ZHEJIANG GONGSHANG UNIVERSITY

School of Business Administration

Student: Orkhan Gasimov (Master)

Relationships of innovation-led HR policy, strategy, and

firm performance: A serial mediation investigation
Abstract

This paper focuses on the relationship between innovation-led strategy and innovation-led HR
policies (hereafter, management initiatives) and performance in innovation. We build on
management initiatives, servant leadership, ingenuity of employees and firm innovation to
hypothesize serial mediation mechanisms that connect management initiatives to firm
performance. I implement multilevel path analyzes using a multilevel sample of 56 service
firms. Tis research consider that individual-level servant leadership mediates the top-down
relationship between management initiatives and employee creativity, employee creativity
mediates the bottom-up relationship between individual-level servant leadership and
enterprise-level innovation, and firm-level innovation mediates the bottom-up relationship
between employee creativity and business-level market efficiency. We consider that individual-
level servant leadership mediates the top-down relationship between management initiatives
and employee creativity, employee creativity mediates the bottom-up relationship between
individual-level servant leadership and enterprise-level innovation, and firm-level innovation
mediates the bottom-up relationship between employee creativity and business-level market
efficiency. We finish by addressing theoretical and practical implications.

Keywords:
Componential theory of creativity, employee creativity, innovation strategy execution,
innovation-led HR policy, management initiatives, servant leadership theory.

Introduction
Innovation has been interpreted as "a cure-all remedy for all kinds of issues faced by firms —
including maintaining productivity, sales growth, loyal customer base and increased quality"
(Adner, 2012, p. 159). Therefore, management researchers argue that creativity has been a
significant source of competitive advantage. This is because service or product advances are
deemed necessary if a company is to survive in today's competitive market. Following the same
logic, we claim that innovation is a must for companies to develop their manufacturing and
service delivery to achieve superior performance to cope with external environment
turbulence. However, it is remarkable that innovation success is affected by various factors
such as leadership style, organizational learning, organizational structure, human capital, work
environment and the like. People are seen as one of the main components in contributing to
firm success.
The explanation behind this theory is that since innovation is "essentially about transforming
ideas into something productive, promoting ideas requires to be significant in order to channel
the employees' innovative capacity to transform ideas into innovations" These scholars further
recommend that organizations should promote innovation by creating and sustaining a
favorable atmosphere for creativity and the development of ideas. As such, we suggest that
innovation-led approach and innovation-led HR policy are essential to the human factors of
innovation management practices. Innovation strategies are required to achieve positive
innovation outcomes for organizations. For example, the inability of Nortel Networks to recover
after the 2 crisis was attributed to the lack of direction and creativity within the organization.
The adoption of HR-focused innovation policy is also a crucial component of organizational
design. For instance, such policies facilitate a culture supporting risk-taking and innovation.
Thus, Innovation-focused HR policies are necessary of organizational innovation methods are to
be achieved. That is why the priority of the innovation-led strategy and innovation-led HR policy
is on delivering added value through "soft" management practices that are diplomatic in
connecting these practices with the company's goals and its external context, thereby
contributing to firm results. Despite the demonstrated position, our literature review shows
that the two constructs were understood, with one significant exception — the research by
Oke, Walumbwa, and Myers who examined the interactions between innovation strategies and
innovation-led implementation of HR policies on firm innovation and revenue development.
Not surprisingly, in a non-Western setting like Vietnam, the difference is further exacerbated
In view of the above, this research attempts to extend this research stream and fill this gap in a
non-Western context as well. Therefore, we establish a cross-level system of innovation
strategy and HR policy implementation and performance-related results guided by innovation
to sharpen the impact of these strategies on organizational efficiency. Specifically, this study
strive to test both top-down and bottom-up relationships between (a) management initiatives
and employee creativity mediated by individual-level servant leadership (top-down
relationship), (b) individual-level servant leadership and firm-level innovation mediated by
employee creativity (bottom-up relationship), and (c) employee creativity and firm-level market
performance mediated by firm-level innovation (bottom-up relationship). Furthermore, this
study is among the first to discuss both top-down and bottom-up connections and thus bridge
micro and macro domains — probably one of the major future challenges in management
research. Thus the analysis contributes to the current awareness in this field along with non-
Western evidence of context: Vietnam. Vietnam provides such work with a especially important
context. Like other emerging economies, Vietnam has made international exchange and
investment more available to the outside world. Regardless of the strain of regional economic
cooperation and global economic integration, Vietnamese businesses have quickly transformed
people management structures from personnel management to HRM activities in order to build
their competitiveness. To do so, Vietnamese companies have embarked on a model based on
innovation, which involves following a modern management course. If properly implemented,
management initiative activities are expected to leverage employees' knowledge, skills, abilities
and ability to trigger their creativity. Also noteworthy is the growing recognition among
companies that people management is vital to modern administration practices.
It is also of interest that the literature review indicates that the majority of research on the
high-performance work system has collected data from manufacturing industries, denying the
very relevant service counterpart. Therefore, there have been numerous calls for research on
this latter. In response, recent scholars have turned their attention to the service sector. For
example, using a sample of junior enterprises in Germany, shows that knowledge exchange and
knowledge mixture mediates the relationship between HRM and efficiency for the workforce. In
this regard, A. N. Vo emphasizes that Vietnam's human resources are increasingly viewed as
having strategic and financial consequences, and competitive stresses would result in the
creation of management systems for Western HR policies and practices. Nonetheless, A. N. Vo
states that the extent to which Vietnamese companies adopt new HR practices significantly
varies and is highly dependent on the collective views of the board of directors and top
managers of each company on the importance of HRM role in terms of the company's goals and
objective. This in return, determines the company's support and investment for this role.

Vietnamese companies have established a modernization direction involving adopting global

"high-performance" practices. Nevertheless, it is notable that given the widespread adoption of
Western HR practices, Vietnamese organizations prefer to integrate these practices with
Vietnam-specific HR practices so that their HR practices will work well in the workplace.
Therefore our paper contributes in many ways to the corresponding literature. First, the paper
contributes to the literature by emphasizing the importance of elements of innovation within a
higher organizational structure to help the company achieve its goal set. For instance, if the
organization's outcome goal is innovation, it is of utmost importance to have management
practices carrying ingredients which facilitate its outcome. Therefore, this research is among
those to examine the effectiveness of an innovation-led approach and innovation-led HR policy
as an organizational strategy for individual and firm performance outcomes. Another significant
finding of the paper is that it explores the impact of HR strategy on firm success channelized by
some of the essential individual outcomes such as servant leadership and employee creativity.
Of these, servant leadership is seen as the most crucial component because leaders or
immediate subordinates are the key carriers or executing agents of such policy. Lastly, this
study contributes to the management literature by connecting HR procedures, firm approaches,
issues related to innovation, and perspectives from servant leadership and theories of
imagination to check the connection between management initiatives and success in
innovation. In doing so, we respond to the need to advance HR theories to account for
management practices – performance relationships, and bridge the theoretical perspectives
with empirical proof. Figure 1 presents our conceptual model. These contributions of the
analysis are further clarified later in the paper along with its practical implications.

Innovation-led strategy and innovation-led HR policy toward management

initiatives

Innovation is a must for many companies to succeed in the existing volatility of the market, and
therefore innovation strategies are becoming extremely essential for companies to boost their
innovation performance. In this regard, innovation-led strategy is constructed as "the degree to
which innovation is a target in a firm as demonstrated by the firm's concrete actions or
strategies for innovation." Experts suggest that implementation of an innovation strategy can
serve as a management response strategy for achieving innovative target performance, product
improvement, and/or new service introductions. As such, innovation strategies are an
important tool for companies to attain innovation growth. Nevertheless, we mention that
innovation-led strategy is only a necessary requirement but not sufficient to ensure innovation
success for companies. As such, it is asserted that this management practice needs to be
interacted or matched with other linked management practices, such as innovation-led HR
policies, so that companies can achieve their aims. Underpinned by the resource-based
perspective, Beugelsdijk argues that HR practices strategically focused on shaping employee
creativity enable companies to generate innovation and thus establish a source of competitive
advantage. This is because HR practices representing the strategic objectives and investment of
the company could be a potential facilitator to constitute the pool of special workforce to yield
the company competitive advantage. Following this logic, we believe that cognitive HR practices
are not capable of achieving this goal by an organization. Rather than designing and
implementing such HR practices, the firm wants to implement more innovative HR practices
that are guided by innovation-led HR policies. As such, innovation-led HR policy is defined as
"the extent to which a company adopts human-centered policies, such as recruitment and
selection, and reward systems that encourage innovation development. There is a proof that
employee creativity and innovation performance can be improved if businesses successfully
adopt innovative HR practices For instance, job autonomy and employee empowerment can
promote creativity and innovation, and comprehensive training is linked to increased innovative
performance. The execution of HR practices more evidently affects sales growth and firm
innovation. These empirical proofs lay a solid foundation that the innovation-led HR policy
adopted in this study is likely to be one of the main factors for organizational innovation
improvement. But, innovation-led HR policy, like an innovation-led strategy, is just a necessary
requirement but not sufficient to contribute to the firm success. We claim, therefore, that the
two constructs need to be interactively combined to complement each other, thus being a
necessary and sufficient condition for firms to achieve better innovation. Combined, they are
likely to help each other in promoting and forming a culture of firm creativity. Following this
logic, this research begins from the view of complementarity that various approaches can
complement each other to produce better results.
Youndt, Snell, Dean and Lepak further support that "the impact of HR practices on firm
performance can be further enhanced if practices complement the competitive criteria
inherent in a company's strategic position".

Mediating role of servant leadership

Literature shows that leadership and employee creativity are closely related. For instance,
Reiter-Palmon and Illies assert that creative outcomes are unlikely to be realized without some
degree of support from organizational leaders. Like all other forms of leadership, servant
leadership has its own values and is important to the management scholarship. The literature
reveals that the actions, goals, and values of the servant leaders create respect and loyalty for
the followers. Servant leadership is more focused on the perceived consistency of the creation
of followers across multiple dimensions of self.
To further demonstrate this using the theory of relational identification, we claim that followers
identify themselves in terms of their relationship with servant leaders as those leaders are
attractive in the eyes of followers. This results in meeting the social-psychological needs of the
followers because of the genuine interest of the leaders in the needs and perspectives of the
supporters. Such relational identification, in turn, fosters empathy, liking, and collaboration in
order to reach a particular aim which is also appropriate for the interest of followers. Followers
who see themselves as a reflection of the relationship between leader and follower will be
more interested in new ideas, because in such a connection there is a deep sense of
psychological security.
Based on the previous theoretical and empirical demonstrations, we focus on the theory of
servant leadership to assert that innovation-based companies that invest effectively in strongly
motivated and trained employees through management initiative practices are more likely to
achieve better productivity in innovation and business success than those that do not. This is
because effective processes and systems are only successful if the people who make them work
are productive and competent. We suggest, therefore, that leaders who can motivate and
encourage their subordinates by engaging in them and encouraging them to do their best are
the ones who play a significant role in contributing to the organization's success.
Hypothesis 1: Employees' perceptions of servant leader-ship will mediate the relationship
between the complementarity of innovation strategy execution and innovation-led HR policy
and employee creativity

Mediating role of employee creativity

To further investigate the value of servant leadership for creativity of employees and firm
innovation, we place servant leadership as a predictor of company innovation mediated by
creativity of employees. To this end, we further enhance the qualities of servant leadership
theory which are particularly important to the development of creative behaviors of
employees. Hence, we argue that "leaders gain confidence when they place their followers'
legitimate needs above self-interest." Based on this premise, we propose that by putting
employees at the center of focused circles, employees are likely to assume that leaders "will
have the tools, encouragement and support required for unpopular ideas"
Another essential aspect of servant leadership is that by improving and unleashing the creative
capacity of human resources, leaders seek to attain organizational objectives. To do so, leaders
not only create a high-quality pool of human capital with the necessary knowledge, skills, and
motivation, but also provide them with the chance and create the most suitable working
environment conducive to their creative ability to foster their job productivity.
Taken together, we suggest that employees will likely have both necessary and sufficient
conditions to innovate and perform best when the relevant components of servant leadership
are consistently come into contact and matched.

Hypothesis 2: Employee creativity mediates the relationship between employees' perceptions of

servant leadership and firm innovation.

Mediating role of firm innovation

The connection between innovation and organizational performance was founded in earlier
field work. For example, Oke revealed that the relationship between innovation-led strategy
and innovation-led HR policy interactions and the income from firms is mediated by
performance in innovation. Additionally, Hult has shown that innovation is positively linked to
business performance. Based on these empirical demonstrations and observations from the
componential creativity theory, we suggest that innovation is contingent on (a) employee skills
applicable to the area, (b) motivation to innovate, and (c) the work atmosphere.
As for the first component — the domain-relevant abilities — we can see that there is a special
relationship between HR practices and employee skills. HR practices that invest effectively in
people are likely to develop the employees ' skills, competencies, knowledge and motivation. As
regard to the second dimension-job motivation-workers need to be intrinsically motivated to
activate their skills and innovate in their work. Therefore, organization must focus on innovative
HR practices such as work organization, collaboration, and sharing of information to make work
tasks more interesting and informative, thus allowing and motivating employees to think
creatively and perform. The final part is working environment. While the first two factors are
considered a prerequisite for employee creativity, it is known that they are inadequate for staff
to achieve best and innovate without the supportive work environment. Therefore, in addition
to employees' skills and motivation, organizations are expected to build a healthy and friendly
work atmosphere for workers to be able to turn their abilities, expertise, and motivation into
their better efficiency and innovative output. These elements then shape the working
environment that affects individual employees and companies alike. We thus expand the
componential theory of creativity to explain the cycle of firm innovation, founded on the idea
that creativity is the development of fresh and innovative ideas and usually takes place at the
person level, while innovation is the implementation of these ideas and normally takes place at
the organizational level.

Hypothesis 3: Firm innovation mediates the relationship between employee creativity and firm
market performance

METHODS

We conducted a pilot survey with managers and/or HR managers of Vietnamese service

companies before progressing to a key report. The pilot's primary aim was to determine
whether management strategies were implemented widely within companies, and to what
degree they were generally applicable and unique to Vietnam. Using interview observations, we
systematically introduced management practices that were more widely applied by Vietnamese
firms. In doing so, we were able to incorporate management practices that were empirically
tested and validated in previous scholars. When all the questionnaire survey were translated
into Vietnamese and then back-translated into English, we consulted with Vietnamese
academic researchers and service company managers to determine the validity of the measures
in the Vietnamese sense in face and material. Using feedback from these participants, we made
required changes to the text of the survey items before the survey was conducted.
The present study tested the hypothesized multilevel structural models using the Vietnamese
service industry as the empirical context. The data were gathered between April and June 2014
through a questionnaire survey of companies in the major cities of Hanoi, Thanh Hoa, and Da
Nang. Using Vietnam Chamber of Commerce and Industry's list of firms, 300 organizations were
approached, and 80 agreed to participate in the survey. Every survey kit included three
different questionnaires every addressed to managers, supervisors and workers. The cover
letter attached to each questionnaire clarified the purpose of the questionnaire and guaranteed
respondents that their involvement was voluntary and they were entitled to withdraw without
repercussions at any time. We gathered the data from various sources to avoid common bias in
the process. The supervisor questionnaire was administered to the immediate supervisors, who
ensured creativity data for the employees. The employee questionnaire asked workers at the
front line to evaluate their attitudes of servant leadership. Each employee questionnaire was
marked with running numbers from 0001 to 1000 to supply that supervisor and worker
questionnaires would match each. The supervisor questionnaire had the same running
numbers, and the codes which suited the employee were preserved with the researchers. The
HR managers were given separate envelopes with prepaid postage to return completed surveys
to the address given. Of the 80 packages distributed in the survey, 61 were returned. In
particular, we got questionnaires from 117 managers and/or HR managers, 154 supervisors and
576 employees from 61 companies, representing a response rate of 87%. After deleting
unfinished questionnaires and records with unparalleled questionnaires between supervisors
and employees, we collected a final sample of 56 companies. On average, an immediate
supervisor rated at least 3 subordinates.

Measures

The questionnaires have been administered in Vietnamese since Vietnamese is the official
language of commerce and administration in Vietnam. Originally the questionnaires were
written in English, and then translated into Vietnamese to maintain accuracy and reliability. To
achieve the target, we pursued Brislin's proposed procedure. This process was conducted
specifically with the assistance of Vietnamese HR specialists who have high level of proficiency
in English. An HR specialist translated the English version into Vietnamese, and then another
specialist back-translated it into English. To provide accuracy and consistency of meaning, the
rear-translated version was compared with the original. We then compared the original and the
back-translated versions and did not see the cross cultural validity of the construction as a issue
in our study.
Results
Validity and reliability of the variables

Table 1 provides descriptive statistics on the index and result-related structures of the
management programs, and the correlations of zero order between them. We can see that
management initiatives, firm innovation, and market performance are getting reasonably high
mean scores of 4.13, 5.19, and 3.42, respectively, while servant leadership and creativity are
showing lower scores of 3.78 and 3.64. It should also be noted that correlations between
management strategies and servant leadership, creativity, innovation and market success range
from 0.05 to 0.17 suggest positive relationships between variables.
Table 1 also shows that the creativity mean score (M = 3.64) is lower than the innovation mean
score (M = 5.19). Correlations between management programs and servant leadership and
creativity (r = .11 and .10, respectively; p < .01) indicate clear and constructive associations
between those variables. Innovation also correlates strongly and favorably with business
success (r = .12; p < .01). Innovation also correlates strongly and favorably with market
performance (r = .12; p < .01). Most significantly, there is a strong and meaningful link between
management strategies and business success (r = .07; p < .01). The result is a reflection that
management initiatives are likely to be a massive potential market performance indicator.
Taken together, the descriptive knowledge indicates that (a) the variables of the analysis are
different from each other, and (b) the statistical associations between the index of
management initiatives and the concepts relevant to the outcome are significantly correlated
with each other. So we assume they are accurate and reliable for our analyses.
Discussion
The main goal of this paper was to detect the influences of the practices and firm performance
of management initiative. In improving the hypotheses, we linked innovation-led strategy
structures, innovation-led HR policy, servant leadership, employee creativity and innovation to
the theoretical perspectives of servant leadership and creativity in order to gain insight into the
connections between management initiatives and innovation performance through indirect
mechanisms. This research is among the first to analyze these relationships via cross-level route
analysis. In this field, scholars explored the link between management initiatives and firm
innovation at the company level of analysis. However, it is noteworthy that firms do not
"perform" themselves; it is the firms' employees who perform in ways that enable them to
achieve desirable performance output. Based on that logic, performance of employees
becomes an important performance metric for management research to measure the
effectiveness of work systems. By analyzing the above-mentioned relationships at both
individual and firm levels, our findings reflect that through mediators' underlying mechanisms,
management initiatives may indirectly relate to firm performance. This research thus sheds
new light on the literature concerned and provides a variety of theoretical and practical
implications.

Conclusion

The current research expands prior research by integrating both company- and employee-
related outcomes into an overall model to examine the effects of management initiatives on
servant leadership, creativity of employees and firm innovation, which in turn affects market
performance. Drawing on the philosophy of servant leadership and the componential
philosophy of imagination, we see different mediating positions. Through the mediating roles of
servant leadership and employee creativity respectively, management initiatives have an
indirect effect on both employee creativity and firm innovation. The ingenuity of employees
indirectly affects firm market success through the mediating position of business innovation.
These findings illustrate the mechanisms by which management initiative execution affects
organizational performance, and provide insights into how employee innovation can be
fostered by management initiative activities from the different social context factors

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