Abstract:
In the modern business world, organisations are confronting a severe competitive and
unceasingly changing condition. In this context, innovation has gained significant
popularity in management and entrepreneurship literature as vital in reaping
competitive advantage. Thus, organisational practitioners are in the quest to better
encourage and organise innovation within their firms to warrant sustainable competitive
advantage. However, how to promote innovation within organisations remains obscure
and paradoxical. The past literature shows that human resource management practices
are the antecedents of firm innovation. Therefore, studies are investigating the role of
human resource management in facilitating firm innovation. Nevertheless, empirical
evidence remains inconsistent, and theory is fragmented. Notably, the link between
human resource management and innovation in Sri Lanka echoes several unresolved
aspects. Since scant empirical research has addressed those relationships in developing
country contexts, this study explicitly investigates the relationship between human
resource management practices and firm innovation in Sri Lankan SMEs. Data were
marshalled through a self-reported questionnaire with 214 Sri Lankan SMEs. As a caveat,
the reliability and validity of the variables were confirmed. The hypotheses were tested
with statistical software, PLS-SEM (Partial Least Squares Structural Equation Modeling).
The study revealed that recruitment and selection, training and development, and
performance appraisal significantly impact firm innovation. However, compensation and
reward systems positively impact product innovation, not process innovation, and this
study found a negative impact of compensation and reward systems on administrative
innovation. The study contributed to the extant human resource management and
innovation literature in many ways discussed at the end of the paper. On an equal
footing, practical implications for HR managers, practitioners and employees were lucidly
discussed. The present becomes a springboard for future scholarly works.
