Abstract: The business environment is experiencing rapid advancements in technology which are driven by firms' capacity to innovate. Firms depend on their innovative capabilities to gain competitive advantage. Innovation is driven by knowledge in organizations, and knowledge resides in individuals. Knowledge needs to be effectively acquired, shared, and applied for the benefit of organizations. Hence, the issue is on how to facilitate knowledge exchange among organizational members in order to help build an organization's innovative capability. The purpose of this paper is to propose a framework capturing how a firm's people management strategies influence organizational learning and the firm's capacity for knowledge management. The framework also captures how a firm's knowledge management capacity positively relates to its intellectual capital, which in turn has a positive influence on its innovative capability.
Keywords: Innovative capability, intellectual capital, knowledge management, strategic HRM
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 knowledgebased 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 thenrelevance 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 (VandeVen, 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). …