HRM practices for human and social capital development: effects on innovation capabilities

Abstract

This paper analyzes the effect of systems of human resource management (HRM) practices on a company's innovation capabilities. To date, few studies have analyzed the way a firm may be more innovative by using specific sets of high-performance HRM practices from an intellectual capital-based view of the firm. From an extensive literature review, a model was established and tested through structural equation modelling, using the statistical technique of partial least squares. The study was applied to a sample of technological firms in Spain and the results show that high-profile personal HRM practices positively influence human capital while collaborative HRM practices influence social capital, which, in turn, affect innovation capabilities by means of, respectively, total and partial mediating effects. Managerial and HRM implications of these results are drawn by the authors, highlighting the idea of paying increased attention to managing firms with a focus on strategic intangible assets in order to gain competitive advantages based on innovation.

Keywords::

• HRM practices
• human capital
• innovation capabilities
• mediating effects
• partial least squares
• social capital
• Spain

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

^1. Youndt et al's (2004) study, applied in 208 organizations from multiple industries, found that HRM investments in firms with high profiles in human and social capital were higher than in companies with high profiles in organizational capital. This is possibly because building organizational capital has less to do with investments to build dynamic personal and collaborative knowledge for the firm and is more related to investments for the generation of structural knowledge instead for which investments in IT systems for knowledge codification can be more needed (Reed et al., 2009).

^2. The literature on HRM refers to HPWSs as a group of separate although interconnected HR practices designed to improve employees' skills and effort (Takeuchi et al., 2007). In this paper we prefer to use the term ‘HRM systems’ to make reference to specific and interrelated HRM practices that are theoretically linked to either human or social capital.

^3. We adopt this perspective rather than considering an entire general bundle of HRM practices that affect both human and social capital simultaneously. Although certain personal high-profile HRM practices may impact upon social exchange – for instance, selective recruitment and rigorous staffing practices may serve to attract employees who hold similar values and expectations (Takeuchi et al., 2007) – this paper adopts the posture of highlighting the use of specific practices as they are more oriented toward build either human or social capital. For social capital, collaborative HRM practices will especially be focused on building relationships between employees or between employees and external agents (e.g. suppliers and clients), and high-profile personal HRM systems will be especially oriented towards the development and improvement of knowledge, skills and the abilities of individuals.

^4. This is a database which includes financial and economic data from the financial reports of Spanish and Portuguese companies (Iberian accounting reports system).

^5. See appendix for these subjective measures. Product innovation corresponds to items 1 and 2 of the innovation capability measure, and process innovation to items 3 and 4.

^6. Two items in each scale (high-profile personal HRM system and collaborative HRM system) were removed (they are marked with an asterisk in the appendix section) from the original measure after carrying out an explorative factor analysis (EFA), considering the total items of both constructs (15). For the EFA, these four items presented an erratic behavior as they loaded in a different factor from the rest of the items, which loaded as expected either in a first factor for the high-personal HRM system or a second factor for the collaborative HRM system.

^7. Control variables of size (log of number of employees as an average of the last 3 years) and age (log of number of years from the firm's foundation) were previously added to the model, as they are variables which typically affect innovation. As non-significant effects were found for both variables, we removed them for the final model in order to offer further clarity.

^8. It is important to point out that HC and collaborative HRM systems are strongly correlated. This is an unexpected result of the study a priori. Conceptually, the practices contained in the collaborative HRM system can play an important role for HC development, as collaboration and knowledge exchange involve people learning and developing. Nevertheless, this paper has adopted the conceptual posture of highlighting the use of specific practices as they are more oriented toward building either human (practices trying to develop and improve knowledge, skills and abilities of individuals) or social capital (through the enactment of relationships among employees or between employees and external agents).