The study is to examine the relationship between Human Resource Management (HRM),
technological innovation and firm performance among small and medium enterprises
(SMEs) in Malaysia. The mediating effect of technological innovation on the relationship
between HRM and firm performance was also measured. Data was collected by using
survey technique to 165 SMEs that participated in the study. The correlation tests in this
study indicated that all the variables are significantly related. The technological
innovation was found giving partial mediating effect which signifies the importance of
inculcating the spirit of technological innovation among SMEs (R2=.402, F=19.338, p<.01).
The test also showed that technological innovation (ß=.328, p=.000) as the strongest
predictor for firm performance and outweighed the explanatory power of the HRM
practices. The findings also provide support to resource‐based theory and human capital
theory.
