Small and Medium Enterprises (SMEs) have been recognized one of the instruments of growth in many countries (Abdullah, 1999; Danis et. al., 2006; Johan, 2007). Hence, human resources support has slowly but surely become the most important factor in contributing to the competitive advantage and way to enhance the organization status of human resources management (Mc Williams et al. 2002) as well as organization performance it merits further study to examine the level of effectiveness of human resources management because it plays an important role to stimulate the innovation for a systemic and long-term approach in sustainable organizations.
An effective formulation of organization performance is vital in order to understand the commitment of any company's policy on innovation and human resources practices. There is not only a significant need to reduce employee turnover but also to increase the business competitive advantage. Therefore, SMEs need to use human resources intensively in any large organization in their innovation process (Kaufmann and Tödtling, 2002) with a tailored remuneration for the 'retain' and 'retrain' approach which is strongly linked to the innovative potential.
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Alongside, the company's policy on innovation is the particular requirement of SMEs to focus on the main resources of the company and how to manage, motivate and reward employees at the right time to enhance the competitive advantage (Gupta and Singhal 1993). With these practices, it can also encourage SMEs to think, create and explore new things and be risk takers.
1.1 Purpose and Significance of the Study
This study is conducted hopefully to help Malaysian SME to have a good understanding of the human resources innovation necessary to be adopted in their businesses in order to gain a competitive position and sustainability globally. Also, this research study is to determine the factors influencing SMEs human resources directly or indirectly towards innovation and how they can provide the best ways in order to sustain organization performance in a long run. Moreover, this study will hopefully be considered as a useful guide and reference for SMEs management and human resources policy implementation.
From previous empirical research findings it has been found that an integrated bundle of human resources practices has improved organization performance. These include the rewards or incentive compensation of employees which has led to the success for organization performance management as suggested by Hoque (1999). Through human resources practices such as employee development programme (EDP) in the form of training, performance evaluation (Bowen et al., 2002), selective hiring, organization work, sharing information, job securing and social activities as well as sports they have been strongly supported and developed for business success (Hoque, 1999; Huang 2001).
Hence, the researcher intends to examine the level of acceptance and adaption of human resources innovation practices in the context of factors influencing in SMEs' performance in Malaysia. For past literature reviews measurement scale of human resources management practices has been cited in the research wrote by Geringer et al. (2002). There are 75 items in the scale measuring attitudes towards Human Resources Innovation in terms of hiring practices, training and development practices, performance evaluation (i.e. performance appraisal), incentive compensation, and overall Human Resources assessment.
1.2 Research Questions
This research study aims to examine the factors influencing human resources innovation in SMEs in Malaysia and whether the HR practices can lead them to a competitive advantage in organization performance. Up to the present day there have been only a few scholars who have examined the relationship between human resources management and organization performance. Without the vital contribution of human resources, there would not be any product or service innovation and process innovation in the existing practices by SMEs in Malaysia.
With this premise in mind, the researcher has done a research study to address the following research questions:
What SME Human Resources Innovation factors have an effect on organization performance in Malaysia?
Do incentive compensation and training in the SME industry strongly affect human resources innovation directly?
What is the impact of selective hiring and performance evaluation on organization performance?
What is the individual relationship between sharing information, job securing and social activities on organization performance?
Does organization work contribute the most influence to SME performance through human resources innovation?
1.3 Research Objectives
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Based on the scenario presented above, human resources practices could play an important role in SMEs (Small and Medium Enterprises) in Malaysia and form a strong backbone for business development - "What are these factors influencing human resources innovation?" The research objectives are:
To identify factors of SME human resources innovation which have a strong effect on organization performance in Malaysia;
To determine whether incentive compensation or training strongly affect human resources innovation directly;
To determine the impact of selective hiring and performance evaluation on organization performance;
To determine the individual relationship between sharing information, job securing and social activities on organization performance;
To examine whether organization work contribute the most influence to SME performance through human resources innovation.
1.4 Scope of the Study
The scope of the research study is limited to the 100 out of 548,267 SMEs registered in country. Hence, the findings and conclusions drawn from the research studies are only representative of SMEs in Malaysia. Also, the present available research studies have not encompassed all related human resources practices. There is insufficient evidence for the current study to have absolute accessibility (Hassan, 2010).
1.5 Organization of the Study
The organization of this research study is to focus on the responses to the questions and objectives that highlighted the linkage between internal resources such as human resources practices e.g. incentive compensation, training, selective hiring, performance evaluation, organization work, sharing information, job securing, social activities and sports. (i.e. independent variables); company policy on innovation (i.e. mediator variable) and organization performance (i.e. dependent variable). Various studies on implementation of human resources policies and practices through selective recruitment, training, incentive compensation, job evaluation and so on have shown a strong relationship towards organization performance as the sources of competitive advantage (Ordonez de Pablos & Lytras, 2008; Collin, 2007; Chew & Basu, 2005; Khandekar & Sharma, 2005). Based on these studies, the researcher has done this study to show the SMEs' participation of human capital transformation and human resources development. They are ways of productivity-driven growth and also how to retain talented in their companies people which are emphasized recently by the Malaysian government.
This research study is divided into five chapters. Chapter 1 provides the introduction, purpose and significance of the study, research questions, research objectives, scope of the study, organization of the study and conclusion for human resources innovation in SMEs in Malaysia. Chapter 2 gives literature review on the theme with specific targeting on the factors that impact on the SMEs in Malaysia in research study by the use of the three major variables such as human resources practices (independent variables); company's policy on innovation (mediator variable) and organization performance (dependent variable) as the theoretical conceptual framework. As for the research questions and hypotheses there were developed with an overview of testing 100 respondents' awareness of SMEs Malaysia in the scenario. Chapter 3 outlines the research methodology, development of hypotheses, selection of measures, sampling design, data collection procedure and data analysis techniques used in this study. All the results and findings of the statistical analyses are presented and interpreted in Chapter 4. Finally, Chapter 5 presents the conclusion and recommendations for this research study including the limitation of the study, implication and some suggestions for future research.
This chapter discusses the introduction of the study, the purpose and significance of the study, the research questions, the research objectives, the scope of the research and the organization of the study. However, Chapter 2 will discuss the literature review of human resources practices that can have significant relationship between the company's policy on innovation and the resultant overall organization performance.
Fig. 1 Conceptual Framework on Factors Influencing Human Resources Innovation (designed by Heng Chen Wearn, 2011)