New HRM Practices, Complementarities, and the Impact on Innovation Performance

Although organisational structure has sometimes been mentioned in evolutionary economics as well as in the innovation literature as a possible determinant of innovation performance, very little systematic theoretical and empirical work exist on this issue. In this paper, we take our theoretical point of departure in recent work in organisational economics and elsewhere, on systems of human resource management practices. We put and develop the argument that just as complementarities between new HRM practices positively influence financial performance, they will also positively influence innovation performance. We examine this overall hypothesis by estimating an empirical model of innovation performance, using data from a Danish survey of 1900 business firms. Using principal components analysis we identify two HRM systems which are conducive to innovation. The first is one in which all of our nine HRM variables matter (almost) equally for the ability to innovate. The second system, which is found to be conducive to innovation is dominated by performance related pay and to some extent by firm-internal training. Of our total of nine sectors we find that the four manufacturing sectors correlate with the first system, while also firms located in ICT intensive service sectors are associated with the first system. Firms belonging to the wholesale trade sector tend to be associated with the second system.