Enhancing organizational performance of Malaysian SMEs

Abstract

Purpose– The purpose of this paper is to examine organizational learning (OL) capability as a mediator of the relationship between human resource management (HRM) and performance of Malaysian small and medium enterprises (SMEs).Design/methodology/approach– A cross-sectional design was adopted, where data were collected from a sample of 286 manufacturing and service SMEs, utilizing a survey questionnaire. Hypotheses were tested using structural equation modeling.Findings– Results from a two-stage structural equation modeling analysis suggest that the use of human-capital enhancing HR practices strengthen SMEs’ learning capability. Furthermore, SMEs’ learning capability mediates the effect of the HR practices on firm performance.Research limitations/implications– It uses a cross-sectional design which has prevented the examination of cause and effect relationship between two constructs. It also did not include large organizations in the sample population. It also did not consider other SME contextual variables which may otherwise exert significant impact on OL capability, or moderate the relationship between the constructs under study.Practical implications– A profound understanding of HR practices’ holistic effect on performances would assist organizations to implement strategies to sustain competitive advantage. Company capabilities embedded in employee behavior are less likely to be inimitable and organizations could effectively nurture the needed employee capabilities to achieve the desired performance outcomes.Originality/value– The study advances knowledge on HRM among SMEs by proposing that decisions on selection of HR practices can be guided by the objective of developing the OL capability of the firm.