Knowledge-based HR Practices and Innovation in SMEs

Abstract Background and purpose: Recent reviews of the human resource management (HRM) literature continue to position knowledge management and intellectual capital as the key determinants for competitiveness, productiveness and organizational performance. This article explores the nexus between knowledge-based HRM practices, knowledge management capacity, intellectual capital, product and process innovation in small and medium-sized enterprises (SMEs). Design/Methodology/Approach: Data were gleaned from 250 registered SMEs in Jordan using a simple random sampling technique. A covariance structural equation modelling (CB-SEM) was deployed in testing the proposed research model. Results: The findings cast light on the positive influence of knowledge-based HRM practice of SMEs on SMEs knowledge management capacity, intellectual capital and, product and process innovation. Similarly, knowledge management capacity SMEs exerts positive impact on their intellectual capital and, product and process innovation. Intellectual capital also emerges as a strong predictor for SMEs product and process innovation. Finally, a serial indirect effect (mediation) of knowledge management capacity and intellectual capital on the relationship between knowledge-based HRM practice of SMEs and, product and process innovation were revealed. Conclusion: Knowledge-based HRM practices and innovation have received vast amount of research attention, yet there is a lack of understanding on the process by which the former leads to the latter. Drawing on knowledge-based view (KBV) theory, this study is among the first attempts to unveil the structural process between knowledge-based HRM practices and innovation through knowledge management capacity and intellectual capital. This study theoretically validated the KBV framework in a non-Western context and demonstrate the importance of knowledge-based HRM practices for SMEs innovativeness. The findings do not only provide useful insights for managers and scholars, but also serve as the building block for future research.