.

In today's knowledge-based economy in the world, innovation is a significant element for gaining competitive
advantage under rapidly changing and unstable environmental aspects (Chen and Jaw, 2009). Innovation forms one of
the core elements of strategy and performance studies together with knowledge and capabilities. Besides, there are just
a few empirical studies which aim to find out whether capabilities can form innovative organizations (Knight and
Çavusgil, 2004).

2.3. Global Capability

According to the resource-based theory, resources and capabilities of organizations determine their power in the
industry. Resources are current assets which organizations have and control while capabilities are ability to deploy the
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resources (Amit and Schoemaker, 1993). Resources generally, consist of tangible assets such as material and financial
assets, and also intangible assets like human capital and organizational capital. On the other hand, capabilities are assets
which cannot be traded, can be internalized by organizations and also which become a pattern during the activities
(Kogut and Zander, 1992). Organizations develop new products and processes with the capabilities mentioned above.
They try to sustain their competitive advantage by reacting the conditions of the global markets correctly (Chen and
Jaw, 2009). Besides, they develop new and innovative ideas with the capabilities they have through distinctive
management and organizational processes.

Global capabilities are the combination of the effective coordination of the connection and operation in organizations,
and of resources which gain competitive advantage in global scale (Dyer & Singh, 1998). Eisenhardt and Martin (2000)
state that global capabilities have two characteristic features. Firstly, global capabilities systematically enable to be
adapted according to the strategic conditions and competition conditions of the related country since in each country’s
conditions of competition is different. Secondly, internal and external resources are readjusted, integrated and reshaped
with the global capabilities of companies in order to catch the opportunities in global markets. Organizations have the
power in global relations as a result of these capabilities and coordinate their activities in accordance with the global
competition strategies. In other words, the capabilities which organizations have provide the power for competition in
global markets. Also global capabilities assist to the organizations in performing the competitive features such as
knowledge sharing and in effective cooperation with prominent suppliers in other countries (Lockstrom, 2011).

Global capabilities are addressed with different dimensions in these researches. For instance, Brock (2012) examines
the global capabilities under five different dimensions: market access, global management philosophy, global structure
and roles, development by leveraging capabilities and integration as a whole. Global capabilities are examined in this
study under four dimensions as Celucha et al., (2002) did; the success of global marketing strategies of companies, the
ability of production success in different countries, the level of service in global scale and the capability of international
strategy development.

According to the resource-based theory, organizations provide a competitive advantage by adapting their capabilities
and adjusting their resources in this direction in accordance with rapidly changing environmental conditions (Reuter et
al., 2011). Human capital comes to the fore for organizations which carry out these processes with their employees. In
this sense, organizations can develop their global capabilities by investing in their current human resource. One of the
elements of SHRM is to generate, to adapt and to develop the capabilities necessary for human resource strategy aligned
with organizations’ main strategy.

3. Methodology

3.1. Research goal

After the explanation of theoretical background, in this research, our aim is to look at the SHRM of participant banks in
Turkey to see whether SHRM applications have an effect on global capabilities and innovation performance. With this
aim we carried out a survey on managers of 4 participant banks operated in Turkey.

Turkey is a leading Country in its region with great potentials and eager in Islamic finance and banking with its
stakeholders, as corporate and state partners. Participation banks appear to have weathered the financial crisis more
resiliently and the development of the sector in Turkey, as well as around the world, gained momentum after the 2008
economic crisis. Due to the making asset-backed transactions (instead of the debtor creditor relationship), participation
banking has always been in the field of investment activity, and the spirit of partnerships based on risk sharing had a
positive impact on perceptions of the system. The sector’s market share in Turkish banking sector’s total assets, which
was 4.0% in 2009, reached to 5.2% by the end of 2014, with 25% average annual growth in its assets between 2009-
2014. According to “Turkish Participation Banking Strategy Document 2015 – 2025” the vision is to raise the market
share of participation banking sector in Turkey to 15% by 2025 and to deliver world-class financial products and services
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 235 (2016) 797 – 806 801

(TKBB, 2015) . In order to reach this vision participation banking needs SHRM applications and gloabal capabilities
and increase its innovative performance.

Information about research sample, measurement instrument and its reliabilities, correlations of variables are provided
below. Then, path analysis based on structural equation modeling was conducted to investigate research hypotheses.

3.2. Sample and Measures

Our research sample made up of 317 Islamic Bank managers in Turkey. Since 74,1 percent of the participants are under
30 and 65,3 percent have experience between 1-3 years in their companies, it is possible to say that we have a young
participant portfolio. 47,9 percent of the participants of the research is bottom level managers and 44,2 percent of the
participants is mid-level managers who, mostly, have bachelor’s degree. Majority of sample came from employees who
have 1-3 years’ experience and approximately 57 % of the participants work in headquarters of their organization (Table
1).

Table 1: Descriptives of Samples

Valid Valid
Frequency Frequency
Percent Percent

Operation 92 29,0 Senior Manager 25 7,9

Accounting
21 6,6 Mid-level Manager 140 44,2
/ Treasury Status

Department Human Bottom Level

20 6,3 152 47,9
Resources Manager

Sales and
117 36,9 Less than 30 235 74,1
Marketing
Other 67 21,1 Age 30-39 74 23,3

Headquarter 181 57,1 40 and more 8 2,5

Location District
33 10,4 High School 7 2,2
Office
Branch
103 32,5 Graduate 268 84,5
Office Education
Firm 1-3 207 65,3
Master /PhD 42 13,2
Experience 4-10 92 29,0

11 and more 18 5,7 Total 317 100

In this study we used the scale (6 items) of Acar and Zehir (2009) who verified the scale of Celuch et al. (2002) for
management capability. In measuring Strategic Human Resource Management, 13 items SHRM index modified and
used by Bartram et al (2007). All of these measures are Likert-type 5-point scales.

3.3. Instruments and Reliabilities

We conducted an EFA using Principal Component Analysis with Promax rotation to see if the observed variables loaded
together as expected, were adequately correlated, and met criteria of reliability. The KMO and Bartlett’s test for
sampling adequacy was significant (KMO; 0,907) and the communalities for each variable were sufficiently high, thus
802 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 235 (2016) 797 – 806

indicating the chosen variables were adequately correlated for a factor analysis. Factor loadings were considered to be
at least 0.5 (Hair et al. 2010). Variables 4, 5, 6 in SHRM measurement were dropped because of low factor loading.
Other variables are distributed under the proposed factor structure. We address each of these below for the final three-
factor model depicted in the pattern matrix below (Table 2).
Table 2: Factor Analysis
Factor Loading
Constructs Items
1 2 3
Innovation innovation_perf_1 ,735
Performance innovation_perf_2 ,758
innovation_perf_3 ,869
innovation_perf_4 ,818
innovation_perf_5 ,876
innovation_perf_6 ,831
innovation_perf_7 ,823
innovation_perf_8 ,834
Strategic SHRM_1 ,727
Human SHRM_2 ,758
Resource SHRM_3 ,729
Management SHRM_7 ,513
SHRM_8 ,506
SHRM_9 ,659
SHRM_10 ,686
SHRM_11 ,745
SHRM_12 ,737
SHRM_13 ,776
Global global_cap_1 ,711
Capabilities global_cap_2 ,878
global_cap_3 ,856
global_cap_4 ,880
Eigenvalues 10,421 2,718 1,986
Variance Explained 28,530 23,782 16,443
Notes;.. (i) Principal Component Analysis with Varimax Rotation
(ii) KMO =0,907, Bartlett Test; p<0.001
(iii) Total Variance Explained (%); 68,755

This seven-factor model had a total variance explained of 68,8%, with all extracted factors having eigenvalues above
1.0. The Cronbach’s alphas for the extracted factors are shown below, along with their labels and specification. All
alpha’s were above 0.70 (Table 3). This indicates that factors are reliable and internally consistent (Field, 2009).

Table 3: Correlations, Reliabilities and Descriptives

Construct 1 2 3 Mean Std. Dev.
1. SHRM 0,91 3,56 0,60
2. Innovation Performance ,534*** 0,95 3,53 0,78
*** ***
3. Global Capabilities ,485 ,550 0,92 3,34 0,79
***; Correlation is significant at the 0.001 level. Cronbach's Alpha is represented
in diagonals
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 235 (2016) 797 – 806 803

According to the results of the correlation analysis (Table 3), there is a positive and significant relationship among the
factor variables. Therefore, it can be asserted that research variables are significantly related to each other so they can
be interpreted.

3.4. Path Analysis and Results

Path analysis technic based on structural equation modeling was used in testing research hypotheses. These hypotheses
are given below;
H1; SHRM is positively related to firm global capabilities.
H2; Firm global capabilities are positively related to innovation performance.
H3; Firm global capabilities mediate the relationship between SHRM and innovation performance.

According to path analysis (Table 4), the paths leading to global capabilities from SHRM (B= 0,485; p<0,001) is
statistically significant. Additionally, global capabilities variable has a positive and significant effect on innovation
performance (B= 0,381; p<0,001). With respect to this findings H1 and H2 were supported.

Table 4: Hypothesis Tests

IV DV Indirect Effect
Models Global Innovation Confidence
Estimate
Capabilities Performance Intervals
Model 0,534***
SHRM
w/o Mediator (12,410)
Lower Upper
0,381***
Global Capabilities
Model (8,412)
with Mediator 0,485*** 0,349***
SHRM 0,185** 0,138 0,238
(10,900) (7,723)
R: 0,40 for Innovation Performance, 5000 Bootstrap Samples, %95 Con Int.
***p<0.001, **p<0.01, t-values represented in parentheses DV; Inno. Perf. Mediator; Global Cap.

We used both Baron and Kenny (1986) and Preacher and Hayes (2004) approaches for mediation analysis. In the first
model without mediator, SHRM has a positive and significant effect on innovation performance (B= 0,534; p<0,001).
When the mediator, global capabilities, included in the second model, it was observed that the effect of SHRM on
innovation performance not disappears but reduces (B= 0,349; p<0,001). According to Baron and Kenny (1986) global
capabilities variable is partially mediator. Mediation was also tested using 5000 bias corrected bootstrapping resamples
with %95 confidence interval in path model. Due to the presence of indirect effect in %95 CI, mediating effect was valid
(Preacher and Hayes, 2004). Therefore, H3 was supported and it is seen that global capabilities has mediating effect on
relationship between SHRM and firm innovation performance. Figure representing results of research is given below.
804 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 235 (2016) 797 – 806

Figure 1: Results of Hypothesis Testing

Based on these analysis, in this study three hypotheses were developed. The first hypothesis states that there is a positive
relationship between SHRM and innovation performance. The second hypothesis states that there is a positive
relationship between global capabilities and SHRM. Finally the third hypothesis states that global capabilities play a
mediator role on the relationship between innovation performance and SHRM.

4. Discussion and Conclusion

Organizational performance depends on many factors such as efficiency, financial performance, employee performance
and innovation performance. Higher scores of these factors indicate higher organizational performance. According to
the studies made in the strategy and organization field, SHRM is one the factors that used in determining the performance
of organizations. Also SHRM practices contribute to the development of global capabilities of organizations. Depending
on the analyses results these three hypotheses are supported. Participation banks in Turkey can increase innovation
performance by means of SHRM practices. Research findings of this study supports previous studies in the field such
as Delaney and Huselid (1996), Huselid et al. (1997), Godard (2004). Furthermore, participation banks can develop
global capabilities with SHRM practices and these global capabilities help them to increase innovation performance. As
a practical projection, we can say that the development of SHRM practices of participation banks in Turkey will improve
their global capabilities. Hence they will increase innovation performance by means of SHRM and global capabilities.

In this research, participation banking may be influential to achieve these results, because participation banking is a new
field when compared to overall banking sector. In another saying, participation banking may have given more weight to
the SHRM practices in order to ensure superiority over its competitors. In addition, in order to achieve 2025 vision of
raising the market share of participation banking sector in Turkey to 15% by 2025 and to deliver world-class financial
products and services, participation banks have to put more emphasis on SHRM applications and develop their global
capabilities, hence increase their innovation performance. On the other hand, global financial institutions might want to
expand their share in participation banking sector in Turkey. Thus, they might cooperate with current participants in
Turkey or they might offer merger and acqusitions propositions to the participants. In either case, participation banks
have to prepare themselves to these kind of cooperations or offers by applying SHRM applications and by developing
global capabilities. Doing so they can also increase their innovative performance.
Also 3 of the 4 participation banks used in the sample are international banks and this may have affected the development
of global capabilities. Like many other studies this study also has some limitations.
 Cemal Zehir et al. / Procedia - Social and Behavioral Sciences 235 (2016) 797 – 806 805

First of all, only innovation performance was used to measure organizational performance. Also due to time and financial
limitations innovation performance was measured depending on the perceptions of participants. For further researches,
we suggest researcher in this field to use other performance measures in addition to the innovation performance such as
financial performance, efficiency and employee performance. Also, for generalizability of the results in the finance
sector, research survey can be applied to overall banking sector rather than focusing on only participation banks.

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