A Framework for Human Resource Management in the Knowledge Economy: Building Intellectual Capital and Innovative Capability

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Over the years, the business environment has grown increasingly complex and characterized by rapid technological advancements. Innovation is the critical enabler for organizational value creation and sustainable competitive advantage, and it is driven by a firm's capacity to manage its knowledge stocks or intellectual capital (Chen and Huang, 2009). An organization's capability to innovate either in an incremental or radical manner depends on its knowledge management capacity (Subramaniam and Youndt, 2005). Since the knowledge based view of the firm runs on the basic premise that knowledge resides in individuals, firms need to facilitate communication and exchange among individuals in order to gain new insights and capabilities (de Pablos, 2004; Nonaka and Takeuchi, 1995). Reference to people management literature is therefore crucial to understanding organizational knowledge dynamics. Since literature in the field of human resource management (HRM) is specifically concerned with the management of people in organizations, it is comprehensively explored in the context of knowledge management and organizational innovation. Hence, the question is 'how can a firm's human resource management strategy and practices be geared towards building its intellectual capital and innovative capability?' Much of the existing literature have established the important role of HRM in innovation performance, but few have explained 'how' it manages to do so (Kang, Morris and Snell, 2007). By converging studies on strategic HRM, organizational learning and knowledge management, and innovation, this paper aims to develop an integrated framework that captures how a firm's HRM strategy and practices can be utilized to drive organizational knowledge building, and enhance a firm's innovative capability.


This section reviews literature on organizational innovation, organizational learning, knowledge management, and human resource management due to their relevance in constructing the research framework.


Innovation refers to a planned and drastic change in an organization or its existing products and processes with the intention of gaining competitive advantage over competitors (Leede and Looise, 2005). Innovation is essentially about detecting opportunities and using them to create new products, services, or work practices (Van_deVen, 1986), which makes it an important enabler in a complex and rapidly changing environment (Subramaniam and Youndt, 2005). Firms with higher innovativeness tend to more successfully respond to changing environments and develop new capabilities (Montes, Moreno and Fernandez, 2004). Innovation comes in different forms, and the most established categories are product innovation, process innovation, and organizational innovation. While product innovation refers to the development of new products and services, process innovation involves new technologies in production or service, and finally, organizational innovation refers to the development of new organizational structures and management practices (Boer and During, 2001).

There is an assortment of definitions of innovation types in the literature, but they share a common theme which focuses on how knowledge is used to meet customer needs and create competitive advantages (Gloet and Terziovski, 2004). As innovation is basically about being able to identify and seize opportunities to create new products, services, or work practices (Van_deVen, 1986), the process of innovation is commonly equated with a continuous pursuit of new and unique knowledge (Nonaka and Takeuchi, 1995). There is a well-established theme within the innovation literature which emphasizes on how knowledge is crucial for firms to come up with new products, services, and processes in order to meet customer needs and create competitive advantages (Gloet and Terziovski, 2004). The unique and tacit knowledge of individuals is a fundamental source of innovation, making people the main agent of change in the business environment. …


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