Volume 25 Issue 1 Article 2 March 2023 A Literature Review of HRM Systems and Firm Innovation A Literature Review of HRM Systems and Firm Innovation Yang Zhang Indiana University Southeast, School of Business, New Albany, USA, yz152@ius.edu Follow this and additional works at: https://www.ebrjournal.net/home Part of the Human Resources Management Commons Recommended Citation Recommended Citation Zhang, Y. (2023). A Literature Review of HRM Systems and Firm Innovation. Economic and Business Review, 25(1), 11-23. https://doi.org/10.15458/2335-4216.1315 This Original Article is brought to you for free and open access by Economic and Business Review. It has been accepted for inclusion in Economic and Business Review by an authorized editor of Economic and Business Review. ORIGINAL ARTICLE A Literature Review of HRM Systems and Firm Innovation Yang Zhang Indiana University Southeast, School of Business, New Albany, USA Abstract Background and objective: This paper integrated different theoretical perspectives and investigated how, when, and why human resource management (HRM) systems inuence different types of rm innovation. Moreover, this paper presented the current dilemma and future research directions in the eld of HRM systems and rm innovation. Methods: A thorough literature review. Results: In the HRM system perspective, there are three main types of rm innovation: innovation in products or services, innovation in processes, and innovation in people and organizations. Empirically, researchers have considered organizational capacity, capital, and climate both as moderators and mediators to explain the relationship between HRM systems and different types of rm innovation. Conclusions: After a thorough literature review, the author suggested some insightful future research directions. For example, more HRM research is needed for the elds of innovation in processes and innovation in people and organization. Contribution/value: This paper provides a neat and organized review of rm innovation from the HRM view. It claries what has been done and what needs to be done. For example, future HRM researchers may explore that if organizational capacity, capital, and climate should be moderators or mediators or both in the relationships between HRM systems and different types of rm innovation. Keywords: Human resources, HRM systems, Firm innovation, Literature review JEL classication: O15, O31, O32 Introduction H uman resource management (HRM) integrates rm micro- and macro-resources. Markoulli et al. (2017) reviewed and identied future research directions in different HRM clusters. One of their main suggestions was to study the strategic role of HRM and how HRM connects with rm innova- tive behaviors, innovation capability, and innovative strategy. Similarly, Bailey et al. (2018) and Jackson et al. (2014) called for more papers to systematically review and test relationships between HRM and rm innovation. Following these directions, researchers have written review papers, theoretical papers, em- pirical papers, book chapters, and case studies about HRM and rm innovation. Despite the relatively small numbers of review papers, researchers have Received 20 September 2021; accepted 21 December 2021. Available online 1 March 2023 E-mail address: yz152@ius.edu (Y. Zhang). reviewed HRM and rm innovation with different foci. For example, Trivedi and Srivastava (2021) applied knowledge management theories and sug- gested a theoretical framework that HRM systems inuence innovation performance through knowl- edge management processes. Sharma and Sharma (2018) reviewed 30 research papers and suggest positive relationships between HRM systems and organizational innovation. Easa and El Orra (2021) conducted a content analysis with 31 peer-reviewed articles and found a solid association between HRM systems and product innovation. They recommended future researchers to include more papers and explore the relationship between HRM systems and process innovation. Given its importance and existing literature, the eld of HRM systems and innovation can be https://doi.org/10.15458/2335-4216.1315 2335-4216/© 2023 School of Economics and Business University of Ljubljana. This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/ licenses/by-nc-nd/4.0/). 12 ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 developed from the following perspectives: 1) Re- view the general literature of innovation and identify the innovation taxonomy that applies specically to HRM; 2) Conduct a literature review with a larger number of papers; 3) Review the literature of HRM and consider different types of innovation (innova- tion taxonomy); 4) Examine the mechanisms and contexts for relationships between HRM systems and rm innovation; 5) Present more future research directions. In this paper, I briey reviewed rm innovation across disciplines and extracted the categorization re- sults from some major meta-analysis studies of rm innovation in different academic elds. With these in- sights, I provided an in-depth review between human resource management (HRM) systems and rm in- novation by exploring the following questions: What are the main supporting theories that explain the relationships between HRM systems and rm in- novation? Which categories of rm innovation do HRM systems have effect on? What are the mediators and moderators that explain how and when HRM systems inuence different categories of rm innova- tion? What are future research directions in the eld of HRM systems and rm innovation? This paper contributed to the literature in the fol- lowing ways: 1) It identied that the resource-based view, dynamic capabilities, behavioral view of rms, organizational learning theory, social exchange the- ory, motivation theory, and strategic human resource management are major theories that researchers used when studying HRM systems and rm innovation; 2) It classied three categories of innovation from the HRM perspective—innovation in people and organi- zations, innovation in processes, and innovation in products or services; 3) It presented mediators (i.e. organizational capacity and organizational climate) and moderators (i.e. organizational strategy and or- ganizational capital) that researchers used in the eld of HRM systems and rm innovation; and 4) It sug- gested ve themes of future research directions for researchers who are interested in HRM systems and rm innovation. 1 Firm innovation in literature A classic denition of rm innovation is given by Knight (1967). He reviewed innovation from the psy- chological, economic and sociological perspectives, and dened rm innovation as “the adoption of a change which is new to an organization and to the rel- evant environment (p. 478).” Moreover, Knight (1967) suggested that rm innovation can be categorized by functional differences and the degree of radicalness. The four functional types of rm innovation include: product or service innovation, production process in- novation, organizational structural innovation, and people innovation. For degree of radicalness, Knight (1967) identied two aspects: performance radical- ness and structural radicalness. Both indicate the degree of changes an innovation would bring com- pared to the existing approach. Based on the study purposes, researchers might use innovation as a uni- dimensional construct (Calantone et al., 2010; Wang et al., 2015). Meta-analysis studies provide a robust picture of research progresses for a specic topic. Table 1 pre- sented the categories and denitions of rm inno- vation from some highly inuential meta-analysis papers of rm innovation. As shown in Table 1, rm innovation can be categorized roughly as product or service innovation, production process innova- tion, administrative innovation, technical innovation, radical innovation, incremental innovation, innova- tion orientation, and innovation capability. Among these types of rm innovation, product or service innovation and production process innovation are studied most. As Knight (1967) pointed out, the cat- egorizations of rm innovation are overlapped and interrelated. For example, both administrative inno- vation and technical innovation are related with the organizational structure and decision-making process within an organization (Damanpour, 1991). These two dimensions of innovation are highly overlapped with process innovation, organizational structure in- novation, and people innovation (Knight, 1967). The overlapping constructs of rm innovation can be due to intrinsic and internal dependence of dif- ferent types of innovation (Sarooghi et al., 2015). For example, innovation in the production process may result from an innovation in organizational structure. Other than conceptual similarities of rm innova- tion categories, divergence comes from researchers’ different theoretical backgrounds. In the literature, rm innovation has been studied in strategy (Li et al., 2015; Ma Prieto & Pilar Perez-Santana, 2014; Yanadori & Marler, 2006), human resource management (Chow & Liu, 2009; Zhang & Li, 2009), entrepreneurship (Chandler et al., 2000; Rosli & Mahmood, 2013; Zhang et al., 2016), operations management (Hoang et al., 2006; Perdomo-Ortiz et al., 2009; Sadikoglu & Ze- hir, 2010), marketing (Stock & Zacharias, 2011; van der Borgh & Schepers, 2018; Wei & Atuahene-Gima, 2009), organizational behavior (Bhatnagar, 2014; Popa et al., 2017; Sharirad & Ataei, 2012), and knowledge management (Donate & de Pablo, 2015; Özba˘ g et al., 2013; Yang, 2010). To enhance the eld specic understanding of rm innovation, I applied insights from the general ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 13 Table 1. Categories and denitions of rm innovation from several inuential meta-analysis papers of rm innovation. Product or Service Innovation new products or services introduced to meet an external user or market need Damanpour (1991) the development of new products or services aimed at answering a market need and increasing the rm’s power Camison-Zornoza et al. (2004) the introduction of a new product to the marketplace Vincent et al. (2004) new products or services that are internally developed or externally purchased to meet user needs Lee and Xia (2006) innovation primarily involved a product/service Bowen et al. (2010) novel products or services that are introduced into the market to meet customer needs Sarooghi et al. (2015) the development of new or enhanced offerings that involves the rm’s performance of a task/activity intended to benet customers and rm economic performance Storey et al. (2016) the introduction of new products or services to meet external market or user needs Rousseau et al. (2016) Production Process Innovation new elements introduced into an organization’s production or service operation Damanpour (1991) new elements, equipment or methods introduced into the rm’s production system to develop a product or service Camison-Zornoza et al. (2004) new elements that are brought into an organization’s production or service operations Vincent et al. (2004) new business processes that organizations use to generate products and/or deliver services Lee and Xia (2006) innovation primarily involved a product/service process Bowen et al. (2010) innovation in process Rosenbusch et al. (2011) the development of new products Evanschitzky et al. (2012) deliberate and new organizational attempts to change intra-company production and service processes to make them more efcient Sarooghi et al. (2015) the introduction of new elements such as systems, equipment, materials, information, and work practices used to produce a product or service Rousseau et al. (2016) Administrative Innovation innovation in organizational structure and administrative processes Damanpour (1991) innovation in the coordination and control of the rm, the structure and management of the organization, the administrative processes, and human resources Camison-Zornoza et al. (2004) innovation that occurs in the social system, or the relationships among people who interact to accomplish a particular goal, of an organization Vincent et al. (2004) Technical Innovation innovation in products, services, and production process technology Damanpour (1991) innovation in productive process and is closely linked with the core activity of the organization Camison-Zornoza et al. (2004) innovation that occurs in the technical system of an organization and is directly related to the primary work activity of the organization Vincent et al. (2004) Radical Innovation innovation that produces fundamental changes in the activities of an organization and represents clear departures from existing practices, and variation and routine Damanpour (1991) fundamental changes in the activities of an organization or industry with respect to current practices Camison-Zornoza et al. (2004) fundamentally change the activities of an organization and represent clear departures from the previous way of conducting business Vincent et al. (2004) innovation that challenges existing approaches Mueller et al. (2013) innovation that generates fundamental and exploratory changes Chang et al. (2014) Incremental Innovation innovation that results in little departure from existing practices Damanpour (1991) changes that enhance the capacities already present in the organization and have a low degree of departure from existing practices Camison-Zornoza et al. (2004) innovations that do not cause signicant departure from the status quo Vincent et al. (2004) innovation that builds on improvements and renements of current skills and processes Mueller et al. (2013) innovation that generates exploitative changes Chang et al. (2014) Innovation Orientation the tendency to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services, technological processes Rosenbusch et al. (2011) Innovation Capability (Innovativeness) the rate of innovation adoption and the willingness to change Calantone et al. (2002) literature of rm innovation and only examined rm innovation from the human resource management theoretical and empirical perspectives. In the fol- lowing sections, I identied the main theories that support the relationships between HRM systems and rm innovation, three categories of rm innovation that HRM researchers have explored on, mediators and moderators that explain how and when HRM 14 ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 systems inuence rm innovation, and the current gaps and future research directions in the specic eld of HRM systems and rm innovation. 2 Human resources management systems and rm innovation Firms have three main types of resources: physi- cal capital resources, organizational capital resources, and human capital resources (Barney, 1991). Hu- man resource management refers to the management planning, strategy, investment, and practices of rm human capital resources, which include employees’ knowledge, skills, and abilities (Crook et al., 2011). Traditional human resource management researchers focused mainly on the inuence of individual hu- man resource practices. About two decades later, researchers began to hold a strategic view of human resource management and explored how human re- source congurations facilitated rm strategic goals. At this point, researchers shifted their attention from the impact of individual HR practices to the ef- fectiveness of human resource practice bundles or systems (Jiang et al., 2012). A HRM system includes at least three individual HR practices (Posthuma et al., 2013). A main goal of current human resource man- agement researchers is to continuously explore the relationship between human resource management and rm innovation (Bailey et al., 2018; Jackson et al., 2014). To contribute to this goal, I conducted a thor- ough review of the literature from different databases: Core, Directory of Open Access Journals, EBSCO, Emerald Insight, Google Scholar, JSTOR, ProQuest, SAGE, Science Direct, Social Science and Research Network, Springer Link, Taylor & Francis Online, and Wiley. The searching keywords for rm innovation in- cluded “innovate,” “innovation,” “innovative,” “in- novativeness,” “new product,” and “new process.” The searching keyword for human resource manage- ment systems included “human resource,” “high per- formance work systems,” “high involvement work systems,” “high commitment work systems,” “HR,” “HPWS,” “HIWS,” and “HCWS.” In total, I found 105 quantitative empirical papers, 31 qualitative empiri- cal papers, 38 literature review and case studies, and 10 editorial letters and book chapters. Key support- ing theories came directly from these papers. Firm innovation categories from the HRM systems view (Table 2) integrated insights from the meta-analysis studies of rm innovation across disciplines and the direct inputs from the selected papers. Mediator and moderator categories (Table 3 and Table 4) shared similar situations. For future research directions, I re- ferred to what the selected papers suggested and my reections from writing this literature review. Table 2. Categorizations of rm innovation in HRM systems studies. Innovation in People and Organizations Current exploration strategy (Ko & Ma, 2019) Exploitation (Para-González et al., 2018) Exploration (Para-González et al., 2018) Innovation (Razouk, 2011) Innovation orientation of strategy (Stock & Zacharias, 2011) Innovation strategy (Jimenez-Jimenez & Sanz-Valle, 2005; Zhang & Li, 2009 Innovation: New clients (Fu, 2015) Innovative climate (Kang, 2015) Innovative culture (Song et al., 2019) Innovativeness (Collins, 2000) Marketing Innovation (Ceylan, 2013) Organizational ambidexterity (Patel et al., 2013) Organizational innovation (Ceylan, 2013; Messersmith & Guthrie, 2010; Rasheed et al., 2017) Product market strategy: Innovation (Chang & Huang, 2005) Support for innovation climate (Liu et al., 2017) Innovation in Processes Administrative innovation (Jimenez-Jimenez & Sanz-Valle, 2008) Administrative innovation (Mavondo et al., 2005) Incremental process innovation capacity (Smith et al., 2012) Innovation capability (Chang et al., 2019) Organizational innovation (Messersmith, 2008) Process innovation (Ceylan, 2013) Process innovation (Jimenez-Jimenez & Sanz-Valle, 2007, 2008; Mavondo et al., 2005; Messersmith, 2008; Messersmith & Guthrie, 2010; Nieves et al., 2016) Process innovation performance (Smith et al., 2012) Product and process innovation (Al-Tal & Emeagwali, 2019) Radical process innovation capacity (Smith et al., 2012) Innovation in Product or Service Firm innovation (Do, 2017) Firm innovation capabilities (Donate et al., 2016) Firm innovation performance (Li et al., 2019) Firm innovativeness (Chang et al., 2013) Firm performance: Revenue from new product and service (Collins & Smith, 2006) Incremental innovation (Para-González et al., 2018) Incremental innovative capability (Wang & Chen, 2013) Incremental product innovation capacity (Smith et al., 2012) Innovation (Armstrong et al., 2010; Gahan et al., 2020; Nasution et al., 2011; Nieves & Osorio, 2017; Papa et al., 2018; Sheehan, 2014; Zhou et al., 2013) Innovation capacities (Boehm et al., 2014) Innovation conceptual index (Messersmith, 2008) Innovation index (Messersmith & Guthrie, 2010) Innovation performance (Ceylan, 2013; Chen et al., 2018; Donate & Guadamillas, 2015; Kang, 2015; Kianto et al., 2017; Olander et al., 2015; Soo et al., 2017; Soto-Acosta et al., 2017) Innovation results (Donate & Guadamillas, 2011) Innovation: Exploitative capability (Zhang et al., 2016) Innovation: Explorative capability (Zhang et al., 2016) Innovation: New services (Fu, 2015) Innovative activities (Lopez-Cabrales et al., 2009) Innovative business (Lepak et al., 2007) Innovative capability (Botelho, 2020) Knowledge exploitation practices (Donate & Guadamillas, 2011) Knowledge exploration practices (Donate & Guadamillas, 2011) New product (Im et al., 2013) New product program frequency (Stock & Zacharias, 2011) New product program newness (Stock & Zacharias, 2011) (continued on next page). ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 15 Table 2. (Continued). New product program value (Stock & Zacharias, 2011) Organizational ambidexterity (Gürlek, 2020) Organizational ambidexterity performance: Incremental product innovation (Patel et al., 2013) Organizational ambidexterity performance: Radical product innovation (Patel et al., 2013) Organizational innovation (Chen et al., 2019; Soto-Acosta et al., 2016; Zhou et al., 2019) Product innovation (Adebanjo et al., 2020; Ceylan, 2013; Jimenez-Jimenez & Sanz-Valle, 2007, 2008; Mavondo et al., 2005; Messersmith, 2008; Messersmith & Guthrie, 2010; Nieves et al., 2016; Wei et al., 2011) Product innovation performance (Smith et al., 2012; Tang et al., 2015) Radical innovation (Para-González et al., 2018) Radical innovative capability (Wang & Chen, 2013) Radical product innovation capacity (Smith et al., 2012) Total number of innovations (Collins, 2000) Workforce innovation (Liu, 2011) Table 3. Categories of mediators. Organizational Capacity Absorptive capacity (Chang et al., 2013; Soo et al., 2017) Dynamic capabilities (Gahan et al., 2020) Knowledge exchange and combination (Collins & Smith, 2006) Knowledge integration and adaptative capability (Chen et al., 2019) Knowledge management capacity (Al-Tal & Emeagwali, 2019) Knowledge management practices (Jimenez-Jimenez & Sanz-Valle, 2007) Organizational knowledge-creation capability (Collins, 2000) Social web knowledge sharing (Soto-Acosta et al., 2017) The use of e-business (Soto-Acosta et al., 2016) Organizational Capital Collective human capital resource (Do, 2017) Declarative knowledge and procedural knowledge (Nieves et al., 2016) Employees’ innovative work behaviors (Fu, 2015) Human capital (Donate et al., 2016) Intellectual capital (Al-Tal & Emeagwali, 2019; Gürlek, 2020; Kianto et al., 2017; Wang & Chen, 2013) Middle mangers’ innovative behaviors (Chen et al., 2018) Organizational Climate Climate for initiative and climate for psychological safety (Do, 2017) Employee voice (Rasheed et al., 2017) Innovation climate (Kang, 2015) Perceptions of social exchange (Boehm et al., 2014) Social climate (Collins & Smith, 2006) 2.1 Key supporting theories 2.1.1 Resource-based view and dynamic capabilities Firms are bundles of resources and routines (Pen- rose & Penrose, 2009). In the resource-based view, rms can achieve sustainable competitive advantages based on their resources that have value, rareness, imperfect imitation, and sustainability (Barney, 1991; Table 4. Categories of moderators. Macro Environment Environmental dynamism (Gahan et al., 2020) Industry growth and labor investment (Liu, 2011) Technical turbulence (Tang et al., 2015) Organizational Capacity Knowledge acquisition (Papa et al., 2018) Knowledge management exploitation practices (Donate & Guadamillas, 2015) Knowledge transfer and degree of tacit knowledge approach (Li et al., 2019) Organizational Capital Human capital (Zhou et al., 2019) Organizational Climate Organizational trust (Olander et al., 2015) Work climate (Chen et al., 2018) Organizational Culture Corporate culture (Wei et al., 2011) Organizational Strategy Firm entrepreneurship level (Nasution et al., 2011) Entrepreneur orientation (Tang et al., 2015) Employee participation, direct voice mechanism, and corporate governance participation (Zhou et al., 2019) Product market strategy (Chang & Huang, 2005) Peteraf, 1993). However, Priem and Butler (2001) ex- press two main concerns for the resource-based view: 1) the resource-based view may have tautological issues in its constructs and faces challenges of testa- bility and validity; and 2) the resource-based view does not address the demand side heterogeneity of resources. With these concerns, researchers began to adapt the dynamic capabilities view of rm activities. This view proposes that how rms react or behave depends on market dynamism. High degrees of dy- namic capabilities indicate that some rms are good at addressing market changes and tend to outperform their competitors (Eisenhardt & Martin, 2000; Teece et al., 1997). The relationships between human resource man- agement systems and rm innovation can be explored with the resource-based view and the dynamic capa- bilities view. In the static resource-based view, HRM systems can shape, develop, and inuence rm hu- man capital–an essential part of innovation–through stafng intelligent job applicants, training current em- ployees with specic skills, and rewarding certain types of performance or behaviors but not others (Do- nate et al., 2016; Lopez-Cabrales et al., 2009; Stock et al., 2014). In the dynamic capacities view, HRM systems can be used as adjusting mechanisms, which balance market dynamism and the appropriate hu- man capital conguration of the rm (Messersmith & Guthrie, 2010; Wei & Lau, 2010; Zhang et al., 2016) so that rms can maintain or increase their innovation leading to long-term survival (Ces & Marsili, 2019). 16 ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 2.1.2 Behavioral view of rms and organizational learning theory The behavioral view of rms and organizational learning theory both belong to evolutionary theory, and both reect managerial cognition and bounded rationalities of decision makers (Ocasio, 1997). The behavioral theory views rm activities as the result of rm patterns or routines. Therefore, rms tend to satisce in decisions rather than making optimal decisions. With this view, Nelson and Winter (1982) proposed that innovation can be increased by han- dling puzzles of prevailing routines or recombining existing routines. Learning theory suggests that, re- gardless of rm patterns and routines, rms need to balance explorative learning and exploitative learn- ing for long-term business survival and success. To achieve this balance, March (1991) recommended that rms maintain a slow socialization of new members and maintain moderate turnover. In the behavioral view of rms, HRM systems can be considered as organizational patterns and rou- tines, which play key roles in rm decision-making and business activities. HRM systems inuence rm innovation, because rms have historically pursued innovation through attracting, selecting and main- taining highly capable employees (Findikli et al., 2015; Javed et al., 2017; Lau, 2011). In the learning view of rms, HRM systems can enhance innovation, because top-level managers have paid attention to enhance rm human capital through HRM systems. These HRM systems can balance rms’ internal and external human capital pools in order to be innovative (Dekoulou & Trivellas, 2014; McGrath, 2001; Shipton et al., 2006). 2.1.3 Social exchange theory and motivation theory Social exchange theory explores interactions among different parties. Cropanzano and Mitchell (2005) identied six different exchange rules (reciprocity, ra- tionality, altruism, group gain, status consistency, and competition) and six types of resources that can be exchanged (love, status, information, money, services, and goods). When studying the interaction between employees and their organizations, researchers have widely applied the reciprocity principle and explored associated variables such as employee job satisfac- tion, citizenship behaviors, commitment, and engage- ment (Aryee et al., 2002; Eisenberger et al., 2019; Konovsky & Pugh, 1994; Wang et al., 2019). Motivation theory explains what people need and explores how to align employees’ interests with em- ployers’ interests. Motivation theory is rooted in the social exchange between employees and their or- ganizations, because both organizational effects and task characteristics inuence employee motivation, work orientation, and perceived person-organization t (Howard et al., 2016; Kanfer, 1990; Petri & Govern, 2012; Steers et al., 2004). In the social exchange perspective, HRM sys- tems can create innovation-supportive or innovation- friendly environments through the reciprocity be- tween an organization and its employees (Boehm et al., 2014; Collins & Smith, 2006; Liu et al., 2017). Moreover, employee engagement, commitment, and citizenship behaviors can improve rm’s administra- tive processes, reduce unnecessary costs, and achieve innovation (Bhatnagar, 2012; Soto-Acosta et al., 2016; Sung & Choi, 2018). In the motivation perspec- tive, HRM systems can inuence rm innovation both directly and indirectly. Direct inuence can be achieved through promotion, compensation and exit management (Bhatnagar, 2014; Jaw et al., 2010; Wei & Atuahene-Gima, 2009). Indirect inuence can be reached through training, communication, and per- formance appraisals (Chen & Huang, 2009; Jimenez- Jimenez & Sanz-Valle, 2005; Kaya et al., 2010). 2.1.4 Strategic human resource management In the literature of strategic human resource man- agement (SHRM), there are three major theoreti- cal perspectives: the universalistic perspective, the contingency perspective, and the conguration per- spective (Delery & Doty, 1996). The universalistic perspective implies that one best HRM system ex- ists across many different situations. The contingency perspective indicates that the best HRM systems are dependent on the context, such as rm strategies and legal environments. Therefore, the best HRM systems are actually the “best t” HRM systems. The con- gurational perspective considers HRM systems in a holistic way and explores the synergy and equinality of HRM practices or components within the HRM systems (Marler, 2012; Martin-Alcazar et al., 2005). Despite the conceptual differences of SHRM the- oretical perspectives, empirically, researchers may apply only one SHRM perspective in any one pa- per, or they may include, combine and compare these perspectives to study rm innovation in a paper. For example, Zhou et al. (2019) only applied the contin- gency perspective and examined the mechanism and contextual factors between human resource manage- ment practices and employee participation, human capital and rm innovation. Lepak et al. (2007) and Liu (2011) applied both the universalistic perspec- tive and the contingency perspective to explore how human resource management inuence rm perfor- mance and rm innovation. Delery and Doty (1996) compared three perspectives in their one study and found that different perspectives can contribute to performance differently. ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 17 2.2 Categories of rm innovation from the human resource management system view Innovation is a very broad term which includes “production or adoption, assimilation, and exploita- tion of a value-added novelty in economic and social spheres; renewal and enlargement of prod- ucts, services, and markets; development of new methods of production; and establishment of new management systems” (Crossan & Apaydin, 2010, p. 1155). Camison-Zornoza et al. (2007) suggested that researchers should study innovation as a multi- dimensional construct rather than a unidimensional construct. Applying a multidimensional view of rm inno- vation, I reviewed empirical and theoretical papers about HRM systems and different types of rm in- novation in major human resource, management, and business journals, reected insights from major meta- analysis studies of rm innovation in Table 1, and identied three categories of rm innovation: 1) in- novation in people and organization refers to the changes of collective mindsets or beliefs and reects the innovation orientation and innovation capability in Table 1; 2) innovation in processes refers to changes of organizational or production processes and repre- sents production process innovation, administrative innovation, and technical innovation in Table 1; 3) in- novation in products or services refers to updates at endpoints. Table 2 summarizes the different names of rm innovation constructs at different innovation cat- egories in HRM systems studies. The categorization is not only based on the construct names but also the construct measurements. 2.3 Empirical and theoretical mediators and moderators In general, research has found positive relation- ship between HRM systems and different types of rm innovation. However, these relationships are not consistent in the literature. Unexpected ndings motivate researchers to explore potential mediators. For instances, Do et al. (2018) found that the direct relationship between HRM systems and rm innova- tion was not signicant. Relationships were, instead, fully mediated by servant leadership and employee creativity. Boehm et al. (2014) demonstrated that HRM systems do not enhance rm innovation capac- ities directly. Collective perception of social exchange and diversity climate fully mediated the previous relationships. Unexpected relationships can also be explored by identifying moderators. For example, Wei et al. (2011) found that corporate culture and rm structure jointly moderated the relationship between HRM systems and product innovation. The relation- ship was stronger when rms had at structures and a strong developmental culture. Olander et al. (2015) found that HRM systems were positively associated with rm innovation. However, these relationships were contingent upon organizational trust. Table 3 provides a list of mediators that researchers have suggested or used to explain how HRM sys- tems inuence rm innovation. These mediators can be categorized into the following three types: organizational capacity, organizational capital, and organizational climate. Table 4 shows a list of mod- erators that researchers identied or applied to ex- plain when HRM systems inuence rm innovation. These moderators can be categorized into six cate- gories: macro-environment, organizational capacity, organizational capital, organizational climate, organi- zational culture, and organizational strategy. Most of these mediators and moderators were applied to in- novation in products or services but not to innovation in processes, or innovation in people and organi- zation. It is important to note that organizational capacity, organizational capital, and organizational climate have been used both as mediators and mod- erators in the literature. 3 Future research directions 3.1 Apply objective measurements In the eld of human resource management sys- tems and rm innovation, researchers tend to apply subjective measurements of their constructs. For in- stance, Jimenez-Jimenez and Sanz-Valle (2008) sur- veyed top executives for their subjective understand- ing of HRM systems and rm innovation. Similarly, Wei et al. (2011) surveyed HR managers for their sub- jective rating of HRM systems and surveyed CEOs or nancial directors for their subjective opinions about rm innovation performance. Soo et al. (2017) devel- oped their questionnaires of HRM systems and rm innovation based on interviews with top executives and then sent out surveys to middle- and senior- level managers. With this subjective-measurement trend, more and more researchers suggest that future research needs to apply objective measurements of HRM systems and rm innovation (Ceylan, 2013; Do, 2017; Donate & Guadamillas, 2011; Donate et al., 2016; Kang, 2015; Liu et al., 2017; Soto-Acosta et al., 2016; Tang et al., 2015). Despite the intrinsic difculties of obtaining ob- jective measures of HRM systems, researchers are making progress. For example, Fu (2015) measured HRM systems based on the data from rms’ an- nual reports. A sample item was “what proportion 18 ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 of your professional staff are administered an em- ployment test (e.g. skills tests) prior to hiring (229).” The objective measurement of rm innovation can be conducted by asking: 1) revenue from new prod- ucts and service (Armstrong et al., 2010; Collins & Smith, 2006; Liu, 2011; McGuire, 2003), 2) the num- ber of new products or services (Collins, 2000; Kang, 2015; Messersmith, 2008; Patel et al., 2013), and 3) the percentage of new product (including new goods and services) prots over total prots (Zhou et al., 2019). Future researchers should not only apply objective measures of HRM systems and rm innovation but also explore continuously different ways to measures these constructs objectively. Several potential future research questions can be: 1) Which objective proxies best represent innovation in people and organiza- tion at service industries? 2) Will the relationships between HRM systems and different types of rm innovation be different when researchers apply ob- jective proxy measures instead of subjective proxy measures? 3.2 Collect data from different people and sources in multiple times Other than recommending the objective measures of constructs, researchers suggest future 1) collecting data from informants across different levels of an or- ganization (Ceylan, 2013; Fu, 2015; Lopez-Cabrales et al., 2009; Nieves & Osorio, 2017; Olander et al., 2015; Soto-Acosta et al., 2016; Tang et al., 2015), 2) applying longitudinal study designs (Armstrong et al., 2010; Donate & Guadamillas, 2011; Donate et al., 2016; Soto- Acosta et al., 2017; Wang & Chen, 2013; Zhang & Li, 2009), and 3) collecting data from different sources (Donate et al., 2016; Soto-Acosta et al., 2017; Tang et al., 2015; Zhang et al., 2016). To meet these expectations, future researchers can consider the following approaches: First, researchers can collect subjective data from the same respon- dents at multiple times (Soo et al., 2017). Second, researchers can collect one-time subjective data from multiple informants (Ceylan, 2013; Ko & Ma, 2019; Lepak et al., 2007; Para-González et al., 2018; Wei et al., 2011). Third, researchers can combine objective measures and subjective measures for testing con- structs (Armstrong et al., 2010; Collins, 2000; Collins & Smith, 2006). Forth, researchers can obtain longitudi- nal measures of testing constructs from a third-party database (Adebanjo et al., 2020; Kang, 2015; Liu, 2011; Razouk, 2011). Despite intrinsic difculties, future researchers should strengthen their studies by con- ducting multi-level analyses with longitudinal data to investigate how time and perceptional differences inuence the relationship between HRM systems and rm innovation. This goal may be achieved by conducting post-hoc data analysis. Several poten- tial future research questions can be: 1) What are the perceptional differences between employees and managers about rm innovation and HRM systems? 2) Will the perceptual differences be bigger in service industries than in manufacturing industries? 3.3 Conduct studies across different settings Although rm innovation is widely studied in tra- ditional manufacturing, IT, and the pharmaceutical industry, more and more studies have been conducted outside these industries. For instance, Fu (2015) ex- plored mechanisms explaining how HRM systems inuence rm innovation in accounting rms. Gürlek (2020), Nasution et al. (2011), and Nieves and Osorio (2017) investigated how HRM systems inuence rm innovation in the hotel industry. Researchers tend to agree on one common future research direction: con- duct studies in different settings, such as industries (Chang et al., 2013; Donate & Guadamillas, 2011, 2015; Stock & Zacharias, 2011), countries (Adebanjo et al., 2020; Chang et al., 2019; Kang, 2015; Soto-Acosta et al., 2016), cultural environments (Botelho, 2020; Ceylan, 2013; Chen et al., 2019; Tang et al., 2015), and organiza- tional contexts (Jimenez-Jimenez & Sanz-Valle, 2005; Lopez-Cabrales et al., 2009; Para-González et al., 2018; Wei et al., 2011). Researchers tend to believe that a large sample with cross-sectional data can enhance the generalizability of study results. However, future researchers need to consider the following questions before their data collection: Why do we collect data in different con- texts? What are the contextual factors that explain or differentiate results from one to another? Overall, it is critical for future researchers to align their research interests with their data and fully explain the relation- ships among theoretical models, study design, and data collection. Another suggestion for future researchers is that they should specify the data collection plan and the characteristics of the data collected. For exam- ple, other than just mentioning that a given study includes data from manufacturing and service indus- tries, future research should describe the elds of manufacturing or services industries their data come from. This specication can help other researchers evaluate the connection of published papers to their own papers or projects. Several potential future re- search questions can be: 1) What are factors at the organizational level, industrial level, and national cul- ture level that inuence the relationships between HRM systems and rm innovation? 2) What are fac- tors that inuence how well the innovation-based ECONOMIC AND BUSINESS REVIEW 2023;25:11–23 19 HRM systems at headquarter function successfully at subsidiaries? 3.4 Explore more contextual and mechanism factors The research direction “conduct studies across dif- ferent settings” emphasizes not only the importance of generalizability of human resource management research but also the urgency to explore which and how contextual factors inuence the relationship be- tween HRM systems and rm innovation. In addition to exploring contextual factors, future researchers should pay more attention to explaining the mecha- nisms between human resource management systems and rm innovation (Collins, 2000; Liu et al., 2017; Messersmith, 2008; Patel et al., 2013; Sheehan, 2014; Zhang & Li, 2009). Based on the information in Table 3 and Table 4, organizational capacity, organizational capital, and organizational climate have been used both as me- diators and moderators in the literature. Future re- searchers may consider exploring these phenomena in the following ways: (1) clarifying the foundational theories that support mediating roles and moder- ating roles separately; (2) conducting longitudinal studies with objective and subjective measures to explore the empirical justications of moderation or mediation role of the same construct; and (3) exploring the dynamic synergy among constructs, for instance, with the moderation role of organiza- tional climate, employee human capital mediates the relationship human resource management systems and rm innovation. However, without the effect of organizational climate, employee human capital moderates the relationship between human resource management systems and rm innovation. Moreover, future researchers should investigate other inuential moderators and mediators to enhance the explanation power of their studies. 3.5 Examine human resource management and rm innovation in a holistic view The nal future research direction I identied is to examine human resource management systems and rm innovation in a holistic view. In the literature, future researchers are recommended to examine dif- ferent perspectives of human resource management systems (Armstrong et al., 2010; Collins & Smith, 2006; Soo et al., 2017) and different types of rm in- novation (Donate et al., 2016; Soto-Acosta et al., 2016; Zhou et al., 2013). In this paper, I dene the human resource man- agement system as including at least three individual human resource practices. Future researchers should consider and explain why they combine certain types of individual human practices into HRM sys- tems but do not include other individual human resource practices. In the literature, human resource management systems have various names, such as “high performance work systems” (Messersmith & Guthrie, 2010; Patel et al., 2013; Wang & Chen, 2013), “high involvement human resource management sys- tems” (Chow & Liu, 2009; Lepak et al., 2007; Wright et al., 1998), “collaborative human resource systems” (Lopez-Cabrales et al., 2009; Nieves et al., 2016; Soo et al., 2017), “commitment-based human resource sys- tems” (Ceylan, 2013; Collins & Kehoe, 2017; Collins & Smith, 2006). Future researchers should also work on strengthening the connections between the mea- surements and different types of human resource management systems. Regarding rm innovation, future researchers should not only rene measures and collect objective data but also integrate multiple perspectives of rm innovation. In this way, future researchers can examine the interrelationships between rm innovation and other rm outcomes, such as rm nancial performance and stock price. 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