High-Performance Work Systems and Firm Value: The Mediating Role of Innovation Capability

Abstract

More and more companies are turning to integrated HR business practices in order to create enduring competitive advantages. The aim of this study is to explore the link between High-Performance Work Systems (HPWS) and the value of firm and test the mediation role of innovation capability between these variables. The methodology employed was quantitative in nature, with the type of design being explanatory, cross-sectional survey. The medium and large-sized organizations (30+ employees) involved in the study were identified by purposive sampling and 275 employees and managers were selected for their responsibility for, or close knowledge of, HR practices, innovation activities and organizational performance, and a structured questionnaire was used to collect data. The proposed model was validated in a two-stage process of measuring the model and structuring the model by bootstrapping (5000 resampling) using Partial Least Squares Structural Equation Modeling (PLS-SEM) in SmartPLS 4. The findings suggest that there is a positive (and significant) relationship between HPWS and firm value, HPWS and innovation capability, and between innovation capability and firm value, while innovation capability partially mediates the relationship between HPWS and firm value. The results provide some understanding of the mechanism, innovation capability, through which high-performance HR practices would create more value for organizations, and provide a set of tips for companies that want to use their HR systems as a strategic tool that enables them to be innovative. Restrictions and guidelines for future studies are discussed.