Innovative HR practices and product quality mediated by employee outcomes: Case of SMEs of Oman

Innovative HR practices in the SME context is a relatively less understood and less researched topic. Furthermore, innovative HR practices have the potential to give SMEs a competitive edge in the market. However, the mechanism that leads innovative HR practices to favorable business and employee outcomes is less understood. In the present study, we investigated this issue using a mediation mechanism. The objective was to test the effects of innovative HR practices on a selected business outcome i.e. product quality while testing the employee outcomes as mediator. The study utilized a cross-sectional method of data collection from SMEs and data was analyzed quantitatively (n=383). The first major result indicates that innovative HR practices including recruitment and selection (β=.181, P<.05); performance appraisal (β=0.253, P<.05); and employee involvement (β=0.094, P<.05) exert a positive and significant influence on product quality. Whereas, the results for performance-based pay (β=0.056 P>.05; and learning and development (β=0.092 P>.05) turned out to be insignificant. Furthermore, we tested four employee outcomes including employee commitment, employee competency, employee congruence, and job satisfaction as mediators. The result shows that in all four proposed mediation models, only employee involvement turned out to be functioning as a mediator which shows that this is the most important variable in the innovative HR practices and product quality relationship. We concluded that employee outcomes are important and need greater attention.