A tale of two strategies: Framework for evaluating human resource management and innovation in Australia — Lessons for China

The aim of this paper is to explain the relationship between Human Resource Management (HRM) strategies and innovation. The paper systematically captures the impacts of HRM policies by Australian businesses in the form of organisational innovation, and consequently impacting on innovation and productivity. Two HRM strategies are identified as having operated in Australia over 40 years. One is a `soft' HRM strategy based on greater worker autonomy; a strategy which dominated in the 1970s and 1980s. The other is a `hard' HRM strategy based on routine worker performance measurement which has increasingly become more relevant since the 1990s and into the 21st Century as the basis for stronger competitive advantage. While recent research has found a positive relationship between HRM policies, organisational innovation, innovations and business performance, this study finds that while this was true in the 1980s and 1990s, it is not so in the 2000s. The core of the argument in this paper is that there is a positive relationship between HRM policies and organisational innovation only with the `soft' HRM strategy, while the `hard' strategy raises many questions about the ability to build significant innovation capacity. Also, the type of innovation capacity that is built in Australian businesses, that is, generally incremental and with only minor modifications, is examined in the context of both HRM strategies. The paper provides a framework of analysis that reframes the economics of innovation management using a unique `containment of structure and contingency of agency' spectrum to explain innovation-successful HRM practices. This approach accounts for both internal firm management policies and external-to-the-firm effects of government economic policies. For this reason, this approach provides a historical experience that links effective HRM strategy to building innovation capacity from both firm and government levels. The experience of Australia in being unable to manage the containment-contingency innovation spectrum should be a lesson for China as it manoeuvres towards becoming a strong innovation-driven economy.