Relationship between innovation‐led HR policy, strategy, and firm performance: A serial mediation investigation

• Author: Pawan S. Budhwar,Charmi Patel,Hoa Do
• Date: 01 September 2018
• DOI: http://doi.org/10.1002/hrm.21903
• Published date: 01 September 2018

ORIGINAL ARTICLE

Relationship between innovation-led HR policy, strategy, and

firm performance: A serial mediation investigation

Hoa Do

1

| Pawan S. Budhwar

2

| Charmi Patel

3

1

Faculty of Business Administration, Ton Duc

Thang University, Ho Chi Minh city, Vietnam

2

Aston Business School, Birmingham, United

Kingdom

3

Henley Business School, University of

Reading, Greenlands, Henley-on-Thames,

United Kingdom

Correspondence

Hoa Do, Faculty of Business Administration,

Ton Duc Thang University, 19 Nguyen Huu

Tho Street, Tan Phong ward, District 7, Ho

Chi Minh city, Vietnam.

Email: dovanhoa@tdt.edu.vn

This research examines the relationship between innovation-led strategy and innovation-led

HR policy (hereafter, management initiatives) and innovation performance. Our research model

is theorized and tested in the Vietnamese context, based on the servant leadership theory and

componential theory of creativity. We draw upon constructs of management initiatives, servant

leadership, employee creativity, and firm innovation to hypothesize serial mediation mecha-

nisms linking management initiatives to firm performance. Using a multilevel sample of 56 ser-

vice firms, we conduct multilevel path analyses. We find that (a) individual-level servant

leadership mediates the top-down relationship between management initiatives and employee

creativity, (b) employee creativity mediates the bottom-up relationship between individual-level

servant leadership and firm-level innovation, and (c) firm-level innovation mediates the bottom-

up relationship between employee creativity and firm-level market performance. We conclude

by discussing both theoretical and practical implications.

KEYWORDS

componential theory of creativity, employee creativity, innovation, innovation strategy

execution, innovation-led HR policy, management initiatives, servant leadership theory

1|INTRODUCTION

Innovation has been construed as “a cure-all medicine for all kinds of

issues that firms face—including ensuring profitability, revenue

growth, loyal customer base, and increased efficiency”(Adner, 2012,

p. 159). Accordingly, management scholars advocate that innovation

has been an important source of competitive advantage (Prajogo &

Ahmed, 2006; Tushman, Anderson, & O'Reilly, 1997). This is because

innovations in products or services are believed to be necessary if an

organization must succeed in today's turbulent market (Adner, 2012).

Drawing upon this logic, we argue that innovation is a must for orga-

nizations to advance their manufacturing and service delivery to

achieve superior performance in order to deal with turbulence in the

external environment (Jiménez-Jiménez & Sanz-Valle, 2011). How-

ever, it is noteworthy that success in innovation is influenced by dif-

ferent factors such as leadership style, organizational learning,

organizational structure, human capital, work environment, and the

like (Gumusluoglu & Ilsev, 2009; Jung, Chow, & Wu, 2003; Lorenz &

Valeyre, 2005). Of these, people are considered as one of the central

ingredients in contributing to firm success (Prajogo & Ahmed, 2006).

The reason behind this philosophy is that as innovation is “essentially

about converting ideas into something profitable, encouragement to

supply ideas needs to be substantial in order to channel the creative

ability of the employees to convert ideas into innovations”(Prajogo &

Ahmed, 2006, p. 502). These authors further suggest that firms

should foster innovation by building and retaining a favorable envi-

ronment for creativity and idea production (Prajogo & Ahmed, 2006).

As such, we argue that innovation-led strategy and innovation-

led HR policy are central to the practices of managing the human fac-

tors of innovation (see Prajogo & Ahmed, 2006). Firms need innova-

tion strategies to achieve successful innovation outcomes. For

example, Nortel Networks' failure to recover after the 2000 crisis

was ascribed to the company's lack of direction and innovation

(R. G. Cooper & Edgett, 2010). Also, adoption of innovation-focused

HR policy is an important element of organizational design. For exam-

ple, such policy facilitates a culture that is supportive of risk taking

and innovation (France, Leahy, & Parsons, 2009). Thus, innovation-

focused HR policy is essential to the achievement of organizational

innovation strategies. It is for this reason that the focus of

innovation-led strategy and innovation-led HR policy is on the

DOI: 10.1002/hrm.21903

Hum Resour Manage. 2018;57:1271–1284. wileyonlinelibrary.com/journal/hrm © 2018 Wiley Periodicals, Inc. 1271